Fireside Chat w/ Cold Brew Money - Economics of F1

Meet our friends at Cold Brew Money Podcast at our latest episode of our mini series called Fireside Chat. We discuss about the economics of F1 and try and understand how money makes this sport go.

Visit us at f1fanfiction.com 

In this episode we discuss:

1. Ca$h is King!
2. Constructors and drivers
3. Budget Caps
4. Driver salaries
5. Pay Drivers
6. Cost of building a F1 car
7. Logistics of F1
8. Sponsorships
9. Prize Money distribution to teams
10. Costs of hosting a race
11. Broadcasting rights and costs

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Music:

Intro: Howling (Sting) - Gunnar Olsen Outro: Your Intro by Audionautix is licensed under a Creative Commons Attribution 4.0 license. https://creativecommons.org/licenses/by/4.0/Artist: http://audionautix.com/

**Section 1: Economics of F1**

* **Budget Caps:**
* Introduced to level the playing field and ensure financial sustainability.
* 2021 budget cap set at $175 million, excluding driver salaries and top management costs.
* Aims to reduce the gap between top and lower-tier teams.
* Engine development costs capped separately, estimated at $1.5 billion.

* **Constructors and Drivers:**
* 10 constructor teams, each with two drivers, compete in 21-23 races per season.
* Mercedes, Ferrari, and Red Bull are the top-spending teams, exceeding $450 million annually.
* Mid-pack teams like Renault and McLaren spend around $200 million.
* Driver salaries vary, with Lewis Hamilton earning $30 million and Max Verstappen earning $25 million.
* Pay drivers bring their own sponsorships to secure a seat in F1.

* **Logistics of F1:**
* Races held across the globe, requiring extensive logistics and transportation.
* Teams must transport cars, equipment, and personnel to each race location.
* Formula 1's global reach and popularity pose unique logistical challenges.

**Section 2: Revenue Streams**

* **Sponsorships:**
* Major source of revenue for teams, with companies paying millions for branding and advertising.
* Title sponsorships, such as Red Bull Racing and Mercedes-AMG Petronas, are particularly lucrative.
* Teams also secure sponsorships for individual car parts and driver uniforms.

* **Prize Money Distribution:**
* Prize money awarded to teams based on their finishing positions in the Constructors' Championship.
* Top teams earn tens of millions of dollars, while lower-tier teams receive smaller shares.
* Prize money distribution aims to ensure financial stability and competitiveness.

* **Broadcasting Rights and Costs:**
* Broadcasting rights sold to television networks and streaming platforms worldwide.
* F1's popularity drives high demand for broadcasting rights, leading to substantial revenue.
* Broadcasters pay fees to F1, which are then shared among the teams.

**Section 3: Costs of Hosting a Race**

* **Circuit Construction and Maintenance:**
* Building and maintaining race circuits is a significant expense for host cities.
* Circuits must meet strict safety and infrastructure standards set by the FIA.
* Ongoing maintenance and upgrades are necessary to keep circuits in top condition.

* **Race Organization and Security:**
* Organizing a Formula 1 race involves extensive planning, coordination, and security measures.
* Temporary infrastructure, such as grandstands and medical facilities, must be set up.
* Security personnel are deployed to ensure the safety of drivers, teams, and spectators.

* **Local Infrastructure and Transportation:**
* Host cities often invest in infrastructure improvements to support the race.
* Transportation networks are upgraded to handle the influx of visitors and media personnel.
* Local businesses benefit from the increased tourism and economic activity.

**Section 4: Controversies and Insights**

* **Pay Drivers and the Meritocracy Debate:**
* The practice of pay drivers has been controversial, with some arguing that it undermines the meritocratic principles of F1.
* Critics argue that pay drivers take opportunities away from more deserving drivers based on talent.
* Supporters maintain that pay drivers bring much-needed financial resources to struggling teams.

* **Cost-Cutting Measures and the Future of F1:**
* Concerns about the rising costs of F1 have led to discussions about cost-cutting measures.
* Budget caps and regulations aim to control spending and ensure financial sustainability.
* The future of F1 depends on finding a balance between cost control and maintaining the sport's spectacle and excitement.

**Key Points:**

1. **Ca$h is King!:**
- Money plays a pivotal role in Formula One, enabling teams to compete, innovate, and push the boundaries of engineering.

2. **Constructors and Drivers:**
- Teams, also known as constructors, invest heavily in research and development to build cutting-edge race cars.
- Drivers are the heart of the sport, risking their lives behind the wheel to achieve victory.

3. **Budget Caps:**
- To ensure financial sustainability and level the playing field, F1 has introduced budget caps, limiting teams' spending.

4. **Driver Salaries:**
- Top drivers command multi-million dollar salaries, reflecting their skill, talent, and marketability.

5. **Pay Drivers:**
- Some drivers bring financial backing to secure a seat in a team, often referred to as "pay drivers."

6. **Cost of Building a Formula One Car:**
- The cost of constructing a single F1 car can exceed $10 million, highlighting the immense financial investment required.

7. **Logistics of Formula One:**
- F1 involves a complex logistical operation, with teams transporting cars, equipment, and personnel across the globe.
- The logistics of F1 are meticulously planned to ensure the smooth running of races.

8. **Sponsorships:**
- Sponsorships are a vital source of revenue for teams, providing financial support and brand exposure.
- Shady sponsorships have been a concern in F1, with teams partnering with companies involved in controversies.

9. **Prize Money Distribution to Teams:**
- Prize money is awarded to teams based on their performance in the Constructors' Championship.
- The top teams earn a significant portion of the prize money, while smaller teams receive smaller shares.

10. **Costs of Hosting a Race:**
- Hosting a Grand Prix involves substantial expenses, including track construction, race organization, and infrastructure development.
- Hosting fees vary depending on the location and popularity of the race.

11. **Broadcasting Rights and Costs:**
- Broadcasting rights are a major source of revenue for F1, with broadcasters paying significant fees to air races.
- The cost of broadcasting F1 races can be substantial for viewers, particularly for premium channels and streaming services.

[00:00.000 -> 00:05.000] They apparently had only $700 in their bank account.
[00:05.000 -> 00:09.000] That's the level of scam that was playing out.
[00:09.000 -> 00:11.000] Wow, that's interesting.
[00:16.000 -> 00:20.000] Hello, hello, hello. These are your hosts Satyajit and Tapan and this is Cold Brew Money.
[00:20.000 -> 00:23.000] We are talking about money because your friends and family won't.
[00:23.000 -> 00:25.000] Hi Atif, how's it going?
[00:25.000 -> 00:27.000] Good, good. How are you?
[00:27.000 -> 00:30.000] Good. How does it feel completing 50 episodes talking about money and finance?
[00:30.000 -> 00:32.000] I know right, 50 episodes.
[00:32.000 -> 00:37.000] I don't think I've done anything for 50 consecutive weeks other than go to work.
[00:37.000 -> 00:42.000] You know, like this is like a project that has survived a whole year.
[00:42.000 -> 00:43.000] It's pretty interesting.
[00:43.000 -> 00:45.400] Did you learn anything about money?
[00:45.400 -> 00:53.880] Yeah, definitely. How to value big stocks? How do you create a checklist? How do you
[00:53.880 -> 01:02.280] invest in index funds? So many things. And you've been the guiding light across all of
[01:02.280 -> 01:10.000] it. Right. I think the main purpose of the podcast was to make sure
[01:11.840 -> 01:16.880] we give the tool set, the skill set that is needed to people earlier in their
[01:18.720 -> 01:27.920] just personal finance trajectory. I think that kind of from the feedback that we got that we are serving
[01:27.920 -> 01:34.240] that purpose right like a lot of young adults are listening to the to the podcast so it has been
[01:34.800 -> 01:39.520] interesting. Hey hang on wait wait wait what's what's happening here I think our show has been
[01:39.520 -> 01:47.120] I think our show has been hijacked here. Folks you are listening to F1 fan fiction. This is
[01:47.120 -> 01:52.340] one of the lounge side, fire side chats that you are having. We are your original
[01:52.340 -> 01:58.680] hosts. I am Akash and I'm Sarang and this is the episode. Oh actually not. Who am I
[01:58.680 -> 02:06.160] kidding. We've got a fun episode for you this week. It's all about the the finances of F1
[02:06.160 -> 02:12.000] and who better to have it with the finance gurus at Cold Brew Money.
[02:12.000 -> 02:15.520] Hey folks from Cold Brew Money, thank you for being on the show and having us
[02:15.520 -> 02:26.000] actually this is we are on their show so you got to check them out. And Guru, like you've set the bar really high. No pressure, right? No pressure, exactly.
[02:26.000 -> 02:28.000] Just to introduce ourselves,
[02:28.000 -> 02:30.000] Acheet and I, we
[02:30.000 -> 02:32.000] host a podcast called Cold Brew Money
[02:32.000 -> 02:34.000] and the whole tagline is
[02:34.000 -> 02:36.000] we talk about finance and money because
[02:36.000 -> 02:38.000] your friends and family won't.
[02:38.000 -> 02:40.000] We started the podcast because
[02:40.000 -> 02:42.000] we realized there is a stigma
[02:42.000 -> 02:44.000] especially in India around like talking
[02:44.000 -> 02:50.480] about finances and we as young adults when we just start earning like not a lot of
[02:50.480 -> 02:54.880] people know how to manage it and we realized that as we are learning about
[02:54.880 -> 02:59.600] it we wanted to share it talk about it so others can be part of that
[02:59.600 -> 03:02.920] conversation as well. No this is this is really awesome because I've been
[03:02.920 -> 03:06.560] following you guys and that's bang on because
[03:06.560 -> 03:13.320] growing up I've not had the level of financial exposure from my family or my friends that
[03:13.320 -> 03:19.120] I should have, which didn't happen until my like mid-20s.
[03:19.120 -> 03:23.880] And I would have loved to, you know, have some platform like this where I could get
[03:23.880 -> 03:26.080] that information at a very younger age
[03:26.080 -> 03:31.400] to be way more ahead in that trajectory as you mentioned, Atif, at this point in my life.
[03:31.400 -> 03:38.560] So yeah, Cold Brew Money for everyone listening. If you have not checked them out, which rock
[03:38.560 -> 03:43.540] are you living under, go check them out right now. It's at the rate Cold Brew Money on any
[03:43.540 -> 03:46.040] streaming platform that you get your podcast from.
[03:46.040 -> 03:51.200] And we are so happy to be here on this podcast with cold brew money.
[03:51.200 -> 03:52.680] And now let's get into the episode.
[03:52.680 -> 03:54.600] We are happy to have you as well.
[03:54.600 -> 03:57.240] So I started watching drive to survive.
[03:57.240 -> 04:02.240] As I said, I think two episodes or three episodes ago, I finished the whole series in one sitting
[04:02.240 -> 04:03.440] one weekend, I think.
[04:03.440 -> 04:05.320] And then I told Ati that we need to
[04:05.320 -> 04:08.720] get these guys, we need to discuss F1, it's so interesting.
[04:08.720 -> 04:14.800] So we decided we'll do a collab kind of a thing and F1 like overall it's very interesting
[04:14.800 -> 04:20.920] because I feel not a lot of people follow it, it's not as famous, especially when you're
[04:20.920 -> 04:24.400] like raised in India right, not a lot of people were talking about it.
[04:24.400 -> 04:26.480] We just have Karthik Nara and that's it.
[04:26.480 -> 04:29.000] That's the exposure that we had for 2F1.
[04:30.440 -> 04:32.640] I think DT has tried to survive,
[04:32.640 -> 04:34.400] was basically one of the best investments
[04:34.400 -> 04:36.560] that Liberty Media has done recently.
[04:36.560 -> 04:40.760] And I think that has helped F1 gain
[04:40.760 -> 04:43.680] such a large fan following in recent times,
[04:43.680 -> 04:44.840] especially in the US,
[04:44.840 -> 04:46.000] which is kind of the
[04:46.000 -> 04:52.240] target market at the moment. And yeah, and exactly kind of proves you started following
[04:52.240 -> 04:55.320] F1 because you saw DTS.
[04:55.320 -> 05:01.480] It worked. Yeah. My only exposure to F1 was waiting for, you know, Indian cricket match
[05:01.480 -> 05:05.880] to start, and they would show some of the F1 races.
[05:05.880 -> 05:09.720] Like Michael Schumacher is the only driver that I know. But this should be
[05:09.720 -> 05:13.640] fun. Like I am excited to learn more about. I know it's a very very popular
[05:13.640 -> 05:18.320] sport in Europe and it's it's the numbers are pretty interesting. Yeah yeah
[05:18.320 -> 05:28.160] Europe essentially is is the Mecca for the sport. And then, as you said, like for me too, growing up, Narayan was the only person I knew.
[05:28.160 -> 05:37.520] But I hope with the Bhud International Circuit and now with Drive to Survive and other things, hopefully India also picks up on the sport.
[05:37.520 -> 05:47.120] Cool, cool, cool. Let's get started with the episode, right? The first like economics of F1 and we can start with the budgets and drivers.
[05:47.120 -> 05:50.280] So you guys are the SMEs here, Akash, Sarang.
[05:50.280 -> 05:52.280] So just take it over.
[05:52.280 -> 05:59.620] Yeah, I think economics in F1 is basically what the sport is all about.
[05:59.620 -> 06:01.240] It's all about money.
[06:01.240 -> 06:07.280] As this is a very popular catchphrase that Hamilton said recently that cash is king and that
[06:07.280 -> 06:13.520] applies you know to the full extent to the sport. Cash is literally the king here because without
[06:13.520 -> 06:19.280] cash these cars wouldn't exist and you know just the amount of effort and money that they have to
[06:19.280 -> 06:28.040] pour into the sport is ridiculous. Totally and I guess like beyond just that,
[06:28.080 -> 06:30.280] the cars itself is so expensive.
[06:30.280 -> 06:34.440] There's so much that goes beyond the racing where it's hosting,
[06:34.440 -> 06:37.400] it's broadcasting, you know,
[06:37.720 -> 06:42.480] the federation itself getting involved with all the minute
[06:42.480 -> 06:43.320] aspects,
[06:44.360 -> 06:48.240] understanding how such a global sport operates.
[06:48.240 -> 06:51.240] Because usually some of these sports that we watch
[06:51.240 -> 06:53.160] that's hosted at one place and it's done,
[06:53.160 -> 06:56.520] but this sport literally moves around the world
[06:56.520 -> 06:59.200] from March when they start to December when they end.
[06:59.200 -> 07:03.080] So it's a big, big logistical and financial challenge.
[07:03.080 -> 07:04.320] Yeah.
[07:04.320 -> 07:05.720] And just to give kind of an
[07:05.720 -> 07:09.520] overview like people who don't follow so there are like 10 constructors and
[07:09.520 -> 07:17.160] correct me if I'm wrong anyway right there are 10 constructors. So 10 constructors
[07:17.160 -> 07:23.900] which means there are 10 teams each team has two drivers and then they have they
[07:23.900 -> 07:25.840] start from Australia usually, right?
[07:25.840 -> 07:30.480] And then that is in March and all the way to December.
[07:30.480 -> 07:35.840] And they go across the world and there are Grand Prix everywhere.
[07:35.840 -> 07:40.000] And I think there are 10, 21 races or they have changed that?
[07:40.000 -> 07:42.000] 21, approximately.
[07:42.000 -> 07:44.480] By and large, that is the number.
[07:44.480 -> 07:47.460] But yeah, with Cash is King nowadays
[07:47.460 -> 07:54.460] they've increased that to 23 this season and they want to pump in more races but
[07:54.460 -> 08:00.460] the drivers are really revolting and the revolt led to 23 but hopefully that
[08:00.460 -> 08:04.620] doesn't increase. Yeah and then all the races happen over the weekend Friday's
[08:04.620 -> 08:06.400] practice Saturday they compete
[08:06.400 -> 08:10.840] for the pole positions and then Sunday is the main race day.
[08:10.840 -> 08:13.240] And all of this is regulated by FIA.
[08:13.240 -> 08:17.120] I don't know what it stands for, but that's their regulatory body.
[08:17.120 -> 08:23.840] Yeah, I think that's basically the Federation Internationale des Automobiles.
[08:23.840 -> 08:25.040] Yeah, I think it's French.
[08:25.040 -> 08:26.160] So yeah.
[08:26.160 -> 08:28.200] Yeah, that's a very high level overview.
[08:28.200 -> 08:30.800] If you guys are interested, listen to F1 Fan Fiction
[08:30.800 -> 08:32.080] where they go into the details
[08:32.080 -> 08:34.920] or else like even you can watch Drive to Survive.
[08:35.920 -> 08:38.000] Cool, let's start with constructors and drivers.
[08:38.000 -> 08:40.120] And the first topic that we wanted to touch upon
[08:40.120 -> 08:41.240] is budget caps, right?
[08:41.240 -> 08:44.080] So is it like similar to the football
[08:44.080 -> 08:45.280] where like every team has
[08:45.280 -> 08:49.440] certain cap, they can't go over it and things like that. So like, can you just delve into
[08:49.440 -> 08:50.440] details?
[08:50.440 -> 08:56.880] Sure, that's, that's what's gonna happen. But right now, it's it's not a level playing
[08:56.880 -> 09:05.700] field per se. So to give you give you an estimate, like for example, 2019, Mercedes ended up spending more than north of
[09:05.700 -> 09:11.340] 450 million dollars. And on the contrary, the bottom table team which was
[09:11.340 -> 09:15.420] Williams ended up spending like 132 million dollars which was still less
[09:15.420 -> 09:20.180] than their previous year which was like 150 million dollars. So there is a big
[09:20.180 -> 09:28.920] difference between the people who keep doing good and you know keep getting price money and more sponsorship versus teams that are at the
[09:28.920 -> 09:33.320] bottom of their table and just can't compete and keep up with the bigger teams.
[09:34.640 -> 09:34.840] Yeah.
[09:34.840 -> 09:39.040] And there's a huge rift between the top teams and like the mid pack and the
[09:39.040 -> 09:40.520] bottom pack. Because like,
[09:40.520 -> 09:43.840] if you take a look at the amount of money spent by each team, like, you know,
[09:43.840 -> 09:45.840] Mercedes, Ferrari, and Red Bull,
[09:45.840 -> 09:50.720] all of them spend nearly $450 million.
[09:50.720 -> 09:58.760] And the teams after that, you can see a mid pack there with Renault, McLaren, are in the range of 200s.
[09:58.760 -> 10:01.120] And then from there, it keeps going down.
[10:01.120 -> 10:09.760] So when a team's budget is more than double than the other team, like there's absolutely no way the team spending lesser can compete with
[10:09.760 -> 10:10.760] you know.
[10:10.760 -> 10:17.000] Yeah, and in F1, like essentially if you're spending more, it directly means that your
[10:17.000 -> 10:23.160] car will be better, right? Or there is a regulation on, okay, Meta is nodding, so I'm guessing
[10:23.160 -> 10:24.160] it's true.
[10:24.160 -> 10:26.880] No, you're absolutely right. I'm totally
[10:26.880 -> 10:31.840] agreeing with you because what's happened is you have more money, go buy more engineers, go buy
[10:31.840 -> 10:38.880] more engineering resources and do whatever you want. At that point, you may just break a car and
[10:38.880 -> 10:46.160] make a new car every weekend. I mean not possible but that's the idea right so crashing for someone
[10:46.160 -> 10:49.760] like Williams like if their driver was to crash in free practice that's gonna
[10:49.760 -> 10:54.840] hurt them so much versus if Lewis Hamilton was to crash Toto would be like
[10:54.840 -> 11:05.500] sure what's the part we're gonna build it was Bottas's fault right? Oh yeah. You're right. You're right.
[11:08.500 -> 11:11.500] Yes, I have been following a lot of memes.
[11:12.500 -> 11:14.500] Okay.
[11:20.500 -> 11:28.940] Now I wanted to say, it's still beyond this topic where what's gonna happen going ahead, which is gonna be this year. But because of COVID that got pushed to next year which is that there's going to be a cap on every team's spending and this only
[11:28.940 -> 11:35.240] includes like the engineering effort and the car itself.
[11:35.240 -> 11:42.460] The driver's salary, the top three or five management salaries and some of the
[11:42.460 -> 11:46.700] other minute stuff don't get counted in this.
[11:46.700 -> 11:51.440] So that's outside of the 175 million if I remember the figure right.
[11:51.440 -> 11:56.920] But now there's going to be a cap going ahead, which is in conversation that's going to keep
[11:56.920 -> 12:00.920] decreasing by a few numbers over the next few years.
[12:00.920 -> 12:05.520] But I think that's interesting in the sense that that gives all teams a
[12:05.520 -> 12:12.280] level playing field. So what is a tighter race this season can totally be, you know,
[12:12.280 -> 12:18.920] way, way, way more tighter where it could be anyone's game at that point. Yeah, and
[12:18.920 -> 12:23.200] one point to add to that is like the budget caps primarily were introduced
[12:23.200 -> 12:25.280] because of given the
[12:25.280 -> 12:29.480] current conditions because of COVID-19 like most of these companies were facing
[12:29.480 -> 12:35.240] you know large financial crisis and it was it was a choice between whether
[12:35.240 -> 12:39.760] constructors start dropping out versus they want to continue you know having
[12:39.760 -> 12:44.600] this series going on so because top teams were the most to lose at this
[12:44.600 -> 12:46.160] because when they
[12:46.160 -> 12:51.320] are spending north of $450 million, it's not just easy to cut your budget down to less
[12:51.320 -> 12:58.720] than half, because it directly translates to pretty much cutting people off from their
[12:58.720 -> 13:12.080] jobs and that's not always ideal. And not just that, I think even the kind of investments that these big companies put in, it's not easy to scale back that much. Yeah, that's insane. Like from
[13:12.080 -> 13:17.280] Mercedes spent what? 484 million and dropping down to 175. I don't know how they'll do that.
[13:19.520 -> 13:25.200] I think it definitely favors like the lower tier teams more than the higher ones.
[13:25.200 -> 13:27.400] They will have to get creative somehow.
[13:27.400 -> 13:35.120] Yeah, one more thing actually, one exemption is there for these larger teams is that since
[13:35.120 -> 13:43.400] most of these larger teams like Ferrari, Mercedes also develop their own engine and also provide
[13:43.400 -> 13:45.480] it to other manufacturers as well because
[13:45.480 -> 13:51.600] they are given a little exemption in terms of engine development so the cap
[13:51.600 -> 13:58.120] that Akash mentioned earlier is mainly for what they call as car performance
[13:58.120 -> 14:03.360] costs and that involves like aerodynamics and everything else like
[14:03.360 -> 14:05.960] brakes and everything but the engine
[14:05.960 -> 14:10.120] doesn't count towards the cap. It has a different cap from what I know.
[14:10.120 -> 14:16.840] Okay so the cost of engine will be separate from the overall budget set. Okay that makes
[14:16.840 -> 14:17.840] sense.
[14:17.840 -> 14:27.200] Yeah because by current estimates from what I have, the cost of developing an F1 engine from scratch,
[14:27.200 -> 14:33.440] if a new manufacturer decides to do that, is close to 1.5 billion dollars. And that's
[14:35.440 -> 14:38.400] too large an investment that they just cannot cap it.
[14:39.680 -> 14:45.280] In terms of engine, there is Mercedes and then Honda which is for Alfa Doria and Red Bull.
[14:45.280 -> 14:49.600] Then you have the Renault, that's it right?
[14:49.600 -> 14:50.600] And then Ferrari makes it.
[14:50.600 -> 14:51.600] Oh yeah, yeah, yeah, Ferrari.
[14:51.600 -> 14:56.680] And Haas and all that, they have their own engines or?
[14:56.680 -> 15:02.140] No, they, so those are backmarkers as people have been calling them for ages.
[15:02.140 -> 15:05.520] And usually most and all of these backmarkers take
[15:10.720 -> 15:15.920] secondary engines from the higher tier suppliers and that's why they also get sort of called as B teams for the higher team. So Haas is technically a B team for Ferrari because it uses
[15:15.920 -> 15:21.840] a Ferrari engine and so on and so forth. Gotterd. Oh cool. So it's very much like
[15:22.560 -> 15:32.320] the airplane industry also right like all mostly Like all the older airplanes are aircrafts are used by developing countries.
[15:32.320 -> 15:32.820] Yep.
[15:32.820 -> 15:33.320] Okay.
[15:34.040 -> 15:43.600] And I think in terms of how economics works for these companies is that like not all teams even want to develop everything, right?
[15:43.600 -> 15:46.560] Like they come in as privateer teams where they basically
[15:47.080 -> 15:50.620] Like Haas is a perfect example for that because they pretty much
[15:51.480 -> 15:55.460] Buy all the parts that they can buy which is allowed in F1
[15:56.920 -> 16:03.680] So that they don't have to you know, spend any almost anything into R&D and just buy the parts from
[16:04.160 -> 16:06.880] And most most of the parts that they buy are from Ferrari,
[16:06.880 -> 16:08.880] which has proven that they have a good car,
[16:08.880 -> 16:10.120] except for last year.
[16:10.120 -> 16:15.120] But, yeah, that saves them a lot of money
[16:15.680 -> 16:18.480] and I think is a very good model for new teams
[16:18.480 -> 16:19.880] which are planning to join.
[16:21.160 -> 16:22.000] Yeah, absolutely.
[16:22.000 -> 16:24.860] I think they don't have to start from scratch,
[16:24.860 -> 16:25.780] like not reinventing
[16:25.780 -> 16:30.900] the wheel and focusing on the things that matter, which I think are the drivers. Where
[16:30.900 -> 16:37.300] is the most money spent from that budget from that cap? Is it on the drivers or the R&D
[16:37.300 -> 16:38.300] team?
[16:38.300 -> 16:44.000] I want to say it has to be the car because at the end of the day, it's become a computer
[16:44.000 -> 16:45.120] at this point, right? The number of just the number of the day it's become a computer at this point right
[16:45.120 -> 16:50.840] the number of just the number of buttons that go on the steering wheel is insane
[16:50.840 -> 16:56.040] like it's so mind-blowing that these drivers can understand them know where
[16:56.040 -> 17:01.120] switch and then even change them at the speeds that they go but aerodynamics and
[17:01.120 -> 17:08.320] the the engineering that goes behind these machines is definitely where they're spending the big bucks.
[17:09.040 -> 17:22.080] Salaries, I'm glad that it's not capped. Otherwise, I guess like Mercedes and folks like the Ferrari and stuff are just gonna be broken with the amount of money.
[17:24.560 -> 17:34.800] broken with the amount of money these high drivers take. I think Lewis is taking 30 million this year, which if we go by the news, he took a pay cut because he was expecting 50 million.
[17:34.800 -> 17:44.320] Wow, that's 50 million. That's like equal. I think Ronaldo, like all the top tier footballers earn that much, right?
[17:44.320 -> 17:46.000] I think that's more than what they earn.
[17:46.000 -> 17:49.200] It is almost one-third William's budget.
[17:49.200 -> 18:02.440] I think right after Hamilton comes Max with a $25 million salary.
[18:02.440 -> 18:07.360] And I think that's basically Red Bull saying that he is the
[18:07.360 -> 18:14.480] star of the team. So if you take a look at the salaries of all of these drivers, all of the top
[18:14.480 -> 18:19.840] drivers always get a very big paycheck and then if you see there's a very large drift and then
[18:19.840 -> 18:27.000] suddenly all newer drivers and smaller teams are paying like 1 million and like Williams
[18:27.000 -> 18:30.120] is paying a million per driver.
[18:30.120 -> 18:34.440] You can see like teams like it starts ramping up that I think Sergio Perez gets about 8
[18:34.440 -> 18:41.880] million and Bottas gets around 10 million and Ricardo gets 15, Alonso got 20 and so
[18:41.880 -> 18:42.880] on.
[18:42.880 -> 18:53.280] Alonso at 20 million that's a lot I feel anyway who am I to judge.
[18:53.280 -> 18:58.520] That's interesting and then for F1 like and it was covered in the drive to survive series
[18:58.520 -> 19:07.640] as well buying into the teams right like drivers and representing the countries and they basically
[19:07.640 -> 19:15.520] use the money that comes with those drivers to be part to get a seat in the F1 because
[19:15.520 -> 19:20.120] as we said initially, there are just 20 drivers in total. So that's also a big deal. Do you
[19:20.120 -> 19:26.160] guys want to like touch on it like what happened with that buying seats as a has been a part of
[19:26.160 -> 19:32.320] f1 since the start of f1 i would say uh like right back if i don't know if you guys have seen rush
[19:32.320 -> 19:39.360] the movie rush where uh which was about the rivalry between nikki lauda and james hunt and
[19:40.000 -> 19:45.200] nikki lauda who when he like basically joined the, he wasn't getting a seat solely on merit.
[19:45.200 -> 19:52.080] So he basically got out alone and bought his own seat. And, and yeah, I mean, it's a part of the
[19:52.080 -> 19:58.080] sport. It's not looked down upon at all in the sport, because people do recognize how much money
[19:58.080 -> 20:02.720] is required, you know, when you need 480 million dollars to develop a championship winning team,
[20:03.760 -> 20:07.080] $80 million to develop a championship winning team, you will take any amount of money that comes by.
[20:07.080 -> 20:11.960] So pay drivers have been an integral part of the sport.
[20:11.960 -> 20:13.600] Currently, I think there are two pay drivers,
[20:13.600 -> 20:16.280] three pay drivers actually on the grid.
[20:16.280 -> 20:20.600] One is Lance Stroll, who's father,
[20:20.600 -> 20:23.160] Laurence Stroll, who is a Canadian billionaire.
[20:23.160 -> 20:30.720] And he basically bought the formerly known as Force India which became Racing Point and now is under the
[20:30.720 -> 20:34.920] Ashton Martin brand and similarly we have two other drivers one is Nicholas
[20:34.920 -> 20:41.200] Latifi who who bought a seat into Williams and the last is the very famous
[20:41.200 -> 20:46.840] Mazepin who basically has bought into Haas. And the whole
[20:46.840 -> 20:52.040] discussion this year of buying into F1 I think and from based on what I've
[20:52.040 -> 20:56.640] heard is because of Mazepin right because he is not there are better
[20:56.640 -> 21:10.960] drivers who didn't get a seat and he was able to just buy into it because of his Russian knowledge father. Yeah, yeah, totally. It is actually that because I, let me put it this way.
[21:10.960 -> 21:15.280] I wouldn't be surprised if his teammate Mik Shimakar at one point laps him.
[21:15.280 -> 21:17.400] That's how he's driving.
[21:17.400 -> 21:20.520] But, yeah.
[21:20.520 -> 21:23.120] I mean, he was ahead of Hamilton in the last race.
[21:23.120 -> 21:26.480] Fair point. Credit to him for that.
[21:26.480 -> 21:26.980] Fair point.
[21:26.980 -> 21:36.320] But buying in is on a new entrant. That's also very much possible.
[21:36.320 -> 21:48.480] Like if one of the teams was like Williams was in a very bad position and there were news that you know, hey, for some years, probably they're gonna step back and get out of F1 to recoup and see how they can enter in again.
[21:49.320 -> 21:53.400] And there have been teams in the past two which have entered and left F1.
[21:53.920 -> 22:02.760] But for a new entrant to come into the sport, it's I think like roughly around $200 million, which eventually gets you into the sport.
[22:03.320 -> 22:05.320] So anyone can come in at that point.
[22:05.320 -> 22:13.480] And one quick point there is that the 200 million dollars that you mentioned is just the money that you give to FIA and you don't get that back ever.
[22:13.480 -> 22:21.120] That's just like a registration fee. And that's mainly to protect the earnings of the rest of the teams because if a new team joins,
[22:21.120 -> 22:25.120] that's basically going to, you know, make the pot smaller for everyone.
[22:25.120 -> 22:28.280] So that's more like a fee that you pay to play.
[22:29.240 -> 22:30.600] And just out of curiosity,
[22:30.600 -> 22:35.040] so if like Atif wanted to drive and he just paid 200 million tomorrow,
[22:35.040 -> 22:38.560] will he be able to drive or are there other requirements that the drivers need to?
[22:38.560 -> 22:40.520] Only if he's a Russian oligarch.
[22:44.560 -> 22:51.080] But in some sense, yes. So because you bring that up, I want to
[22:51.080 -> 22:56.400] talk about Yuki Tsunoda, who's a new driver in this year's formation. And
[22:56.400 -> 23:02.640] it's highly debated, not debated but it's a fact that he's gotten Honda in
[23:02.640 -> 23:06.320] some sense backing him and that's why he's sort
[23:06.320 -> 23:11.560] of gone up the ranks. I mean given he's a very good driver so no nothing against
[23:11.560 -> 23:16.640] him but the Honda backing that he's had has played a very big role in him
[23:16.640 -> 23:21.680] jumping up the ranks and then moving from F2 to F1 this year. And similar goes
[23:21.680 -> 23:31.200] with like many other people too like you mentioned Perez. Perez was with Racing Point last year and he has this Mexican sponsor, Telcel, if I'm not wrong.
[23:31.200 -> 23:38.240] And now that he's with Red Bull, the sponsor comes with him. So now Telcel sponsors Perez's car in
[23:38.240 -> 23:45.720] Red Bull. So some of these drivers bring their own sponsors, which gives them that edge into the sport and
[23:45.720 -> 23:52.960] then they get the money to so. As Hamilton said recently it's a billionaire's club.
[23:52.960 -> 23:57.480] So essentially if there are teams that are struggling like low tier teams and
[23:57.480 -> 24:02.560] if they get these drivers then they are able to get those that get that money as
[24:02.560 -> 24:05.480] well essentially. In some sense yes and
[24:05.480 -> 24:09.000] that's essentially what's happening with Haas at this point because
[24:09.000 -> 24:14.280] the money that they've got with a German backing sponsor and they wanted a
[24:14.280 -> 24:19.040] German driver which is probably why Mieczysiemek is also there and the money
[24:19.040 -> 24:26.000] that Russia got that's given Haas the money to build the car and they're not going to use it for
[24:26.000 -> 24:29.920] this year but then they're going to use it for the next season so yes totally
[24:29.920 -> 24:36.560] got it okay so you talked about building a car so let's let's get there like the
[24:36.560 -> 24:39.960] cost and we discussed this as part of like budget caps like building a car
[24:39.960 -> 24:45.520] it's the biggest budget that biggest chunk of your budget that goes into this?
[24:45.640 -> 24:48.640] So like, what are the parts and how much does it cost?
[24:48.640 -> 24:52.880] And also like the repairs and all that do, and this is like really out of
[24:52.880 -> 24:57.360] curiosity, do they have a bunch of cars that are just lined up and they, like,
[24:57.440 -> 24:58.800] if something breaks, no, right.
[24:58.800 -> 24:59.300] Okay.
[25:00.200 -> 25:01.600] They have literally two cars.
[25:01.640 -> 25:02.140] That's it.
[25:02.140 -> 25:03.400] Which is see on the field.
[25:03.640 -> 25:05.360] That's literally the two cars that they have.
[25:06.400 -> 25:11.600] Like they do have some spare chassis lying around, but not the whole built cars.
[25:12.640 -> 25:16.000] Because yeah, like creating the chassis itself, you know, takes a lot of time.
[25:16.000 -> 25:16.880] So yeah.
[25:16.880 -> 25:20.560] And that too, again, you know, actually that depends on what team you're talking about.
[25:20.560 -> 25:25.160] Because there was this time last year I remember for Haas
[25:25.160 -> 25:34.340] where I think man I keep forgetting his name Kevin Magnuson yes that's how short
[25:34.340 -> 25:49.600] limited you know once you're out of web fun people just forget you anyway so Kevin Magnuson he was complaining last year about you know having a poor chassis he felt that there's some crack in the chassis or something and actually Haas was not able to change the
[25:49.600 -> 25:53.720] chassis because they didn't have one and they didn't have the means to
[25:53.720 -> 25:58.360] create the chassis as fast as they could. So they had to use the old chassis
[25:58.360 -> 26:07.200] till they had a new one. So yeah it just goes to show that, you know, it's super expensive to develop these things in a fun.
[26:08.320 -> 26:13.880] Yeah, and the biggest cost as we touched earlier too is the engine.
[26:16.040 -> 26:22.700] That combined with like the gearbox and that entire piece that sits behind you,
[26:22.800 -> 26:25.480] that's where the entire power is.
[26:25.480 -> 26:27.880] I think the biggest second after that
[26:27.880 -> 26:29.720] would probably be aerodynamics
[26:29.720 -> 26:34.060] because that is what's gonna get you through those speeds
[26:34.060 -> 26:38.080] and give you edge over the other people.
[26:38.080 -> 26:40.800] The engineers backing those designs,
[26:40.800 -> 26:42.920] I think those are paid definitely high bucks
[26:42.920 -> 26:46.000] because there's this thing going
[26:46.000 -> 26:53.040] on in debates right now between Red Bull and other teams of wind bending. So, you know,
[26:53.040 -> 26:58.840] for folks listening, after you're done with this, go and check out what rear wing bending
[26:58.840 -> 27:05.240] is. But just that slight bend that the engineers were able to get for these teams has given
[27:05.240 -> 27:08.960] Red Bull such a big edge this season.
[27:08.960 -> 27:15.220] But talking about the whole breakdown, right, like if you have like a $150 million budget,
[27:15.220 -> 27:19.960] most of it is research and development, the production of the car and the operations.
[27:19.960 -> 27:25.000] It's roughly, I would say, two thirds of that entire money is there.
[27:27.000 -> 27:34.000] Yeah, and you might not be able to imagine the costs of developing these parts.
[27:34.000 -> 27:37.000] And I'm not even talking about the R&D over here.
[27:37.000 -> 27:40.000] I'm just talking about actually manufacturing these parts.
[27:40.000 -> 27:45.120] So, just manufacturing the engine unit takes around $10 million for these teams.
[27:45.120 -> 27:48.080] So that is a huge part of the cost.
[27:48.080 -> 27:50.440] And this is just the manufacturing part of things.
[27:50.440 -> 27:59.000] And things like the chassis, which is basically a carbon fiber monocoque, that costs around $7 million.
[27:59.000 -> 28:03.840] Again, most of this is completely handcrafted.
[28:03.840 -> 28:07.000] And you don't have an assembly line or anything for this.
[28:07.000 -> 28:16.000] Because I mean it's literally that those few 20-30 engineers which are there working only know how to actually create this car at all.
[28:16.000 -> 28:28.240] So it's not like that they can have an assembly line there. For the engine, is it created every year or because I thought always that once the engine
[28:28.240 -> 28:33.120] is created you have that engine done right? Like or do they do research every year on it and try
[28:33.120 -> 28:38.080] to improve it year after year or they do? By and large it stays the same because the specs
[28:38.080 -> 28:47.680] are provided by FIA as part of regulations but this port is at least in my knowledge one of the
[28:47.680 -> 28:52.520] biggest one where they try to find loopholes even anywhere they can and
[28:52.520 -> 28:57.480] they'll try to bend those regulations as much as possible to give them you know
[28:57.480 -> 29:09.560] the minutest advantage even on the engines. Yeah I, most of the engine kind of remains the same. But, but they keep bringing in upgrades
[29:09.560 -> 29:16.580] always because, you know, as Akash said, like, even gaining like a 10th in the lap time gives
[29:16.580 -> 29:25.000] a huge advantage to the teams. And so like, for example, you know, when Ferrari was caught cheating some time ago,
[29:27.000 -> 29:32.000] like basically they were taking the sensors
[29:33.520 -> 29:36.320] that FI was using for measuring the fuel injection
[29:36.320 -> 29:37.920] into the engine.
[29:37.920 -> 29:41.040] And what they were doing is basically when,
[29:41.040 -> 29:45.000] so the sensor kind of samples the rate of flow of fuel. And what they would do is the gap in which the sensor kind of samples the rate of flow of fuel
[29:45.340 -> 29:47.620] and what they would do is the gap
[29:47.620 -> 29:49.660] in which the sensor is not measuring,
[29:49.660 -> 29:52.100] they would increase the fuel flow
[29:52.100 -> 29:55.000] so that they can push in more fuel to the engine.
[29:55.000 -> 29:57.700] So for example, when they were caught,
[29:57.700 -> 29:59.260] they had to obviously remove this out
[29:59.260 -> 30:01.620] and then they lost a lot of performance
[30:01.620 -> 30:03.940] and then they have been slowly building up their engine again
[30:03.940 -> 30:05.240] to reach the same
[30:05.560 -> 30:13.200] You know same power as before. So yeah, they have to keep developing these because once they stop doing that they're going to lose that edge
[30:14.960 -> 30:16.960] Interesting story there so
[30:17.240 -> 30:22.280] Ferrari is is publicly traded under under the ticker RAC
[30:22.720 -> 30:23.920] race
[30:23.920 -> 30:29.280] And and last year when when this all of this fiasco came out, their stock was just way down.
[30:29.280 -> 30:37.040] It's slowly building up. I think it stays directly proportional to how good the team is doing in F1.
[30:37.040 -> 30:44.640] But yeah, they took a big hit in 2019 when the teams were not doing that good.
[30:44.640 -> 30:49.000] Do you invest in Ferrari? Do you have investments now?
[30:49.000 -> 31:00.400] I did think because I think even McLaren, I forget their ticker. But even McLaren is publicly traded races in US.
[31:00.400 -> 31:07.200] So, that's still easier for me. But Ferrari other than F1 it's I don't
[31:07.200 -> 31:13.360] think it's doing that well as a company yeah I mean if it keeps winning in F1 I
[31:13.360 -> 31:21.400] might just sort of love for the sport do it. So that was the car do we want to
[31:21.400 -> 31:29.240] touch upon anything like on building the car that we've missed anything else that you wanted to talk about the just a passing
[31:29.240 -> 31:33.780] statement there like we spoke about engine but even even the minute parts
[31:33.780 -> 31:39.960] like a front nose or a rear wing is is you know as north as two million dollars
[31:39.960 -> 31:47.760] so Baku 21 where you know Max Verstappen crashed, he definitely broke his front and rear,
[31:47.760 -> 31:51.920] and the axle and the stuff that got lost
[31:51.920 -> 31:54.340] in collateral damage as part of that crash.
[31:54.340 -> 31:58.640] That has definitely gonna set the team back
[31:58.640 -> 32:03.400] like 10 million dollars, just the outer parts,
[32:03.400 -> 32:04.720] not even counting the inner parts.
[32:04.720 -> 32:09.120] So, each crash is just too expensive.
[32:09.440 -> 32:13.320] Even if it's like something where Charles Leclerc was on the pole,
[32:13.600 -> 32:16.040] but he went, he was in a crash at that point.
[32:16.040 -> 32:20.920] I'm pretty sure besides the mechanics in the garage and the person
[32:20.920 -> 32:24.080] handling the budget, everyone else was probably happy with Charles being there.
[32:24.080 -> 32:26.720] But those guys were the saddest people because they knew what's
[32:26.720 -> 32:32.000] gonna happen because of that. But for the Bakugra shouldn't like the Perelli
[32:32.000 -> 32:37.760] the tyre company should be paying for it. I hope they do because they are actually
[32:37.760 -> 32:42.320] they won't because what they are saying is this there was debris on the track so
[32:42.320 -> 32:50.020] that's what they claim let's see where that goes. I was going through the list that we have like we have a document
[32:50.020 -> 32:56.340] so set of tires 2700 is don't they sponsor the tires or the
[32:56.340 -> 32:59.380] constructors still have to pay for those tires. Yeah they have to pay for it.
[32:59.380 -> 33:11.320] Oh man and they eat those tires pretty much Like I think in a weekend they have a number of set pairs of tires that they can use.
[33:11.320 -> 33:17.520] I guess it's somewhere around 20 sets or something like that 20 to 25 set.
[33:17.520 -> 33:18.520] Cool.
[33:18.520 -> 33:19.520] Cool.
[33:19.520 -> 33:23.680] Then let's move to the next piece that you wanted to discuss logistics of F1.
[33:23.680 -> 33:25.440] What is the cost? And we
[33:25.440 -> 33:30.520] touched upon this again in the beginning, F1 moves across the world throughout the year.
[33:30.520 -> 33:37.100] So every weekend they are in a new country, new city, a lot of the races happen in European
[33:37.100 -> 33:42.200] countries, but then a lot of races are outside of that as well. So there is a huge cost of
[33:42.200 -> 33:47.640] logistics. And just to add to that, like I saw one video by Vindover Productions on the
[33:47.680 -> 33:53.640] logistics of F1, like that, that's what also got me interested because it's a lot,
[33:53.760 -> 33:58.360] it's a lot like moving all those cars, your entire team, and then building those
[33:58.560 -> 34:03.520] paddocks like Red Bull building that huge three-floored paddocks, that's a lot.
[34:04.440 -> 34:04.680] Yeah.
[34:04.680 -> 34:08.340] Logistically, I think it's, it's just too much that goes on.
[34:08.340 -> 34:15.900] To the fact that when the celebrations are actually going on and everyone's pouring champagne over each other,
[34:15.900 -> 34:25.240] there is a huge team behind which is definitely almost wrapped up and they're planning to go to the next location. As
[34:25.240 -> 34:30.760] far as I know I think like DHL has been their biggest partner in this
[34:30.760 -> 34:35.800] whole freight part and you touched upon Wendover's video so it's on point.
[34:35.800 -> 34:40.040] Their easier part is definitely Europe where they can just move things around
[34:40.040 -> 34:45.880] in buses but the freight part is also how you know they move between
[34:45.880 -> 34:52.240] continents. It's said that it's that the whole cost is roughly you know
[34:52.240 -> 34:59.320] upwards of 8 million but beyond just the money I think the logistics of the whole
[34:59.320 -> 35:05.000] thing is is just too crazy because they need to again, you know,
[35:05.040 -> 35:08.960] preserve these parts because if the front wing gets damaged,
[35:08.960 -> 35:12.640] that's 82 million, sorry, 10 million at that point.
[35:12.640 -> 35:15.160] Logistically, you know, it's just a nightmare.
[35:15.160 -> 35:19.800] I can't believe how these guys actually
[35:19.800 -> 35:23.360] plan this entire thing because these teams
[35:23.360 -> 35:27.020] have a lot of times just one of those parts.
[35:27.020 -> 35:28.300] And it's not like, you know,
[35:28.300 -> 35:31.860] if your Amazon packets get stolen, you can just reorder it.
[35:32.960 -> 35:34.540] That cannot be replaced.
[35:34.540 -> 35:36.220] And a lot of times what happens is like,
[35:36.220 -> 35:38.380] these factories are located,
[35:38.380 -> 35:40.940] most of these factories are located in UK.
[35:40.940 -> 35:44.520] And like, if something breaks and they need a new part,
[35:44.520 -> 35:45.840] they have to actually ship it from the
[35:45.840 -> 35:52.320] factory itself and yeah it's not always easy to do that when you have a race somewhere on the other
[35:52.320 -> 35:57.360] side of the world. If there are back-to-back races like back-to-back weekends and they're racing in
[35:57.360 -> 36:07.560] five days I have to ship all of those things again that that sounds crazy. And I guess there's a you know basically this this whole
[36:07.560 -> 36:12.480] crew that they have which entirely works only on logistics each team has that
[36:12.480 -> 36:17.920] probably like smaller teams like have people playing dual roles but yeah at
[36:17.920 -> 36:22.620] least these larger teams like Mercedes and Ferrari have this entire crew which
[36:22.620 -> 36:26.240] is completely focused on you know as soon as the race finishes,
[36:26.600 -> 36:32.320] literally, as the podium is going on, they're packing and, you know, ready to go to the next one. And,
[36:32.720 -> 36:34.720] like, especially if you think about it,
[36:35.280 -> 36:39.680] this season, like, we're gonna have some triple headers, which is just going to be insane because
[36:40.600 -> 36:46.000] Sunday, when the race gets over, you are packing and you are ready to go to the next location.
[36:46.000 -> 36:51.500] And again Thursday you have to be there because free practice starts.
[36:51.500 -> 36:54.500] So yeah, it's super difficult.
[36:54.500 -> 36:59.000] Okay, let's hop on to the next section, sponsorships.
[36:59.000 -> 37:04.500] F1 wouldn't exist without sponsorships, I guess because like whenever
[37:04.500 -> 37:05.280] even the drivers,
[37:05.280 -> 37:09.200] their entire suit is filled with sponsors everywhere. There are so many of them.
[37:09.760 -> 37:17.520] So yeah, let's talk about sponsors. Sponsors is interesting because before going into like the
[37:17.520 -> 37:26.000] shadiness of sponsorships, the good part about how sponsorship works also is the title sponsor.
[37:26.000 -> 37:34.000] Because then that becomes your registered name and you can't get out of it even if something was to happen to the team.
[37:34.000 -> 37:42.500] And your team existed at that point. So, point in case was Vijay Mallya's team when all of his assets were taken away.
[37:42.500 -> 37:46.000] And there was a point when the team was going to get shut.
[37:46.000 -> 37:54.000] But because Force India was part of the registered chassis name as the sponsor, primary sponsor,
[37:54.000 -> 37:59.000] they still had to keep that. So, then it became Racing Point Force India or Force India Racing
[37:59.000 -> 38:06.160] or something like that. But point being, that title sponsor gets you the registered name for that
[38:06.160 -> 38:11.520] season and then you end up having that name as part of your team. So for the
[38:11.520 -> 38:15.560] other example is Red Bull having Honda in their name this year, which probably
[38:15.560 -> 38:20.320] won't be next year. But you have to have Honda whenever you publicly say
[38:20.320 -> 38:25.520] anything with respect to Red Bull. I think sponsorship basically is the bread
[38:25.520 -> 38:32.520] and butter of F1. F1 exists for sponsorships pretty much and that what
[38:32.520 -> 38:37.720] pays the bills for almost all the teams. Sponsorships have always been an
[38:37.720 -> 38:44.000] important part and thus have also been shady sponsorships. So you know as
[38:44.000 -> 38:47.360] where there is money you, you're gonna have all
[38:47.360 -> 38:54.880] these weird shady things going on. And yeah, obviously, F1 is not exempt from that. People try
[38:54.880 -> 39:00.000] and just, you know, turn a blind eye towards it, because they love the sport, and they don't wanna
[39:01.280 -> 39:06.000] get that money out of the sport. Because if that happens, yeah, the sport probably won't exist at all.
[39:06.000 -> 39:11.000] No, what do you mean by shady sponsorship? Like, is that going to give an example?
[39:11.000 -> 39:19.000] Yeah, I mean, so let's take an example here of Rich Energy, which was a sponsor of Haas.
[39:19.000 -> 39:28.120] So basically, Rich Energy was this new sponsor, title sponsor that came to us, where they
[39:28.120 -> 39:34.800] claimed that they were an energy drink company, which they were launching very soon.
[39:34.800 -> 39:39.280] And they had basically, it was entirely a scam.
[39:39.280 -> 39:49.240] The company was just on paper, like they did not have any physical presence anywhere. And basically, as I had mentioned earlier, you know, like,
[39:49.240 -> 39:56.040] most of the teams are based off UK and so thus, these teams have to kind of do some financial disclosures.
[39:56.040 -> 40:05.400] And because of that, basically, what happened is a lot of Redditors kind of were investigating this rich energy and they
[40:05.400 -> 40:11.040] went through all these documents and kind of found the address
[40:11.040 -> 40:15.120] that's mentioned on those documents for rich energy and people were like
[40:15.120 -> 40:19.160] actually seeing it on Google Maps. Somebody actually went there as well to
[40:19.160 -> 40:23.280] actually check out if there's anything there and then basically it was just one
[40:23.280 -> 40:26.080] building and it turns out like, you know,
[40:26.120 -> 40:30.440] around 50 different companies are registered with that same building. So yeah,
[40:30.440 -> 40:31.600] you know what's going down.
[40:33.240 -> 40:37.760] They apparently had only $700 in their bank account.
[40:39.440 -> 40:41.440] That's the level of scam that was playing.
[40:45.080 -> 40:49.000] So basically what happened with Haas is that they like, uh,
[40:49.120 -> 40:52.200] had a long term, I think two year sponsorship deal with them,
[40:52.200 -> 40:55.520] something like that. And there was this guy, uh,
[40:55.680 -> 41:00.600] William Story who was the CEO of Rich Energy and,
[41:00.600 -> 41:00.760] you know,
[41:00.760 -> 41:04.440] he used to talk shit a lot about Red Bull because they were trying to compete
[41:04.440 -> 41:06.000] with Red Bull as an energy drink.
[41:06.000 -> 41:16.000] And the funny thing was that nobody could actually buy their product anywhere because, you know, people were trying so hard to buy it.
[41:16.000 -> 41:20.000] But it was so rare to get a single can of rich energy.
[41:20.000 -> 41:26.400] And the funny thing is that even the logo that they had was straight up stolen from
[41:26.400 -> 41:32.880] something called white bikes or something like that, which is a mountain biking company.
[41:32.880 -> 41:37.240] And yeah, basically Rich Energy were not able to hold their part of the deal.
[41:37.240 -> 41:41.080] They were not able to pay us the money that's required.
[41:41.080 -> 41:48.040] And it was a whole story and you know basically that William story
[41:48.040 -> 41:53.360] went rogue on Twitter he started you know bad-mouthing Haas saying that you
[41:53.360 -> 41:58.240] know we are quitting the sponsorship deal because Haas is performing poorly
[41:58.240 -> 42:05.480] and then it turns out that he was kicked out of from the company and... Hey you can't fire me if I
[42:05.480 -> 42:15.160] quit. Yeah pretty much that was Richa. Any other examples? Malboro I we were
[42:15.160 -> 42:18.480] discussing that before we started recording like Malboro because it's a
[42:18.480 -> 42:24.320] tobacco company I think F1 banned it from sponsoring but before if you remember I
[42:24.320 -> 42:29.080] think Michael Schumacher right Ferrari? Ferrari had this whole Marlboro logo on the rear wing.
[42:29.080 -> 42:37.720] So they are still part of it, but they have changed the way they sponsor now. So they come under different disguises, different company names.
[42:38.760 -> 42:41.400] Right now it's called Mission Winnow, right? Yeah, Mission Winnow.
[42:41.400 -> 42:52.000] Yeah. Yeah. Marlboro has been associated with this sport like way long. If you see any of those old cars, you're gonna have a big rear wing Malboro white and red car.
[42:52.000 -> 43:01.000] But I think like around 2006 Ferrari came down with strict anti-smoking, you know, promotions and laws and stuff.
[43:01.000 -> 43:11.000] So that's when they banned anything that had to do anything with with cigarettes but obviously no one told them that you can't ban shell
[43:11.000 -> 43:15.240] companies and F1 is very famous for finding these loopholes so there's
[43:15.240 -> 43:26.080] Mission Vinod which under the hood is a promoter for Marlboro or cigarettes. They, you're right.
[43:26.080 -> 43:31.080] They had a very famous car somewhere in that era where they basically had barcodes
[43:31.960 -> 43:34.800] and the shape of the barcode was such that if the car went,
[43:34.840 -> 43:37.320] whenever the car went on straights or was at high speeds,
[43:37.600 -> 43:41.240] you could see the triangle of Marlboro.
[43:41.560 -> 43:44.680] And that obviously again got into controversy.
[43:44.680 -> 43:45.500] And then they moved to
[43:45.500 -> 43:51.620] Mission Winnow in an MW fashion in such a way that when written horizontally
[43:51.620 -> 43:55.740] but tilted and then looked at from a vertical point of view, you're gonna then
[43:55.740 -> 44:01.900] again see the Marlboro triangle. M as well, you can see the M as well. That's pretty evident what it is.
[44:01.900 -> 44:06.600] And have you have you visited Mission Winnowners website? It's just, you know,
[44:06.640 -> 44:10.920] a load of corporate speak. Like it's, it's, you know,
[44:10.920 -> 44:15.120] that synergy and you know, all, all those corporate words.
[44:15.120 -> 44:20.120] Some day I wrote one sentence of all corporate buzzwords in there.
[44:23.000 -> 44:27.080] But it's interesting, right? The whole, the whole the whole genre is very
[44:27.080 -> 44:29.720] interesting because it because Mission Winnow is not the only one doing this
[44:29.720 -> 44:35.840] even McLaren has a backer which under the hood is a cigarette company.
[44:35.840 -> 44:40.880] What's good to see here is there are stricter countries which force these
[44:40.880 -> 44:50.460] teams to not have those logos as well. So for example, Australia has very strict anti-smoking laws and whenever these cars are racing on those
[44:50.460 -> 44:56.660] tracks they have to mask that or you know change that. So they change their
[44:56.660 -> 45:03.020] body before the race or paint over it. By the way I think like
[45:03.020 -> 45:11.100] everyone's gotten this this email of a Nigerian prince trying to send you all money, right? That, if you
[45:11.100 -> 45:16.660] haven't go check your spam folder, I guarantee you have that email. But for
[45:16.660 -> 45:20.620] F1 that's actually been true because there was there was a season where a
[45:20.620 -> 45:26.000] Nigerian prince invested into F1 which was obviously a scam because when
[45:26.000 -> 45:33.680] he had to actually give money he just disappeared. He took all the fame, you
[45:33.680 -> 45:39.000] know, he came into the paradox, he came into all races, he was trying to launch
[45:39.000 -> 45:43.780] this new brand of his called T-minus. Again, very similar story to Rich Energy,
[45:43.780 -> 45:49.680] they didn't really have any product in the market, but just trying to create the brand first before hitting the market.
[45:50.800 -> 45:56.080] But that's really baller, you know, to be that confident, just come for the races,
[45:56.080 -> 46:02.000] not have anything to back you up. I wonder if he's the same Nigerian prince still sending
[46:02.000 -> 46:06.360] everyone emails though. I was like let's
[46:06.360 -> 46:15.200] make the brand first then we'll get the money. Another interesting one is like
[46:15.200 -> 46:20.760] Singapore's one of the sponsor and he hosts like after parties and they're a
[46:20.760 -> 46:26.480] sponsor for that. It's called sugar book, if I'm not wrong. It's
[46:26.480 -> 46:47.000] a dating website made for old rich love to wait a few years. I haven't got that far yet.
[46:47.000 -> 46:52.000] That's insane. I'm still waiting for my billions for that.
[46:52.000 -> 47:08.880] But it's yeah, some of these, some of these ones have been just too shady. Like rich energy is one example, but there have been like three or four other energy drinks that have tried to pose as energy drinks and be shell companies for other stuff.
[47:08.880 -> 47:13.880] Yeah, I think at this point, it might be like a badge of honor that I was able to pull off
[47:13.880 -> 47:14.880] a shelf company.
[47:14.880 -> 47:15.880] Yeah, that's true.
[47:15.880 -> 47:16.880] Cool, cool.
[47:16.880 -> 47:27.360] Let's let's move to the next section. The grand grand prix and the cost of hosting
[47:27.360 -> 47:32.400] a race. I'm guessing that this question was because I couldn't find the answer in drive
[47:32.400 -> 47:39.040] to survive. But essentially, how do they decide which country will host the race for that
[47:39.040 -> 47:45.960] year? And then are these countries paying money? Because for example, Monaco has the race every year, right?
[47:45.960 -> 47:49.880] But then India, I think there was only one race there.
[47:49.880 -> 47:51.720] Yeah, three seasons there.
[47:51.720 -> 47:52.280] Yeah.
[47:52.280 -> 47:52.840] Oh, yeah.
[47:52.840 -> 47:55.480] So how do they decide on that?
[47:55.480 -> 48:00.600] So there is a running partnership between FIA
[48:00.600 -> 48:02.680] and these tracks, per se.
[48:02.680 -> 48:06.840] And they usually have three to four years of contracts.
[48:06.840 -> 48:09.600] And that's why Booth International had a three-year-old contract.
[48:10.800 -> 48:15.200] There was controversy, obviously, politically, why Booth got cancelled.
[48:15.200 -> 48:19.760] Because then the then UP government with Mayawati,
[48:21.400 -> 48:29.840] it termed F1 as not a sport, but an entertainment and try to levy entertainment tax on FIA.
[48:29.840 -> 48:35.200] And then Bernie Eccleston, the guy running the show was like, bye.
[48:35.200 -> 48:40.280] So yeah, but yeah, there are these usually three to four year contracts.
[48:40.280 -> 48:47.560] I think roughly, and I could be wrong here, but roughly building a track costs somewhere around 80 million.
[48:47.800 -> 48:52.800] And then hosting is a fee that the track also pays to the FIA.
[48:52.920 -> 48:56.600] Cause then that, that gives them exclusivity and all of those things.
[48:56.600 -> 49:01.040] But then there's the other side where FIA also has to pay local authorities and
[49:01.060 -> 49:04.760] the track for, for being there and, you know, doing the thing.
[49:11.600 -> 49:17.000] FIA is the entity that is earning the most out of this like because the cost of hosting a race is not exactly public data so we don't know the exact numbers
[49:17.000 -> 49:22.400] for that and it differs from venue to venue because like for example I'm sure
[49:22.400 -> 49:26.060] Monaco has a very big discount in terms of the
[49:26.060 -> 49:30.780] hosting fees because Monaco is kind of the crown jewel of F1 and yeah they
[49:30.780 -> 49:35.300] pretty much want to raise their no matter what every year but other tracks
[49:35.300 -> 49:39.940] like you know let's say Saudi which is going to be introduced this time is
[49:39.940 -> 49:50.220] probably you know just the MSB just throwing money at F1 to get them there and get some sports
[49:50.220 -> 49:53.340] watching for their country as well.
[49:53.340 -> 50:00.100] So yeah, I mean, from what I have read, I read an article by Forbes where this person
[50:00.100 -> 50:09.040] had done a proper breakdown of the total cost that's required from building the track to
[50:09.040 -> 50:16.240] paying the annual fees for hosting, as well as promoting and everything.
[50:16.240 -> 50:21.240] And the total amount came down to around $1 billion including everything if you consider
[50:21.240 -> 50:28.800] a long term contract of 10 years with FIA. Because the way it works is the hosting fees slowly increase each year.
[50:29.080 -> 50:33.080] And the reason maybe is that if you're having consecutive races in the same
[50:33.080 -> 50:34.840] track, you're going to have more people coming in.
[50:34.840 -> 50:37.560] You're going to have more money coming in. So yeah,
[50:37.600 -> 50:41.160] like FIA wants a good chunk of that money. So it's a,
[50:41.200 -> 50:45.520] it's a step ladder that, and it keeps increasing in terms of hosting fees.
[50:46.600 -> 50:50.840] Now, I was just thinking, you know, talking about numbers,
[50:52.480 -> 50:55.840] these teams need money to survive.
[50:55.840 -> 50:58.840] And, you know, the first question that comes to your mind is,
[50:58.840 -> 51:01.080] where is this money coming from?
[51:01.080 -> 51:07.200] Right. So sponsorship is just one part of how I get my team money but then
[51:07.200 -> 51:12.040] what's my incentive to drive that fast I mean it's not just for the sponsors
[51:12.040 -> 51:16.560] because my car is on the track I'm Martini or whatever was the Williams
[51:16.560 -> 51:21.560] but it's getting short right we are talking about rich or whatever so these
[51:21.560 -> 51:25.880] these other things come from you know being first or being
[51:25.880 -> 51:31.440] second like being there on the podium, being there on the table and the higher
[51:31.440 -> 51:37.880] you are the better you make and that's the gist of how you get this thing.
[51:37.880 -> 51:44.680] Yeah I mean the sole purpose of participating in F1 is for the prize
[51:44.680 -> 51:46.440] money. I mean that's what the companies
[51:46.440 -> 51:50.160] are there for and obviously for the bragging rights as well but yeah money
[51:50.160 -> 51:57.280] is what the main incentive is for sure and and like what Grand Prix basically
[51:57.280 -> 52:03.920] means is grand prize and like that's how you know F1 kind of has its origin where
[52:03.920 -> 52:09.200] like you used to have these you these individual Grand Prix races and there
[52:09.200 -> 52:13.440] was no FIA, there was no F1 at that time and then you would have a prize money and all
[52:13.440 -> 52:18.560] teams would compete for that prize money. And I think at that time, only the first,
[52:18.560 -> 52:29.680] whoever comes first would get the prize money and nobody else. But obviously that that was not a sustainable model at all. And so they kind of formed FIA and like
[52:29.680 -> 52:32.280] kind of standardize the sport a little bit should make things
[52:32.320 -> 52:37.280] easier for all teams and as well as if they have a you know, a
[52:37.280 -> 52:41.160] governing body, they can have this pool of money that they
[52:41.160 -> 52:44.280] collect and you know, just distribute it towards the end of
[52:44.280 -> 52:44.680] the year.
[52:44.560 -> 52:46.320] pool of money that they collect and you know just distribute it towards the end of the year.
[52:54.000 -> 53:06.280] So how much do the like top teams own? Oh wow yeah that's way high up. So I think the publicly available numbers are up until 2019 or 2020 but I think what I have is 2019 where Ferrari got all the way up to like 205 million for
[53:06.280 -> 53:11.600] just being on that constructors table.
[53:11.600 -> 53:15.760] I think Ferrari was second 2019.
[53:15.760 -> 53:18.440] So this might be 2019 stable.
[53:18.440 -> 53:26.400] But yeah, so around $200 million is what they get just from being high up on that table.
[53:26.400 -> 53:28.920] But it's the entire gag.
[53:28.920 -> 53:33.360] So let's say the whole pool is somewhere around 1 billion.
[53:33.360 -> 53:38.920] That's going to be split into these 10 teams, excluding the lower two or three teams that
[53:38.920 -> 53:48.880] just make the smaller bucks. The biggest chunk of this price is essentially split 50-50, where the first 50
[53:48.880 -> 53:55.720] goes to Formula One group and shareholders, and the second 50 goes to the constructor
[53:55.720 -> 53:57.720] and the team.
[53:57.720 -> 54:09.200] And there's this finer breakdown of the entire price money as well. But the distinction is let's say Ferrari at the top made $200
[54:09.200 -> 54:14.200] million. The team that finishes outside of, you know,
[54:14.200 -> 54:18.440] or top the last one gets something around like 10 million just for
[54:18.460 -> 54:23.120] participating in that tournament. So yeah, the divide's too high.
[54:23.720 -> 54:27.520] And that eventually becomes the incentive too for you to keep
[54:27.520 -> 54:28.520] performing better.
[54:28.520 -> 54:29.520] Yeah.
[54:29.520 -> 54:32.560] And they also have certain bonuses in place for certain teams.
[54:32.560 -> 54:39.040] So like, for example, they have this bonus for the team that wins consecutively.
[54:39.040 -> 54:43.760] So like, for example, basically Mercedes has been the beneficiary for this particular bonus
[54:43.760 -> 54:49.280] in the past few years and they also have bonuses for the top three teams which
[54:49.280 -> 54:55.400] have been winning the most number of races in the past I think five years and
[54:55.400 -> 55:00.520] similarly they have some other kind of bonuses in place as well so they have
[55:00.520 -> 55:06.400] this long-term compensation kind of a thing with Ferrari because since Ferrari is one of
[55:06.400 -> 55:12.000] the only teams that has been since the origin of F1, they're kind of rewarding them for their loyalty
[55:12.960 -> 55:19.280] and other teams which have been there for a very long time which are McLaren and Williams
[55:19.280 -> 55:24.080] also receive some you know heritage bonuses because of the same thing.
[55:24.000 -> 55:30.760] some heritage bonuses because of the same thing. So even though Mercedes won the race that year, Ferrari earned more than them because
[55:30.760 -> 55:32.760] Ferrari has been in the sports longer.
[55:32.760 -> 55:37.880] I think it's probably the only team that's never left the sport and come back in.
[55:37.880 -> 55:41.000] It's like it's always been there since the start of the sport.
[55:41.000 -> 55:48.560] Yeah, I mean, you could say that Ferrari is, you know, Ferrari is F1 and F1 is Ferrari
[55:48.560 -> 55:54.040] because what does anyone think when you say F1, they think about a red car.
[55:54.040 -> 55:56.160] Like that's the first thing that comes to your mind.
[55:56.160 -> 55:57.160] So yeah.
[55:57.160 -> 55:58.160] Oh, cool.
[55:58.160 -> 55:59.160] Yeah, that's true.
[55:59.160 -> 56:08.000] I've never thought of it like that. Now there's this other part which is an incentive for the drivers too.
[56:08.000 -> 56:13.000] And that's why you have the drivers points table as well.
[56:13.000 -> 56:17.000] And then at the end of the year, again with those other bonuses and stuff,
[56:17.000 -> 56:21.000] the drivers price money is distributed.
[56:21.000 -> 56:29.760] So I think like 2020 Sebastian Vettel made like somewhere around like 511 million dollars if this article from the internet is to be
[56:29.760 -> 56:37.200] believed. And right behind him was Lewis 450 million dollars. Is that the
[56:37.200 -> 56:40.040] prize money that they got to the team? I guess that's what they mean.
[56:40.040 -> 56:45.000] Yes, all-time money I guess. But yeah, All time money, I guess.
[56:50.000 -> 56:52.240] But yeah, so it's an incentive for both the constructors and the drivers at this point,
[56:53.680 -> 56:58.240] where these prize monies and their individual sponsorship
[56:58.240 -> 57:00.520] is what keeps the show running.
[57:01.840 -> 57:27.320] And I think also the prize money like kind of has a minimum guarantee component to it for each team as well as a component which is based off the constructors table, because at the end of the day, the economics have to work out like unless teams aren't guaranteed that they are going to make at least X amount of money, you know, it doesn't make sense for these smaller teams to even participate at that point.
[57:27.320 -> 57:28.800] Because if you are, you know,
[57:29.040 -> 57:33.000] putting in $145 million or something like that, which are, you know,
[57:33.280 -> 57:34.760] literally scraping by, you know,
[57:34.760 -> 57:37.880] you're just like begging sponsors for each dime that you're getting.
[57:38.120 -> 57:41.320] And if you can't even, you know, break even, it,
[57:41.400 -> 57:45.800] it just doesn't make sense for anybody to participate. So what what basically happens
[57:45.800 -> 57:50.880] is that the prize money that we have is kind of split, which is going to be like distributed
[57:50.880 -> 57:56.360] with the within the teams is split into two parts, where one part is fairly distributed
[57:56.360 -> 58:01.880] equally to all teams. And the other part is, you know, proportional to your ranking in
[58:01.880 -> 58:05.600] the table. Cool. Thank you so much.
[58:05.600 -> 58:07.840] This was really helpful.
[58:07.840 -> 58:11.760] I personally learned a lot and Ateet I think he just got started.
[58:11.760 -> 58:12.760] Yeah, yeah.
[58:12.760 -> 58:13.760] This is.
[58:13.760 -> 58:17.000] Are you signing up for F1 TV as we speak?
[58:17.000 -> 58:18.000] Exactly.
[58:18.000 -> 58:19.520] Yeah, that's what I'm doing.
[58:19.520 -> 58:24.640] One tab is that and another tab is drive to survive.
[58:24.640 -> 58:25.440] That's the rest of my day.
[58:29.680 -> 58:31.040] Yeah, a hundred percent.
[58:31.440 -> 58:35.000] And the show itself, like I think we should, can give a couple of minutes, but
[58:35.000 -> 58:37.080] like the show itself, it's so dramatized.
[58:37.080 -> 58:38.800] So it feels like a reality show.
[58:38.800 -> 58:42.280] Almost all races are like that though.
[58:42.560 -> 58:45.200] But, um, Baku was like that for sure.
[58:46.400 -> 58:51.160] And there's so much drama even around the sport, like even when the race is not going on,
[58:51.200 -> 58:52.800] there's always some drama going on.
[58:52.800 -> 58:58.520] Like for example, what Akash had mentioned earlier about the bendy wings, like teams are,
[58:58.520 -> 59:00.640] you know, complaining to FIA about each other.
[59:00.640 -> 59:04.120] And it's like, you know, a bunch of school kids fighting in the schoolyard.
[59:11.200 -> 59:16.640] Yeah. each other and it's like you know bunch of school kids fighting in the school yard yeah but yeah again thank you Sarang thank you Akash for talking and what we'll do is if you guys anyone is interested in F1 amazing show check out
[59:16.640 -> 59:23.160] their podcast it's called F1 fanfiction we'll link it in the bio below and yeah
[59:23.160 -> 59:26.440] just reach out to them if you are interested in F1 as well.
[59:26.440 -> 59:28.520] It was a pleasure being here man.
[59:28.520 -> 59:30.520] Thank you for having us.
[59:30.520 -> 59:31.520] Yep.
[59:31.520 -> 59:32.520] Thank you.
[59:32.520 -> 59:33.040] Thank you guys.