Why do Formula 1 teams go bankrupt?

Formula 1 teams more often than not fall into bankruptcy, or at least get to a point when they no longer have the financial means to compete anymore. But why is that? Why do Formula 1 teams usually end up bankrupt? Well, in this video I'll dive into exactly that and break down - with a fair amount of business jargon - exactly why Formula 1 teams usually find themselves in deep water financially. Enjoy!
0:00 Introduction
1:02 What is bankruptcy?
2:11 Basic economic principle of F1 teams
3:14 Economic crisis
4:08 Poor management
4:51 Business model
6:06 Poor performance
6:48 Which current teams could go bankrupt?
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Under Section 107 of the Copyright Act 1976, allowance is made for "fair use" for purposes such as criticism, comment, news reporting, teaching, scholarship, and research. Fair use is a use permitted by copyright statute that might otherwise be infringing. There are certain scenes from the Formula 1 calendar where race footage is used. All rights are property of FOM. Other photos and news elements are used solely for the purpose of assisting the original content in becoming more engaging or informative. This video is not intended to cause offence and is solely for entertainment purposes. Using this video without giving credit to the original source is an offence.
#Formula1 #Bankrupt #F1

[@Case16710]

Q: How do you make a small fortune in motor racing? A: Start with a large fortune.

[@TheRacingPilot]

Exactly 😂

[@pangolin83]

This just proves how amazing it is that Red Bull - a drinks company - can fund not one, but two teams for such a long time

[@jelof21]

and go all in at being its own works team **

[@wildcatkhaya5675]

Redbull is everywhere, I really respect the company. Would love to be sponsored by them, and wouldnt mind driving for them either in a "what if" scenario, but would probably ultimately settle for Ferrari.

[@TheRacingPilot]

It's a very valuable company!

[@its_smil3y12]

Red Bull is much more of a marketing company that also happens to sell a drink. Nonetheless still very impressive they’ve been able to field two teams this long

[@ramseyjordon5043]

@@its_smil3y12 what are the two teams ??

[@jgonzalesm6]

How to turn a BILLIONARE into a Millionaire-->buy an F1 team.

[@TheRacingPilot]

Literally 😂😂

[@hugonongbri8100]

or start an airline ......

[@Joel-di8sp]

Only if Kimi was there chilling in his yacht while the team went bankrupt 😂

[@TheRacingPilot]

Literally 😂😂

[@Joel-di8sp]

@@TheRacingPilot lol

[@manjunathdanavadi3573]

His contract actually made Lotus almost go bankrupt. But Kimi being Kimi didnt let that happen!

[@andrewcarter1747]

@@manjunathdanavadi3573 Instead he walked out on the team before the end of the season because he wasn't getting paid.

[@wad316]

Before Zak Brown stepped in, McLaren were starting to plant the seeds of bankruptcy as well with the massive failure of the Honda project.

[@TheRacingPilot]

They were really struggling, but luckily they secured some investment aswell as some resources from their domestic car side of the company

[@RayLabs]

@@TheRacingPilot Bahrain to the rescue. Of course as I write this Danny Ric just won in Monza which makes their investment look good.

[@shaneetsaha1176]

This channel gives more money-related content than any business and marketing related channel 😂

[@TheRacingPilot]

I assume that's a good thing? 😂😂

[@shaneetsaha1176]

@@TheRacingPilot Yeah truly 😆

[@jelof21]

I'm sure there's a Chinese billionaire out there willing to invest in Zhou... I mean anything is better than a Mazepin F1 team....

[@fantasticcaptain4400]

Maybe not now with Jinping’s latest movements with the country, most billionaires have gone into hiding. If it was someone they’d have to be funding with little advertisement to show for it by the looks of things

[@TheRacingPilot]

I know money is helping Zhou to get the Alfa seat!

[@ribhavsethi]

Congrats! Zhou got the seat

[@jelof21]

@@ribhavsethi wrong team... I'd rather he went to haas to give Mazepin the boot

[@BOBBOBBOBBOBBOBBOB69]

I know the answer, they take in less money than their costs: Boom done.

[@seventh-hydra]

Breaking news: a sport where outspending your competition is (almost) the only way to victory, has teams that go bankrupt.

[@TheRacingPilot]

That's a basic way of looking at it 👍

[@thabs2001]

Here to remind you of gat you said about Haas. Sure might not be sold to Mazepin anymore but looking very likely to be sold, you were on point there.

[@TheRacingPilot]

Hahah yeh I hadn't really foreseen a Russian invasion of Ukraine

[@wad316]

I wonder if Musk will get Tesla in as a team.. and then Bezos gets jealous and tries to bring in a team too or buys out Haas

[@TheRacingPilot]

Hahaha well F1 would have to be electric for him to think about it 😂

[@xtscarfacem8255]

@@TheRacingPilot the world is changing to electric. It's not out of the question for a future I'd say.

[@chetananand8247]

@@TheRacingPilot or maybe in Formula E??

[@hjackgbr78]

I expect with Liberty Media in charge we will see a more even distribution of cash. Ensuring teams viability is a top priority for the growth of the sport. Bernie did a great job of making the sport uncompetitive with ridiculous cash distribution that we now take for granted. F1 finances are still reeling from the cigarette cash cow era.

[@TheRacingPilot]

Well with the new budget cap absolutely that will happen

[@User-dd2xv]

I don't think so at the moment the Big Teams refected the proposal from Chase Carey to receive shares in Formula and in return let the prize pool be shared more equitable for the smaller teams. Chase Carey has been pushed out replaced with an ex Ferrari man/ politician. I don't know if Formula One will improve as much as it did in recent years due to the absence of Chase Carey. We take for granted now but we now have so much content and insights to the inner workings of Formula One. We have free use of Social Media in the Paddock, Netflix, Fan Zone etc.a Overall Formula One has become alot more engaging for the fans. F1TV is awesome the camera angles, binge watching previous seasons. I am enjoying Formula One now more than ever.

[@andrewcarter1747]

@@User-dd2xv A new concord deal was signed last year, pretty much gurantiees a more equitable distribution of the prize money, though the big teams will still get the lions share, though the budget cap will help a lot.

[@SamBrickell]

@@andrewcarter1747 "equitable" is a term that's almost always used by losers.

[@shaneetsaha1176]

Just came to know about your community post… that you are doing university now. All I wanted to say… best of luck for your university 🙌 and we all subscribers are here, and will always be with you 😊 Just focus on the studies well, it is an important stage in life. Cheers!

[@TheRacingPilot]

Thanks so much mate! I'll be back before you know it 🙌

[@shaneetsaha1176]

@@TheRacingPilot yes 👍

[@Apis4]

With the budget caps coming in next season, you'd think this would not be much of an issue going forwards.... HOWEVER.... there is a lot of ways grey and black spending can be achieved. Just because a team cannot spend its $450,000,000 it has to spend, next season, does not mean it does not have that money. Teams can enter other series, like Ferrari talking about an Indy entry, and McLaren already having one.... it is spec series....in almost all ways....but suspension set up, for example... is still an are teams can work on and develop. IndyCars is an open wheel series, running very similar suspension to F1...so it could be very much worth a team taking money they have but cannot spend in F1, over there, and starting a team. They can get in for a tenth or less of what their otherwise left over budget is, and develop and test a lot of that one thing.. suspension in this case... in that series, OUTSIDE the oversight, and CAP, for F1. Just an example. But that sort of thing can happen. Any elements of a racing series, which translate directly, or even indirectly, or even almost do with some tweaking... to F1, will be appealing places for teams who now have $300,000,000 they WOULD have spent in F1, but cant now... to put the money. They can then develop all those elements as much as that series allows, without oversight, and outside the cap.... meaning they have one less area to spend on, within the cap. This could mean the difference between spending $50,000,000 on your gearbox... and spending $75,000,000 because you can put an extra $25,000,000 you'd have spent on an aero element, in to that, because you now develop that one aero element in another series, and bring the data back in to F1, so have freed the money you'd otherwise have to allocate from your F1 budget. Which will be the better gearbox? Which car will have better performance? See what I mean. A team like HAAS, of course... does not have the money to also go start a WEC team, an Indy team, and say some stock/touring car team, and maybe a national level GT racing team on the side.... in the hopes they can develop a lot of tech that translates to their F1 cars, outside FOM and FIA oversight, and the cap. Mercedes of course, DOES. More, if they DO, then they'll have less things to pay for out of their F1 budget, so can spend more in each, making them "better" than a team like HAAS. So we will still see bankruptcies in the sport. The sport by it's nature creates conditions for that. It is NOT a spec series. There IS a formula... one formula.... hence F1... but there is room and scope and even loopholes inside the technical regulations.... and they are there BY DESIGN. The aim of F1 is, simply put, build the fastest, best handling, over all best performing racing cars possible, and put the very best drivers in the world, in them to race. Spec series type format would stymie that. You have to have set of regulations which mean everyone had to comply with some basics...but you also need to leave designers and engineers scope to explore pathways to achieve the ultimate performance within those regulations. That is HOW F1 cars have invariably gotten faster and faster over the 75 years of the sport. To exploit the aforementioned scope, and room to move, within said regulations, of course, takes a lot of time, a lot of people, the best people, and a lot of effort. Of course, a lot of money buys you MORE of those things, than less money. The teams which have that money, will just find new ways, as outlined above, to spend it on their F1 teams, via black money through backdoor channels, like burying suspension research in an IndyCar project, or the like. To be in F1, for good, for the long haul.... you need to have a steady, guaranteed income. Maybe you're a Saudi Prince who inherited a $5,000,000,000 trust fund, and immediately shoved it all in to some high interest Swiss bank account that will pay you 13% interest, so long as deposit more than $500,000,000 for a fixed term of now less than 25 yrs. So now you make about $800,000,000 PA interest. OK you are good to go, you can run an F1 team safely, because you have the $200,000,000 a year it will cost, guaranteed. Or you are WalMart, and for the same reason as Red Bull, or back in the day, Benneton, you get in to F1. You have the profits each year to toss a few hundred million at such a project, just for marketing, if you wanted. Any team which is not one that gets direct long business benefits from F1, which is essentially only auto manufacturers and associated fields, like Repco's partnership with Brabham back in the day.... needs to come in to F1 with their eyes open, and full awareness of the cost, and willingness to accept it will take them a decade, more than likely, and millions upon millions, to even get half decent, on occasions.... and double that, to really be a major player. Does NOT always happen like that, but worst case scenario, it does. Any team which DOES NOT understand this coming in... will, absolutely... go belly up within a few seasons, even today.

[@TheRacingPilot]

Absolutely, it's definitely not as simple as it seems. This is a video topic I am very interested in doing very soon 👍

[@cindie24]

Apparently some1 got it a bit wrong about the fact of HASS... Yes, it doesn't have Formula 1 roots like Ferrari, McLaren, Mercedes or perform as well as RedBull, Alpha Tauri or Renault/Alpine, but Hass is no newbie when it comes to participating in motorsport. - Just look at their achievements in Nascar and similar motor sports in and outside the USA! It's just extremely difficult to establish yourself in Formula 1 and at the same time be competitive on the same level with the teams that have dominated the sport for several decades... - I personally take my hat off in respect that Hass is still willing to keep going and not just put his tail between his legs and run away...

[@TheRacingPilot]

Absolutely, they've been very impressive 🙌

[@patrickcesalestajodywibowo741]

Great, now what i have been learned in the economic class can be implemented in f1 too.

[@TheRacingPilot]

Absolutely! 🙌

[@daninagy4173]

I'm not an economist, so I obviously have no idea how these things work, but still, I don't think Haas will go bankrupt. It's more likely that Gene Haas will have had enough by the end of the season, pulls the plug, and just sells the assets to Mazepin.

[@TheRacingPilot]

Exactly, when I say 'bankrupt' I'm referring to leaving the sport due to financial struggle. Which in Gene Haas's case is exactly that 👍

[@fredericksharon6908]

Things have changed 🙂🙂

[@LittleSaladBar]

This took a huge turn

[@LittleSaladBar]

@@TheRacingPilot L

[@MrBlazemaster525]

Wait, didn't Super Aguri go belly-up in the middle of 2007 because of dodgy sponsors?

[@Limegreenedragon]

2008, actually

[@TheRacingPilot]

Well it was 2008, and I guess indirectly about the crisis 👍

[@shivb4133]

Want to see BMW back again

[@TheRacingPilot]

Me too 🙌

[@jgonzalesm6]

BMW won't be coming back to F1. BMW is successful in their touring car business. BMW doesn't need F1 and their current turbo-hybrid era technology.

[@jeremyleemartens801]

"many have tried and even more have failed" how on earth would that work, lol

[@TheRacingPilot]

Hahaha it's a saying 👍

[@RayLabs]

I don't think the question is which team will go Bankrupt, but which will be sold. And HAAS is certainly top of that list and Mazepin is the most likely buyer (he needs a toy for his son to play with). Gene Haas seems to have tired of F1. If I remember correctly, a few years ago Red Bull tried selling Toro Rosso, but could not find anyone willing to pay enough. I would not be surprised though to see Williams back in trouble in 2-3 years. Dorilton Capital is not in the business of running an F1 team, they are in the $$ business and expect that if they can turn the team around to a solid mid-field team that they can sell it to someone who wants to enter F1. Perhaps someone like VW Group. I say this because the cost of starting a new team is so expensive, that if a new manufacturer wanted to get into F1 it would be cheaper in the long run to buy someone out. I will also be looking at Aston Martin. How deep is Lawrence Stroll's pockets? I doubt that Aston Martin the car company (that Stroll effectively owns) can pump enough cash into the F1 team to keep it going, so Stroll is going to have to continue to pump in his own money and once his son is done driving will he even want to continue to own a F1 team. Lance Stroll is surprisingly good for being a Pay Driver. But to win a Championship and regularly contend for wins you have to be in a top 3 team. And I don't see Aston Martin being in that league, even after the regulation changes. So my predictions is that HAAS goes first (next year), then Williams, then Aston Martin and maybe Alfa (another team owned by a private equity firm). Mind you not into Bankruptcy but to be sold. But here is a question. If F1 didn't exist, would Mercedes and Ferrari sell less cars? Would Red Bull sell less Energy Drinks? My personal opinion is no. Ok, I'll leave it there I could go on for days.

[@TheRacingPilot]

Fair enough, I only use the term bankruptcy as a blanket term for a team leaving the sport for financial reasons 👍 and in regards to whether Merc/Red Bull would sell less if there was no F1... they absolutely would sell less, it would make zero sense to be in the sport if they didn't sell more products from it 👍

[@svjtube8087]

I am drinking red bull because of it's f1 team

[@cedricasdfghjkl9151]

Because they don't have Lawrence Stroll as team owner. Saved you 8:20 of your life. 😅🤣

[@TheRacingPilot]

Fair enough 😂😂

[@rianrushwood1426]

At 1:42, FORCE INDIA/RP HAD URALKALI SPONSORSHIP?!

[@TheRacingPilot]

I guess so! 😂

[@wad316]

I think Mazepin tested the car at the time? I forget.

[@camejuanm]

I think Uralkali was planning to buy Force India, just like Rich Energy and Lawrence Stroll at the time.

[@Smeggy87]

"... most likely to Dmitry Mazepin".... Oh boy. That didn't age well. 😅

[@TheRacingPilot]

Yeh not quite, wasn't really expecting a invasion of Ukraine hahaha

[@Hertzhaikya]

As an Indian I approve and appreciate this video.. Eh the Force India one.

[@TheRacingPilot]

Glad to be of service 👍😂😂

[@carlo9524]

Same as any business. No money coming in anymore.

[@TheRacingPilot]

Of course, but I cover the reasons why they begin to struggle with money

[@Scorpio19110]

One reason is those who chose bought an F1 team didn’t bother to invest more money out of their pockets and they didn’t save enough money to have for investments before getting into F1 as team owners

[@TheRacingPilot]

Exactly, it's all about money

[@SamBrickell]

*GOOD!* It should remain exclusive and hard. This cost cap stuff is nonsense!

[@TheRacingPilot]

It's for the sake of better competition 👍

[@mrn8032]

You took my comment in your new community post, too personally, now you're talking about money again

[@TheRacingPilot]

Hahaha I have a genuine interest for business, especially in F1 😂

[@william_8844]

I don't think the issue is outside investment......but more of revenue

[@TheRacingPilot]

Investment and revenue go hand in hand. The more investment you get, the greater revenue you will generate in many ways 👍

[@jolly5319]

gunther will know when enof is enof

[@TheRacingPilot]

Exactly 😂😂

[@nert-13]

If Alfa Romeo leaves F1 and no VW brand picks it up, Sauber might go under too

[@TheRacingPilot]

Absolutely, depends how long Alfa want to stay

[@BrawlPlays-0]

Red bull was never mentioned in the vid, why?

[@TheRacingPilot]

Because they aren't going bankrupt 😂😂

[@BrawlPlays-0]

@@TheRacingPilot mercedes, ferrari, aston and mclaren were all mentioned

[@TheRacingPilot]

Because as explained they were an example of having large backing

[@BrawlPlays-0]

@@TheRacingPilot got it! I actually thought Red bull invests more than Mclaren, I heard they work with tight budget some where

[@CatWith-AHat]

I like to think Travis Pastrana is responsible for red bulls huge involvement in motor sports.

[@TheRacingPilot]

He definitely plays a part 👍

[@shaneetsaha1176]

Actually, Vijay Mallya is a very nefarious figure in India(pretty much seen as a criminal). He basically did different scams in India and then escaped to London. From recent news, I heard that the process is on the go to bring Vijay Mallya back to India from the UK. Basically the Indian Government was trying to do this for quite a time.

[@TheRacingPilot]

Absolutely, and I don't blame you. Pretty terrible guy

[@shaneetsaha1176]

@@TheRacingPilot yea 😅

[@YouTube2021FM]

Fairly sure Sauber has been in the sport more than 20 years…

[@TheRacingPilot]

They are no longer Sauber 👍

[@scsmith4604]

Once F1 (and auto racing in general) figure out that a model where everyone makes money is the way to go the racing would likely get a lot more entertaining. Look at the NFL. The worst team in the league makes a ton of money even though they will never win

[@TheRacingPilot]

Well everyone does make money but there still needs to be a meritocratic system in place 👍

[@scsmith4604]

@@TheRacingPilot I do not think all race teams make money. Enough to keep the doors open. If that was the case then there would not be so much attrition. For example, I think Haas' days are numbered unless a rich buyer comes in and saves the day.

[@beatricesitibe9480]

Cash is 🤴

[@TheRacingPilot]

Absolutely 🙌

[@irvinmcdaniel3291]

Haas probably won’t go bk, more likely sold to Mazepin, Andretti Motorsport or the Chinese.

[@TheRacingPilot]

Exactly, most likely sold off

[@ThunderApache1604V]

McLaren was close to get a hit in 2020, till Sultan of Bahrain came in.

[@TheRacingPilot]

They were very close absolutely 😬

[@tohfawalker159]

I wonder what would have happened if mazapin had bought hass before the Ukrainian war. How would FOM have reacted?

[@TheRacingPilot]

Well Mazepin would have had to sell the team, all foreign assets owned by Russians were frozen 🤷‍♂️

[@fredc9655]

Haas could just sell the team rather than go bankrupt, Porsche is looking to buy its way into F1 and Andretti wants in too.

[@TheRacingPilot]

Absolutely, but it looks like they'll stay 🙌

[@emilolinsson7980]

Tldr: no moni : no political favors, thank u for coming to my tedx

[@TheRacingPilot]

😂😂

[@hadipawar2539]

Did you just foreshadow a Hass bankruptcy? lmaoo

[@TheRacingPilot]

I might have 👀

[@hadipawar2539]

@@TheRacingPilot and you are absolutely correct. If 2022 doesn’t work out Gene Hass is gonna bail guarantee. Its doing more harm then good as Hass brand is basically “oh those losers in the back”.

[@raphylwi]

haas

[@TheRacingPilot]

😂😂

[@RaanDohmSchitt]

many have tried and even more have failed....what? how is that possible?

[@TheRacingPilot]

It's a figure of speech 😂

[@Spyderz-xo9rz]

BWT owner was a crook hahahaah No wonder why he lost it.

[@TheRacingPilot]

Hahaha exactly 😂 it was technically the force India owner not BWT but yeh

[@kareemgalaroza822]

There's no such thing as cheap racing..

[@TheRacingPilot]

Relatively cheap*

[@mizo8081]

HAAS is here to stay.

[@TheRacingPilot]

I hope they are but it'll be tricky

[@KingofWolves3277]

@@TheRacingPilot When has Gunther Steiner even done the simple route?

[@IZn0g0uDatAll]

« Many tried and even more have failed » People who tried = people who succeded + people who failed, and therefore people who tried > people who failed. Maths mozafuka, do you do them?

[@TheRacingPilot]

It's a saying 👍

[@IZn0g0uDatAll]

@@TheRacingPilot i meant no offense 😉

[@9W3KYY]

Has is backed by Federal Reserve hahaha

[@TheRacingPilot]

Pretty much 😂😂

[@theironiccapri-sun3824]

Short Answer: They have no money

[@TheRacingPilot]

Obviously, but I look at why they run out of money 👍

[@tsheposeanego5582]

Ha! F1 a meritocracy my ass

[@TheRacingPilot]

Of course it is...

[@LittleSaladBar]

Haas just got back to back double point finishes🫶🏻 we ain’t going no where.

[@TheRacingPilot]

Absolutely! It's all that Russian money 👍