Mercedes' financial figures for 2021 reflect F1's 'painful' cost cap.

Mercedes’ financial figures for 2021 reflect F1’s ‘painful’ cost cap.



Mercedes-Benz Grand Prix Limited’s overall spend fell from £324.9m in 2020 to £297.4m last year, despite the schedule being extended from 17 to 22 races, the impact of COVID having faded.

Although many items included in the grand total do not fall under the cap, the £27.4m drop in spending reflects how the team has had to adapt to the new era of cost cutting.

It also contributed to an overall increase in profits, from £13m in 2020 to £68.8m in 2021.

The other key driver of the profit boost is higher revenue, meaning F1 sponsorship and prize money rose from £355.3m to £383.3m .

Parent company Mercedes-Benz AG did not have to make a financial contribution, reflecting the magnitude of the revenue generated by the team.

However, Mercedes continues to fund the separate HPP organization from which the F1 team in turn purchases its power units.

Another indication of the impact of the cost cap, Mercedes-Benz Grand Prix’s overall workforce fell in 2021. It fell from 1,016 people in 2019 to 1,063 in 2020, the last year without a cap, when most F1 teams invested heavily before the restrictions came into force.

In 2021, with the cap now applied, it fell back to 1004.

However, the drop in the number of people employed in the design and engineering sector, i.e. those falling directly under the cap, is larger than the overall drop. After increasing by 34 in 2020, it was reduced by 75 last year, from 906 to 831.

On the other hand, the total of those employed in the administration, who are not limited by the cap, has increased from 157 to 173 in 2021.

This increase is due to the increase in staff in the areas of human resources, legal and accounting, many of whom have been recruited to help the team cope with the additional work generated by the control and management of the ceiling. .

Mr Wolff said meeting the cap in 2021 had been “painful”, but that ultimately it had helped increase the organization’s profitability.

“What happened in F1 is that by putting a spending cap on the biggest part of the cost centers of the team, we had to restructure ourselves and change our processes, lay off people, unfortunately also, to adapt to the cost cap,” Wolff told Autosport.

“Which is especially painful if you hear the talk from teams that haven’t done this.

“As an organization that was spending on engineering, in order to achieve the best performance, and suddenly needs a structure that must analyze from the moment of purchase to production, logistics and then deployment on the car, and prioritizing what you give to the car, it’s super painful and difficult.

“The advantage is that, like the United States [sports] we set the spending cap, we excluded the support zones.

“So the support areas had to grow significantly in order to support the organization with the spending cap. But at the end of the day, if you’ve made it on the track with TV money, the sponsorship goes straight into your margins. And that’s what happened in the United States.

“The bottom line pays for itself, because we can’t spend more than that. We are increasing costs in support areas.

“The cost cap was a painful exercise in terms of restructuring, but financially it changed the business model from a marginally profitable, or just profitable, business to one with an EBIT of 25%. [earnings before interest and tax] of 25%”.

Wolff said the headcount of the administrative part of the company has increased further in 2022.

“It preempts 22 accounts, but we have 30 more people in finance, we have eight more people in legal, we have 50 more heads in marketing, communication, sponsorship, all of this, to administer the cap. costs. »

Mr. Wolff cited an example where, whereas previously a senior engineer interviewed job candidates, this task is now delegated to an HR specialist, allowing the engineer – who is subject to the cap – to concentrate all its efforts on its main role.

“Imagine the hiring process. In the past, an engineer hired a candidate or interviewed candidates. First of all, you can’t afford [in terms of their time.]

“But the other thing is we don’t know if we can afford it financially. So they have to link up with HR, and HR have to link up with finance, and say we need another boss which is costing us £45,000 a year. Can we afford it? »

Like other top teams, Mercedes has assigned many F1 employees to non-racing projects.

“In applied science, we have the America’s Cup, and we have various other projects on performance engineering,” added Wolff.

“We don’t want to be an engineering boutique that offers services to industry. It’s really about records, wherever you want them – records on land, at sea, in the air and in space, that is our domain. »

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