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

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

While many of the items included in the overall total fall outside the cap, the £27.4m drop in spending reflects how the team have 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 was an increase in 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 how much revenue the team is generating.

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

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

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

However, more significant than the overall decline has been the drop in the number of people employed in design and engineering – those who fall directly under the ceiling. 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, not limited by the cap, has increased from 157 to 173 in 2021.

Mechanics work on the George Russell Mercedes W13 in the garage

Photo by: Steve Etherington / Motorsport Images

This was spurred by additional human resources, legal and accounting staff, many of whom were hired to help the team deal with the extra work created by monitoring and administering the cap.

Wolff said meeting the cap in 2021 was “painful” but ultimately helped increase the organization’s profitability.

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

“Which is particularly painful if you hear the talk of teams who haven’t done it.

“As an organization that was spending on engineering, in order to get the best performance, and suddenly needed a structure that had to analyze from purchase through production, logistics and then deployment on the car , and prioritizing what you give to the car is super painful and difficult.

“The advantage is that, like the United States [sports] franchises, we set the spending limit, we excluded support areas.

“So the support areas still had to grow significantly in order to support the organization with the cost cap. But ultimately, if you’ve gotten on the right track with the TV money, the sponsorship goes straight in your margins. And it happened in the United States.

“The net result is profitable, because we cannot spend more than that. We are increasing costs in the support areas.

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

Wolff said headcount on the administrative side of the business increased further in 2022.

Toto Wolff, Team Principal and CEO, Mercedes AMG

Toto Wolff, Team Principal and CEO, Mercedes AMG

Photo by: Simon Galloway / Motorsport Images

“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, communications, sponsorship, all of this, to administer the cap. costs.”

Wolff cited an example of how, where previously a senior engineer interviewed job applicants, this is now done by a human resources specialist, allowing the engineer – who reports from the ceiling – to focus all his 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 it [in terms of their time.]

“But the other thing is we don’t know if we can afford it financially. So they have to reconnect with HR, and HR have to reconnect with finance, and say we need another boss who we costs £45,000 a year.. Can we afford it?”

Like other top teams, Mercedes has moved many people from F1 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 services industry. It’s really about records, wherever they are – records on land, at sea, in the air and in space. , this is an area for us.”

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