SportF1The impact of the limit on the 2021 economic...

The impact of the limit on the 2021 economic balance of Mercedes F1

The total spend of Mercedes-Benz Grand Prix Limited fell from £324.9 million (€370 million at current exchange rates) in 2020 to £297.4 million (€338 million) last year, at despite the fact that the calendar was extended from 17 to 22 races after leaving behind the COVID-19 .

Although many of the items included in the grand total do not fall under the cost cap, Mercedes’ spending drop of £27.4m (€31m) reflects how the team had to adjust to the new era of cutbacks. of expenses.

It has also contributed to an overall increase in profits, from £13m in 2020 to £68.8m in 2021 (from €14.8m in 2020 to €78.3m in 2021).

The other key element in the increase in profits was the increase in turnover, which means that F1’s sponsorship and prize money increased from 355.3 million pounds (404.4 million euros) to 383.3 million. million pounds (436.2 million euros).

Parent company Mercedes-Benz AG has not had to make a financial contribution, reflecting the amount of revenue the team is generating.

However, Mercedes continues to provide funding to the independent organization HPP, from which the Formula 1 team in turn buys its power units.

In another sign of how the cost cap has affected, Mercedes-Benz Grand Prix’s overall workforce was cut in 2021. It went from 1,016 employees in 2019 to 1,063 in 2020, which was the last year with no cap, when most F1 teams invested heavily before the restrictions came in.

In 2021, with the application of the budget ceiling, it fell back to 1004.

More important than the overall drop, however, was the decline in the number of people employed in design and engineering, which are the ones that fall directly on the edge. After increasing by 34 in 2020, last year it fell by 75, from 906 to 831 people.

Instead, the number of employees in administration, which is not limited by the limit, increased from 157 to 173 in 2021.

Mechanics work on the George Russell Mercedes W13 in the garage

This was helped by an increase in human resources, legal and accounting staff, many of whom were hired to help the team cope with the extra work involved in monitoring and managing the spending limit.

Wolff said meeting the cap in 2021 had been “painful” but at least helped increase the organization’s profitability.

“What has happened in F1 is that by putting a spending cap on most of the team’s cost centers, we had to restructure and change our processes, lay off people, unfortunately too, to fit the cost cap. Wolff told

“Which is particularly painful if you hear that there are teams that haven’t done it.”

“It’s super painful and difficult to be an organization that was spending on engineering, in order to achieve the best performance, and suddenly you need a structure that you have to analyze from the moment of purchase through production, logistics and then the deployment in the car, and the prioritization of what you give the car.

“The advantage is that, like American sports franchises, we have set the spending limit and have excluded the support areas.”

“So the support areas still had to grow a lot to be able to support the organization with the spending limit. But the bottom line is that if you’ve been successful on the track with the money from television, the sponsorship goes directly to your margins. And that has happened in the United States.”

“The bottom line pays for itself, because we can’t spend more than that. Costs go up in support areas.”

“The cost cap has been a very painful restructuring exercise, but from a financial point of view it has changed the business model, which has gone from being an unprofitable company, or simply profitable, to a business with a margin of 25BIT [earnings before interest and taxes].”

Wolff said the company’s back office staff has grown even more in 2022.

Toto Wolff, Team Principal and CEO, Mercedes AMG

“This is ahead of 22 accounts, but we have 30 more people in finance, we have eight more people in legal, we have 50 more people in marketing, communication, sponsorship and all that, to manage the budget ceiling.”

Wolff cited an example of how, while before a senior engineer used to conduct job interviews with candidates for a position, now a human resources specialist does so, which allows the engineer -who enters the cost limit- to focus all their efforts in their main function.

“Imagine the hiring process. Before, an engineer would hire a candidate or interview candidates. First of all, now you can’t afford it because of the time it takes.”

“But the other thing is, we don’t know if we can afford it financially. So he has to get in touch with HR, and HR has to get in touch with finance, and say, ‘Hey, we need another boss that costs us $45,000. pounds a year. Can we afford it?”

Like other leading teams, Mercedes has transferred many people from F1 to projects outside the competition.

“We have the America’s Cup in sailing, and we have several other performance engineering projects,” added Wolff.

“We don’t want to be an engineering boutique that provides services to the industry. It’s about breaking records, wherever you compete: records on land, sea, air and space, everything is an area of possible records for us.”

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