2021 financials show severe impact of the cost cap on Mercedes

© Jiri Krenek for Mercedes-Benz Grand Prix Ltd.

Amid the F1 budget cap controversy, Mercedes has released its financial numbers for the 2021 season, and the cost cap shows its full impact.

While the F1 world is waiting for the FIA to release the official results of their assessment of the 2021 financial data submitted by all Formula 1 teams, and amid rumours that Red Bull has breached the cap, Mercedes released its financial report for last year.

Team boss Toto Wolff has already said that the impact of the budget cap has been “painful” for Mercedes, and the financial numbers reflect that.

Firstly, the overall spending for Mercedes-Benz Grand Prix Limited has fallen from £324.9m in 2020 to £297.4m in 2021. It’s important to note that there have been 22 races in 2021, compared to 17 in 2020.

However, the cost cap has increased the team’s profits from £13m in 2020 to £68.8m in 2021. This also led to Mercedes-Benz AG not having to make any financial contributions to the team in 2021.

However, Mercedes-Benz AG still had to finance the work of their F1 engine factory – Mercedes High-Performance Powertrains.

Additionally, Mercedes’ overall staff dropped from 1063 in 2020 to 1004 in 2021, but what is more important is that there was an even more significant drop among staff members who fall under the budget cap. The number of people employed in design and engineering dropped from 906 in 2020 to 831 in 2021.

However the team did hire more people in human resources, legal and accounts, all areas which do not fall under the budget cap. Many of these extra employees were hired to help with the extra work related to the administration of the budget cap.

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Toto Wolff said that the cost cap did hurt the team, but it also made it more profitable.

“What has happened in F1 is that by setting a spending limit on the largest part of the cost centres in the team, we had to restructure and change our processes, make people redundant, unfortunately also, to fit into the cost cap,” the Austrian told Motorsport.com.

“Which is particularly painful if you hear the discussions of teams not having done that.

“As an organisation that was spending on engineering, in order to achieve the best performance, and suddenly needing a structure that needs to analyse from the moment of purchase throughout the production, the logistics and then deployment on the car, and setting priorities of what you give to the car, that’s super painful and difficult.

“The advantage is that, like the US franchises, we’ve set the spending limit, we’ve excluded support areas.

“So the support areas still needed to grow vastly in order to support the organisation with the cost cap.

“But the bottom line, if you’ve been successful on track with the TV money, sponsorship is basically going directly into your margins. And that has happened in the US.

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

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

Wolff further explained how the administration side of the team has grown in 2022.

“This is pre-empting 22 accounts, but we have 30 people more in finance, we have eight people more in legal, we have 50 heads more in marketing, communication, sponsorship, all of that, to administer the cost cap.”

He also explained how Human Resources are now tasked with interviewing job candidates, whereas previously this would be done by a senior engineer. This now allows the engineer to focus exclusively on his main role.

“Imagine the hiring process. An engineer in the past would hire a candidate or would interview candidates. First of all, you can’t afford it [in terms of his time.]

“But the other thing is, we don’t know if we can afford it financially. So he needs to link back with HR, and HR needs to link back with finance, and say we need another head that’s costing us £45,000 a year. Can we afford it?”

The Austrian also explained how Mercedes has moved many of its F1 employees to other non-F1 projects.

“In applied science, we have America’s Cup, and we have various other projects on performance engineering. We don’t want to be an engineering boutique that offers service to the industry.

“It’s really about records, wherever wants to be – records on land, sea, air and space, this is an area for us,” Wolff concluded.

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