Site logo

Mercedes cut F1 costs by 40% in 2010

NEWS STORY
23/11/2011

There is no doubt that Mercedes has had little success on track this year but, perhaps surprisingly, new data shows that it has found a winning formula to get financial results from the sport.

The Stuttgart-based car manufacturer slashed the amount it spent in F1 by half last year according to a report by the Financial Times in Germany where Mercedes was attacked for re-investing in the sport almost two years ago to the day.

The report, written by Pitpass' business editor Christian Sylt, reveals that in 2009, when Mercedes' parent company Daimler, owned a 40% stake in the McLaren Group, it spent 34.8m on the team and another 88.4m on developing its V8 engines. At the end of 2009 it agreed to sell its McLaren stake to its co-owners Bahrain's sovereign wealth fund Mumtalakat, the Saudi-based TAG conglomerate and the group's executive chairman Ron Dennis. Instead of exiting F1 Daimler bought into BrawnGP and according to its latest accounts, last year it spent a total of 73.1m on F1 with just 230,000 of this paid directly to its team. It is a reduction of 50.1m on its F1 investment the previous year.

Interestingly, although the McLaren Group received a total of 35.7m from Daimler in 2009, it made a 94.4m profit so, financially, it could be said that it didn't really need Daimler's money. Presumably Daimler had a contractual obligation to pay the money to McLaren and since Mercedes had extensive branding on the F1 cars it got a tangible benefit for it. However, remarkably, Daimler did not recoup one penny of its costs since the McLaren Group decided not to declare a dividend to distribute its 94.4m profit. This is likely to have been a majority decision by the shareholders who held the 60% majority of McLaren and, under these circumstances, Daimler would have been powerless to get money out of the team. If so, it is little wonder that it wanted out.

BrawnGP won the 2009 championship but buying it was a daring gamble for Daimler because in the 12 months prior to its acquisition there had been an exodus of car manufacturers from F1 due to the economic downturn. Renault had reduced its involvement whilst BMW, Toyota and Honda pulled out completely with the latter selling its team to Brawn and his fellow managers for just 1.

Daimler owns 60% of its team with the remainder in the hands of Abu Dhabi's sovereign wealth fund Aabar. The price has never been disclosed but it is believed Daimler paid around 70m. Brawn previously owned 54% of it so the sale made him a rich man. Although we now know that it has also paid off for Daimler, at the time the deal was signed it seemed to have a slim chance of being profitable.

When its acquisition of BrawnGP was announced in November 2009, Erich Klemm, deputy chairman of Daimler's supervisory board said that the "exit at McLaren-Mercedes was a chance to completely leave the costly and controversial circus... We can not understand why the board of directors has immediately started a new Formula One project."

The criticism became even stronger when the team, now renamed Mercedes GP, hired seven-time world champion Michael Schumacher in December 2009 on an estimated 6m annual salary. Uwe Werner, another supervisory board member, reacted by saying that "the Daimler board decrees, on the one hand, harsh austerity measures for the workforce, and has shifted some production to facilities in other countries. On the other hand it spends tens of millions on Formula One. It is incomprehensible to many workers."

At the time of the acquisition Dieter Zetsche, Daimler's chairman, said it was Mercedes' intention to reduce costs to "a quarter of what they were within two years." It was hard to see how this would be possible since, as Pitpass reported, the team then only had around 9m of sponsorship committed for 2010 which, combined with its prize money for winning the world championship, gave it total revenues of around 53m. This was 82.1m less than BrawnGP spent on its 2009 championship-winning campaign, and 79.3m less than McLaren's costs in the same year, so it initially looked like Daimler would need to invest more money in F1 than it had been doing. Two years on, we now have proof that this was not necessary.

In 2009 the Formula One Teams Association (FOTA) implemented the Resource Restriction Agreement (RRA), a series of measures designed to stop more manufacturers pulling out of the sport. It reduced budgets and the effect of the RRA has steadily increased every year since it was introduced. It limits areas such as staff numbers, size of computer storage space and the amount of days cars can be tested on track. Daimler banked on this driving down costs and when it bought BrawnGP Zetsche said "the background to this decision are the new terms and conditions for Formula One." He added that "the Resource Restrictions set by FOTA...effectively limit expenditure for the design, construction and running of the racing cars."

Combined with FOTA's decision to drop the costly KERS system, the RRA reduced costs in 2010 for both Mercedes GP and the team's engine division Mercedes-Benz High Performance Engines. At the same time, Mercedes GP's revenue was boosted by signing major new sponsorship deals with companies including Deutsche Post, IT firm Autonomy and Malaysian oil giant Petronas. With new revenue streams, and costs reducing, Mercedes was in a position to spend less in F1.

LATEST NEWS

more news >

RELATED ARTICLES

LATEST IMAGES

galleries >

  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images

POST A COMMENT

or Register for a Pitpass ID to have your say

Please note that all posts are reactively moderated and must adhere to the site's posting rules and etiquette.

Post your comment

READERS COMMENTS

 

No comments posted as yet, would you like to be the first to have your say?

Share this page

X

Copyright © Pitpass 2002 - 2019. All rights reserved.

about us  |  advertise  |  contact  |  privacy & security  |  rss  |  terms