16/02/2010
NEWS STORY
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Brawn may well have won both world championships last year but we all knew that the Brackley outfit was running out of money.
Mercedes' buyout gave the team a solid foundation but this of course came at a cost. With the team's sponsorship situation now clear, Pitpass' business editor Chris Sylt analyses its finances and concludes that Mercedes may have to pump £33.9m ($53m) into the team to maintain its winning ways.
The key to understanding the basics of this is the concept that the bulk of the design costs for F1 cars and engines are spent in the year prior to them racing. So the cost of designing the Brawn car which won the world championship last year was largely spent in 2008 when the team was owned by Honda. Indeed, Brawn's victory was no coincidence since Honda spent a massive £166.5m on it in 2008 - more than any other UK-based F1 team. Mercedes' acquisition of the team in November last year came just at the right time as development of the 2010 car was in full swing and of course prior to the buyout the team had no billionaire benefactor or car manufacturer as its owner.
To stand a good chance of retaining its world championships the team will need at least the same £166.5m budget which it had at its disposal to get its 2009 car on the track. True, budgets have been going down but Brawn was running out of money when Mercedes bought into it and so the immediate investment required to keep it ticking over will most probably have cancelled out any scaling back which can be made in getting the car onto the grid this year. Indeed, this kind of reduction could well be a risky business since F1 teams aren't renowned for retaining world championships by making cut-backs.
F1's industry monitor Formula Money estimates that Mercedes' team has £47m ($74m) of sponsorship with title sponsor Petronas alone believed to be providing £35m ($55m). It will receive £44m of prize money for winning the world championship last year which gives the team a total of £91m in revenue. This leaves a £75.1m deficit in covering the costs of mounting a campaign to retain its world championship. As a 45.1% shareholder in the team, Mercedes would cover £33.9m ($53m) of the deficit. However its cost of competing in F1 doesn't stop there.
Mercedes spent £96.1m on designing and building its F1 engines in 2008 and any reduction in this could also carry with it a risk of losing its championships. So, adding these engine costs to the additional investment in the team gives Mercedes total F1 costs of around £130m ($204m). It is a 35% increase on the amount it has been spending on McLaren.
According to McLaren's 2008 accounts the team had costs of £125.2m on revenues of £139.1m from prize money and blue chip sponsors such as Vodafone and Mobil 1. This gave the team a £14m pre-tax profit rather than a loss which would have required additional investment from the owners. However, Mercedes still had to foot the engine costs just as it has to do so now.
What about the money Mercedes receives from McLaren's owners for the 40% stake it held in McLaren? That shouldn't be offset against its investment costs in Brawn and there is good reason for this. Mercedes did not need to buy into Brawn but it is estimated that doing so will cost the manufacturer £33.9m ($53m). Mercedes could have simply sold its stake in McLaren and exited F1 which would have left it with a payout of around £200m. As Erich Klemm, deputy chairman of the supervisory board of Mercedes' parent Daimler, said soon after the Brawn deal, the car manufacturer's "exit at McLaren-Mercedes was a chance to completely leave the costly and controversial circus." If its F1 involvement doesn't pay off this year then that is exactly what may happen.