15/10/2017
NEWS STORY
New regulations which were introduced this year fuelled a £167.6m rise in team costs with Force India even needing to take money from Russian teenager Nikita Mazepin to cover the increase according to a report for the BBC by Christian Sylt.
There has been no shortage of media hyperbole this year about how the new regulations have made for closer racing. Cosmetically, the biggest changes are the wider tyres and wings intended to give closer racing. A major step forward has seen Ferrari in with more of a shout but we are still in a situation where, four races before the end of the season, Mercedes is on track to walk away with both titles for the fourth year running.
Trying to engineer a close finish to the championship has been an expensive experiment as last year the teams' costs rose 14.5% to hit a record total of £1.3bn according to the BBC report.
It is based on the first combined analysis of the accounts released by eight of the ten F1 teams with the only ones missing being Ferrari, because it is part of the car manufacturer itself, and Sauber as Swiss companies do not need to publicly disclose company documents. The accounts are all for 2016 and give the greatest insight into the cost of the new rules as F1 cars are designed the year before they race with the bulk of the investment in them made at that point.
Mercedes was the final team to file its accounts and lodged them last week. They reveal that it had the highest-ever costs recorded by an F1 team in Britain as total expenses accelerated 10.7% to a staggering £274.9m.
Team boss Toto Wolff says that this was "mainly due to the impact of technical regulation changes and movement in foreign exchange rates on non-sterling denominated expenses". It led to the team making a £3.8m net loss boosting its shareholders' deficit to £113.1m. Other teams fared even worse.
Force India's 2015 accounts, which were filed when development of this year's car was well under-way, reveal that it planned to cover the cost with income from an unlikely source. It said that "a multi-year development driver contract signed with Russian youngster, Nikita Mazepin, has secured a cash injection ahead of significant regulation changes ahead of the 2017 season".
Mazepin has more than enough funding as his father Dmitry became a billionaire through owning mineral fertiliser producer Uralchem. His son was just 16 when Force India signed him up last year and he has tested for the team twice since then, most recently in July following the Hungarian Grand Prix.
Despite this Force India still burned up a net loss of £11.6m which was the largest of any team in 2016. Its accounts go into great detail as to why.
They state that "the aerodynamic bodywork regulations have effectively been rewritten...This combined with the change to the size of the tyres means that our traditional method of retaining 50% of the previous season's car and updating the remaining 50% is not possible for 2017. Over 90% of the 2017 car is completely new with very little carry-over from 2016."
The new regulations even drove up the red ink at McLaren, which gets an annual prize money bonus of at least £24.8m ($33m). Its F1 team reversed from a £3.4m net profit in 2015 to an after-tax loss of £3.2m in 2016. Last year's accounts made it clear that the red ink was driven by the new rules as they stated that the 2017 car "is subject to significant regulatory changes to chassis design, tyre specification and aerodynamics. This level of investment will restrict the business's ability to be profitable."
As Pitpass recently reported, costs also surged at Red Bull Racing leading to its energy drinks company owner having to pour in £40.6m last year - four times more money than it invested the previous year.
At the other end of the spectrum was the smallest spender, last year's new entrant Haas F1. As Pitpass also recently reported Haas spent a third as much as the championship leaders and has managed to keep its costs in the slow lane by taking advantage of a new regulation which allows teams to buy in more parts than before. Haas uses a Ferrari engine with a chassis created by Italian manufacturer Dallara which also makes the cars for the F2 junior series.
Relying on suppliers reduces research and development expenditure which, along with staffing and engine spend, is one of the biggest costs for any F1 team. It explains how Haas managed to keep its costs at the relatively low level of £94.9m but even this didn't stop the average spending per team rising by more than a third in just five seasons, from £124.1m in 2012 to £165.9m in 2016.
Last year the teams made a combined loss of £2m sparking renewed talk of cost cutting. Recent reports suggest that F1's owner Liberty Media will present plans for a budget cap to the teams before the end of the year with a view to introducing them in 2021 when their current race contracts expire.
A limit of £114m ($150m) has been suggested and it would level the playing field as the smallest teams are already below this whilst the frontrunners would have to scale back. In just the past few days Force India's team boss Bob Fernley admitted that "what it will do is bring us closer."
It may sound sensible enough but it raises the question of what was the point in introducing new regulations which boosted costs just a few years before a spending cap comes into force.
While the jury is still out on that one, it's worth remembering that despite all this it appears to be 'business as usual' in terms of Mercedes winning the titles, a scenario likely to continue into 2018.