In an interesting article at Forbes reveals that Mercedes AMG Petronas’s Formula 1 prize fund more than doubled this year from $65m to $150m. As you know, the more points you score in F1, the higher the payday from the prize fund dolled out by Formula One Management.
The article engages in an exercise of juxtaposing team operational costs or spend with the revenue generated against that spend. For example:
“In 2010 the team’s operating costs hit $194.9 million (£126 million) and it finished fourth in the standings, down from first place which it attained the previous year when Brawn was in the driving seat of the business. Finishing fourth in 2010 earned the team 214 points bringing its spending to $911,000 (£589,000) per point.
By 2012 its performance had reversed and it finished fifth in the standings giving it just 142 points. Its value for money hit its lowest ebb as it cost the team $1.8 million (£1.1 million) per point it earned. Hiring Hamilton the following year reversed this trend and it hit top gear in 2014 when he won the championship.”
In 2014, the team increased its operating costs to $373.1 million giving them the equivalent of $551,000 per point. As the article points out, Mercedes is reaping the rewards of their increased investment in the program but they are reaping the best value for money as smaller teams with less operating costs but decent points accumulation seem to do slightly better.
Mid-field teams are in the range of $660,000 to $740,000 per point with Red Bull Racing claiming four world titles on the trot for $645,000 per point. Perhaps this will come as no surprise to you but one of the main reasons for Mercdes’ higher costs is due to the new engines but that’s not exactly how team boss Toto Wolff put it. He says it was:
“due to significantly higher performance bonuses payable as a consequence of the record-breaking level of sporting performance and also increased costs arising from regulation change.”
Fair enough but clearly the biggest impact to the regulation changes is the radical increase in engine development for the new V6 turbo hybrid power units.
There is little doubt that Mercedes’ 2014 performance is reaping rewards this year in prize money payout and as they are on track to repeat their title-winning performance in 2015, that should make 2016 another big year for the team.
Mercedes may be spending a lot on F1 but the payoff is working and according to Wolff, shareholder expectations have been met. One wonders just what benefit it has had on road car sales and brand as well as marketing penetration?
Overall, Mercedes’ involvement in F1 has been a unmitigated success and it should be a signal to other major manufacturers that if they do their math(s) correctly and go all-in, they can reap big rewards and the payoff can be worth the investment. Teams such as BMW, Honda and Toyota somehow missed the plot but perhaps the story of VW poking around the Red Bull team and a possible acquisition could mean that the German manufacturer could see the impact it’s competitor is having.
Hat Tip: Forbes