The Red Bull-Mercedes-Ferrari spending war-game comes to an end

Red Bull, Mercedes and Ferrari “spending war” finally coming to an end

With the introduction of the cost cap, the “spending war” between the big team, Red Bull, Mercedes, and Ferrari is finally coming to an end. 

Toto Wolff, who is Mercedes' team principal has shown much appreciation for the recently introduced cost cap. It was introduced in 2021 for the first time ever in the history of F1. The cost cap "protected us from ourselves” as Toto likes to put it.  The main goal of this cost cap is to limit the amount of money a team can spend on its cars over the course of a given year calendar. This monitors so that the bigger teams do not outspend the smaller teams on the grid. 

When the cap was initially introduced it was at $175 000 000 as it was in a pre-pandemic world but was later reduced to $145 000 000 for 2021. In 2022, the cap was set at $140 000 000. For the year 2023, it was set to be higher due to more numbers in sprint races. The changes, however, did not produce the kind of enormous change that some fans might have been hoping for. Red Bull, Ferrari, and Mercedes finished in the top three. An added advantage that came with the cost cap was that it allowed the teams to be more financially stable, considering the COVID-19 pandemic. Wolff appreciated the former executive chairman of F1, Chase Carey for his wonderful vision which introduced the cost cap. He went on furthermore to add that it stopped an arms race between his Mercedes team and Ferrari and Red Bull.

Wolff reported to The Times, “The key change was that the cost cap introduced by Chase Carey protects us from ourselves. The situation before was that Red Bull, Ferrari, and Mercedes were fighting in their own league in a revolving spending war, but the smaller teams were not competitive. “The cost cap was based on a blueprint that existed in the US for a long time. In the NFL and NBA, you have a limit to what you can spend on your roster. F1 introduced a cost cap on technical development, which was the game changer for the business side of F1. Suddenly, we were profitable.” 

Wolff's wealth has also noticeably increased considering the fact that he is not only acting CEO and team principal but also owning a 33% stake in the team. Last year in August 2022, Wolff’s personal wealth was valued at $540 million (£410 million) by Forbes. 

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To our surprise, Wolff said his initial plan had been to stay with Mercedes for just three years. In his exact words, “I wanted to make a better life for myself and did what I could to succeed. When I started at Mercedes in 2013, it was a project. It was clear I am signing a three-year contract. I am team principal and 30 per cent shareholder and when the project is done, I shall sell the shares back to Mercedes. That was agreed. After three years, it was good fun, everyone enjoyed the success, so we rolled it into another three years. But it was still a project. It was a bit like my life in venture capitalism and private equity: buy, invest, develop, sell, but always an exit. Then, in 2020, I came to the conclusion that this is what I like to do. I like the sporting side, and I love the business side. And what we learnt during Covid is that content companies are crisis resilient. If you are able to put on a show, and broadcast it, it will entertain people. The real difficulty for media companies is to create content and the most valuable content is sports. Variations of sports teams, NBA, NFL, soccer in Europe and now F1 are limited franchises that are very difficult to replicate with a high entry-level barrier, because you have to invest a lot before you can become competitive and generate visibility.”

 

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