The word from Bernie Ecclestone (by way of Reuters) is that neither Caterham nor Marussia will be in Austin next weekend, which means that the field will be reduced to just 18 cars. There is no time to cobble together any third car options, as it is believed that these require a minimum of 60 days to be actioned. That being the case, this season will be over before third cars are required to appear.

The crazy thing about the current situation is that the rules regarding third cars are not public and the people who know the answers are bound not to reveal the details by strict confidentiality agreements, so no-one outside the signatories know how they work and anyone revealing the details (including Ecclestone and the FIA) can get into trouble by doing so. In the modern day and age it is astonishing that a sport can have secret rules and one wonders how the International Olympic Committee and other international bodies that recognise the FIA agreed to allow the federation to be a member  of their organisations when such things are still the case. One can understand the desire of some to keep the money out of the public domain, although if everyone is paying their taxes there really is no reason to hide this stuff and indeed prize money can be used as a promotional tool, as often happens in US racing.

In the meantime, the best that we can do is to guess the method by which the teams are chosen (with a little guidance perhaps) but without being able to read the full texts of the most recent agreements. It is believed that there is some kind of a ballot included in the rules, but there are no details of how this can and would be done. It is entirely possible that there are actually no rules regarding that. Whatever the case, these things cannot be changed without unanimous agreement. As I understand it, the third car rule is far less simple than some imagine. Teams cannot just turn up and run extra cars at all the races. In order to be fair (in a fashion) the teams should be given the same opportunities to run third cars because there will always be a strategic element in any additional car running. This means that the choice of these third cars has to be random. As we understand it, each ballot will exclude the team that ran a third car in the last race.

We do not know whether or not the third cars have to be run in the same livery as the two normal entries, or whether the space can be sold to different sponsors. That might help teams pay for these otherwise useless cars, but there may be rules that stop this happening, although there is nothing in the public domain that suggests that this is the case.  The Sporting Regulations state that “both cars entered by a competitor must be presented in substantially the same livery at each event”, which does not really help as “both” does not take into account a third car.

The real question is not who turns up in Austin but rather whether there are sufficient cars for next season, or whether teams will be required to run third cars to make up the numbers. This is a disastrous situation for all concerned because it is clear that third cars do not score points (and therefore  do not create prize money) but they do deprive others of income because their results are declared void and the others who finish behind them in a race do not move up the order. If, for example, a dominant team is running a third car, the team can score 43 points (for first and second) but the best a rival team can hope for is 22 points because third place will also likely go to the third car of the fastest team, leaving only fourth and fifth places (12 and 10 points) available. If the third car was not there, the second best team can score 27 points. Thus the midfield teams will be forced back in the F1 pecking order and will become less able to make money.

The FIA should get a good idea within a few days as to whether there will be 18 cars or 22 in 2015, as teams entering the World Championship have to lodge an entry by November 1. An entry fee is required. This is $50,000, plus $5,000 per point scored. This means that Caterham would need to pay $50,000, and Marussia $60,000 because neither has scored very well. In comparison, Mercedes’s success in 2014 is going to be costly with the team required to pay at least $2.8 million for its entry. That figure will likely go over $3 million before the season ends.

The other key question that we do not know the answer to is what is in the 100-year agreement between the FIA and FOM regarding the number of entries that must appear at each race, and what allowances (if any) are made for breaches. If there are 18 cars only in Austin this could in theory be a breach of the 100-year deal, but we do not know. If it is a breach the FIA could cancel the agreement and claim the commercial rights as its own once again. That is probably not the the case, but as all of this is secret we can only guess.

One can hope that one or both of the teams will be able to revive in the weeks ahead but in both cases the problems lie with the owners. Caterham is a mess and is being led by an Administrator who knows next to nothing about the sport. His actions will largely depend on who gives him advice and he is barely qualified to choose who is the best consultant. It is going to be very much a question of luck. His efforts thus far have been described to me as “blundering”.

Marussia has a buyer waiting in the wings but the Russian owner, who cannot afford to pay for the team, appears to be asking for way too much money for the team to be taken seriously. Missing Austin may drive this point home to him: his team is worth nothing as long as there are 11 teams. If there are 10 it has a little more value, depending on the debts.

There is no official confirmation from Marussia that the team will not be in Austin and, to be honest, it is strange for the Commercial Rights Holder to have announced such a thing before the team has made any statement to that effect. It is dreadful publicity for Formula 1 and thus one must assume that either Ecclestone has done this deliberately, or he does not realise the impact that such a remark. Whatever the case, this brings down the sale value of the Formula One group. The current agreements that bind the FIA and FOM cover the period from 2013 to 2020 and an agreement to renew until 2030 on substantially the same terms, so it is a long-term problem.

No doubt, we will find answers to these questions in the weeks ahead.

A bonus in Austin…

Austin is going to be a busy place on Friday night with the F1 fans in towns and Halloween as well, so if you are an F1 fan and want to get some pease and quiet, away from the madding crowd, why not come along to An Audience with Joe. If you are reading this blog, you are probably keen to know how things really work in Formula 1. It is not easy to discover, but there is an easy way to learn – by asking questions to one of the sport’s most seasoned observers. You will also get fed great food and have the chance to have a few drinks with a bunch of like-minded American F1 fans.

The Audience with Joe will take place on Friday night (October 31) in Austin, at the Z’Tejas Restaurant at 1110 W 6th St, Austin. Entry is by ticket only. Joe will offer a very brief introduction, with a glass in his hand, and after that the floor is open to any questions that you want to ask. There are only a limited number of tickets available in order to ensure that all the fans have the chance to get answers to their questions and if you are shy you can always ask Joe directly during the break we have for dinner or after the event comes to a close. It will run for 7pm-11pm and thus will mean that you can avoid all those pesky trick-or-treaters who will be prowling the streets that evening The event costs $60 per person, while drinks will be available at normal bar prices. Joe has been to EVERY Formula 1 race in 26 years so he has a vague idea of what goes on behind the scenes in this most fascinating of all sports. For more information and to buy tickets, click here.

Meanwhile in Coventry

Coventry, traditionally the home of the British motor industry, is planning to one of the first cities in Britain to host street events, once the British Government passes new legislation allowing the local authorities to close roads for competition, without the need of an act of parliament. The city council has given the go ahead or the project which aims to turn the streets into a track for exhibition runs for the British Touring Car Championship. The idea is to turn the city’s ring road into a race track for what will be called Motofest 2015. If these time trials are successful, the city hopes to stage a round of the BTCC in the future. The event is due to take ace on the Spring Bank Holiday weekend of May 29-31, which will give the city extra time to get things set up and dismantled.

The Administrators from Smith & Williamson are planning to take over ownership of 1MRT in addition to acting as administrator for Caterham Sports Limited. This offers the potential for the team – or what is left of it – to race again this season. The news has been reported as Bernie Ecclestone allowing the team to miss to races, but the truth is that under the terms of the contracts between the teams and the Formula One group, all the teams are allowed to miss a maximum of three races and can still retain the franchise, as long as the company that signed the agreement remains solvent. The plan appears to be to miss Austin and Brazil and for the team to retun in Abu Dhabi. This presumably means that the Administrator will make an entry for 2015, which needs to be done by November 1, and will pay the entry fees necessary.

Finbarr O’Connell and Henry Shinners of Smith & Williamson say that the accountancy and investment management group, have agreed terms to acquire the share capital of 1MRT, the Malaysian company which holds the licence to participate in the Formula 1 World Championship. With the debts likely to be wiped out by the Administration, the agreement to acquire the parent company gives the administrators something to sell.

“This includes the Formula 1 licence, the racing cars, the designs and intellectual property for current and future seasons, plus the workforce and all of the technical support provided to the racing team by CSL from the Leafield Technical Centre,” explained Shinners. “Purchasing the assets would give the buyer ready access to F1 racing.”

The problem is that with 11 teams, the teams have very little value because they have to compete for prize money, which only 10 teams get. The 11th team will have to fight for a token payment of $10 million, as happened this year with Marussia. The prize fund is not about to change in the short term. The administrators say that they have already been contacted by a number of interested parties expressing a wish to buy the team, but it is doubtful that the offers will be very large. If Caterham finishes 11th this year, it will be 2017 before it will be able to get back into the top 10 prize money because the pecking order is established by results from two of the last three seasons. Caterham finished 11th in 2013 and will probably do do again in 2014, so it will not be possible to claim big money until the team has finished 10th or above in 2015 and 2016.

The two parties in the Caterham debacle have now descended to throwing accusations at one another, while the Administrator has impounded the cars and locked out the staff. By blocking the team from using the cars the Administrator is basically destroying what little value is left in the business. The staff is not going to hang around hoping that the team will be revived and everyone will be out looking for work with immediate effect. The good people will be snapped up. The good news is that the franchise is not owned by the insolvent company and as long as the holding company 1MRT remains solvent, the franchise will survive until March, when the first race of 2015 begins. However, that will only happen if someone lodges an entry with the FIA before November 1. And that will cost a considerable sum of money. The owner of the 1MRT franchise will need to do that, which appears to mean that Tony Fernandes and his partners (who wanted to get out of F1 at all costs in June) will have to invest more to keep the franchise alive. Given that they do not want to run a team and that they would, in any case, have to buy their assets back from the Administrator (once it is worked out who owns what), it is unlikely that they will do this.

If the Administrator will not allow the team to go to Austin, then he is hardly going to invest in an 2015 entry. However, the way things are going everything looks likely be locked up in a legal dispute for years to come, which will only serve to waste money and damage reputations. In consequence, unless something that moves the story forward emerges, I see no point in further comment on the matter.

One could say that it might be an idea for Bernie Ecclestone to buy the whole mess for a dollar, let the Administrator give the suppliers a nasty haircut and then buy the assets before giving the whole thing to someone to run next year. The franchise will survive until March next year, so long as someone makes an entry in the weeks ahead. If Ecclestone was to do this, the most likely person to get that job in this scenario would be… Colin Kolles.

Then perhaps the people behind Engavest (which is actually now called Caterham CF1 Grand Prix Holding SA) can prove that they do have money to run a team and were not paying because the shares had not been signed over.

However, when you stop and think about it, it would probably be more efficient to let it die. The Formula One group needs only 20 cars to keep the FIA happy. Without competition for 10th place in the Constructors’ Championship, the F1 spending “arms race” can now stop for the next two years, at least in the midfield. As the demise of Caterham will create a sort of unofficial budget cap because the lack of an 11th team means that all the small teams at the back can back off on spending because their prize money is no longer under any threat. Not having an 11th team means that the pressure is off and all they need to do is turn up with a couple of cars to make up the numbers. This will give them time to repair their finances and prepare for the future. Haas will (in principle) turn up in 2016 but the rewards structures in F1 means they the new team will not be eligible for prize money until the end of 2017, at the earliest, and in any case the new team is unlikely to get anywhere close to the others for a while, so the tail-end teams will get at least two full seasons to cruise and collect before they need to ramp up performance in 2017 just in case Haas is competitive. Thus if Bernie was looking to help anyone, it would be helping Marussia, Sauber and the others to sort out their messes, getting new investment in place and moving on… It is not quite “start and park” but it is the same principle.

Ironically, the demise of Caterham would also mean that the rival teams will all have a guaranteed value, of at least $90 million and that means that their franchises are suddenly worth more than a token sum…

Strange world we live in.

Tony Fernandes has now responded to the suggestion that the Caterham Group has failed to sign over the shares in Caterham Sport Ltd. This is rather more than yesterday’s Twitter remark, but it does little to clear up the situation.

“In June 2014, I decided, together with my co-shareholders, to sell my stake in the Caterham F1 team,” he said. “We agreed in good faith to sell the shares to a Swiss company named Engavest on the basis that Engavest undertook to pay all of the existing and future creditors, including the staff. The continued payment of staff and creditors was so important to me that I ensured that the shares would not be transferred to the new buyers unless they complied with this condition. Sadly, Engavest has failed to comply with any of the conditions in the agreement and Caterham Sports Ltd (the UK operating company of the F1 team) has had to be put into administration by the bank, with large sums owing to numerous creditors. Our agreement with Engavest was very clear: there was no legal obligation to transfer the shares to them unless certain conditions – which included paying creditors – were met. Those conditions have not been met. Our lawyers have asked Engavest several times to comply with these conditions but they have failed to engage. If you agree to buy a business, you must pay its bills. They have breached that promise and now, sadly, it is others such as the employees and the fans of the Caterham F1 team that will suffer if the team ceases to race. I sincerely hope that this will not be the case and that a solution can be found.”

Thus we have two versions of the story. One presumes that all the money owed was written down in a clear manner so that the buyers knew exactly what they were taking on. If this was not the case, one can see why they might feel aggrieved. The lawyers will no doubt one day sort out who is right and who is wrong, but on paper it seems that if Fernandes still holds the shares then he still owns the business and if he is so keen to protect the employees then perhaps he should step in and do the right thing and get the team moving again. If that does not happen the team is dead. The parties involved can go on arguing on who killed it, but the result is the same.

Dear Sir,

The staff of Caterham F1 were locked out of the team factory on Thursday – and that means just one thing: the administrator needs to take a crash course in Formula 1 rules, regulations and contracts or else he will destroy what value there is left in the troubled F1 team.

The role of an administrator is to run an insolvent business on behalf of the creditors, while future options are being sought. Stopping the staff from working on the F1 cars, and in effect stopping the cars going to the next race, is not the treatment that is required. It is equivalent to being a doctor and strangling your patient. There are probably questions about who legally owns the cars but these are ultimately irrelevant if the team does not keep trying to win World Championship points in the final three races. The team is unlikely to succeed, but if it’s not at the races, it is 100 percent certain to fail and that will guarantee 11th place for the second year running and a dropping revenues of cataclysmic proportions, by which I mean in the region of $90 million. One hopes that someone has told him this already.

One can only assume that the administrator has not had the time or the opportunity to read and understand all the different agreements related to the team (basically the equivalent of the Concorde Agreement) because if he thinks that quibbling over the rent at Leafield and not looking at the big picture of what happens if the team misses Austin, then there’s not much hope and the creditors are probably not going to get much.

Time is running out. The cars need to go to Brazil by any means possible.

Thus far, it seems all the administrator has managed to achieve is to drive away the people who were trying to save the business, and put the whole thing back in the hands of the people who don’t want it…


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