Daimler AG, the parent company of Mercedes Grand Prix (nee Brawn) has reportedly discovered details of a fraud in relationship to a sponsorship that had been planned for its new Formula 1 team. According to the respected financial journal Handelsblatt, Brawn GP met with a Henkel employee as long ago as Monaco in May. They began discussing a deal being worth $43m a year. By the end of July a three-year deal worth $130m had been agreed. It was due to begin in March 2010.
According to the newspaper the scam was discovered only after Brawn and Mercedes did their deal. Brawn informed Mercedes boss Dieter Zetsche that there was a Henkel deal in place and he spoke directly to Henkel’s chief executive Kasper Rorsted, who said that the company had no interest in Formula 1 and denied any such agreement. The result of this was an investigation that revealed that the head of sponsorship and two accomplices were allegedly creating fake paperwork using Henkel stationery to get loans valued at $65m. They intended to use this money to pay for the sponsorship, but around $16m of that money is reported to be missing.
It is not clear how they intended to convince Henkel that it should agree to a sponsorship it was not funding. Henkel is now saying that it has no intention of honouring the deal signed by its employee (nor former employee) as he did not have the right to agree such a deal.
Daimler wants the cash.
Same thing just happened to Sarah Fisher in IndyCars… someone claiming to be from an energy drink company.
No doubt people will use this as more ammuntion to beat Nick Fry round the head with.
I’m a b’ness man. I’m surprised that at this level of money people don’t check with whom they are talking!! I cannot believe it…
F1 certainly does bring out the best in people doesn’t it!
That has to go down as one of the dumbest fraud attempts in history. How on Earth did they think they were going to get away with it when the evidence of their nefarious actions would be plastered across the side of the cars?
Perhaps it was a bit of under-the-table sponsorship money from Norbert to Brawn, to help their championship fight, as there were contractual restriction with McLaren.
John Chapman,
Judging by what Joe’s written, it suggests that the attempts to get loans of $65m were successful, hence the ‘around $16m of that money is reported to be missing’ line.
Based on that, it sounds like a pretty successful fraud to me.
First Qadbak and now this!! So much for F1 being run by people professional people……
You gotta love this sport!
We have not even started yet and the off track antics are still at full speed.
Henkel-gate.
They’ll need every penny and then some if they want to recruit Michael Schumacher…
Due diligence anyone? Ross & Nick & the other beneficiaries of the MB deal must be feeling a little concerned – maybe the deal was contingent on all other things being equal (i. e. sponsorship)
Let’s cover that story up with some Schumacher chatter. I will only believe it when I see Joe report the deal signed and official. (and even then feel like it could change until he’s literally on the track in Bahrain.)
This has all the hallmarks of the Eddie Jordan/Vodafone deal that resulted in Jordan being called an unreliable witness by a High Court judge.
James,
How can it be a successful fraud if the fraud has been discovered and they have been named and will almost certainly end up in jail.
Under UK company law, a company is bound by the actions of its employee if it was reasonable for the other company to believe that the employee had the authority to enter into the agreement. Even in fact he didn’t have that authority.
If something like that applies in Germany, the legal case would revolve around whether Brawn were reasonable in thinking that a head of sponsorship could sign off a $130m sponsorship. I don’t have that knowledge, but if Mercedes were to lose their case against Henkel, the clear implication would be that the court was saying that Fry couldn’t reasonably have thought that, i.e., he was incompetent.
I’m not sure you are all getting the point here. This is $130million that Mercedes is going to have to cough up themselves now.
No doubt they purchased Brawn thinking that they would have this massive sponsorship deal in place to help run a team at the top of the grid. Now they will be reeling – forced to find another sponsor or foot the bill.
IMHO: if Mike the Shoe Maker is going to drive for Merc, he will have a contract that states the minimum amount of development that must be made to the car – i.e. he will hold them to their original budget.
This could start to get a bit smelly. Sorry, correction, this is smelly, quite smelly.
I think that along with the loss of manufactures, the “new” F1 that dear old Max wanted so badly will return us to the days when such deals were quite common.
Manufactures and the “suites” have plenty of accountability, small F1 teams used to be sadly lacking in such trivial things, accountability, what’s that?
Where are you now EJ
Joe, I’m sure you can remember many such deals, some not a million miles from Bicester!
I suppose Max would look at this and think that Brawn were just carrying on a grand tradition! Ah, revisionist history.
This smells more than a little bit fishy on Henkel’s behalf, especially as the signatory to the deal appears to still be an employee.
Perhaps Henkel don’t wish to be involved with Mercedes for some reason.
I wonder if Jenson has gained a few extra laughter lines over this revelation?
Aren’t these guys involved with Mclaren ? Is there more to this than meets this eye since they arent exactly beer buddies with the poaching of the engine deal, the SLS/MP4-12C, stealing Button … makes me go hmmmmmm……
Ross Brawn has just posted on twitter that the team has no money problems and no Schumacher… Any thoughts?
Ricky,
Are you sure it is really Ross?
Button and McLaren must be laughing their collective arses off.
Henkel logos were present on McLarens for a while so there had been a link to Mercedes and Formula One in the recent past.
Obviously the Honda F1 ‘earthdreams’ marketing dept was still employed under the BrawnGP banner.
They must be so out of practice in signing sponsors they didn’t know what to do!
Hopefully Mercedes bring in their own marketing & sponsorship team..
Well that came out of the blue! I can see how having a scandal this big could hurt Mercedes GP…
Is this the deal that Brawn referred to when he said his funding is secured for the next 3 years? That kinda sucks if the latest Schumi rumor is just cover up gossip. Him driving for mercedes would just add to what I think is already going to be a very interesting and competitive season for 2011.
The silver lining is the situation couldn’t be any worse than the ludicrous “my earth dreams”…
Some people are really harping on about Schumi going to Mercedes and the chatter is really ramping up.
Could this happen? Will it happen? Is it just for publicity or is it a genuine chance for it?
I would like to see him back, but I’m trying not to get hyped, but seeing Fernando beating him again would be very fun.
James,
That’s going to be an awfully long time in prison, coupled with a very efficient and vigorous German profits of crime recovery process to go through before they might get to spend the few Euros that they manage to hang on to… What is a decade behind bars worth to you? Still impressively dumb.
Ah, it’ll all come out in the wash. Oh I kill me.
What brand were they proposing plastering Brawn’s with? Persil? Dial? Good grief, high end stuff.
[...] Ouch! That is going to hurt Mercedes GP Daimler AG, the parent company of Mercedes Grand Prix (nee Brawn) has reportedly discovered details of a fraud in [...] [...]
Nick Fry… LMAO!!!
I don’t think this is Mastercard / Lola all over again but it is amazing that the more things change, the more they stay the same.
I’ve got a race team that Henkel can back as well, if they want. Oh what, they don’t want to? Who have I been speaking with then?
Watching from the States and unfamiliar with the brand under discussion, I don’t know what particular logos we’ve been seeing on the Brawn cars… But this seems like a not-too-tragic loss. The loans didn’t come from Brawn, right? Worst case, Merc has to go out and get more sponsors for the team that won last year’s championship.
Not a business guy, so I might be wrong….
Oh me oh my!! Gonna be hard to fill that gaping chasm. You’d think their would be another german multinational to fill the gap though. I can imagine Ross and Nick on their knees to Norbert appologising.
This is a seriously major gaff though.
IMO this news justifies putting all Schumacher rumors to bed. Schumacher would be a wonderful promotion tool to a company like Henkel. If he’s not part of Mercedes GP next year, then there’s your reason for Henkel to get out of the contract.
This is the strangest story I have ever heard about F1. But I have to wonder if this is the full story yet. Shouldn’t the boss of F1 team contact the CEO of the supposed prospective sponsor during the negotiations at some point? If Brawn GP did not do so what does it say about their competence? Also then many other questions arise out of it. Is this the supposed long-term sponsor that Ross Brawn was referring to during the past season? Would have Mercedes bought into Brawn if there hadn’t been the supposed cash rich long-term sponsor onboard? Does this mean that Mercedes will have to cough up additional money from their own coffers? Also with car manufacturers so vulnerable right now could it be the case of bad publicity forcing the manufacturer out? Do the bookies need to start accepting new bets on this? What do you think about it, Joe?
Joe….
About 70% sure its the real Ross. The post was made quite soon after the news broke out. But I guess with twitter you never really know huh. More fool me…
I will check
Guys, just ask yourselves one question. Does Ross have time to tweet on Twitter? I doubt it.
Even if he would have time for it, I doubt, he would do it. There are far more important things to do…
Ricky, I’m afraid, you’ve been fooled. The guy is a fake. Like a Vettel account couple of months ago, for example. I remember, the guy who made it, he could even fool Jenson for a few minutes!
Ricky, the Ross account on Twitter is definitely a fake one! 100 percent.
I second that. I just received an email from the team. It is very clear: “I can confirm that it is not a real Twitter account for Ross”.
End of story. So avoid http://twitter.com/rossbrawn1954. It is not real.
Interestingly, one of Henkel’s many brands is one called Elch Pro (they make sealants for the construction industry, or something). Elch is German for Elk.
So, it’s a shame we’ll miss the opportunity of seeing an Elk branded Mercedes-Benz. And they say Germans have no sense of humour…
If Henkel really did give this employee the title of “Head of Sponsorship” then Daimler should sue Henkel for the money.
Companies are intangible so they can’t sign sponsorship deals themselves – only their employees can sign anything (directors are employees too). If Henkel held this person out to be the “Head of Sponsorship” then Brawn were entitled to assume he was able to contract the company to a Sponsorship deal and Henkel is liable. If that’s not the case then any company can get out of any deal simply by claiming the employee wasn’t authorised!
And was this the deal that gave Brawn the confidence to keep asking for a higher amount from Virgin than they were prepared to pay?
Then I shall remove that person…. In fact, I think I will just abandon twitter all together….
Hi Joe
Just noticed the sponsorship request at the top right corner of your blog. Seems like a good opportunity – can we discuss? I can offer $4.30 per year on a three year deal.
Email me at mike.schmidt@henkel.com if interested
This is the strangest story I have ever heard about F1.
You really think this is stranger than Mosley getting spanked by Nazi role-playing prostitutes?
andrea…are you sure he was fooling the real jenson??? lol seriously though, i have a huge amount of respect for what brawn achieved this past season, and it would be a shame to see the team flounder because of a mercedes pull out. i dont think that will happen, but surely it cant be good for the relationship to endure something like this so early on.
It amazes me that so many so called very smart guys are so dumb.
If Nick Frey and Ross Brawn were so besotten with the money and did not have this checked out at the highest levels by their staff and competent counsel, you have to wonder whether they should be running the team.
F1 is after all a business before it can be considered sport. Smart business men and women do not get caught with their pants down in this kind of deal. They may be caught with their pants down in a much different scenario but not where funding is concerned.
It’s obviously a good thing that Daimler and MB bought into Brawn. Had they not what would the status of this team be without $43 million per season?
Hi Anthony,
please forgive me for quoting you, it’s for context in a long thread, not to slice and dice your arguments:
“Under UK company law, a company is bound by the actions of its employee if it was reasonable for the other company to believe that the employee had the authority to enter into the agreement. Even in fact he didn’t have that authority”
I beg to differ. There is no solus causative effect in contract which may be relied upon by virtue of third party inference. There may, however, be damages awarded in tort if the contract offerer company has allowed the contract accepting company to believe, for the purposes of CA 84, ’86, ’06, that the person conducting negotiations additionally had powers as a authorised member of the offeror company.
Essentially, to permit a contract to be enforceable, in the event that a non – authorised employees makes warranty and agrees undertakings, conflicts with the (core and powerful) principle of privity of contract.
Where this story appears to confuse, is that the place of business is, or appears substantially to be, Germany, not the UK. German company law has always been unforgivingly strict on the concept of good faith. The UK only considered good faith a statutory recourse very recently.
If i have a moment to dive into useful quoted cases, i’ll pop back here with some more elucidating examples. However the operative phrase, which remains in CA’06, is “authorised representative” of a UK company. Any other person cannot be bound or bind the company.
E&EO my dear correspondent! Had i the capacity for memory of such arcana, i’d be scratching out a fascinating but comfortably paid living parsing such challenging areas!
Humorous aside:
Wm must surely be back to “Real Racing” again. Excercise for the reader to enumerate the “Madamina il cataglio e questo” record of gloriously dubious sponsorship deals which were a feature of an era i considered in my youth to miraculously deliver excellent racing.
I’ll hold off confirmation until we have PQ on Thurs/Fri.
Unless, of course, you care to stretch the semantics a little and consider all these sale / no – sale / maybe we’re for sale / who got the last slot, off-season sillinesses as the latter – day pre – qualifying?
to rj,
yeah, I really do:) Well, at least some people do some spanking here and there:D But a leading F1 team being conned by supposedly cash rich sponsor really does not happen every day.