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The supposed plans for a Formula 1 race in Las Vegas have so impressed the city’s media that the Las Vegas Review-Journal laughed the suggestion off, although just to make sure the newspaper rang Las Vegas Events (LVE) president Pat Christenson, who said that he had not been involved in any discussions with anyone about bringing F1 back to Las Vegas. LVE is a non-profit organization which serves as the EXCLUSIVE major special events agency for the city. If he does not know about it, one has to wonder who does.

Bernie Ecclestone himself has said that Steve Wynn and Guy Laliberté, who had been named as possible backers, are not in fact involved at all.

The mayor of Las Vegas is Carolyn Goodman, who replaced her husband in the role in 2011. From what I hear Mayor Goodman (Mark I) promised the casinos that he would never again close down streets in Las Vegas for a car race after the Champ Car flop in 2007 and Mayor Goodman (Mark II) will no doubt know the full story and will be thinking along similar lines. The 2007 event attracted an estimated 40,000 spectators but the promoters lost millions and many downtown businesses complained that they lost revenues as a result. The promoter – DDB Ventures – closed down afterwards.

The other thing to bear in mind is that Las Vegas Motor Speedway has a vested interest in NOT having rivals races in the city. The facility is owned by Speedway Motorsports Inc, which is run by Bruton Smith and back in 1998 when Las Vegas last tried to host an F1 race, local sources told the Las Vegas Sun newspaper that speedway officials were doing everything they could to block a bid to build a golf course/race track because they did not want the competition.

The fact that the F1 to Vegas reports appeared in Forbes might suggest that there is some credibility to the story, but then again it might simply suggest that the quality of the Forbes reporting had gone down since the company was sold to Hong Kong’s Integrated Whale Media Investments in the summer.

 

As we head off to Austin in a couple of days, there are quiet rumours cooking over in Texas that the promoters of the United States Grand Prix at the Circuit of the Americas are struggling to make the event pay and want to make some changes in the future. The word is that Texan free enterprise and the Formula One group seem to have a potato/potahto, tomato/tomahto kind of problem and are beginning to head either to High Noon on Main Street or towards Gerschwin’s celebrated chorus: “Let’s call the whole thing off”. Now, Austin is charming and is, if nothing else, a race in the United States, but it is not New York nor Los Angeles and F1’s penetration into the US markets is still minimal as a result. This makes no sense because F1 is a consumer business and the United States is the world’s largest consumer market (by a million miles – and will remain so for at least another generation, no matter how hard the Chinese work). Thus if F1 is to fulfil its potential it should be making major efforts to get into the United States. This talk of a race in Las Vegas does not appear to have any substance at all (in the finest traditions of Vegas smoke and mirrors), but serious projects in California and New Jersey have fallen by the wayside because F1 will not compromise on money. F1 compromises to be in Monte Carlo, why cannot it do the same in other places? Many big international corporations alter their approach in different markets, in order to achieve the best possible results.

At the same time we are going to Austin with two assets that might help growth in the US market and there is no definite sign that either one will be used. Alexander Rossi is the only American driver within realistic range of F1 and yet getting into a race seat has proven to be difficult because there is no money to support him. If he is again left out in Austin because someone else came along with cash, it would not be smart, although one can understand it if Marussia need the money to survive. Surely, it would be wiser for the sport to find some cash from a shoebox under the bed somewhere and got Rossi into a car. This would get the US fans excited. If there is a US driver more people will watch… etc etc etc.

The same is true of Simona de Silvestro. She has enormous potential for the sport, not simply because she is a women who can (perhaps) race competitively and not be merely a token presence, but also because she is already a known quantity in the US, with a proven record in IndyCar, including a second place finish on a street circuit (which is a pretty good recommendation). As we have seen with Danica Patrick, the popularity of a racing series can go through the roof if there is a woman racing. It adds massive interest in the sport.

The two youngsters are assets that could go to waste and while there is an argument that F1 drivers have to make things happen for themselves, there is also logic in the argument that wasting assets is simply not very sensible.

Knock-on effects

If Caterham does not make it to Austin, the F1 grid will shrink to 20 cars. The creditors of Caterham, however, will also be out of pocket and, as they scramble to stay afloat, we may see a knock-on effect as they put pressure on other teams for money. Several other F1 teams are struggling quite badly and if another team goes, F1 hits trouble. The word is that, under the terms of the agreements between the FIA and the Formula One group, the latter undertakes to provide 20 cars at every event. If it fails to do this, then it is in breach and the deal could be cancelled. Under the terms of other agreements, the teams undertake to help the Formula One group achieve this goal. However, the terms of all of these deals are not known publicly – as they are all confidential contracts, which leaves us with the absurd situation of having what are, in effect, rules but we don’t know what they are. Why all this has to be secret is an interesting question as a little transparency would not hurt anyone. We don’t need to know the sums of money involved but I see no logical reason why the rest of the information is required to be secret.

As far as I understand the teams will use their best endeavours to make sure that there are 20 cars available. However there also seem to be ways in which teams can avoid having to run a third car, by claiming that they cannot afford to do so. At the same time there are serious complications and very real worries about having some teams running cars that do not count for the World Championship. There is also the question of how the teams providing extra cars are chosen.  The problem with this is that – inevitably – teams that provide third cars will use these cars in a strategic fashion and that can influence the World Championship, because although the third cars do not score points and do not count for prize money the results they achieve are declared null and void and are not awarded to the next best finisher. This means that third cars can be used as weapons to take points away from rivals and that the overall effect is to push the middle ranking teams further back down the grid, weakening their hopes of raising sponsorship. This means that mid-ranking teams are forced to the back and may ultimately suffer the same fate as the current backmarkers, which will weaken the manufacturing base of F1 in the long-term. The only thing that makes F1 different to all the other championships is that the teams each build their own cars. If this is allowed to slide there is a danger that the series will ultimately go the way of CART, which went from being a multi-manufacturer series to becoming a one-make series. Formula One tends to never look beyond its own horizon, but there is an example of what happens when the big teams are allowed to have too many cars in NASCAR.  This happened in the US stock car series between 2007 and 2009 when the shortage of money led to a string of mergers that destroyed the midfield, leaving the big teams completely dominant. It began in 2006 when MB2 Racing was taken over by Dale Earnhardt Inc (DEI). Just over a year later DEI was forced into a merger with Chip Ganassi Racing to create Earnhardt Ganassi Racing. In the course of 2009 Petty Enterprises merged with Gillett Evernham Motorsports and then a few months later merged with Yates Racing as well. At the same time Bill Davis Racing was swallowed up by Penske Racing. The problem was exacerbated in NASCAR by the fact that cars are allowed to change their sponsorship from one race to the next which meant that the big teams went to the middle team sponsors and offered them better deals for a limited number of races, thus sucking all the money out of the midfield. NASCAR eventually restricted owners and their affiliates to four cars only and the midfield is now gradually building up again as a result.

In F1, there may now be a Strategy Group that calls the shots but the team contracts that were signed do not take this into account and so unanimous agreement is required for change and none of the middle-ranking teams are going to agree to third cars on a more widespread basis as they know that this will be detrimental to them. Thus the only sensible way way forward is for the FIA to regulate on budgets, which will add value to all the teams and as a result to the championship itself. The FIA is not doing this and has shown no obvious interest in getting it done.

At the moment the value of F1 does not look like it is growing: teams are getting into trouble, the sport has failed to break into the US in any meaningful way, there is a lack of any obvious succession plan and there are the negative impacts of such things as the Munich Trial and F1’s unseemly behaviour with regard to President Vladimir Putin at the Russian GP. The owners of the F1 group, CVC Capital Partners, has shown itself to be pretty unemotional about the sport, its only creed being the pursuit of profit and the containment of risk factors. The group wants to sell the Formula One group, but with the value under threat (or already dropping) the best way forward is to put more long-term value into the business, rather than pulling off short-termist stunts, such as pay-TV deals and high-paying races in non-strategic countries, which might be willing to pay but do not have very positive global images. Some would argue that the best way to put value into the business is to reduce races fees so as to gain access to more lucrative markets and those that have more strategic value; to spread its profits wider in order to have healthier competitors, willing to work to improve the sport as a whole; and to embrace new revenue streams that have not been developed.

The Caterham F1 team appears to be in a right mess at the moment, with the previous owner and the new owner in dispute over the deal. Obviously we are not privy to all the paperwork, but what we do have access to is filings at the UK’s Companies House. These are useful to understand what was happening in the team. What we can see from these is that Caterham Sports, the company that runs the racing team, has only one “charge”, which means that some of its assets ARE pledged. The last available accounts cover the 2012 season, but these reveal a number of things: the principal activity of Caterham Sports Ltd is “to provide design services, testing services and race support services to its parent company 1Malaysia Racing Team Sdn Bhd” (1MRT). They also reveal that the team’s $75 million turnover was “derived mainly from management fees received from the holding company and other ancillary income”. The accounts detail that $27 million was spent on staff costs, $27 million on research and development and $19 million on “administrative costs”. One can suggest from these figures that the team was not responsible for paying for its Renault engines. The current engines cost around $38 million, everything included, but in 2012 they were cheaper. However, the administrative costs appear to be only sufficient for smaller suppliers, travel and so on, rather than a major item such as the engine bill. One presumes, therefore, that the Pirelli contract is also held by 1MRT. This all makes sense given that the entry is owned by 1MRT.  What is also clear from the numbers is that the team’s sponsorship revenues and TV rights payments do not come to Caterham Sports, but must go to 1MRT or to an associated company in Malaysia.

The one outstanding secured loan was worth $8.5 million and came from the Export-Import Bank of Malaysia (Exim). This is a Malaysian government-owned bank and this seems to have been the prime mover in the move towards administration. The loan was “secured by way of a debenture and a fixed and floating charge over the assets of the company”. A fixed charge is a secured on particular property, such as land, buildings, machinery, intellectual property and trademarks. A floating charge is more general, relating to the entire business.

According to the administrators, London-based Smith & Williamson, Caterham Sports’s debts are in the region of $24.2 million, which means that these are probably trade debts, built up during the 2013 and 2014 seasons. If one subtracts the loan, that means that around $16 million is owed to suppliers of various kinds, although there are probably staff costs included in the figure as well.

The key question that needs to be answered is whether or not the Formula 1 chassis are actually owned by Caterham Sports, or whether they belong to 1MRT, as the latter was the entity that commissioned their construction and owns the IP and was using the race team simply to provide services. This has to be the case for 1MRT to be considered “a constructor” in F1 parlance. The chassis should not therefore be covered by the charges mentioned above, as a company cannot pledge what it does not own. If the cars are deemed to belong to 1MRT and not Caterham Sports then the administrator has no legal right to seize them and there is no reason why 1MRT could not transfer them to another company to be raced. There is another company called Caterham CF1 Grand Prix Ltd that is in existence.

The revelation that the sale was made to a Swiss company called Engavest SA reveals a little more. This firm was previously called Dragon Global Entertainment SA before changing its name to Engavest and then in July – after the sale date – it became CF1 Grand Prix Holdings SA. It is not clear who owns this as the only names linked to the firm seem to be nominees. The same seems to be true of Caterham Sports which used to be owned by 1MRT but seems to have been transferred to a Romanian individual called Constantin Cojocar. He became a director just two weeks ago. The administrators say that Cojocar has indicated in court papers that the plan had been for his associates to pay $3 million a week to pay off creditors, but the money did not arrive. While this might suggest that there was no money behind the new owners of 1MRT, it might equally mean that they are not willing to invest their money until the sale is completed.

Tony Fernandes has responded to the Caterham press release saying on Twitter that “If you buy something you should pay for it. Quite simple”. This does not help the situation. The team was worth next to nothing when the owners acquired it in June. The impression given was that the previous owners wanted to get out without spending more money. If the sale has not been completed, as he is suggesting, then the team still legally belongs to The previous owners and so they are responsible for the mess in the UK and they can solve the problem by paying the bank that has called in the administrator.

If the sale has been completed properly then the shares should have changed hands, as would normally happen. Clearly there is more to this than meets the eye but all of these questions should be answered by the paperwork relating to the sale. If there were hidden debts that were not included in the documentation, there is possibly scope for legal action. If there were pledges on shares then these should have been declared in the sale contract.
We will have to wait to see the rights and wrongs of the situation. However, this does not help the staff of Caterham, who seem to be stuck between the two parties to the sale. The danger is that this dispute will now mess things up and the team will close and jobs will be lost.

As previously reported there are problems between the buyers of Caterham F1 and the team’s previous owner, a company that involved Malaysian airline magnate Tony Fernandes and others. The new owner – known at the time of the purchase as Engavest SA – says that it agreed terms with the previous owner at the end of June to take over control. However they now say that the seller has refused to comply with its legal obligations to transfer the shares to the buyer. The team says that it has been left in “the invidious position of funding the team without having legal title to the team it had bought”, which it says is in contradiction to a recent press release which stated that the Caterham Group no longer has any connection with the team. Administrators have now been appointed on behalf of Export-Import Bank of Malaysia Berhad (Exim), an organisation with which the buyers have no connection. The team says that appointment of the administrator has had “devastating effects on the F1 team’s activities” and have made statements that have been “severely detrimental to the management of the team”.
The buyer is now saying that it is looking all options, including the withdrawal of the management team and have instructed lawyers to bring
“all necessary claims against all parties, including Mr Fernandes”.
What happens next remains to be seen but if the team is to make it to Austin, immediate action is required.

The key question, of course, is why the shares were not transferred to the new owners. The only logical explanation is that they were pledged in exchange for loans and could not be signed over until loans were paid off.

For the moment the team remains a party to the F1 agreements, as the entry belongs to the Malaysian company 1Malaysia Racing Team. If this entity goes into administration then the team loses all of its rights and benefits. However if the operational arm of the team – Caterham Sports Ltd – goes out of business the assets could be sold to another party and this could take over the running of the team. However there is not much time to do this and there are probably legal hurdles to be overcome. The team can miss a race if it is necessary, but all rights and benefits disappear if the teams misses more than three races in the same year. Thus, in theory, Caterham could miss the final three races of the year and still be considered an active F1 team.

However, it is currently 11th in the Constructors’ Championship and will suffer a huge drop in revenues next season as a result of finishing outside the top 10 in two consecutive years and so it is in the team’s interest to be at the races if it is possible, just in case there is an opportunity to move up to 10th

While the new management has taken a lot of criticism for its handling of the situation, the new claims put a rather different spin on the problems. We await a reaction from the previous owners…

It has nothing to do with motor racing, but I feel the urge to mark the passing of Ben Bradlee, a man who did so much to define what good journalism should be – and who was not scared to take on the authorities when he felt it was necessary.

Bradley made his name with Newsweek in Paris in the 1950s, notably interviewing members of the Algerian National Liberation Front, which was battling for independence from France. This earned him an expulsion order (which he fought) but he returned to the US and became Newsweek’s Washington Bureau chief and when the magazine became part of the Washington Post group he moved on to become managing editor at the Post in 1965. He became executive editor in 1968 and remained in that role for the next 23 years. In 1971 he began publishing a State Department internal history of the Vietnam War from 1945-1967, which had been discovered by military analyst Daniel Ellsberg. This highlighted the dubious nature of some of the government decision-making and Bradlee felt that this should be debated publicly under the terms of the First Amendment. The Pentagon Papers, as they were known, were a significant step towards the end of US direct military involvement in Vietnam in 1973 and the revision of the Freedom of Information Act which gave the public better access to government documentation.

Bradlee went on to oversee the publication of stories that uncovered the Watergate Scandal, written by Bob Woodward and Carl Bernstein, which would ultimately result in the resignation of President Richard Nixon in 1974.

Bradlee was also a significant advocate of improving education and the study of history as a way to avoid repeating the mistakes made by previous generations.

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