If you are interested…

Before I head off to beautiful Buda and Pest tomorrow, at a time when planes should not really be allowed to fly, when even the larks are not ready to lark about, I thought I would do a quick podcast to catch up with F1 in recent weeks. Since the last podcast, the F1 circus has rushed from Austria to Silverstone, by way of London, and is now in Hungary, and on its final approach to the summer break, when F1’s travellers are supposed to get a chance to down suitcases and spend a few days with their families.

In F1 we often say that we only catch cold when we have time to do so, this being something to do with subconscious relaxation that mean that our battle-hardened battalions of antibodies are outflanked by crashes of rhinoviruses. I think I must have been suffering from this because a few days off last week (to fit in with small people holidays) means that I now have a good old-fashioned summer cold. Despite this, I battled through the podcast last night and, if you are interested, you can listen to it, by clicking here. With the audio version one can edit out coughing, but if you get the video feed you get all the nasty sounds for free. Just click here.

A shock for DTM

Mercedes-Benz has announced that it will enter Formula E for the 2019/20 season and will withdraw from DTM at the end 2018. The company said that it wants to be “the benchmark in the premium segment and also explore innovative new projects and with Formula 1 and Formula E we have achieved exactly this balance”.

The deal to extend the option for an entry in 2019 was requested to allow the company to properly understand the series and make suitable preparations.

The withdrawal from DTM is a major blow for the series, which will be left with only 12 cars, six from BMW and six from Audi, unless other manufacturers can be convinced to take part in the series.  Mercedes has played a central role in the championship since it was set up in 1984. This became the FIA International Touring Car Series in 1996 but this was a total failure and the DTM was revised in 2000. Three years later Hans-Werner Aufrecht, the then boss of AMG, was the founder of Internationale Tourenwagen Rennen eV, the organisation that sanctions DTM races. When AMG was acquired by Mercedes, Aufrecht set up HWA to run the Mercedes entries in DTM. He remained chairman until earlier this year when he stood down and was replaced by Gerhard Berger.

The current DTM championship started with Mercedes, Audi and Opel between 2000 and 2005 but then the last-named withdrew and the series had to survive with two manufacturers until BMW came into the series in 2012.  Mercedes has won nine DTM constructor titles, but the last was in 2010, since when BMW and Audi have won three apiece. In terms of driver championships, Mercedes has won seven, the most recent being in 2015 with Pascal Wehrlein.

Strategic thinking…

The other day Chase Carey was talking to Germany’s Sport Bild about how Liberty Media plans to change the rules and economics of Formula 1, in order to attract more big players. He was talking to the Germans and so was saying that the sport wanted more German companies involved, with more manufacturers, teams and a solid German Grand Prix. This was interpreted in a fairly narrow way, the suggestion being that he wants more German influence in the sport.

In reality, it was a rather different message that he was delivering. If he had been talking to the Japanese media he would probably have said the same about Japanese manufacturers and likewise with the Americans. The bottom line is that he wants more automobile manufacturers – and it does not matter from where they come.

This is a logical strategic statement because F1 currently has only had four manufacturers (Mercedes, Ferrari, Renault and Honda). Back in 2008 there were six (Mercedes, Ferrari, Renault, Honda, BMW and Toyota) and that was pretty much a normal sort of number going right back into the 1980s. Some made little impression, such as Yamaha and Peugeot, and there were always odd suppliers looking for customers, such as Judd, Hart and others. Cosworth was there too, to pick up the stragglers as required, but the last Ford win was 14 years ago.

Everyone understands the power and global market penetration of F1, but not many manufacturers want to pay the kind of money that is required to join the F1 club today – and they are quite open about it. F1 is too expensive. Thus it is safe to conclude that if one can bring down the costs to a sensible level, other manufacturers will join the fight. There is no real logic these days in building teams from scratch, as there are 10 perfectly good ones in action, at least three of which are for sale at any given moment. It would probably be wise to change the system a little and have all of these entrants being given what the Americans call “franchises”. These are basically contractual rights to own and operate a team – within an established framework. In the US these are often linked to the team’s location, but in F1 it would simply be 10 teams, contracted to work together and sharing out money in an equitable manner.

The current system is secret, complex and not really very fair. Franchises in the US are bought and sold, although the franchise-holders can vote to admit new members if they see fit to do so. European sports leagues tend to work with promotion and relegation being used to determine membership, but this is impractical in F1 because of the huge leap in budgets from Formula 2 to Formula 1. If rising teams want to move into F1, they need to find backers to fund such a move.

The current prizemoney structure is heavily weighted towards Ferrari and other big teams, but if the money was redistributed in a more equitable fashion there would be more for almost everyone – and less reason for anyone to argue. Teams would get what they deserve, based on results. History and loyalty to F1 is all well and good, but the big brands make additional money from merchandising as a result of their heritage and so to reward them just for being there is deemed by many as being unfair. If all these bonuses and benefits were removed, the teams would get around $60 million apiece for appearing at races (what is known as Column 1 money) and the prize money (known as Column 2 money) would range from $110 million for the World Champion Constructor, to $23 million for the 10th placed team. That means that every team would get at least $83 million, without requiring any sponsorship or pay-drivers. Given that a couple of teams are operating on around $100 million with decent success, the need to cap budgets would only apply to the biggest teams.

A car manufacturer might baulk at paying $200 million for an F1 programme, but if a moderately successful programme generated $120 million in guaranteed prize money, one can imagine the decision being rather easier for the auto industry executives involved. And one must add that these numbers are percentages based on the money the sport generates and with everyone working together and new revenues being generated, the numbers will definitely rise. So too will sponsorship if the sport moves away from pay-TV in markets that will not support it.

At the moment, the manufacturers who do not want to pay for F1 go elsewhere in the sport. This generally costs less – but achieves less as well. At the moment the fashionable place to be is Formula E, which costs very little, has environmental credibility and goes into urban areas. The fact that it gives little back in terms of publicity and prize money does not matter at the moment, but it will do when the costs start to rise, which they inevitably will do as manufacturers are given more freedom to design their own powertrains and chassis.

Other championships have the classic boom-bust cycle with manufacturers seeing an opportunity and entering a series. This means that either one manufacturer dominates or a number battle and raise the spending levels. Usually only one can be the winner, so the others withdraw and the championship sinks back. This is seen in series like the World Touring Car Championship and the World Rally Championship. The World Endurance Championship allows for more exotic machinery and more spending, but the only race with any real promotional value is Le Mans and even this requires advertising spending to tell the world that a company has won the event.

DTM and NASCAR have the manufacturers working together to keep the regulations tight and thus spread the winning around a little bit more. By working together they all benefit, while remaining rivals on the race tracks.

In a perfect world, the spending in F1 would be limited to make the sport attractive to car companies. Manufacturers would then enter their own teams, rather than being only engine suppliers, thus guaranteeing that they have full control over their investments and making it more interesting for the fans. If the sport generates sufficient money to make the involvement entirely positive, then everyone will gain from the experience.

There was a time 15 or so years ago when it was reckoned that it was worth an automobile manufacturer being in F1 because of the halo effect that the sport had on the image of any company involved. Some believe that it is essential for there to be independent engine suppliers to provide competitive engines for any team not backed by a manufacturer, but without cost controls they cannot be competitive. At the moment F1 engines are still wildly expensive with research into the complicated hybrid technology being useful for the industry. Industry relevance is important, but not when it creates an automobile industry arms race in the sport. Car companies will be doing this research whether they are in racing or not, so the trick is to find a formula with rules that allows them to showcase their technology, without it becoming a question of who can spend the most.

At the moment the industry is still looking to hybrids and electric cars but it must be noted that of the 94 million vehicles manufactured in 2016 only four percent of them were using hybrid or electric powertrains. This is expected to rise to about 15 percent by 2023, but it will still only be a small part of the overall market. Having said that, up to now the big manufacturers have not been investing in the new technology nor marketing such cars aggressively, so the estimates may change. It makes little sense for F1 to switch away from hybrids, but it makes a great deal of sense to restrict these in order to cut costs. If that can be done, and chassis costs can also be cut back, F1 may become more attractive. It is clear that nothing is going to happen before the rules change in 2021, although discussions about the direction that this will take are now ongoing. Liberty Media is hoping that the new package will convince more manufacturers to join the fray. In order for that to happen, the rules need to change in such a way as to give everyone an equal chance to be successful.

At the moment Renault is the biggest of the manufacturer in F1. It is now the third largest car firm in the world, following its acquisition of Mitsubishi Motors last year and the fact that GM has sold its European operations to PSA Peugeot Citroen. This means that GM will likely slip to fourth in the pecking order, behind Volkswagen (10.3 million), Toyota (10.2 million) and Renault (9.9 million). Behind these four are Hyundai (7.8 million), Ford (6.3 million), Honda (4.9 million), Fiat Chrysler (4.8 million), PSA Peugeot Citroen (which should rise to around 4.3 million with its GM sales) and Suzuki (2.8 million). Of the luxury brands Mercedes sells 2.2 million, and is in a fight with BMW (2.3 million) and VW brand Audi (1.87 million), while another VW brand that might be interested is Porsche (238,000). As a comparison, super car companies Ferrari and Lamborghini currently only make 8,000 and 3,500 cars respectively, although they have far bigger margins.

There is a pretty solid case for GM and Ford to get involved in F1 to boost their global sales, while Fiat Chrysler has talked about an entry for Alfa Romeo. BMW, Audi and Porsche are obvious candidates as well.

 

F1 share offer terminates…

Liberty Media has announced that the investment opportunity offered to Formula 1 teams to purchase up to approximately 19 million shares of Formula One common stock (known as FWONK shares) has expired. The Formula 1 teams were offered the opportunity to invest at a per share purchase price of $21.26 at the time of Liberty’s acquisition of Delta Topco Limited, the parent company of Formula 1, on January 23, 2017. This offer was subject to a six month investment review process.

“We have been actively engaged with all teams to shape a shared vision for the sport that will create real value for all stakeholders,” says Chase Carey, the Formula One chairman, “While the window for this particular investment opportunity has passed, we are pleased with the collaborative discussions we are having with the teams. These discussions will take time, but we appreciate their receptivity towards further aligning our incentives for the long-term benefit of the sport.”

 

FWONK stock is currently trading at $34.23. There are currently around 230.6 million shares outstanding.

 

Notebook from The White Cliffs of Dover

Wow… This time of year one is really rolling with the punches in Formula 1. Three races in four weekends – and a lot of folk did not go home between Austria and Britain. A lot also went to Goodwood, so they have had no time off at all. After the secret promotional event in London last week I had a busy weekend at Silverstone (always busier than other Grands Prix as one knows more people) and then on Monday morning I headed off for Dover to get the boat home, Eurotunnel being prohibitively expensive – and less agreeable – at this time of year. If you pay a little extra on the ferry and get access to the club and priority boarding, the P&O ferry can be great. There is something comfortingly old-fashioned about the Peninsular & Orient and if one can leave all the school coach parties downstairs, it’s really rather enjoyable. There was even a sundeck on this trip…

The drive down to Paris that followed was fairly swift, although someone who had not listened to Jean Todt, managed to have an accident big enough to involve a helicopter landing on the motorway. Fortunately, I was listening to autoroute radio and was I was able to get off the road before I arrived at the closed section and got stuck in a jam. Thus a detour for a few kilometres of French countryside near Abbeville was agreeable enough and then it was back on the fast road. The reason to rush home was to do with summer holidays for small people and the last few days have been all about opening up a house, blowing-up paddling pools, dealing with plumbing, cutting back jungle and so on. These are all things that get lost in the 24/7 lifestyle that is Formula 1.

However, the green notebook was there, leering at me, a reminder that F1 life goes on as well.  I did get an email from the FIA, which caused my heart to sink. The decision has been taken to use the halo head protection system in 2018. I consider this to be utterly foolish for the sport. It has come about because in the summer of 2016 the sport voted to do something about head protection. A year on, no other system has been sufficiently researched and so we are stuck with the halo, but because there was a commitment to do something, failing to do so might have created grounds for a negligence claim and so the halo has been pushed through. One hopes that this is just a phase and that the hideous halo will soon disappear and be replaced by something sexier. I am all for protecting the drivers, but not to a ridiculous extent that threatens to damage the sport because the halo looks so awful. Millions of people play sport every day, and, inevitably, some suffer injury or pain. Most players and spectators accept this risk. You cannot ban dangerous sports because otherwise it would be done illegally and be more dangerous and so one must accept that some people want to take risks and are aware of the possible outcomes. Racing drivers know that they can die (even if they don’t REALLY consider the possibility). Danger is the thing that is popular. The F1 machines today are incredibly safe. They have been for a long time. Yes, there are still risks and flying wreckage is definitely important but where is the limit? People have a choice if they go racing, they sign a whole series of waivers and the reality is that very few accidents that occur in the normal course of racing give rise to a claim of negligence. If there is deliberate disregard for the rules or if nothing has been done to solve a known problem then there are possible claims, but there must a line drawn somewhere. And I think the halo is too much, it’s just plain ugly. F1 cars should be sleek and sexy and the shield is far better in that respect. I hope that the halo gets thrown out quickly and the shield can take over before the fans start walking away.

The key point about F1 is that people want to watch gladiators. They don’t want whingers who have to have the day off if they break a toenail. They want heroes. The other day, for example, Alexander Albon, one of Britain’s rising stars, suffered a broken collarbone after end-over-ending while training when his mountain bike hit some exposed roots. A collarbone is not easy (as we saw some year back with Juan Pablo Montoya), but Albon was back in action three weeks after the shunt (about half the normal recovery time). That was heroic.

F1 stars throwing wobblies, and behaving like primadonnas, whining on the radio to Charlie and so on, does not help the image of the sport… Nor does the halo.

Anyway, back to the notebook. There is, first of all, a note about how pleasant it is to be back in Middle England, a place where things have not changed so much, in bucolic backwaters with daft names, garden fetes, pony clubs and all the rest of it. Silverstone is still just an overgrown airfield, the child of the austere post-war age, but it is still a great place and to see the 2017 cars going through Becketts at full tilt is impressive. As I said before, the sport is all about heroes, doing things the rest of us cannot do…

I realized on the ferry home that I had not read a newspaper for days and had no idea what was happening in the world outside F1. Tut-tut. I was delighted to see that the Conservatives in the UK are now beginning to slit one another’s throats over Brexit and there are more and more warnings. A Japan-EU trade deal is deemed to be a threat to the British car trade… and so on. I noticed with interest that McLaren is expanding a facility it has at IDIADA in Spain, where it tests its road cars, and I could not help but wonder whether future engineers will have EU contracts, rather than GB ones… It’s a sensible hedge in case things get worse.

I saw also that Roger Federer had won Wimbledon for an eighth time, which pushed Lewis’s fifth British GP win off the back pages. What can you do?

The major chat in F1 circles at the moment is all about engines and it is getting interesting. Sauber seemed to have the basis of a deal with Honda (it was announced by Honda and they tend not to be silly) but the word is that in order to get Frédéric Vasseur Sauber has had to agree to switch engines. Fred might like Mercedes and he is very close to Toto Wolff, but it seems that the F1 Commission needs to give permission for more than three supplies and one can see that this will never happen. The F1 Commission cannot agree on whether to open a window, let alone rules and regulations.

Given the political power of Mercedes (in terms of votes) one can see Renault and Ferrari wanting few Mercedes teams and more teams with their engines to give them more political clout. So Sauber will need to stay with Ferraris next year, probably 2018 versions  of the engine, and the word is that F2 rising star and Ferrari protégé Charles Leclerc will be snapped to drive. Pascal Wehrlein will move on, which is probably sensible…

This means that McLaren’s only choice is to stay with Honda, or switch to Renault. No-one wants to see Honda kicked out of F1, least of all Honda, and the word is that the Japanese firm may do a deal with Toro Rosso (or perhaps even buy the team) so that they can remain in F1 until they can get the engines up to speed. Red Bull needs only insert a clause in any Toro Rosso deal saying that Red Bull Racing can have the units if they become competitive and Red Bull’s engine problems would be solved. It is a big if, but it is better than drifting on as is now happening. I have heard that there is still no real contract between Red Bull and Renault because of discussions over oil companies and so on, but going straight to Honda would be a bit radical so letting Toro Rosso take the pain, or selling the team (which Red Bull has wanted to do for a while) makes sense. That would mean McLaren with Renault engines, which would be just about OK, even if it would be a bit of a risk for the Renault team. Still, they are getting beaten at the moment by Red Bull, and sometimes Toro Rosso, so clearly they need to improve. Would a McLaren-Renault be sufficient to keep Fernando Alonso? Does he have any other real choices?

Fred Vasseur going to Sauber is a brave move for him, but given the time he took to negotiate the deal, it is fair to say that he must have got pretty much everything he wanted. He will, no doubt, get a flat in Zurich and live there a lot of the time, but he will also spend time back in his native France, where the wine and cheese is better (for a Frenchman). One would suggest that he has also been given the choice of engineers and drivers he wants. The owners of the team are awfully keen to point out that there is no favouritism towards Marcus Ericsson. They were so keen to point this out that they recently had a meeting for the whole team to explain that the evil media was making up stories about favouritism. The odd thing is that Wehrlein was not there. Some say he was not invited, but maybe he just forgot and spent the day shopping in Migros… It was all a bit odd really.

It will still not be easy to get the best engineers in Switzerland but that will be down to Fred’s ability to bring in the heavy-hitters. One expects that he has also had financial guarantees to pay for his plans, or at the very least he has the right to find money on his own account, if the mysterious owners do not want to pay more than they must. Fred has some cred in F1 circles, but it remains to be seen if this is enough.

Has McLaren finally decided to split with Honda? Who can say? But it is fare to say that the team has given the Japanese firm plenty of chances to improve. I would guess that there are two design teams busy in Woking, one for one engine, the other for the other. A decision must come back September. Going to Renault is not a great option for Woking, but it would be better than where the team is now and my feeling is that in 2021 the team will have its own engines . McLaren is already making its own road car power units and it is only logical to go down this path in the future. That will add to the value as and when there is a McLaren IPO is 2022 or 2023.

Elsewhere the rumours of the sale of Force India have increased with the suggestion at Silverstone that this summer Austria’s Andreas Weißenbacher will become the new force in the team. Vijay Mallya may stay on as a minority shareholder but it is clear that Subrata Roy of the Sahara Group is going to give up his shares to raise money to keep the Indian courts from sending him back in jail. At the moment Roy’s empire is gradually being taken apart by the Indian authorities and his property is now being auctioned. Selling his 42.5 percent share in Force India would help raise a decent sum and Weißenbacher might also buy out the Mol family in Holland, which were involved in the team in its days as Spyker, which still owns 15 percent. No doubt, if Mallya keeps his shares, there will be options for Weißenbacher to buy them as well.

Who is this Weißenbacher character? An Austrian. He owns the BWT brand and sees F1 as a good way to promote his water products. The company has revenues of $650 million and earnings of around $10 million per annum, which is not much in F1 terms, but Mallya has run the team for between $10-20 million a year (thanks to his prize money and cash from sponsors). BWT began sponsorship in motorsport in 2015 with a DTM car for Austrian Lucas Auer. The programme expanded to two cars in 2016 and this year funds Auer and Edoardo Mortara.

Auer, the son of Gerhard Berger’s sister Claudia, is currently fighting for the DTM title with Audi’s Mattias Ekström and will take part in the upcoming Hungaroring F1 test for Force India and, if all goes well, he could replace Perez in 2018 if he gets a superlicence. Auer is 22 and finished fourth in the F3 European Championship in 2013 and 2014 before switching to DTM.

Gene Haas uses F1 to sell his machine tools and so there is no reason why Weißenbacher would not do the same with his filtration, demineralisation and lime-scale protection products. He also manufactures metering pumps and distillation devices and is in the process of building up new business in the development of membranes for automotive fuel cells. And, of course, being an Austrian, he can always get advice from Toto Wolff…

The suggestion that Perez may depart Force India (under its new name) is fairly simple. He’s under pressure these days from Esteban Ocon. He does not want to stick around and get beaten as Ocon gets better and better. Perez could go to Williams next year (taking his sponsors with him) or he could get an offer from Renault, which wants Ocon back, but cannot get him. Perez and Hulkenberg has been a good combination in the past…

We’ll see how it pans out, but this was the gossip at the old airfield.

Seven hours after the race

Lewis Hamilton copped a lot of flak before the British Grand Prix for missing the F1 street event in London, but on Sunday at Silverstone he gave the British fans what they wanted most of all – a dominant victory. Hamilton took pole position and led the entire race while his team-mate Valtteri Bottas worked his way back to second place, overcoming a five-place grid penalty for changing a gearbox. It was not a day which Ferrari will remember happily as Kimi Raikkonen ran second most of the day, only to suffer a puncture on the 49th of 50 laps. He managed to recover to third, but a lap later the same thing happened to Sebastian Vettel and he tumbled from fourth to seventh. This meant that Hamilton closed to within one point of the Ferrari in the Drivers’ Championship.

As usual Silvesrtone produced a great race, with plenty of high-speed action.

– We interview Lewis Hamilton

– We look at the future of the British Grand Prix

– We celebrate F1’s secret promotional event in London

– JS is happy to meet Lightning McQueen

– DT writes about happiness

– The Hack examines the Perpetual Trophy

– Plus we have the fabulous photography of Peter Nygaard.

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One of the London bids

If you are a reader of GP+ magazine, you will have known about a big for a Grand prix in the London Docklands, which we published back in the Monaco GP edition. Following the Silverstone decision, we thought it might be a good idea to let fans download it to see the sort of thing that is out there. There are believed to be two or perhaps three bids in and around London and I have heard vague rumours of another city in the UK, but I don’t know any more than that. Having said that, Liberty Media wants to have destination cities and in the UK there is an argument that only London really meets that status.

Anywhere, here is our docklands story:

London GP

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