On Apple and McLaren

So, Apple apparently wants to buy McLaren, in order to get its hands on automotive technology?

Now, here is a story that sounds possible. McLaren has some spectacular automotive technology and a company like Apple might be interested to get hold of this – if the company was seriously considering going into high-end automobile manufacturing. The problem is that Apple doesn’t appear to be going in that direction any longer. For several months now, Apple has been backing away from its earlier automobile project and people who had been employed on the secret project have now begun to be laid off. The intention now is to be a technology supplier rather than a manufacturer, with software going into the cars that will transform them into connected devices. Thus automotive technology is not what is required. It is more logical to do this and wait to see how the market develops and then perhaps use the Apple cash pile to buy the best option when the products are more developed. Apple can afford to buy any small car company without even blinking, but developing its own project makes no great sense as the automobile industry is not an easy market for any newcomer.

What gives this story some credibility is that it appeared in the Financial Times in London, one of the few sources that generally operates using old-style journalistic methods, making sure that the stories are correct and not speculative. The money markets like speculation, but they don’t like it in the financial media.

“McLaren is not in discussion with Apple about any potential investment,” was McLaren’s response to the story. This seems to be fairly clear. It looks like a denial, but it does not say “is not, and never has been” in discussion, which would have been a total denial. There have been rumours of Apple around F1 for several months and it could be that McLaren and Apple were talking at some point in the past. It is no secret that for the last two and a half years Ron Dennis has been looking for someone to buy out his partners in McLaren and thus regain control of the business. But then Apple would not be the perfect partner for him because Apple doesn’t do joint ventures. They don’t need to. They are the brand and they swallow up companies and use the acquired technologies. A deal to buy McLaren would kill the McLaren brand. And it is hard to imagine Dennis letting that happen. Such a deal might see the staff staying on, but Dennis would then have only influence, rather than control. So maybe McLaren and Apple were talking but, obviously, they no longer are. And no deal is happening. The Financial Times report seems to have come from Silicon Valley sources rather than from Woking, which might make sense if there are disgruntled ex-Apple folk wandering around with nothing much to do.

The story was, in any case, somewhat confused. McLaren Technology Group does not own the McLaren Automotive car company, or at least it owns only a very small percentage. The owners of the McLaren Technology Group do control McLaren Automotive, but the ownership structure is very different – and this is significant because overall control is not always the same. Having said that, if the money is good, the partners might sell both companies to a big player like Apple.

The story says that McLaren has expertise “that ranges from automotive engineering and on-board computer systems to novel chassis materials such as carbon fibre and aluminium”. This is true, but not in the single company, although the two firms do share the very flash Apple-esque headquarters in Woking.

The McLaren Technology Group, is a racing car manufacturer and a third party technical supplier. It is involved in marketing, it applies its technologies to other industries, it has a catering business and is involved in “corporate services”. It changed its name in January 2015 in order to draw attention to its diversified interests in high-technology company, involved in industries such as oil and gas, healthcare, pharmaceuticals, aviation and financial services.

McLaren Automotive is a stand-alone company and operates as a separate operation.

According to the last available filings 50 percent of the shares in McLaren Technology Group are owned by Bahrain Mumtalakat Holding, 25 percent by TAG Group (Mansour Ojjeh) and 25 percent by Ron Dennis. There used to be an agreement that Dennis and Ojjeh always voted together, which meant that the company was 50-50 between the original partners and the Bahrainis. The role of chairman rotated between the three parties and the chairman could vote as he wanted to vote. In other words, Ojjeh could vote against Dennis if he was chairman of the meeting and the vote was 50-50. This is believed to have been what happened some years ago and the two partners fell out. Whether this affected the voting agreements is unclear. However, an alliance between Ojjeh and the Bahrainis would create a 75-25 vote against Dennis.

The car company is very different. The last official filings reveal that McLaren Technology Group owns only 3.6 percent of McLaren Automotive. Bahrain owns 57 percent, Dennis and Ojjeh 11 percent each, with the remaining 21 percent owned by others, notably Singapore’s Peter Lim. Thus is order to get all the assets a purchase would need to be two purchases.

These kind of stories rarely appear without a good reason and the word is that there is an important McLaren board meeting coming that could change the face of the company once again. Rewind a couple of years to 2014 and you will recall that Martin Whitmarsh was ousted from his role as the boss of various parts of McLaren and Ron Dennis returned in an active executive role, after several years on the sidelines. As part of that agreement, Dennis was to find a way to buy control of the firm, by acquiring the shareholdings of his partners, or at least enough to get a controlling interest. Two and a half years later, that has still not happened and the word is that the shareholders have been getting impatient. They can change that structure and may be willing to do so. The problem, of course, is that McLaren without Ron Dennis is an odd concept, although to be fair there have been many car companies in history which carried the name of someone who had been removed from the ownership.

Time will tell what it all really means, but do not expect Apple to buy McLaren any time soon – if ever.

Notebook from a lounge in Dubai

On my flight back from Singapore, there was a six-hour stopover in Dubai. This is fine. The Emirates lounges in Dubai are exceptional, although they do not compare to the Turkish Airlines lounge in Istanbul, which is amazing. The only problem in Istanbul is that you might end up with someone blowing the place up when you are sipping your Chardonnay…

The Singapore GP seemed to have a huge amount more security this year. This can be irritating, although one understands the reasons that it is a good idea. What is not a good idea is if there is bag search when you LEAVE the circuit – even if it is four in the morning.

In Singapore, of course, working at four o’clock in the morning is pretty normal. We finished GP+ magazine at about four on Monday morning. We were just about to pack our bags and head home (to the hotel) when there was a colossal tropical rain storm. We were ill-prepared to venture out and so spent the best part of an hour waiting for the rain to stop. While I was doing this, I watched out of the window and was surprised to see some of the F1 riggers who were so wet that they had given up trying to shelter. One was lying on the track, pretending to swim down the main straight. His crawl was quite good, but the butterfly was exceptional. The night before, at the same sort of time, I found myself arguing with a Singapore policeman about why he should want to search my bags as I was leaving the circuit and trying to go home. Did he think I was stealing? What was it he was trying to find in my bag? He had no answers and, like a policeman who has no answers, he simply kept repeating that it was for “security”. Outside, the F1 perimeter, in the real world, there seemed little need for security.

The F1 paddock during the weekend was a dangerous place because of the stampedes of TV crews from one place to another as they, um, chased Chase Carey about. F1’s new chairman, or Chevy Chase, as he is already nicknamed, was being squired around the paddock to meet all the big bananas of the F1 jungle, but clearly was not going to talk to the media. Still, if you don’t have anything much to say, there is some logic in not saying anything at all. There are only so many questions that one can ask and you know that, at this stage, the answers are going to be waffle because the buyers have not had the chance to work out the details of what they will be doing…

Instead of running around in pursuit of Mr Carey, I decided to give chase on the Internet and discover about the gentleman in question. To start with, his name is not Chase, but rather Charles. His father, also Charles, was the head of various associations representing food producers. I guess that would be described as a lobbyist today. Carey Jr was born in November 1953 and so will soon be 63. He studied mathematics and economics at Colgate University in upstate New York and then went on to get an MBA at Harvard Business School. Somewhere along the way, he had a car crash and suffered a nasty scar on his lip, which is why he started to sport the extravagant moustache which has become his signature. He then joined Columbia Pictures, which led to his career in the media world. He first joined Fox in 1988 but then departed the empire between 2003 and 2009 to work with John Malone, after the latter had acquired DirecTV from Murdoch. He then returned to the Murdoch fold as President of Twenty-First Century Fox, a job he held until 2015.

Liberty is clearly a clever company and this was proved in the days after the Formula One purchase. On the day of the transaction (September 7) the market
capitalization of Liberty Media was $1.817 billion. Nine days later that had shot up to $2.320 billion, which means that the business is now valued (theoretically) at $500 million more than it was 10 days ago. Given that Liberty spent $1 billion for the deal and the theoretical value of the company has increased by half of that, one can argue that the F1 purchase has actually only cost the company half of what was announced.

The best deal in F1 at the moment was highlighted by the Williams Grand Prix Holdings financial returns for the first six months of 2016. These look quite rosy with F1 producing a profit of $5.5 million, which the team explained was due to a “non-recurring sponsorship payment” which, so they say, is a $20 million deal made by the Stroll Family, in order to prepare Lance Stroll for F1 next year. He now has the points required for a super licence and his 18th birthday is coming up shortly. Between now and the end of the year he will do around 8,000 miles of testing at a string of circuits around the world, driving an unbranded 2014 Williams-Mercedes. The car, which is being set up for Stroll at each circuit by Gary Paffett, was spotted at the Hungaroring last week and this week will be in Austria. The schedule includes tracks all over the world and so one can speculate that he will be seen in action in Austin, Interlagos, Abu Dhabi, Bahrain, Malaysia and Suzuka.

With such a programme and the possibility of even more funding next year, if he races, one can imagine that Williams will name him as one of its drivers for next year, probably alongside Valtteri Bottas. While this sort of thing is not necessarily the best image for Williams, it does guarantee that the team will have money to get to through to the next financial discussions in F1 and is a better option that struggling for money with ace drivers but no budget for development.

The arrival of Liberty Media seems to have spurred a number of people to look at team ownership, as the new F1 commercial rights owners (until 2110) are expected to change the structure of their company with the possibility of franchise arrangements, share ownership for teams and a fairer share of the revenues. The signs are that Liberty will adopt a much more collaborative style to drive the sport forward commercially, rather than using the confrontational approach that we have been used to with Bernie Ecclestone.

It is clear that the management style of Carey and Ecclestone is rather different and it remains to be seen whether it is utterly incompatible. If it is, and the transaction is completed, which is likely, then it is hard to see why Ecclestone will stay on. The key point in all of this is that what is effectively a reverse takeover of Liberty Media by the Formla One group will require transparency of the kind that F1 has not seen before. With such things, it is hard to see the Strategy Group surviving, and it is hard to imagine that Ferrari and others will get their historic payments. They may get more money, in terms of shares in the business, but one cannot imagine anti-competitive funding and rule-making as being things that the US regulators will accept. Liberty has a great opportunity to create a new structure, employ new ideas and generate new revenue streams and so new leadership will inevitably follow. Chase and Ecclestone are guaranteed to stay in their roles for 30 months after the deal completes, which means around three years from now. But one can imagine Ecclestone walking away if he is not happy (it’s not like he needs the cash), but he will miss the deal-making… Chase may see this as his final job before retirement and thus the identity of his successor may be more important for F1. There have been lots of names bandied about, including Martin Whitmarsh and Stefano Domenicali (the latter who just happened to be in Singapore on Sunday) but it is not clear whether Liberty will want old hands, or whether they will look outside the F1 bubble for the future. Much will depend, I suspect, on who impresses Chase Carey in the months ahead and which names are whispered into his ear by people he grows to trust. The biggest problem he faces will probably be figuring out who he can trust…

There are lots of other things going on in terms of the driver market and changes in the F1 calendar, but there is no space in this story to go into detail. Suffice to say, one needs to be aware that there is some opposition in Singapore to the renewal of the F1 contract there (which expires next year) despite the fact that F1 loves the city and the local government loves the race. Carey will need to do some number-crunching with the mandarins of Marina Bay to find the right solution…

Watch this space.

Six hours after the race…

The Singapore Grand Prix seemed to be rather a staid affair. Nico Rosberg was ahead and there seems to be nothing that second-placed Daniel Ricciardo could do to catch him. Kimi Raikkonen had managed to sneak up to third ahead of Lewis Hamilton and the World Champion wanted to get the place back. He needed a strategy to do it. So the team decided to call him into the pits and give him some new super-soft tyres to give him a chance to get Kimi. Ferrari responded a lap later and then Red Bull decided to do the same with Ricciardo, just in case… The Australian was not going to catch Nico on speed alone, so it was worth the risk. Nico was exposed… if there was a Safety Car he’d be in trouble. The team called him in. But two corners before he arrived in the pits the radio told him to stay out. Ricciardo had done a very fast lap and Nico had lost time with traffic and a small mistake. He no longer had the margin. And so the chase was on. Rosberg on his old soft tyres, was no match for Ricciardo on his new super-softs. There were 12 laps to go and a 21-second gap. It was great stuff…

Also in GP+ this week…

– We look at the Liberty Media purchase of Formula 1
– We look at the first Singapore GP in 2008 – and the scandal that followed
– We follow IndyCar star James Hinchcliffe’s adventures in ballroom dancing
– JS wonders about the future of the Singapore GP
– DT reminds us that some people should not be listened to
– The Hack ponders a long association with Max Mosley and a whole lot more
– Plus the usual fabulous photography from Peter Nygaard in Singapore

GP+ is the fastest F1 magazine. It comes out before some of the teams have even managed to get a press release out. It is an e-magazine that you can download and keep on your own devices and it works on computers, tablets and even smartphones. And it’s a magazine written by real F1 journalists not virtual wannabes… Our team have attended more than 2,000 Grands Prix between us.

GP+ is an amazing bargain – and it is designed to be, so that fans will sign up and share the passion that we have for the sport. We don’t want to exploit you, we want you to join the fun. You get 23 issues for £32.99, covering the entire 2016 Formula 1 season.

For more information, go to www.grandprixplus.com.

En route to Singapore

It’s been a busy few days with the news of the sale of Formula One and it will be interesting to see if any of the new owners turn up in Singapore to take a look at what they have bought. And to gauge the reaction to the sale with the F1 teams.

Is the purchase of F1 a good deal?

There are loads of questions that F1 fans have about the sport and there are not many people who are qualified to provide answers. Those who know the ins and outs don’t tell the world and most observers and commenters do not know the complexities. The sport is more than just a bunch of racing drivers battling on the track, it covers a vast array of subjects, from business, politics and sport to characters and, of course, history. The more you learn, the more fascinating the sport becomes. But how do you find out this stuff?

You can find out pretty much anything you want to know about the sport, and you can discover it in a convivial atmosphere, with drinks and a buffet dinner on the day before the race meeting begins in Singapore, when you can not only meet one of the most experienced F1 observers, but you can also meet other F1 fans in town for the event. You get a lot for your money, with a whole evening of questions, plus food and drink, all included in the very reasonable ticket price.

It is terrific value for money – and a great way to feel part of the event.

I will be hosting one of my Audience with Joe events on Thursday, September 15, at the Tanglin Club, which is conveniently located not far from the Orchard and Newton MRT stations, or an easy cab ride from the Marina Bay area. The event runs from 7pm until 11pm and I will answer any question that you want to ask. And you won’t get sponsor-friendly wishy-washy answers. I say what I think. I’ve been kicking around the sport for 30 years and know all the movers and shakers, so I get some interesting access that other journalists cannot get.

My goal in hosting the event is to engage with fans.I believe that we should share our passion for the sport and knowledge of it with as many people as possible.

“I attended an evening with Joe in Singapore last year and it was an excellent event,” wrote one fan. “Joe had the audience enthralled with his knowledge, stories and insights. He shoots straight and is incredibly candid. You will for sure walk out of the room knowing far more than you ever thought possible. One snippet about a particular legend of the sport alone made it all worthwhile. And this year the wine, beer and food are all included! Make sure you arrive in Singapore on time for 7pm!”

To book tickets for this unique event, click here

F1 and the EU

There are some who seem to think that the Liberty Media purchase of the Formula One group could be stopped by the European Union, perhaps having been prompted by those pulling their strings to try to stir up trouble.

So, let’s have a look at the realities of the situation.

There have been rumblings about the EU getting involved in the sport since July 2013 when the Concorde Implementation Agreement was first put in place, creating the F1 Strategy Group.

No action was taken.

The first hint of any protest came in November 2014 when a British MEP, Anneliese Dodds, wrote to the new European Competition Commissioner Margrethe Vestager, raising questions about competition issues in Formula 1.

Nothing happened. Another 11 months passed.

In October 2015 Sauber and Force India lodged official complaints with the EU Competition Directorate, alleging that Formula 1 is dividing revenues and making rules in “an unfair and unlawful” manner. The complaint challenged not only the financial side of the business, but also the governance structures.

Eleven months have passed.

It is only in the last few days that letters have been sent out to the various parties involved, asking questions. A cynic would suggest that this sudden burst of activity may well be based on the fact that there are going to be new people in charge of the Formula One group and thus new ideas and a willingness to make changes to keep the authorities happy.

In general, the European Commission has always tried to stay out of sport, leaving the governance to sporting federations. It is only when these bodies get out of control that the EU acts, although in the cases of big international organisations such as FIFA and UEFA, it has been the Americans who have been the ones to wade in. Having said that, Formula 1 did run into trouble with the EU competition department back in 2001 and, after a lot of huffing and puffing (most of which was unnecessary), the FIA and the commercial rights business were forced to change some of their regulations and agree on proper ways to do business. After that, there was no interest at all from the EU and the purchase of the Formula One group by CVC Capital Partners was waved through in 2006, subject to CVC selling its interest in MotoGP, which it duly did.

Everything was fine until the Concorde Agreement ran out in 2010. After that the Formula One group concluded individual deals with the major F1 teams, including different levels of revenue beyond the established payment schedules,
based (in theory) on the teams appearances at races and on their results on the race track. In addition to these financial benefits, the Formula One group concluded deals that gave six teams seats on the Strategy Group: five by rights of various kinds and the sixth going to the best performing smaller team from one year to the next. These agreements were cemented in July 2013, with the Strategy Group becoming a “new central governing body” with 18 voting rights split equally between the Formula One group (six votes), the FIA (six votes) and the six “main F1 teams”, which had one vote apiece. This became public information early in 2014 when FIA President Jean Todt admitted to the media in Bahrain that he could do nothing to help the small F1 teams.

“I do not have the power to change the regulations,” he said. “This year there is a new decision-making body, the Strategy Group.”

The fact that the FIA failed to protect the smaller teams was the primary reason that the surviving smaller teams decided to take action. They had nothing to lose.

The other element of the July 2013 Concorde Implementation Agreement that was questionable was that the FIA was given an option (later taken up) to buy a one percent share in Delta Topco, the parent company of the Formula One group, for $460,000. All the indications are that this share came from Bernie Ecclestone, rather than from CVC, but there was an agreement for the FIA to retain the share until CVC sold out.

The agreement also guaranteed a pre-existing right of veto for Ferrari, “in respect of the introduction/modification of any technical or sporting
regulations (except for safety requirements)”.

The arrangements, which clearly weakened the FIA’s regulatory powers, while making it a partner in the F1 commercial business, were not
sent to European Commission for approval, the federation apparently concluding that its own lawyers were sufficiently qualified to decide on the matter.

A new set of owners will obviously be keen to smooth everything over with the Commission and fix anything that is deemed to need fixing. They will, no doubt, agree to whatever the EU wants, if only because it will give them more money and more power. There must, in any case, be a new commercial deal struck with the teams before 2020 and this will need to be in line with what the EU wants and the rules of transparency on the NASDAQ. Liberty Media clearly has a very different approach to business than CVC and Bernie Ecclestone and, if it is necessary, the active involvement of these two entities can be terminated in the autumn of 2019. If Liberty is up front and shows a willingness to change things, then the EU will most likely be happy to wave through the new deal.

The EU might possibly decide to look retrospectively at what happened between 2013 and now, but the Competition Directorate has much more important things to worry about and does not want to be involved in the sport. The EU might fine the FIA for giving up some of its governance in exchange for a share in the commercial side of the business, but it is more likely that it will simply rule that the FIA must sell its share and govern the sport as it is supposed to do. The federation is contracted to lease all commercial activities to the Formula One group until 31 December 2110 (something that has been approved by the EU) and changing that would require one party or the other to go out of business. That is not likely to happen if the new owners agree to put the house in order and pay the FIA a sensible sanctioning fee. The big teams may not like being forced to accept changes to their deals, but if the EU says it must happen, they know very well that it is best not to fight and risk fines and, in any case, they are all going to negotiate new deals with Liberty and so they will be hoping to end up better off. The EU might choose to fine CVC and Ecclestone, but that would no doubt entail years of legal fights that no-one wants. So what is the point?

When all is said and done, waving the new commercial deal through with a few conditions to be met is the best way forward for the EU. Sorting out the governance issue is not really a big deal as the FIA has little choice but to do as it is told. Sorting out the money is something that Liberty can and will want to do – and the EU will support it.

On the subject of Force India

While folks have been trying to understand the complexities of the Liberty-Formula One deal, another story has been and gone: the suggestion that Carlos Slim Jr might buy Force India. It is not the first time this old chestnut has fallen from the F1 tree. The team does a remarkable job, thanks to a great group of people and some extra oomph from Mercedes engines. But what is such a team worth? The answer is that it is worth what someone will pay for it, be that $1 or $200 million. It has solid revenues from the Formula One group, in 2015, this will have amounted to about $85 million. In addition to that, sponsorship associated with Sergio Perez will have added around $25 million, with some money coming from other sponsors, if indeed the names on the cars actually paid to be there, which is doubtful in some cases. The Sahara deal, for example, seems to have been related to money long gone, while the Diageo cash may or may not have arrived, depending on who you talk to. Other money will have come from test drivers and so on. In total? Probably $120 million. The catch is that all of this will have been spent to keep the team sufficiently competitive to win the prize money, and to pay for the all-important Mercedes engines, so in the end, it’s a high turnover, low/no-profit operation. It survives, in the hope that one day things will get better, like most F1 teams without other businesses.

So what is it worth? It has an entry and runs very lean, but it requires funding on an annual basis, a chunk of which comes as a result of Carlos Slim Jr and his connections in the business world. If that money stops coming, then Force India is in a hole. It is perhaps logical for him, therefore, to say to the current owners: the troubled Vijay Mallya and his business partner Subrata Roy, who is up to his neck in financial and legal trouble (a la Mallya), and has spent much of the last two years in prison in Delhi, that he will take the team off their hands to avoid them getting into further financial trouble in the future. Putting more money into the team will inevitably lead to questions in India about from whence this money came. The team’s holding company used to borrow money from banks, but few if anyone will loan them money at the moment. Besides, what fun is a team that one cannot see in action and cannot be used to boost their own brands/egos?

Obviously, they would prefer cash, but the removal of future potential liabilities is often the most sensible route out of the sport for those who come and go. We’ve seen that happen so many times…

It is clear that in F1 circles, the shenanigans that surround the Force India owners have become a bit of a problem, and will become more so in the future as F1 dallies with the clean-living, all-American NASDAQ exchange, with its squeaky-clean apple pie approach.

So, is Force India for sale? Yes, of course it is. But will anyone leap in at the price that Mallya & Co might want? It’s unlikely. Potential buyers are better off waiting. There is a lot that is uncertain in F1 at the moment, but for a dollar you will always find a gambler, finding $200 million in the circumstances will not be quite so easy.