Some basic truths

Bernie Ecclestone says that the Formula One group could be sold by the end of the year. Everyone (and their dogs) has reported on this exciting revelation – without any means of checking the credibility of the story. Bernie is the only source.

These days if Ecclestone tells someone that the world is shaped like a big cupcake, and there is a massive cherry sitting on the North Pole, somebody out there is going to write the story (and will claim an exclusive). There are no standards left in modern journalism and so people can say whatever they like and it will be reported.

It is probably correct to say that the Formula One group could be sold before Christmas. Bernie Ecclestone could also win the National Lottery. The Loch Ness monster could be caught and turned into fish paste and Lewis Hamilton could marry a lady called Doris from Wells-next-the-Sea, but, let’s face it, “could” and “will” are very different words. Anything could be sold if the money is right but, in my experience, Bernie does not suddenly come out talking about deals that are close to completion. And let us not forget that he has always been (and always will be) completely hooked on secrecy. So the only obvious conclusion is that no deal is close – and that his remarks are deliberately designed to achieve some other goal. Eighty-five-year old leopards do not change their spots.

I would hazard a guess that the remark was designed to shake the proverbial tree and see if any bidders fall from the branches, worried that they may be missing an opportunity. The need to do this, however, suggests that there is no-one in the market at the moment who is willing to offer the kind of figure that the CVC Capital Partners wants to be paid to go away. This is no great surprise, as the value they have placed on the Formula One business is way more than it is really worth and, in any case, the value of the group has been driven downwards in recent months by pay-TV, falling sponsorship revenues, political instability, EU complaints, German court cases, races in dodgy places and so on.

I have no doubt that people are willing to pay to buy the Formula One group, but no-one sensible is going to meet the CVC price.

So, is F1 going to be sold by the end of the year? Only if someone is willing to pay more than the business is worth…

In other words… No.

There has been a great deal of press coverage in recent days about the Volkswagen Group’s ongoing disasters as a result of the diesel emissions scandal. To put this into some kind of perspective the shares were worth $285 in March, that drifted down to around $187 a month ago. This morning they hit $96, some of that is due to currency fluctuation, but it is clear that many investors have simply baled out. The value of the company has fallen from $110 billion at the end of last year, to just $50 billion. That is a big hit, but the real question is how much the crisis will cost the company in cash terms.

This is hard to calculate because it is difficult to know how the crisis will affect the number of buyers and their faith in the VW brand. The last few days have been painful for automotive parts suppliers with the markets driving down the value of stocks such as Tenneco, BorgWarner, Delphi Automotive and Continental because there is a fear that consumers will turn their backs on controversial diesels and look instead to hybrids and electric vehicles when it comes to buying new machinery. The analysts at Credit Suisse have tried to calculate the likely damage, taking into account all the various elements involved, including the costs of recalling the cars involved, paying all civil and criminal damages, including those of investors, who are already sueing for compensation for the loss of share value, and all demands for the repayment of subsidies and, of course, the likely impact of the scandal on the VW brand. Their conclusion was that the shares will probably fall another 20 percent in value and that the final cost of the affair will be between $25.6 billion and $87 billion.

The jangle of silver

If you read some of the websites that claim to understand Formula 1, you might think that Mercedes Grand Prix Ltd is on the verge of collapse, having posted a loss in 2014 of $116.6 million. That is a big loss, but one must not forget a couple of rather important facts: firstly, Mercedes Grand Prix Ltd has the financial support of the Daimler AG, a $50 billion company, with annual revenues of $145 billion. Secondly, the loss has been budgeted, on the basis that the team knows that its revenues are going to increase by a similar amount. This is thanks to the success that the team has enjoyed in 2014 and 2015. The race wins mean that when it comes to calculating the Constructors’ Championship Bonus (CCB) fund that exists, the team will get a substantial percentage of the $135 million that is available. The fund is open to the three teams that score that most number of wins over the four-year period, prior to the payments. Thus Red Bull is still getting plenty of money because of its successes between 2011 and 2013, but Mercedes is eating into the fund thanks to its wins in 2014 and 2015. Ferrari is going to drop out of the top three for a year because McLaren has more wins, but next year McLaren will drop out and Ferrari will be back, although neither has won enough to get big money from the fund. There is also believed to be a big bonus for Mercedes if it wins two titles, with its historical money expected to jump from $30 million a year, to around $80 million. This is difficult to quantify because there are all payments that are paid behind closed doors and there is no official public confirmation that they even exist. Anyway, the interesting thing about the Mercedes accounts is that they confirm that the team has been spending $1 million per day on the team (the engines are not included in this). The operating costs of the team rose 20.6 percent in 2014 from $289 million to $364 million, while the team’s revenues rose only 14.8 percent from $190 million to $223 million.

It was good to have a weekend off and while it was flooding down on the Cote d’Azur, Paris was pleasant and I spent Saturday nosing around at an antique fair, finding very little except some spectacular postcards printed from glass plate negatives from the early years of the sport. However at €25 a card, I thought this was rather excessive… The F1 world has been relatively quiet after the flurry of activity resulting from the World Council, and from October 1 option dates. I was surprised that Haas did not name Esteban Gutierrez as well as Romain Grosjean, but I guess that this will be done in the days leading up to the forthcoming Mexican Grand Prix.

The Autódromo Hermanos Rodríguez was officially reopened at the weekend with Mexico City’s Mayor Miguel Angel Mancera joined by Sergio Perez and Emerson Fittipaldi. Perez drove an ex-Pedro Rodriguez Yardley BRM P153. Among those present for the festivities was former Mexican F1 driver Héctor Rebaque, who raced a Hesketh when he made his F1 debut back in 1977. He would later buy ex-works Lotus 78s and 79s and ran his own team before asking Penske to design a Rebaque F1 car. This was not a success and in the end Rebaque bought himself a seat with Brabham in the second half of 1980 and in 1981. Rebaque was ultimately replaced by Riccardo Patrese and went to the US where he managed to win a CART race at Road America.

The mayor said that there is still a fair bit of work to be done in the next month before F1 returns to Mexico for the first time in 23 years. I attended the last few Mexican GPs, back in the 1990s, and I have to admit that I did not much enjoy the experience, but they tell me that much has changed in the city since those days. This is what I wrote about the last visit in 1992.

Mexico City is not the kind of place one goes to for a holiday. There are seventeen million people crammed into this metropolis – give or take the odd 100,000. It is overcrowded and horribly polluted. As the Formula 1 circus rolled into town, the city was undergoing a record-beating bout of pollution – four times the accepted international safety levels. It has never been a popular sport for F1 folk – apart from the money-brokers – the only real attraction being the corner they call Peraltada. The corner to beat them all. A place for heroics. If Eau Rouge at Spa is the great corner of the old world, Peraltada is the great corner of the new world. A huge 180-degree banked curve, it was a place to tell the men from the boys – or in these egalitarian times in F1, the boys and the girl. The trouble was that the Peraltada was dangerous. Last year Ayrton Senna turned a McLaren upside-down and committees began to meet. The Peraltada must be changed. There were rumours of two 90-degree corners, but in the end they decided to keep the trace of the corner – but do away with the banking. At the same time, in an effort to stop the complaints about the bumps of Mexico City, they decided to relay various odd bits of tarmac here and there. The result was a disaster. The Autodromo Hermanos Rodriguez was always bumpy, but now it was worse than ever – and the great Peraltada was more dangerous.

“It is 10 times as bad as last year,” said Senna. “An accident is inevitable.”

And so it was. Just a few minutes into first practice Jean Alesi’s Ferrari went light over the bump at the entry, spun around and ploughed off the track into the run-off – in a huge cloud of dust. Jean was lucky, he didn’t hit the wall. All around the track the car were jumping willy-nilly…”

The Peraltada is now part of history. After F1 left Mexico a few months after the above words were written, they built a baseball stadium, called the Foro Sol, on the land inside the Peraltada. This meant that when it came to reviving the track there was a problem. There was no space on the outside of the corner because the circuit backs on to a major thoroughfare called the Avenida Río Churubusco. The corner could not be moved to create suitable run-off, because the stadium was in the way. So the F1 track this year will run into the stadium, through some slow corners and will exit in the middle of what was the Peraltada.

Before all this, however, we have to go to Sochi…

The British Grand Prix

The British Grand Prix at Silverstone this summer was heaving with fans. Around 120,000 turned up on race day, but even that was not enough for the circuit to be able to afford the race in the long-term. The track already has a good deal when it comes to the fees involved, but the deal with the Formula One group still requires around $24 million each year, with an annual increase of x percent. In addition there are the very considerable costs of hosting the event. The only way, in fact, that the books can be made to balance is for the race to be treated as a loss leader for the circuit, which can use the reflected glory of being Britain’s only Grand Prix track to generate money from day-to-day activities
in order 
to pay the costs that the Grand Prix incurs. The only option to this is to try to get government funding, which is unlikely to happen as long as the Formula One group remains under its current ownership, as rival politicians will inevitably point out that giving money to Silverstone is effectively giving money to CVC Capital Partners and Bernie Ecclestone.
There is the possibility of government helping Silverstone with its development programme to make the facility more profitable and thus good for the local economy, but giving money for race fees is an absolute no-no. And there is no sign of any angel investor flying in a la Dietrich Mateschitz in Austria.
Ecclestone has been telling his pet journalists that Silverstone is behind on the money and that he has instigated a payment plan to help. Silverstone hopes that the additional time will help it to build up its earning potential. Both sides agree that a break point is coming up in the contract and either could decide to stop: Ecclestone because he is not getting the money he wants and Silverstone because it does not want to endanger the financial future of the facility. This has led to the usual suggestions that the track could be sold. But what would that achieve?
The problem for Bernie is that he will get the blame either way because the Formula One group is seen to be overly greedy. He might save the day by finding an alternative venue, but the question remains: who is going to pay? And the chances of anyone meeting his terms are small because of his history with British politicians. Perhaps if he is no longer there, the resistance would crumble because governments have long been willing to pay for international sporting events, such as the Tour de France and the Olympic Games and because the motorsport industry is still a big earner for the UK.
Walking away from the contract would allow the British Racing Driver’s Club time to build up its earning infrastructure, while waiting for Ecclestone to disappear – one way or another. They would not face much criticism for doing that. Ecclestone probably does not care that much what people think of him, and some argue that the soon-to-be 85 year old would be quite pleased to drive down the value of the F1 business so that it can be acquired by people who will leave him in charge.
Some believe that Bernie’s only goal these days is to stay in charge. It is remarkable (and decidedly odd) that he has managed to do that, given some of his adventures but CVC Capital Partners has stood with him. His attitude seems to be along the lines of the National Rifle Association’s slogan: “I’ll give you my gun when you pry it from my cold, dead hands”.
If that is how it has to be, then that is how it will be. A good percentage of his generation are dead already, but Bernie has been fortunate with his health. The tragedy is that in the F1 Paddock today people believe that F1 is simply a game Bernie plays to amuse himself and few believe that he still loves the sport. That is a tragedy in the original Greek sense of the word.

It’s all in the date

It’s October 1 and that means that a lot of options and such things have come up for renewal and/or confirmation. This morning it was no great surprise to see Jenson Button confirmed at McLaren for 2016. There is no need to confirm Fernando Alonso because he has a solid three-year contract, something to which he agreed in exchange for a solid $40 million per season. If he wants to stop racing, there is nothing the team can do about it, but it cannot be expected to pay if he wants out. In such circumstances, the two parties would need to agree terms for termination and McLaren would then find someone else. Unless the contract allows for sabbaticals – which is highly unlikely – to organise that would require a new contract and thus a new financial negotiation, and one needs to remember that McLaren is less likely to be generous now, because money is tighter than before.

I would expect to see Stoffel Vandoorne named as the teams third driver at some point while it looks like Kevin Magnussen will need to rely on Renault taking over the Lotus team and deciding to employ him. He’d be a good choice. It may not be right, nor fair, but that is the way F1 can sometimes be. Kevin is still young and his talent should not be wasted.

The other announcement today is that Manor will have Mercedes engines in 2016. This was entirely expected and, with a brand new car being designed, the team will be taking a leap forward in terms of performance in 2016. Good for those who held the team together and for having brought it back from the brink! Some of the old team’s creditors have not been happy about the way things happened, and one can understand why, but the blame for the troubles must be laid at the feet of the previous owners, who simply gave up paying and left the team to die.

One can understand the frustration that the creditors feel at not being paid properly, but they still have business from the revived team, which would not exist if the team had simply given up and died.

Another F1 calendar

The FIA has published its latest version of the F1 calendar, which is very different to the first and which throws some light on the FIA’s current state of weakness in relation to F1. The fact that the new race in Azerbaijan has been put on the same day as the Le Mans 24 Hours is a sign of the waning influence of the federation. Two years ago the FIA was still able to decree that there would not be a Grand Prix on the Le Mans weekend. Now there is an F1 race running on the same weekend. To avoid the Le Mans finish at 3pm French time (6pm in Baku), the race would begin at 2pm (11am at Le Mans) and it would be over by 4pm (1pm in Le Mans). This would still impact on the Le Mans viewing figures. To avoid Le Mans completely the Baku would have to start at 6.30pm, at the earliest, and thus would finish by 8.30pm local time. Sunset will be at 9.15pm, so this would be a twilight race. This may be a prelude to Azerbaijan becoming a night race in 2017. Otherwise, the dates are pretty much as suggested in this week’s notebook, with one or two tweaks with Germany following Hungary and Britain back to its traditional July weekend. There are some fairly daft stand alone races, but clearly saving money is not on the agenda at Princes Gate and the FIA gets no say. The dates are as follows: March 20, Australia; April 3, Bahrain; April 17, China; May 1, Russia; May 15, Spain; May 29, Monaco; June 12, Canada; June 19, Azerbaijan; July 3, Austria; July 10, Britain; July 24, Hungary; July 31, Germany; August 28, Belgium; September 4, Italy; September 18, Singapore; October 2, Malaysia; October 9, Japan; October 23, United States; November 6, Mexico; November 13, Brazil; November 27, Abu Dhabi.

I am told it will not change again… We’ll see. 


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