Reading too much, or too little, into pay-drivers

There are some who say that the increasing need for pay-drivers in Grand Prix racing, typified by the decision last week to replace Jarno Trulli with Vitaly Petrov, is a sign that the recession is finally beginning to bite in the Formula 1 world. I am not so sure. The thing that I find significant is that the three car manufacturers that deserted Formula 1 when the crisis began – Toyota, Honda and BMW – have now all announced their returns to racing, but none of them has chosen F1. Toyota is building a hybrid for Le Mans; Honda has decided on the World Touring Car Championship and BMW is powering into DTM. These projects will all (probably) cost less than previous F1 involvements, but they will also garner a great deal less publicity. Thus one can argue that if F1 cost less money but had the same level of exposure then it would be logical for such companies to be in F1.

Some people believe that the squeeze on money in F1 is because big companies do not have money, but that is not true either. As some of the corporate results in recent months have shown, there is a lot of money being made at the moment, despite the financials shenanigans at government levels. F1 remains terrific value for money for companies that can afford the investment and so it would be logical to assume that if the cost of sponsorship reduced, more sponsors would step forward. All this points to the need for F1 to concentrate more on cost-cutting measures so that money that teams need is not wasted on irrelevant technologies, which has all too often been the case. If the technology is relevant then there is a logical reason to invest in the sport.

Similarly if teams continue to allow half the revenues of the sport to go directly to financiers, who give the sport nothing in return, then they are making life difficult for themselves. If they had twice the money they get now from the commercial rights there would be no pay-drivers. However they seem incapable of addressing this problem because they are too busy bickering amongst themselves.

The other question that F1 never seems to ask itself is why sponsors do not want the be involved in F1, if it is clear that the sport is a very good way to deliver a message in the world’s developing markets. It is easier to say that these are difficult times, rather than perhaps have to face up to the reality that F1 could present a better image to the world. There is not enough work done on improving F1 demographics to make the sport attractive to mass market consumer companies that one sees in other racing championships. The brands involved are often global but F1 is not chosen by the likes of McDonald’s, Burger King, Subway or M&Ms. Why are chains such as Office Depot, Target and Walmart not using the sport? Or UPS, Black & Decker and other such products that one might expect to see with F1’s demographic?

In the circumstances, one ought to ask whether it might be a problem of perception as the sport has an unusual idea about morality, as defined by such things as the Singapore Scandal or the decision to go to Bahrain.

Whatever the causes it is clear that some of the F1 teams are really struggling for cash this year. They pretend not to be (because that is what you do) but taking on drivers who are not as good as the ones you cannot afford is a sure sign that books need to be balanced. The danger is that those with big debts are vulnerable to wheelers and dealers who will buy up debt in order to acquire businesses. Hostile takeovers have not happened (much) in F1 but there are examples. The HRT team is a good one. The previous hapless ownership built up so much debt that in the end the bank grabbed the team and put in people it thought would get some money back for them. I can see more of that coming. Debt guarantees are dangerous things if they fall into the wrong hands.

There are suggestions in India that the Sahara investment in Force India last year was just such a deal, with Subrata Roy Sahara grabbing part of the team rather than coming in as an investor. When Sahara talked to the Indian media after the deal he gave a clear picture of his understanding of, and interest in, F1. He had no idea. It was just business. The word from India is that Sahara is moving in on the whole of Vijay Mallya’s empire. This week Forbes of India has published an article which states that the published results for the six listed companies in Mallya’s empire add up to 14,231 crore in debt for Kingfisher Airlines, United Spirits (USL), UB Holding, Mangalore Chemicals, UB Engineering and United Breweries (UB). Mallya responded rather oddly by saying that the numbers are “grossly overstated”, which makes little sense given that they are public companies and their financial dealings are public information. He also argues that the debts should not be added up. However as parts of his empire are dependent on guarantees from other parts, Forbes feels this is acceptable. The word “crore” means nothing to Westerners but it translates to 10 million rupees. There are around 50 rupees to the dollar. If you do some sums you will see that 14,231 crore equals 142,310,000,000 rupees, which translates to a rather shocking $ 2.8 billion.

I write these things only because I am alarmed when I see such things because in the past we have all too often seen financial jugglers drop all the balls. It is the teams (and the people in them) who suffer.

Formula 1 debts are small in comparison to such vast numbers, but teams still need to make sure that they continue to generate enough money to service any loans that they need to take. Most importantly, however, the sport needs to make sure that it understands why things are happening.

85 thoughts on “Reading too much, or too little, into pay-drivers

  1. In some countries, that much debt would have the holder in very deep conversation with the government talking about bankruptcy protection. Mallya is holding on quite well under these circumstances, even if Forbes’ figures are off slightly.

      1. Mistakes can always be made, but if Forbes’ figures are off, then we’re likely be talking of a range of up to half a billion either way. Of course to be off by that much is highly unlikely and the real figure could also be north of 3 billion. That’s also not counting creative accounting that could be done by the various companies.

        1. These are figures that are public because the companies are public companies and have to issue figures. If these are wrong then the public is being misled.

  2. If you haven’t already, some reading-up on recent shenanigans between Sahara and the Indian cricket authorities might raise your eyebrows…

  3. I agree that F1 remains excellent value – if you can afford to be part of it in the first place. There are numerous companies that have made F1 work for them over a long period of time, but they usually link it to their own brand/product marketing and/or there is a significant technical link between their brand/product and F1. Shell is a great example, intrinsically linked with Ferrari for the last 15 years and McLaren for several years before that. Vodafone, too, have always used their F1 sponsorship in their own marketing.

    The steady growth in pay drivers is a concern for me as an F1 fan. As well as the financial side, it also seems that current-spec F1 is not driver-oriented enough. If a team can afford not to take the best drivers available and instead do well enough with good-but-not-great drivers who bring in money, then surely the rules need to change to make it more challenging and make driver skill more valuable.

  4. Joe,

    Some sponsors use F1 less for branding, but more for the hospitality and networking opportunities it offers for clients and their senior company executives. In this area compliance is increasingly a problem, because hospitality received needs to be declared diligently by directors of blue-chip companies. Not only must the ‘dollar value’ of the favour received be declared, but often also in whose company the event was spent. This becomes complicated in times when teams are less able to gather collections of compatible sponsors. I won’t name names, but one prominent team’s dominant sponsor has caused a number of decals to slip off that team’s cars recently.

  5. Completely agree that the lack of involvement of these global sponsors is a concern. Perhaps many more would flood in if the teams managed to get together and obtain a better deal from the commercial rights holder or control the sport themselves. As for the pay drivers issue, i can’t help but feel that with the trulli and barrichello decisions, the teams felt there was very little between them and senna/petrov and it was a no brainer to take the driver who came with sponsorship.

  6. Very interesting take on the sponsorship issue Joe.I agree on the “morality” of F1 being a potential issue.I notice the first group of sponsors you mentioned are all big American bands,prominent in NASCAR circles,and if you follow that circuit,it’s very easy to see that the sponsors keep the drivers and teams in line.The team owners treat the sponsors as their number one priority,and treat their potential loss as a huge issue,even going so far as to take a race-winning driver out of a car when there is potential for embarrassment for the sponsor(see the Kyle Busch/Ron Hornaday incident last year as evidence).

    I would also like to know why some of the worlds largest brands such as Apple,Nike,Coca-Cola,Pepsico,etc,have not had a large presence(if any) in F1 over the years.

    Have also re-ead some of your older columns,and think your suggestion of the teams employing an exterior firm to handle commercial negotiations on their behalf as a fantastic idea.You seem to be one of the few people that can see the greater picture,why don’t you offer your services as an impartial arbitrator?F1 could do with someone whose able to put things in the best interest of the sport.

    1. “Your suggestion of the teams employing an exterior firm to handle commercial negotiations on their behalf as a fantastic idea.”

      FOTA did something similar in 2009, they spent nearly £12million.

      FOTA were also offered an equity stake in the commercial rights, they turned it down.

  7. Those marketing guys sitting in UK must be a bunch of jokers. They have not managed one sponsorship deal in the past 4 years (other than Midion).

  8. Interesting – AS USUAL!

    Two thoughts – Toyota BMW and Honda maybe would have preferred less publicity when they kept losing ( in F1 ) and maybe their money can get them further up the grid in the lower formula’s.

    I have no interest in Mallya, but he has done a pretty good job with Force India, at least so far, in a racing sense.

    1. I cannot argue with you about Mallya in this respect. He has spent a lot of money but the team has moved up. Whether it will stay there is the interesting question.

    2. I was thinking something similar. These guys (BMW, Toyota and Honda) have spent huge sums winning very little (or nothing, in the case of Toyota). The guys who sign the big cheques tend to have big egos too. Even if F1 makes more sense on so many logical levels, they’d prefer to be winning something.

      Which suggests that the underlying problem is breaking into the top tier in F1. Red Bull might be a new name, but they have spent hugely on top of Ford’s millions, which itself was on top of a race winning Stewart team. And they have Newey (who, along with Brawn has pretty much been the only guarantee of success over the last 20 years). Unfortunately, I have no easy answers…

  9. I genuinely believe a budget cap would be good for F1. Perhaps not the £40 million used to attract new teams a few years ago but surely £80 million is a fair budget to spend on a 20 race season? If a team could say we have half the budget of the teams using all their allowed budget then, sponsors might be more willing to pay in more to close the budget gap. However while small and mid-field teams can’t quantify this funding gap (or don’t want to!) they are going to struggle.

    Obviously fairer distribution of the sports income would help a lot as well, but if nothing is done to control the spending gap between big and little teams the issue will remain.

    Excellent blog post as always Joe!

    1. I don’t disagree with your comments as such but just think it’s rather sad that what amounts to £2 million per race isn’t enough to provide the show and also makes the team more than likely a no-hoper – and perhaps it shows how far Formula One has gone off course

    2. Sadly £80M would see only one Ferrari on the grid, they tend to spend more than other teams in order to achieve the same thing a competitive car and a driver that can use it. It’s no problem because they have always been given more than the other teams by Bernie and their cigarette money is still huge, though quite why, defeats me.
      They may be biggest, best known etc but they are not as efficient as many other teams in terms of ROCE.
      True Red Bull have spent many fortunes getting to the top, but they may decide to pack in F1 any time, as soon as the image gets tarnished. Who would have thought that there was that much profit in fizzy drinks?

  10. So, Mr Saward, are we to take away from this that on a given day you’d put your money on Truli rather than Petrov (all else being equal)?

    Just quietly, I think time had finally caught up with Truli during the last season. He lost his way and his acceptance of the situation could be read as an indication he thinks so too. And I find Petrov an exciting racer. He’s hardly ever dull in a race and he is quick… Hopefully last year was the end of his ‘awkward teenage’ phase and he’ll have a more mature outlook now having had to ‘fight’ for a seat.

    Anything to get a foot in the door…

    1. It is more than just speed. Petrov is quick, but he did not develop much last year. The question is really not what happened but why it happened. A top F1 driver must be smart, hardworking, hungry etc etc. Vitaly is quick but he needs to show that is the full package.

      1. If he is quick then how come Senna who hadn’t raced in 8 months was matching him in quali from the get go?

        1. You do not seem to understand much about the psychology of racing drivers. F1 drivers are all quick. There are a few who have a magic ability to find an extra tenth when they need it. The real challenge is to find one who has the ability to deliver constantly. Much of this is down to confidence and not being affected by adverse conditions and setbacks. Drivers like Vettel are able to soar because their confidence is high. Others struggle. Great drivers can dig themselves out of such troubles with sheer force of character. To some this grit comes naturally, some never learn. This is the difference between a driver like Vettel who can crash on Friday and win on Sunday, and a driver like Trulli, who is incredibly quick but drops his head when there is a problem. It depends also on the team. A driver must feel confident and at ease to perform to the maximum. Sometimes a driver is able to drag a team out of a slump by force of character and drive, but this is rare in young drivers. Petrov had lost confidence last year. I think he struggled with a car that was developed by Heidfeld, who had very different ideas in this respect to Kubica. I think when Senna arrived he was full of confidence and energy but this faded as the races went on and there were no major results. He fought it, but I think it dragged him down a little. Never underestimate the importance of confidence in the performance of a racing driver.

  11. At least F1 has pay drivers, who bring money into the teams by way of corporate sponsors. F1 recognises this – unlike other sports – like…. football. Where these ballet dancers prance around a pitch for 90 mins and expect £M’s a year… even with TV rights, ticket sales, shirt sales and sponsorship we still see clubs going bankrupt because they cannot afford to pay the staff an players – Some team called “Glasgow Rangers” was the latest and they are a big team in the SPL (and I know nothing about football, or wish to know anything about the daft game and it’s tribal thuggish following..)

    F1 teams have come and gone, but they are willing to accept someone to pay and drive a car if it means the can race and stay alive. Well, good for them and good for the sport to allow it – and the days of multi billion pound driver contracts, for the time being is over…

    1. The question that interests me is, will F1 ever get a “David Beckham”, a driver who’s salary is recompensed not so much by the sponsorship they bring with them but with the merchandising that the name and face can sell?

        1. Well F1 drivers have done their own licensing deals for ages, but Beckham was such a significant merchandising draw on his own in terms of posters and shirt sales that paying his exorbitant wages was still regarded a very profitable exercise. Whilst certain drivers get good returns from their own countries (I’m thinking Alonso merch to Spaniards) I’m not sure how much that really brings in. Not getting the impression that any of the drivers are as big in other territories.

      1. I think this is partly the issue for Lewis Hamilton and the high sponsor/partner workload mclaren place on him (and to a lesser extent jenson though he seems to take this as a bonus rather than a chore). It was fascinating hearing Santander mention that although they worked hard to get Alonso in with Ferrari they actually used Lewis in more sponsor work than alonso because mclaren offered more driver exposure in their contracts. Hamilton is as close to a David beckham as F1 has so far – particularly with regards to the USA market

  12. So we live in a world with bountiful liquidity levels where corporations are earning top dollar while at the same time making decisions based on how they view the world developing over the next 3, 5, 10 years.

    In the United States, our central bank has stated that liquidity will not be reduced for another two years, however, afterward, a sharp reduction in liquidity is expected (and needed).

    With that said, as the liquidity of the USA (and rest of the world) gets reduced, we are inevitably going to see changes in everyday life, as well as F1. In the USA, in 2015, we will be talking about whether or not we are in a “double dip” because at that time, liquidity will be begin getting reduced and without same number of printed dollars available, some existing transactions will no longer be sustained.

    This line of thinking of affirms to me that Force India will be one of the larger F1 teams to experience such change. Based on your readings, Joe, and my own thinking, it is not too far fetched to state that Sahara will purchase all of Mallya’s empire and essentially “cut up” all of the components into their own entities and let the sinking ones sink, and invest in the ones that are profitable (sustainable).

    I could see Mallya staying on in a figure head type role, but we shall see. The future prospectus does not bode well for SFI.

  13. Car makers have voted with their feet. F1, though we love it, and though Bernie has done an amazing job in the last 40 years building it up from nothing, now has some serious structural, political and sporting problems limiting its attractiveness for investment and growth into the 21st Century. Growth in spectators is stagnating in real terms compared with population and wealth growth globally. Other wise every car maker would be in it. It needs a new forward looking vision to take it to the next level. Its failure in the US (biggest market in the world) for the last 20 years is an example. To be honest, Nascar and the Australian V8 supercar management have been doing a better job in many areas. Both have unpredictable races and have really grown. F1 has many advantages over these series such as history, global event, glamour, fastest cars etc….., yet have not capitalised on them.

    Sport is much more interesting if you don’t really know who is going to win from one race to the next.

    Ferrari’s control over the sport is too great meaning real cost cutting is stopped by the big teams. The barriers to entry are way too high to be a truly competitive world championship like other sports. Only Red Bull, Ferrari and McLaren can win generally.

    Team orders need to be outlawed by the FIA holding copies of all driver contracts and real punishments like championship points deductions melted out by an independent judge. This more than any other ‘old thinking’ kills the sports interest beyond old school diehard fans who will die out. Drivers need to be allowed to speak their mind like they did in the 70s to make them more interesting personalities. Pay drivers are a result of too high barriers to entry (financial, not quality).

    People mainly go to see the best drivers in the world in the fastest cars. It does not need to cost so much to get that. The drivers are the story–but the teams have taken total control. People are not as interested in the political machinations inside a team or between teams. It’s not a story for the masses. Drivers also need to be more assessable to the fans at the events like in the US and Australian racing.

  14. Without wishing to sound rude, Joe, this article resonates of prejudice. You clearly have an axe to grind against Force India (and HRT) as well as Bernie and any reader that points this out to you. Should you really bite the hand that feeds you?

    1. I think you will find that Joe reports and give his views in a very evenhanded manner on all the teams. It is rare for a good reporter to give his own views, but Joe does so from a huge breadth and depth of knowledge of F1, its history, people and finances.
      If you don’t agree then don’t read this blog.

      1. Questions:

        1/ how is one meant to know if you agree or not unless you read the blog?
        2/ should you only ever read things you agree with? (see 1/)

    2. I’ve been reading this blog for some time and I’ve always found the reporting to be pretty balanced.

      I also like the fact that Joe tries to give a picture of things that are happening that are normally off the radar screen of other blogs/publications.

      I also think from previous comments that Joe has made he has no issue with constructive criticism and I don’t think he’s biting the hand that feeds him, it seems more like here’s the story.

    3. Without wishing to sound rude, P Royle, any sense that Joe is digging at Force India and HRT is nothing prejudiced but because both teams do appear to be in trouble.

      The finances behind FI (in particular, Mallya) are looking very dubious (Kingfisher Airlines shares have just shed 20% – http://www.bbc.co.uk/news/business-17109163) and we’re possibly seeing a slowly snowballing problem which *could* lead to the collapse of the Force India team, and that would be a shame for F1 as a whole.

      As for HRT, they’re restructuring their engineering and relocating all over the shop and the impression given to the wider world is one of disorganisation.

      Other than HRT and Marussia; I’m reasonably certain that the rest of the F1 grid picked the date of their 2012 launch and hit it. HRT on the other hand said at the back end of November that there were working flat out in the hope of reaching the first pre-season test with the 2012 car (http://www.crash.net/f1/news/175117/1/hrt_in_race_to_prepare_for_opening_2012_test.html). This target was obviously missed and the team turned up with the 2011 machine to get some data and testing miles and bed in their test team. Now, after having failed a crash test, they’ve missed the second test (http://www.crash.net/f1/news/176656/1/hrt_admits_defeat_on_test_two_target.html) and to some extent there’s still a rush on to get the car done for the third test.

      Lest we forget, running in parallel to their car development has been the restructuring and relocation of their engineering. For a month or so, HRT were apparently based in a small warehouse/factory space in Valencia, a move which didn’t show any hallmarks of stable and efficient planning. Making an interim move is the resort of those who have not been able to sensibly control their own situation, not had critical contracts in order at the right time – whether it’s on a personal level of living on a mate’s sofa for a month or a company using temporary offices. And now a move to Madrid (which is probably the sensible choice for a Spanish high-tech engineering firm) but the 2012 car is still being built in Germany because they’re trying to do all this stuff in one of the most critical periods in the F1 season.

      Now some of these accusations can be levelled elsewhere as well. Marussia have announced a straight delay pushing them from a pre-Jerez launch to the third pre-season test too (http://www.crash.net/f1/news/176821/1/marussia_to_start_season_in_barcelona.html), and to my knowledge haven’t yet done the crash tests. But they’ve not ostensibly shaken their organisation up that much, not relocated and they had their driver line up sorted before Christmas.

      Caterham have relocated too though without the interim step and, by dropping Trulli for Petrov, have changed their driver line-up even later than the HRT announcement of Karthikeyan. But Caterham’s management structure remains largely stable, Mike Gascoigne’s influence there over the previous two years has given them a lot of credibility and they hit the first test on time.

      If McLaren had relocated to London, via an odd interim move to, say, Bristol, it would provoke quite a few raised eyebrows and considerable debate over the possible disruption to the engineering department. But McLaren have a lot of credibility as an established F1 force and one of the best run engineering companies in the UK, perhaps the world. So the logical interpretation of events, based on what we know of the inner workings of the team, would be more generous than in the case of HRT who do not have that kind of management credibility.

      It is reasonable to assume that this amount of change will make 2012 a difficult year for HRT. It may lead to them bedding in nicely in Spain and slowly building an significant F1 team. It may lead to them continuing to make relatively erratic management decisions due to relatively shaky finances, which is what we’ve seen of them since they arrived in F1.

    4. Maybe you think that Joe should write that everything is fine at HRT and Force India? Despite the fact that with his huge F1 knowledge and contacts he knows this not to be the case. There is good news and bad news, both need reporting.

  15. The balance of technological advancement against sporting excitement and financial stability is one which, to my bitter, cynical mind, can never really be maintained.

    An open-ended set of regulations allow the birth of some amazing and bizarre concepts – ground effect, all-carbon monocoques, six wheelers, active suspension, the fan-car (like an inverse hovercraft) – but the same period saw a fair number of teams succumb to their own financial weight and collapse. Cutting R&D spending has been a major thrust of F1 regulations over the past decade or so.

    Lax technological regulation also risks spoiling sporting excitement. Anyone who steals a significant march on their opponents simply can’t be caught until the technological deficit has been recovered. Anyone who tries a concept which really doesn’t work but can’t easily be removed finds themselves plummeting down the field. If you want cars jostling for position then they need to be of similar performance out of the box.

    Reliability is an interesting issue as well as reliability (or rather, long-part-life) goes hand in hand with financial stability, keeping the number of engines down, gearbox use down and so on.

    But many would argue that the risk of a sudden failure of and engine or gearbox plays a role in sporting excitement. Now, recent data might not do this argument any favours, the past few years have been some of the most reliable in F1 history, but we’ve not seen a dark horse steal a win for some time, partly because the top teams just don’t suffer reliability issues any more.

  16. Isn’t the problem that F1 is becoming too elite and therefor aren’t aiming for the same demography as the companies you mentioned Joe?

  17. Was it your good self that related a story about one of the big blue-chip company’s, perhaps Coca Cola, being on the verge of a major sponsorship deal until the CEO was offered free flights, drinks and women while visiting all the races by one of Bernie’s mates, completely ignoring said CEO’s puritan/Christian views and lifestyle?

    1. Hehe, I was just about to mention that one in reply to Racefan26‘s enquiry above.

      But actually, I don’t *think* I got most of the details from Joe, for once. It was one of the very few good stories to emerge from elsewhere — so who knows how much truth there is in it?

      But allegedly it happened after months of careful & patient negotiation. It was at the actual meeting where the final signing of contracts was about to take place. Then our F1 friend uttered his fateful sentence, much along the lines that you suggest, and, without a word, Mr. CEO stood up and walked out of the room, followed by his entourage, never to be heard from again.

      Further rumour has it that this is why Bernie became a bit disenchanted with this individual. (I’ve heard two different versions of who it might have been, one more plausible than another.)

      Disclaimer: I have no inside knowledge whatsoever, I am just piecing together various articles I’ve read from various sources over the years on this incident, then leaving out the juiciest bits. Joe will probably tell me I have it all wrong, and he would be right!

      1. That’s very interesting,when did this incident supposedly take place? It’s indeed a pity and perhaps a telling indictment of the path F1 has taken over the years that such a thing was considered de rigeur enough to be offered to a possible new entrant to the “F1 Club” without consideration.

        1. Around 2005-6, from what I can make out. Yes, as recently as that.

          Would have gone wider than just one team as well, from what I can gather, ‘twould have extended into aspects of the sport as a whole, hence Bernie’s alleged dismay…

  18. So we are agreed then that the recession has hit the F1 teams hard and this has lead to the increase in the number of paying drivers, a la Petrov. Petrov may well be good enough to deserve a place on the grid however his sponsors are so big that the question can only be answered in the race. there’s no problem with bringing money with you to a team but the ability to race should be the primary reason for hiring. Petrov hasn’t got that cachet yet because he hasn’t shown any spectacluar ability. Caterham will either show us what he’s made of or will show him the exit.

    I accept that there are wider funding issues within the sport and am wholeheartedly with you in respect of sponsorship/advertising but fundamentally there is a problem in respect of the financing of the entire sport.

    We love our Belgian GP, British GP, etc. but these tracks are losing money on hosting the races.
    Austin and the Nurburgring are having trouble with financing the tracks
    Turkey can’t afford to pay for the race on their brand new track
    Malaysia is running on empty
    Melbourne faces local and increasingly vocal opposition.

    What to do?

      1. haha!
        I like the division of labour in the HRT team – one group in spain for office moves, websites, IT and trucking supplier agreements, and a group in germany building the actual car

  19. Almost all of the American brands you mention are, or have been, heavily involved in NASCAR. Maybe F1 should study how NASCAR manages to land Target, UPS and other brands. I know F1 folks think NASCAR is a plebeian form of racing, but its fans are loyal to their favorite team’s sponsors in ways F1 can only dream about.

  20. Another fantastic post about the business of F1! A lot of the cars these days have a lot of blank space on them. All of those companies you mentioned above are American and in general will take their sponsorship to NASCAR before they run off to raise their global awareness through F1.

    As for Mallya, $2.8 billion in debt?! Sounds like his empire won’t be around for too much longer. If someone out there is on the board of directors with Mallya, I hope you have a put option agreement to sell at a specific price, because if not be prepared to get back maybe a bag of peanuts or even better, some Delhi belly…ha ha ha

  21. When the financial bubble burst, honda, toyota and bmw got cold feet. bmw sold the team back to peter sauber and honda sold to ross brawn, toyota however did not sell to anyone so it would be good to see toyota in f1 again…. ”come on toyoda san get back in f1 you know you want to and so do we”

  22. How long will it be before we see a pay-driver’s sponsors’ refuse to have ‘their’ driver sign for a team as the team is not deemed worthy enough?
    Has it already occurred?

  23. I agree with Silence,I have followed motorsport for 60yrs-been involved in it, have friends who report it. F1 doesnt seem to see any need for change,the last few years has seen massive changes in our way of life,and you just get the impression that they cant, or wont see it.

  24. Joe,

    Have you seen that Robin Miller has basically come out and said it’s a scandal that Sarah Fisher’s team doesn’t have an IndyCar engine yet because of Luca Filippi ‘writing a check’ for his seat.

    Ironic that just as F1 has to come to terms with no italian drivers on the grid the IndyCar world is getting steamed up because one is coming in!

    It will also be ironic if SF doesn’t get an engine because she held out for an american one (having apparently turned down lotus at an earlier stage). Mind you it’s debatable how american ilmor and Honda are…

  25. You said that the F1 teams were too busy bickering amongst themselves over minor issues to deal with the ownership issue.
    Its always been that way, and they were happy to let Bernie do it for them. When he decided to cash up and sell the teams should have bid for the rights and bought it themselves….but their vision has always been focussed on their own survival. They have never had a vision beyond that, but they have never fully trusted Bernie either. Its always been a combative relationship.

    Owning F1 would have been money for jam compared with trying to industrialise. Its much easier to take money off a television provider than to design, manufacture and sell high performance cars successfully.

  26. I was really interested in the comments about the major manufacturers returning to other forms of racing and the absence of those truly global, their name is on everyones lips brands from F1.

    Potential sponsors with a global reach and deep pockets like certainty and one of the things that is lacking is that level of certainty.

    Imagine being McDonalds wanting to make a major push into an area and deciding that F1 is a great way to gain rapid exposure, only to discover that the commercial rights holder decides to drop the local event because they can’t afford it due to the costs involved in staging the event.

    Would you risk your sponsorship dollar in that way or would you go for something safer where you don’t find headlines decrying the financial state of affairs at Spa, The Nurburgring, Turkey, Melbourne, usually followed by one of Bernie’s “there’s lots of other countries willing to step into their shoes” comments.

    Add to that the obvious financial distress being felt by many teams and its not such a nice environment for many large companies to spend their dollars because they also don’t want to be associated with unsuccessful teams.

    Not to mention that many companies are sensitive about having their brands associated with repressive regimes.

  27. Joe those three companies failed in F1 because they could only win one race between them in all of their years in F1. They all threw ship loads of money at their efforts but couldn’t duplicate the success of the specialists, mostly because their management structures wouldn’t allow the flexibility to meet F1 challenges. The only “outsider” to prevail is Red Bull because it is owned by two men and doesn’t have to report to outside analysts to maintain its share price and does not have the same amount of accountability that traditional corporates have and can therefore direct money as it deems fit. Corporates have only had success in F1 as engine partners to the “garagistes” as dear old Enzo called them. I bet BMW wishes, with 20/20 hindsight, that they could have stuck to their deal with Williams and not listened to Mario Theissen.

  28. I don’t think it’s the cost that deters big manufacturers from competing in F1, but rather the remote possibility of success. The reputations of BMW or Honda would be harmed rather than enhanced by squabbling over 8th place in a Grand Prix. If they can enter DTM and fight for victories, that will enhance their reputation, even though it is a lower formula.

    I think the sponsorship problem is linked but different. Again the fact that only two or three F1 teams have any hope of winning races doesn’t help the other teams, but an additional problem for all teams is that, outside obsessives like us, F1 is widely regarded as not having much entertainment value. Other formulae have more passing, more unpredictability and are more spectacular. It isn’t obvious that your brand would be enhanced by sponsoring an unsuccessful car in a processional race.

  29. Joe, it does not matter that the figures for the companies in Mallya’s empire are public. It is always dangerous to make guesses from public figures about what has been happening since accountants reveal only what they want to reveal and one is never sure what they are up to. Forbes should surely know this.

    1. It depends on what you consider the duties of journalists are. I would think that warning investors that a company is in deep trouble is a public service, particularly if the facts are being obscured.

  30. This story may be apocryphal, but it works – so here goes. At the time of the Jaguar F1 team there was a salary review with the top brass at Ford (Nasser?). The highest compensated employee was one E. Irvine. There was a pause in the meeting… “who is this guy”?

    That seems to put the perspective on F1 and its presence in (key) parts of the corporate world.

    Of course, if it had been Bob Lutz he would probably have known. But he had his own experience.

    1. I think it is apocryphal. Jaq Nasser was born in Australia and lived in Melbourne. He knew about F1.

      That being said the difference between F1 and American top flight racing is best illustrated by the attitude of the drivers to their fans. At a NASCAR or Indy Car race the drivers seem to like spending time with their fans,

      They hang around after the race and do the meet and greet.

      F1 drivers seem to behave like the fans are just another impediment to doing their thing.

      1. I agree. But maybe it was one of the Ford Family. I believe that they were involved in running the business at the time, but not fully versant in F1.

        1. Having discovered that Mr E Irvine had talked his way into a £6m salary, the first thing they should have done was put him in charge of sales training…

  31. The biggest hurdle that F1 has in gaining sponsorship from any of the top American retail groups (like you see in NASCAR) is that there is a continuing debate that ‘visibility’ (ie TV, magazines, tee shirts etc) equals sales. These large retail firms struggle with this.

    It’s the same voodoo economics that F1 try to use when they try to sell countries on financing (taxpayers money!) an F1 event. ‘Exposure’ they shout – the world will see how nice your country/city is. Scam alert! Maybe stick to building hospitals and paying down debt? I know, I’m no fun…

    On one hand the brand marketers talk up the amount of TV exposure per minute that their clients brand is achieving with Team ‘Red’ but on the other hand the company accountants hire firms to go out into the stores and question people as to ‘why’ they pulled brand ‘B’s product off the shelf and not their product, brand ‘A’. Surprise, surprise, because it was ‘on sale’, ‘cost less’, was at eye height on the shelf’ (5’6″ is the target) or brand “A” sucked last time I bought it! So far they find out, ‘Team Red’ who just won a race in where, Malaysia??!! Mattered not to the housewife in Iowa restocking her cupboard.

    Meanwhile back at the IMG marketing group bullpen, they are counting down to the split second how many times the viewer could see their clients product name (in super slow) on the side of a rear wing end plate traveling at 320kph!! The bottom line for today’s retail market is how many units were shipped last month and what’s the projections for this month.

    Gone are the days where you could talk the CEO into sponsorship of an F1 team by paying his way to Monaco, get a hooker for him and run an IV line of Champagne into his veins for most of the weekend to get him to sign on the sponsorship contract. Today the boards of most of these firms, the investors and certainly the pension funds, have spy’s everywhere to prevent this nonsense. Enron and the sub-prime screw ups killed all the fun!

    The ROI, (return on investment) has so far shown that for all forms of motorsport, NASCAR has shown itself to be one of the few series able to *prove* to the clients rep’s that the math does add up, that their racing series is more then just counting frames from the video. The tie in’s with team personal, the ‘personalities’ of the drivers, the in store promotions is something that F1 can never achieve and hence, the ‘why’ large American retail firms and for that matter, international retail groups have pretty much turned their backs on F1.

    F1 for the near future will be left with the Russian mob connection pay drivers, the graft and corruption Central American near dictator oil money drivers and the drivers backed by whole nations taxpayers. The top 1/3 of the grid will always be the ‘paid’ drivers and the rest a mixture of drivers who are lucky and can make friends with billionaires and a few other bank account rich but talentless bottom third drivers.

    It was no different in the 70’s when I first started watching F1 as a teen, there were always the rich back marker playboys driving, the seriously underfunded but really talented mid pack drivers and then the top six superstar drivers who made a good living by driving.

    What has really changed over the years? Can’t see that much has. Oh wait, less smoke in the air and fewer butt’s all over the ground. LOL

    The chicks are still hot. That hasn’t changed.

    1. Good stuff – but (Joe) how relatively bad are the pay drivers? – they don’t seem too shabby given the teams they drive for – Maldonado/Barrichello for example – any comments? – go on you know you want an attack of the trolls!!

  32. Weren’t the manufacturers who pulled out of F1 – and other series – those who were getting beaten rather a lot? These great ‘returns’ to competition would appear to be in environments better suited to achieving results relatively cheaply.

    Toyota will be the only works hybrid at Le Mans until the new Porsche appears, so even if it loses there are many excuses. Ultimately it is simply flying the ‘green’ flag to polish its halo and push the Prius.

    The WTCC has only Chevrolet as a full manufacturer entry, which shouldn’t frighten Honda too much if it’s going about its business sensibly. So I guess it’s targeted Marrakech, Curitiba and, erm, Derbyshire as key battlegrounds for the new Civic.

    The DTM is about to get interesting, with the harmonisation between SuperGT in Japan and Grand Am in the States. A fresh car with the sort of expertise that BMW can marshal should make quite an impression, offset by the various markets chipping in for race programmes and stumping up marketing spend.

    Even in these eco-minded days and apparent austerity, there are precious few automotive brands not doing some sort of motor sport activity worldwide. More and more of them are, however, targeting the activities which primarily cost the least and can be juiced-up by their marketing types… while offering a modicum of hope that they won’t simply be also-rans.

  33. I don’t think it does depend on what you consider the duties of journalists are. This is because trying to analyse it all when you are not an accountant and do not have the full facts is a dangerous business. If Forbes, or anyone other journalist for that matter, thinks any different then they are likely to end up deep in contradiction and with egg all over their face.

    1. I fully understand that accountants try to hide things and mess around with the numbers, shoving debts backwards and forwards in an effort to hide what is really going on, but to sit there and to say that we should simply ignore these things is a strange response indeed. If a public company is declaring debt of such proportions I believe it is perfectly acceptable to report them. It is clear from every source in India, apart from the company itself, that Kingfisher is in very very deep sh*t. Forbes is a business magazine. You do not get to work there if you are a fool. I would rather believe them than listening to the fantasies that come from the company itself.

  34. I agree with you about the importance to investigate. However, surely you cannot deny that journalists always perfectly understand accounts and never make mistakes even when writing for a prestigious publication like Forbes, the Financial Times or the Wall Street Journal? Would you really rather believe the journalists who write for these kind of publications than the views from the company itself? I think not.

    1. That is a ridiculous argument. The companies are trying to hide things. They are never going to tell the truth. If you believe them you will lose a lot of money. This is why financial journals exist. To tell it as it is, not as they want you to hear it.

  35. Companies are trying to hide things. They are never going to tell the truth. If you believe them you will lose a lot of money.

    Do you REALLY believe this?!? Do you mean it to apply to all companies? It is simply not true and looks very wrong.

    1. I have to agree with Joe on this one. Companies can and do ‘spin’ their results so that the unaware or unsuspecting see a good result regardless of the underlying truth in the books.

      The Sydney Morning Herald published an article about this very habit of company directors and their accountants in this article.

      http://www.smh.com.au/business/motley-fool/beware-directors-spinning-yarns-20120217-1tdlf.html

      On a personal note after spending over 20 years working in public companies and seeing what happens ‘behind closed doors’ I have to sit firmly in Joe’s camp on this one.

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