Sahara frozen…

Last week I overlooked something which may (or may not) end up being rather important: the Securities and Exchange Board of India (SEBI) announced that it has asked banks in India to freeze bank accounts belonging to the Sahara group and some of its directors.

Sahara is the part-owner and primary sponsor (in terms of livery) of the Force India F1 team.

To understand the story one needs to look back at a series of battles dating back more than five years between Sahara and Indian regulators over how the company conducts its business. Early in 2012 this led the authorities to order Sahara to refund $4.4 billion to its 30 million small investors, with suitable interest. Sahara fought the charge again, but in August it lost its case in the Indian Supreme Court and was told to pay up by the end of November. Sahara has failed to do this, despite being given additional time to find the money. The company has cast itself as a victim in the affair and says that it has paid all but $670 million of the $4.4 billion.

Six hundred and seventy million dollars is no small sum of money and so SEBI has now seized accounts belonging to Subrata Roy, three other directors, and to two Sahara group companies. The seizures did not include Sahara’s foreign-based companies. The authorities have been showing some interest in these because they have been spending money while the current fight have been ongoing. At the end of 2010 Aamby Valley (Mauritius) Ltd was set up by Sahara and soon spent $762 million to buy London’s Grosvenor House Hotel. This was followed last year by the purchase of New York’s Plaza Hotel for $600 million. According to the Indian media, the country’s Financial Intelligence Unit of the Ministry of Finance believes that Aamby Valley paid around $80 million to the Force India Formula One Team Ltd at the end of 2011, as a sponsorship. At the same time Sahara acquired almost half the shares in the team, although it is not clear whether this was related to the sponsorship, or whether there was a separate transaction. In July 2012 a company called Aamby Valley (UK) Ltd was established in England with three directors being Roy Sahara’s wife Swapna and his two sons Sushanto and Seemanto.

The seizing of the Indian accounts is not going to help Sahara with its cash-flow in India as financial institutions are not likely to lend the firm more until the problems are sorted out. This means that some of Sahara’s real estate development projects in India may have to be put on hold, which means that revenues could slow down.

One presumes that one of the Aamby Valley companies will continue to fund Force India this year, along with money from similar companies belonging to co-owner Vijay Mallya, in addition to the money that comes in from TV rights. Mallya is also in financial difficulties because of his disastrous adventures with Kingfisher Airlines, which continues to provide plenty of stories from day to day in the Indian media.

The team continues to say that it does not have money trouble – which is good news – but no-one has yet explained why there has been such a lengthy delay over the choice of drivers, the implication clearly being that money (or perhaps cheap engines in the future) is an important element in the decision-making process.

36 thoughts on “Sahara frozen…

  1. Re the delay signing drivers, it seems too long to be just money, your idea about engines sounds a lot more like it Joe, they use Merc, Renault and Ferrari are the 2 other options IIRC ?

    Currently F1 runs a strange “equilisation” fudge after freezing development, if/when we get these stupid Eco engines, there are likely to be noticeable differences in power, torque and KERS that could spread the field out just as much as the chassis changes… or is there some agreement to keep it all close ?

    Could be a very bad time to be a Ferrari driver, I cannot see them beating Merc or Renault with Turbos and the associated Tech.

  2. In reference to the delay in naming the second driver it makes sense if the offers from 2 or more drivers (or rather their sponsors) are similar. By making them wait the drivers are most likely paying to test the car over and above the fee for racing during the season.

  3. Joe, on the topic of team finances, any thoughts on Martin Whitmarsh’s recent comments on the parlous financial state of most teams, CVC hoovering up all the money, workers controlling the means of production, &c. &c.?

    Quite outspoken, I thought. Perhaps the real Woking revolutionary is not El Ron but the Very Revd M Whitmarsh, DD (Portsmouth)…

    1. I’m surprised it’s taken so long for anyone to speak.* The ad and sponsor market usually overreacts to economies. Then it starts thinking rule of thumb, because we may throw stats and big data and fancy equations at it, but it’s still not science. So when I said about a year ago I was ignoring the bottom half of deals, it was both a truism and a bit of a joke on how things work.

      The thing is, you don’t talk down the market while you’ve long term customers in place. Shorter term deals were a bloodbath since the past few years. If you are talking down the market now, I think you’re telling someone they are getting a bargain. Why risk doing that? Not to harm the overall market, but because sponsor deals are cut long term usually, and whilst now may be cheap, you want to build in price increases in future years. In a way, Whitmarsh is calling a floor to the market, saying it’s all up from here. Just like a stock market pundit might say the bear market / dip / crisis is at it’s worst.

      The guy’s basically selling, not lamenting, by my view.

      *I think teams with good deals just played it close, no harm in that, *if* you can time it / ride it out, but the more worrying thought is the smaller teams without deals ought to have been making some noise. One or two I put down to self dealing and egos, but with all that’s going to change in F1, and the ad market really quite down, those with bare liveries have every incentive to say “get it whilst you can”. My view is that only Monisha Kaltenborn seems to know how to act in a tough market. Definitely got a professional crush on how she’s handled business. Bernie should not be the lender of last resort for teams who can’t sell a cold beer in the desert . .

  4. Does this really matter if the team continues as it has been doing? If the team is affected then it matters but surely the real question is will it be affected.

  5. The level of detailed information you bring into your post is truly amazing. Do you have a research assistant or is it all you?

    Thanks again for insights not found any where else on the net.

    1. It is just me. I have people tipping me off to stories, of course, but I do the research and writing (and literals) all on my own. And then I earn money doing other things as well…

      1. …and it’s all very much appreciated and enjoyed just in case you ever doubt it’s not.
        I like all the detail of your stories like the story above just as much as “A winters tale” type story of the other day.
        Many thanks and kind regards.

    2. Shock! Horror! Professionalism on the Internet! 🙂

      What I really worry about, is when I look at what passes for journalism in national dailies. I think, for one example, The Guardian passes off every bit s much sensationalism and nonsense and half thought arguments as The Daily Mail, and others are not far behind. But The Guardian tails, I notice lately, every story with a section of links peddling even worse rot on non – credentialed sites. Might as well be the kind of calling card ladies of the night plastered Westminster phone boxes with. Lucrative no doubt, but speaks as to more that commercial logic, when accepted as part of business. They say that when a country devalues their currency, it’s a race to the bottom. The usual cry is to blame Murdoch. But I think we are far past being able to blame him alone.

      Still, some people do know their subject, do think through what they mean to say, and have a lot to offer, and the skill to deliver it.

      Whatever you do, don’t tell anyone. . . tell everyone . .

      I think we’d need to clone Joe for him to find time, but students of journalism (okay, and meedjya studies) could benefit from paying attention to the story around this blog and the magazine. Not being funny, Joe, but if you wrote that up, you’d attract a lot of positive attention, and it would be one heck of a sales card. I dare say also that whopping fees are paid to who can lecture on the subject.

      1. I totally agree. Far too much unprofessional and, dare I say, sleazy journalism on the internet.

        As I reflected just the other day whilst penning a feature on a senior royal and a glamour model being caught romping in the back of a limo in the car park of a wind farm…

  6. Could it be that the delay in deciding the second driver is caused not by FI but by driver sponsors wanting to be certain that the team will survive before paying any money?

    1. It likely isn’t, “please please, look after my poor starving servants I can keep no longer”, anyhow . . .

      Not sure if TF is moving in to fill the market, or just doing a decent thing . . .

      There’s a truism in life, and certainly business, that who blusters likely is up to tricks. Consider Branson, Knighted for being a entrepreneur, suckles at the breast milk of government subsidy in rigged markets created at our expense.

      I hear there’s a vacancy at the Holy See, but though I rate the guy, TF might be a somewhat controversial appointment . . .

      No, seriously, I must admit I am just unsure quite what TF is up to, even in F1, and certainly do not figure his football club gig, but he seems very good when he sticks to his knitting. (The parallel between music and airlines is they are very static industries with enormous up front costs, few hits, and they operate almost hand in glove with legislation.)

      I have a clue, just now, though: if you have a genuine business, and there’s a charlatan, spoiling the market and hurting your industry, if that guy goes into F1, why not follow him. The charlatan gets all the publicity, you say next to nothing, but you’ll always be thought of as “that other airline guy with a racing team”, and then . . . and then the penny drops . . .

      The first law of thermodynamics applies to marketing as well. I think Caterham might just be some serious marketing judo.

      If you think I’m just praising the guy, rubbish, I’m trying to suss him out. If you knew the lengths I will go to to pull a PR edge over someone who I think is funny business, or who plays me, you’d not believe me, or think I’m a downright Machiavellian character. I spent a decade on just one (and a half) though that was very personal indeed. Showing up crooks is not something you do by pointing and shouting if you plan on thriving.

  7. It strikes me from a past experience as counsel on a large dispute involving the Indian national cricket team, that all sport in India is political in one way or another. Without making any gross characterizations, one is foolish and naive to believe otherwise. Transparency is a completely alien concept.

    1. I thought the idea of sport was unarmed political combat!

      Ask the guys who founded the Olympian movement.

      Transparency is in fact a alien concept to all societies. The extent to which we all get along with little delusions is so important as we do not examine many constructs of our cultures and relations. Smart people exploit that fact, for the better or the worse. You call the bad ones crooks or con artists; the very best magicians, if they entertain; renowned leaders play the same game; we make laws continuously to try to catch up with those who are harmful; sadly, so much of the rest, the low hanging fruit, is played by petty moralizers and the self deluded, many of whom enter the media or related professions, where their inconsistent mores can be amplified for profit. (As a religious man for the good that that may offer, not as a observant or church goer, I reserve a particular and very isolated penitentiary for those who abuse faith, or trust in general.) Transparency is clarity of self thought. We’re just plain bad at that as a species.

  8. I’m thinking it would be fair to say the goings on in the background of this team have left it tainted for the sponsors of potential pay drivers and this is where the delay is. Those drivers backers are resisting backing this team.

  9. Thanks Joe & commenters. I survived Joe’s recent absence by getting a jigsaw puzzle of The Mona Lisa.

  10. Poor ol’ Vijay….and possibly soon to be literally poor since the Indian Tax authorities are now pursuing a criminal case against him for not remitting tne tax that Kingfisher deducted from employee’s salaries. Then again, as Kingfisher stopped PAYING most of the salaries a while ago…….

  11. Why does Joe hate V.Mallia and FI so much? Don’t insult everyone and try to deny it! Just be honest about it at least for once and answer the question, if you have the guts that is…

    1. You are very silly person. The name is Mallya. If you do not understand the concept of proper reporting and all you want to do it be abusive, then you can go off and do that elsewhere. What a gnome!

    2. Mmmn, his article is about Sahara and not Mallya, as far as I can see.

      And the fact that two owners of a team are in financial and legal difficulties is definitely well worth reporting.

      And you should not forget that this is not just about sport, the livelihood of probably 500 (?) employees and their families depend on the actions of their owners.

    3. Said this only the other day, but guess I can address someone specifically: Dear GSmith, if you read the main game, the magazine, you’d know there’s no grudges held, all fair reporting. That’s sport, and the love of it. Try a look.

      What’s out here is fact. If it wasn’t fact, it would be Joe being a very silly man, risking legal and personal ruin. Quite simple, really. Just no other blog writer runs a business newsletter and shares his study, and square that with who write about the business and never got close to it.

      If nobody else reports it (actually I know someone who does, but that’s also a rarity in the F1 interwebs, but I think a good sign) is ignorance a argument there’s no news?

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