The future of Lotus F1

There has been much talk in the F1 paddock in recent weeks about the future of the Lotus F1 Team. Back in June it was announced that Genii Capital, the company that owns the team, had sold 35 percent of its shares to Infinity Racing Partners Ltd, a newly-registered UK investor consortium comprised of investors from Abu Dhabi and Brunei led by American hedge fund manager, Mansoor Ijaz. The plan was to sell shares in order to pay debts that Genii Capital had built up since it took over the team from Renault in 2009. It has not been an easy path because although Genii got the team for €1, it has had to fund it ever since – and that has been an expensive experience for owners Gerard Lopez and Eric Lux. The deal with Infinity (recently renamed Quantum Motorsports Limited to avoid confusion with Red Bull Racing partner Infiniti) was aiming to do that, with Quantum believed to have some options to take over a majority interest in the team in the longer term.

Four months on, and the deal has still not closed. Not yet anyway. As Genii Capital starts to look for other solutions, notably an option to sign up Pastor Maldonado, who will bring PDVSA money for 2014, speculation mounts and rumours fly about what is really going on in the struggle to revitalize the team, which remains one of the strongest brands in F1.

The team needs a solution to its financial disarray because its first choice for the driver line-up for 2014 and beyond would be Romain Grosjean and Nico Hulkenberg. The word is that The Hulk will not sign the already prepared contract until Quantum’s money shows up, having taken note of departing star Kimi Raikkonen’s problems with his salary this year. The word is that the money – a not inconsiderable sum – is there, but has been subjected to a series of compliance processes that are emblematic of modern day banking when big players move large sums of money for high-profile transactions. Those who follow F1 closely are used to things being done in an instant. The Quantum-Genii-Lotus deal proves that this is not always possible.

Post 9-11 regulatory controls have sought to ensure much higher levels of compliance to prevent inappropriate money flows and there has been intensified scrutiny for all large dollar transactions. Banks are required to verify and maintain far more detailed records of their customers and understand the origins of transactions, the cash that funds them and the people behind them. This is how the first hints of the Gribkowsky Scandal came to light when Austrian banks questioned payments being made to the German banker.

When you have Arab and American investors transferring vast sums of their US Dollar bonds to an investment group in Luxembourg, the result is a banking compliance headache. In such circumstances four months is not a long period of time. No one involved is very keen to talk about exactly what has been going on, but Ijaz says that despite the compliance processes the money is there and the deal will complete very shortly.

“There were real, substantive and important issues involved in clearing the transaction through international bank compliance procedures on both sides of the Atlantic,” he says. “We made a large-scale commitment to fund one of the highest visibility assets in the world with an American citizen, myself, for one part, whose citizenship alone was a blocking factor in clearing bank compliance in European banks, and whose funding from Arab investors on a large-scale was carefully scrutinized in my own country, the United States. When we finally did complete the transfer of consideration earlier this month, our partners at Genii were told that we had to reconfigure the transaction due to US regulations that prohibit such large amounts of money being paid into certain countries where our partner accounts were based. That reconfiguration is what has taken the additional time, and now we believe we have finally overcome the technical obstacles so we can finish what we started some months ago. We have lived through this bureaucratic nightmare with incredible support from our partners at Genii and with the greatest group of teammates anyone could ever ask for in Lotus F1’s employees and managers at Enstone. Without that support, we could not have gotten this through to the end.”

Ijaz says he now “looks forward to the stabilization phase where we can strengthen Lotus and bring it to a new level with technology advancements, major new sponsorship revenues and a bright horizon for the hard-working people that make Enstone-based Lotus the premier racing team in Formula 1.”

Not before time…

49 thoughts on “The future of Lotus F1

  1. So it’s still imminent then, I dont buy it, but then i couldn’t afford it, my gut feeling is that this deal will still turn out to be a poisoned chalice even if it does come to fruition.

  2. They are disappointed with Kimi’s decision to leave, but they might end up with a pay driver like Maldonado just to survive. I cannot see why they should be disappointed if they cannot even pay Nico Hülkenberg, who deserves the seat a lot more than Maldonado.

  3. Nice story, thank you. Not so sure this type of investor is going to be willing or able to do a RedBull style no limits investment or anywhere near that but time will tell. The fact that for years now despite good results there is a lot of empty space on the car tells me Enstone will continue to struggle with the rest of the not haves after the top 3

  4. Not sure what is more depressing, the financial debacle or the fact that they could think of nothing more original than “Quantum”. Oh please.

  5. Lets hope that it does go through. I guess part of why its taking a while with Sauber for the Russian money to show up is similar (I would estimate Russian money to Switzerland is watched as closely as Arab money to Luxembourg nowadays)

  6. Darn those regulations. The pesky little things that silly countries use as impediments in the way of the F1 teams. Maybe F1 should ban the north American events in the calendar, in protest of all the regulations that their Government puts in the way of businesses, and it impact on the F1 sponsors.

  7. A bit different to a Bernie deal then! A handshake and the offer of an aeroplane instead of the money 🙂
    It seems to me that the red tape is all looking inwards rather than outwards, still one has to admit that large amounts of terrorist funding money do get moved, but by methods that bypass all the red tape.

  8. I really hope so, and they get the sign Hulkenberg instead of Maldonado.

    Joe,

    I’ve been baffled for the past two years that Lotus – now podium regulars – have struggled to find major sponsorship / investment (or so it would seem.)
    Surely they bring a lot of brand visibility with their current performances.

    Is something else going on with the team or its owners that puts off the Vodafones and Santanders of this world?

  9. There is more than a hint that you don’t buy this story about “compliance difficulties have held up the deal” Joe. I think you probably doubt there was ever a deal in the first place, and who indeed can blame you?

    Why would big investors be interested? No star driver, no top techs, no bank account, prospects not exactly promising. I await your no holds barred expose of Team Lotus!

    1. Interesting – I thought the opposite …. as in Joe was a true believer… since after all the facts (cash) aren’t there, and honestly it doesn’t take months to transfer funds, (even a lot of funds)… unless (of course) it’s from a dodgy source….

      But I hope I’m wrong and HUL drives for Lotus in 2014.

  10. I am trying to imagine what could possibly be more “inappropriate” than a flow of money that, in theory, could buy Maldonado a competitive ride over a deserving driver such as Hulkenburg.

  11. IF this is impacting Lotus on this deal ten It has to hurt the overall F1 business of all teams and F1 management or will do more so in the future. The irony being that 9-11 was not a massively funded enterprise. IE the once of prevention is much worse than the thing it set out to cure. Thing is big business US will eventually push back and strip away the controls….. unless it benefits them to hobble the rest of the world.

  12. Any hint that rivals in Abu Dhabi are holding up the process? Isn’t Toro Rossi also kept running by the emirate’s investment company?

  13. You say that the team “remains one of the strongest brands in F1”, I assume that this is through the name being loaned (for free) by the Malaysians rather than it being “The Enstone team”.

    Can you see this relationship lasting long term? It is hard to see Lotus throwing money in the pot, so it seems a difficult prospect beyond it being a lure for secure funding (Genii F1 is a less sexy place to pin your colours)

    1. +1.

      As an hugely biased supporter of the team, I’d argue that it has absolutely no real brand whatsoever, never has had, and that that is by far the biggest problem facing it (and has been for decades).

      Hence for example it getting no permanent place on the F1 strategy group and no special incentives from Bernie to sign up (and, I would suggest, the ‘rules’ for incentives were carefully but pretty transparently contrived so that they wouldn’t qualify). And hence also the failure to leverage decent on-track results into the sponsorship deals that would guarantee they continued.

      It’s been the same story since they won their first championships, and were rewarded by having their tech team gutted by better-sponsored rivals offering fat pay rises.

      One of the smart things Genii did was recognise that and try to address it. But the execution sucked. They failed to convince the fans that they were authentic or deserving heirs to Lotus, and they need to cut their losses and develop a Plan B. Which will probably mean starting again from nothing. I think the increasing references to ‘Enstone’ are a step in that direction, and Edd Straw’s Autosport article on Red Bull being F1’s ‘eighth best team’ won’t hurt.

      But as things stand, they’re the most successful team that no-one’s ever heard of (or care about).

      1. Don’t agree that they need a plan B; Lotus works really well with fans of the sport and more importantly with people that have only a passing interest, they just need to stick with it long term and stop all the Enstone nonsense – any one who cares knows that they have been called multiple names etc.

        1. Do you think? Interesting. I’d be very happy to be proven wrong on this. Personally, I think they’ve as much right to call themselves Lotus as they did Renault, or as BAR did Honda or now Mercedes, I think it’s -all- a pile of marketing {redacted}. But I seem to be in a pretty small minority.

          Many, many people still seem to insist on calling the team Renault or referring to Lotus in quote marks, and I don’t see the team making much headway against that. From very knowledgeable and intelligent commentators (Mike Lawrence comes to mind) to active message board members.

          For example, in a forum far, far, away, in a thread titled “Lotus are Finished!”, a member with almost 5,000 posts and whose screen name is inspired by Hakkinen {so they’ve followed F1 for many years, and taken a keen interest}, writes of Kimi, “He’s won a world championship; what have “Lotus” achieved?? “. He’s knowledgeable enough to insist that this isn’t really ‘Lotus’, and either doesn’t know the team’s own history, or somehow doesn’t think it is entitled to credit for it. Rebranding the team as Enstone at least helps address that.

          1. I take your point, but I think the name Enstone F1 (or something similar) isn’t that appealing or marketable. Real or imagined the Lotus F1 Team branding has some “heritage” that is attractive for the sport as well as the team. Mind you I agree that the actual achievements of Lotus F1 Team, should be considered as completely different from Team Lotus and Lotus Racing – so this is a team with no constructors championships.

            I would also argue that if a team drops its own branding for sponsorship, or a new owner wants to rename the team rather than adopt its existing heritage then they also lose the right to any previous achievements. If someone buys a football team like Man United and changes the teams name it can’t (credibly) use the teams heritage. Therefore any achievements made by Renault or Benneton are also not relevant to the current team.

            Switching the name yet again will only confuse matters further, the best thing they can do is stick to the current branding and adopt it for the long term.

  14. Thanks for the exhaustive and interesting post on this subject!

    Just a reflection on the Hulk though: Would it not be better for Hülkenberg to sign for Lotus anyway, salary or no salary?

    My reasoning is that Lotus is a good team and Hülkenberg is a very good driver, so he could probably score some podiums – or even wins – with them which would of course be very good and would give him a very good position from which to move on in 2015, should he still not get paid by Lotus. Also, with the harsh weight limit for next season, Hülkenberg may end up without a seat for 2014 (or so I have read), which would be a very bad thing for him.

    The flaw I see in my reasoning is of course if the Quantum money does not come through and that would have a significant impact on the 2014 performance for Lotus, leaving Hülkenberg in a more and more uncompetitive car as the season progresses. Still, the point about at least having a drive in 2014 is valid I think.

    1. +1

      Granted, the team has had some pretty duff years, and the downside risk is real; on the other hand, they’ve only once gone a whole season without a podium since 1986 [if I’ve added up correctly].

      Anywhere else he’s likely to end up, a podium will be a fairly big deal for the team, no?

  15. I work in the world of PE, hedge funds and M&A etc and have never known this type of compliance (KYC) to take so long and crucially, to not have been anticipated by lawyers ahead of the deal. I realise you’re just reporting what your sources are informing you (which I value and enjoy greatly!) but this whole explanation doesn’t quite stack up in my opinion and suggests other matters are at play or there are genuine compliance issues with some of the funders, which would be concerning.

    1. Indeed Bob, spot on. Cross Atlantic deal-making isn’t that complicated when the businesses doing so are legit. Anyone in America can buy company shares in Europe (and vice versa) without any fuss, be it on the public markets or in the realms of PE.

      The explanations given to Joe sound like stone-walling at best. This is not a reflection on Joe’s reporting, but on the incoherence of two hedge-fund pros, who ought to know how to close business deals even if they’d be comatose due to too much booze and drugs after a rowdy weekend.

      Something is rotten in Denmark.

    2. You’re right, this is too long. As you suggest, it’s more likely to be either a lack of funds or a very real compliance issue with the funders.

      1. I agree. The money involved here is a couple of hundred million dollars or thereabouts- not exactly a huge transaction in the larger scheme of things. I suspect it has to do with the source of funds/profile of the investors. Banks and regulators may be looking at compliance issues on account of this and this may be holding up the deal.

    3. I’m not familiar with the compliance specifics of such a high amount but I do agree with you.
      As an aside, if you’re a hedge fund guy, why in the world would you ever invest in an F1 team? Investing in the business itself makes sense but a team? Constant drain on cash, varying cashflow back and for a hedge fund, no benefit from a marketing/core business perspective. Genii’s bet was worth a punt given the price at which they got the team but why would Ijaz want to sink his money now? There doesn’t seem to be an upside.
      What am I missing I wonder?

  16. If the money is there and the deal is on, wouldn’t they have tried harder to advance some money to keep Kimi on board? For example they could’ve advanced some funds through loans, even personal loans, or guaranteed a bank line for the team. I think that if Quantum are confident of the deal clearing then they could’ve done more to protect their investment as they just lost a major asset.

      1. Given the rumors that Lotus is trying to sign Pastor Maldonado, I worry that this conclusion may be correct. If they have a deal in place to clear all debts and financially revitalize the team, and a top-line driver (Nico Hulkenberg) waiting to sign for them, why would they chase other funding?

  17. They should just bank with Barclays – they don’t give a toss about ethics or money laundering regs (see ML bulletin).

  18. Don’t necessarily buy the banking compliance line.
    This sounds more to do with background (shadow) investments being taken on the back of the deal being concluded.
    Most money moving in these markets is of dubious provenance and where better to invest it than in F1 where the legitimate income can cleanse the original expenditure.

  19. Joe, I respect you and your 30 plus years of been a F1 journalist, plus you ability to get a story correct. I have posted on your previous report regarding the funds that have been coming to Enstone, and stand by my views that this issue of compliance and all the different countries version on their own money Laundering Act’s, should not take more than 10 days to solve. That is if they have the cash ready to move in the first place.
    It doesn’t matter if it is $100M or $10M, the process is still the same, and funds like this move around the world all the time, and it does not take this amount of time. If it did, then no deals would get done.

    The owners of the Enstone team do have a lot of previous form in the way they appear to be unprofessional in announcing deals, when the deal isn’t done, or stating that they have paid their driver, when in fact they haven’t.
    If the report is correct, then what Kimi is saying today, he has also been mislead on when the funding is coming and when he will get paid. In the end, it appears his management just didn’t believe the stories they were been told, and took the Ferrari offer.

    Therefore are we to believe what Genii are saying? On what and how they have performed in the past, and currently up to date, I would say NO. As you said in a reply to my other posting – wait & see. (So I wait and hope that I am wrong)

    F1 is a very expensive sport – business, and needs liquid cash all the time. Genii have simply run out of liquid cash, and the sponsorship deals done, do not come anywhere near to cover the shortfall in the budget.

    I gather that Enstone and Sauber are two of the current teams on the grid, which could have a winding up order against them any time soon. (As per your previous blog – yes you didn’t mention them, but I have) I would also, as a outside bet, add Force India to that small group.

    1. The departure of James Allison earlier in the year suggests that other people may also not have believed the stories about the team’s future. Allison had been there for a long long time. For him to suddenly up and leave (according to rumors at the time he left without having a deal in place with any other team), something must have happened to spook him.

  20. Emm… fair enough Joe, I agree that it is plausible however I have a real problem with F1 teams living in dream land, and they are in dream land if they can’t pay the people that work there or their star drivers. In short it just a croc of s–t because they hired Kimi knowing full well they could not fulfill their contractual obligations until their share of the FOM money could be banked…as happened last year.

    Hulkenburg would be a fool to go there unless he hasn’t any choice and I would have zero confidence in Lotus long term viability unless the quantum investment manages to result in some really serious sponsors.

    I get a very strong feeling that Genii is looking to reduce their exposure, so I doubt the expected cash injection is the answer to everything….it is simply bailing Genii out.
    Meanwhile CVC trundle on to the horizon sucking billions out of the sport that rightfully belongs to the teams. It’s a bloody disgrace.

    1. …..bailing Genii out……..Cue vision of duck on water gliding serenely along, paddling madly unseen.
      Not much left for development then.

      You, like Keith above, have summed it up well.

  21. If it involves ANY bank in Switzerland, the US or UK, their due diligence will be intense. 3of them are sitting in suspended fines of around US$800m each. Suspended whilst they put in place measures to satisfy their regulators around their AML procedures. If they do that, the fines drop to less than 10% of that figure.

    So it is entirely feasible that the reasons for the delay are genuine.

    But why can’t Genii fund the opex thru existing facilities?….

  22. I think it’s an indication of how ridiculous things have gotten when the money required to fund a F1 team is so large that it is subject to international regulations of continental levels. This to the long term detriment of the sport.

  23. Joe, a bit of a tangent about Nico Hulkenberg: he appears to be a pretty marketable guy from the outside, is there a particular reason why he can’t attract sponsorship? Is it just down to not knowing the right people or blowing past opportunities in that area? Does he just not say the right things?

    Observing the current situation where some of the most talented drivers can’t find a paid drive while the biggest-backed-yet-less-talented drivers can choose from 12 different cockpits on the grid is utterly ridiculous.

    Why can’t teams and drivers attract the sponsors? What I’ve always loved about Formula One is the collective team discipline and professionalism, and it’s right across the board, unlike other professional sports; so sometimes it borders on the absurd that the teams (and drivers) can’t attract sufficient sponsorship.

    One final thing, has any F1 journo asked what the pay situation with Grosjean is? One would imagine he isn’t being paid either (irrespective of the size of his salary).

  24. By now they could have used the Hawalah system maybe a dozen or so times with say ten in parallel transactions, maybe they are and that’s why its taking so long.

    But if you look at the amount compared to what shifts on the main international share markets its nothing. Then the Forex market shifts about $1.5 Trillion per day, ok it mainly backwards and forwards, but it puts the $100m into perspective that’s just ten lots on the forex exchange.

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