So where are we at now with the two little teams which missed the last two Formula 1 races? It would help, of course, if the rules were not confidential (one wonders how the FIA managed to get recognised by the International Olympic Committee and other such bodies when the sport is completely lacking in transparency) but for the moment we must live with this until someone gets hold of the documents and blows the whole thing wide open. Just as the Pentagon Papers were good for governance in the United States, there is a solid argument that F1 would be better off if all the contracts were thrust into the public domain, or read into a government record somewhere.
It seems that the Caterham administrator’s attempts to raise £2.3 million to keep the team alive has slowed down and with 38 hours to go the total is stuck at £1,254,576, only 53 percent of the total required. Some have suggested that the whole thing is a cynical use of the racing team’s misfortunes to draw attention to the Crowdcube company, which has a partnership with the accountancy firm Smith & Williamson, for which the Administrator works. In any case, all the huffing and puffing from F1 types about how disgraceful the whole process is seems to overlook a couple of minor factors. Christian Horner, have you forgotten the Wings for Life campaign two years ago when your employer went to the public, selling parts of the car to raise money for charity? Oops, screeching noise followed by dull thud. And, let’s face it, what is an IPO if it is not asking the the public for money? I guess that why they call it a public offering…
So, let us forget all the jibber-jabber and look at the facts.
Caterham’s entry belongs to the Malaysia-registered company 1Malaysia Racing Team SDN BHD and it always will. If the company dies then the entry dies. It cannot be parted from the company number so anyone who wants to use the team must accept that it is a Malaysian company. The company can have as many subsidiaries or parents as it so desires, in whatever countries, but the entry stays in the Malaysian entity and though the name of this can change, the jurisdiction and the company number cannot. So any waffle about the entry being sold to an UK entity is exactly that.
There are also reports that if Caterham does not race in Abu Dhabi, it will lose its entry. This is not true. The team (and all teams come to that) are allowed to miss three races per season if they need to do so, and that means that if the team pays the entry fee for next year at the end of this month it does not actually have to appear before the Chinese Grand Prix on April 19, 2015. The crowd funding idea is really only an attempt to buy time. Five months. It is clearly a desperate situation and it is also clear that there is no buyer out there. Nor is there any help coming from the Commercial Rights Holder. If there was any incentive on the behalf of the Formula One group to keep the team alive, the investment required would be peanuts in the overall scheme of things. And that means that there is clearly no desire to do it.
Elsewhere Marussia has ceased trading and laid off its staff but it seems that the team is still deemed to be going concern until the paperwork is filed. With no staff to pay, the ongoing liabilities are acceptable and the Administrator is protected from winding-up orders, so there is some leeway still. It is hard to know exactly how this works but the agreements that the teams signed up to with the Formula One group appear to have defined insolvency in a rather narrow sense and so even if you have no staff and have ceased trading, you are not actually insolvent until the papers are filed.
The problem is that any potential buyer needs to have a big wallet, even allowing for the debts “going away”. You would think that it would be easy enough as Marussia has won the right to prize money in 2015 and with only 10 teams likely to be there next year, this means that all of them have guaranteed prize money, to the tune of at least $50-60 million, not only in 2015 but also 2016 and 2017 because the new team (Haas F1) will not arrive until the start of 2016 and it takes at least two years to qualify for payments. In other words there is a lump sum of about $150 million sitting there to be grabbed. This is probably why the big teams are keen to kill the toddlers because they can use the money for themselves.
The problem for the little teams is that in order to get the money, you need to be willing to spend around $300 million over the same period just to keep the team on the road. So to gain $150 million one must spend $300 million. Now, perhaps one can claw back $100 million with pay-drivers and some basic sponsorship but, even so, a buyer will need to be prepared to pay around $50 million in the course of the next three years, just to survive. And, of course, cash-flow is going to be the real problem because you need a ton of money up front (right now) if you are going to get a car built in time for Melbourne in 2015 and if your suppliers include creditors who got screwed then you might not be top of their list of people to be helped. It does not help either that some of the small teams suppliers are the big teams and they are happy to screw the customers in order to get rid of them. And that is before any discussion about the charges that the teams get for their freight and for the circuit facilities they use. There is some pretty scandalous gouging going on there, but it is to be expected when the circuits are being gouged by the series promoter.
None of this is going to get any better until someone has the foresight to introduce a team budget cap, or a cap on engine costs, or both. And, of course, all the big teams are working to stop that happening because they can afford it – at least for now.
All of this begs the question: why? What is the strategy if the series promoter will not step in and save a team that might be given the potential for a second chance with a relatively small amount of cash. If CVC wishes to protect its investment it needs to act, unless it has been sold on the idea that somehow having a few big teams is going to produce a better show and make the business stronger.
Back in September Adam Parr, the former boss of the Williams F1 team, tweeted that Formula 1 was on the verge of change and that “this is the last year of F1 as we know it. In 2015 eight teams will contest the championship, with several teams entering three cars”. Parr is a man with a grudge, but he’s also well-connected and so the suggestion needed to be taken (vaguely) seriously.
Having said that it is impossible for the big teams to agree on third cars. Even if they kill enough small teams to be able to change the rules in their favour and have the third cars scoring points (and thus earning money) then there is still the problem that someone has to build the slowest car. If there are six teams all running third cars, the very best that the slowest team can hope for is 16th place. And that would mean that a Mercedes, a McLaren, a Williams, a Ferrari or a Red Bull could end up not scoring a single point in a season. And what would happen then? How long would it be before the teams for which F1 is not their core business would walk away? Let us not forget what Honda, BMW and Toyota all did when the financial crisis hit F1. They all quit. Was it because they no longer had money available, or was it because all three were looking for an excuse to get out? The sport cannot rely on these people and it is foolish to think otherwise.
It is all very well for the big teams to get together and bully the little teams out of business, but who will save the sport when the Mercedes and Red Bulls of the world go off to do other things. Can Christian Horner commit Red Bull to F1 in perpetuity? Can Toto Wolff guarantee that Mercedes will still be racing F1 cars in 20 years from now? Of course not. Ferrari will probably still be around because it has no other advertising beyond racing, but the boss Sergio Marchionne is known to wield the scalpel fairly dramatically when surgery is required and he’s not known for pausing to use an anaesthetic. When the big players in big industry look at F1 they see little games and they can sweep away programmes in the blink of an eye.
And if that happens, what will be left if there are no constructors to carry the sport forwards?
Another half-arsed version of CART.
This is why constructors are important and why, if anyone at CVC had a clue about motor racing, they would be putting on the brakes and helping the little guys survive. Sadly, the only conclusion one can reach is that they don’t have a clue and that tends to support the idea that conspiracy theorists put forward suggesting that we are watching a campaign to drive down the value of the sport so that someone else can buy the commercial rights holding company from them cheaply. It is pretty easy to identify the parties who might want to grab the commercial rights. Bernie Ecclestone, an alliance of teams, the FIA, even new investors lurking in the wings. One wonders if CVC is even aware that it could be being manipulated. One would hope that there are people on the board smart enough to recognise if there are signs of this happening. One way or the other, CVC needs to understand that it has squeezed too many eggs from their golden goose and all that they can expect in the future is goose crap on their patent leather shoes. You can argue that they are just playing with other people’s money and that deep down they are sweet and cuddly people, but sadly I don’t go for that. They can play with other people’s money somewhere else. F1 is a sport that millions of people love and these people are not sportsmen.
If it all does go wrong, one can expect the (currently deadly dormant) FIA to step in, cancel the 100-year commercial agreement and set off on a new adventure with a structure of its own making. The teams will have to take it or leave it. Most (if not all) will take it and if not there will be others who can step in if the structure is properly thought-out, but then is there anything that the FIA currently does that it is properly thought-out? The whole organisation seems to function solely in reactive terms. If there are good things going on, then the communications department fails to get the message across. If a tree falls over in the forest and there’s no-one there to hear it…
And this is what pains me most about the current situation. The people who are supposed to be looking after the sport are failing completely in their roles. I used to believe that beneath all the conniving and back-stabbing there were people who loved the sport, but today I think that if there was once passion, it is now gone. Today they are just playing games because they need the kicks more than they need the money.
God help them when the obituaries are written because that will be the time of truth-telling and it will be ugly. Shakespeare had it right when he wrote that “the evil that men do lives after them, the good is oft interred with their bones”.
So let it be with these little Caesars…