The position at Lotus F1

It was expected after the Belgian Grand Prix that there would be a swift solution to the problems of Lotus F1 Team, with Renault rumoured to be moving in to take over the team. It now seems that the stories were moving rather faster than the reality, although it is clear that Renault has not been doing anything to dampen the speculation. However, the suggestion that Renault is the only option for the team may not be the whole truth. What is interesting is that there have been some fairly detailed leaks to the media, which seem to be coming from Renault and from the Formula One group. One can understand why both would want the deal to go ahead as rapidly as possible. The Formula 1 group wants stability and wants to be able to exert pressure on Mercedes to supply Red Bull Racing, to solve the problems there. From the Renault point of view, if the deal is not agreed soon, it will be too late for the team to switch to Renault power in 2016. Renault has few choices at the moment. It might be possible to acquire Force India, but this is less attractive a team than Lotus. Beyond that, the French firm does not have the money to spend, even given the fact that it is effectively controlled by the French government.

Our sources suggest that the details of the Renault deal that have been leaked to the media are broadly correct, with the company offering a total of $100 million in order to acquire 65 percent of the team. This values the team at slightly more than $150 million. This is not expensive, particularly when one considers that Renault is only willing to commit to an immediate payment of $11.5 million. This would then be followed by annual payments of $8.8 million for a period of 10 years. After that the French firm would commit to finding the money required to cover the annual costs of running an F1 team. The 10 percent of the team that is currently owned by the Russians who were involved with Yotaphone (which has since been swallowed up by Megafon) would be passed over to Alain Prost and he would take on the role of chairman and front man for the team, along similar lines to the role that Niki Lauda enjoys with Mercedes.

The discordant note in all of this is that Renault seems to be content to include Gérard Lopez in the deal, with the suggestion being that he will retain 25 percent of the shares in the company after a Renault takeover. This looks like a face-saving exercise. Lopez and Genii Capital partner Eric Lux did invest some money into the team but, by all accounts, British real estate developer Andrew Ruhan invested more and this resulted in Ruhan turning his loans into equity and taking control of the company, at the start of 2014. He then put his associate Matthew Carter in to run operations at Enstone and has funded the team ever since. There is a limit, however, to the amount of money that any investor will put into a Formula 1 team and it seems that this limit has now been reached. The team is up to its neck in debt, with creditors more and more nervous about the future.

However, the fact that the Renault rescue deal has not gone through confirms the belief that Lopez does not have the power necessary to get the deal done and, it is safe to assume that Ruhan has little interest, presumably on the basis that he feels that he could do better, or that he does not want to work with Lopez any longer. Or both. Given the amounts of money that has been put into Lotus in recent years – probably in the region of $200 million – it is not hard to understand why Ruhan would not be happy with the Renault offer and, as the majority shareholder in the team, he does not have to agree to any takeover, even if others are trying to use the media to put pressure on him, which seems to be what is going on.

This suggests that Ruhan probably has an alternative project, the only other option being to put the team into administration, which would likely end up with Renault buying the assets, if the company survives without being deemed insolvent, as that would mean instant cancellation of all of its rights and benefits under F1’s complicated (and secret) commercial deals. If this is the case, there is clearly something holding it up and one must suppose that something is getting in the way of a deal. One might speculate that this is because Lopez still wants to be involved, even if he has not had much to do with the team in recent months, having begun a new business in oil trading.

As reported last week if the Renault project does get the go-ahead (if, for example, more money appears) then it is anticipated that Bob Bell would be drafted in as the managing-director, with Prost as the Team Principal, to give it the French flavour that would be required. Romain Grosjean would be retained as the lead driver but it is thought unlikely that Pastor Maldonado would stay on. It is not thought likely that the company would go for two Frenchmen (although it has happened in the past), but rather will get the best drivers available.

73 thoughts on “The position at Lotus F1

  1. Hope a deal is done soon and that Hulkenberg is in the frame. A Enstone renault team with Grosjean and Hulk wouldn’t look too bad.

    1. More likely threatening administration is a way to force a better deal from either the creditors or the other shareholders.

  2. Slightly odd question Joe, but what livery do you see Renault running with? Will it hark back to the yellow and blue days or might we see a branded colour scheme linked with a title sponsor?

    As it’s a french team I’m wondering if Total might take a significant presence on the car… your thoughts?

  3. “with the company offering a total of $100 million in order to acquire 65 percent of the team. This values the team at slightly more than $200 million.”

    If $100M = 65%, then 100%=£100M / 65 * 100 = $153.846153846154

  4. I would love to see a Renault works team if only to get a Mercedes engine into the Red Bull. What are the chances of Alonso to Red Bull for 2016 if this happens? Ham/Alonso/Vettel battling it out at the front, that’s what F1 needs.

    1. Totally agree, let’s get Alonso in a top car, and Verstappen for that matter, let’s see who the best driver really is as I genuinely believe that he (Verstappen) has the makings of a top driver.

      It’s crazy that Alonso is stuck at the back of the grid.. we’ll look back when he retires and regret not seeing him wheel to wheel with the likes of Seb and Lewis.

  5. As usual Joe an amazing insight into a complex issue put in laymans terms that we can read and understand the various strands of the story. Lotus is a novel all on its own!!

    It seems to me that Andrew Ruhman has come into Formula 1 as an investor thinking that he could make a small fortune, which he appears to have have done having put a large one in.

    Motorsport is like the food business as an investment, if you don’t undertsand it don’t get involved. Well thats my opinion anyway.

  6. Clear as mud Joe! (No not him.)
    To me, the $99.5m for 65% gives a valuation of $153m for the whole.
    But if the Russians own 10%, then how much each do Genii and Ruhan and anybody else own?

    It is obvious that its current income from sponsors is inadequate and presumably they would loose PDVSA’s contribution if Malvolio was booted out, how could the Renault $8.8m make up for that and give enough to cover running costs? It seems to me they would still need a new and large source of income. (this indeed if any of the $8.8m goes to the team instead of paying off the previous owners.) I just cannot see how this is viable at all. I would guess they are a minimum of $30m a year short.

    I have severe doubts that in ten years time Renault will even exist, but even if it does, will it really assume full costs for the team? (which allowing for inflation are going to be at least 50% higher if not double as it looks like interest rates may well start to rise over the course of the next year)

    I recently tried to buy a new Renault but my two local official dealers in Boston and Lincoln have given up Renault and turned to other franchises apparently unable to live with the constant extended delays and non delivery of new cars. (They appear to be constantly on strike, while Sig Ghosn attempts to close factories and move production to cost effective sites. Reminds me of British Leyland/Austin Rover/Rover group in earlier years)

      1. Its all a matter of arthritis and bum height and corresponding seat height from the ground. That and being the only mftr to offer 6 gear double clutch auto in diesel with the same mpg as a manual. As one’s left knee disintegrates it is time for automation.

    1. I think Renault (or something like it) will still be around in ten years time. But I doubt whether the current execs can commit the company to F1 for that long.

      The first period that Renault entered F1 (1977-1985) can be viewed as ten years if you include the years in F2 and Group 6 sports car racing. The first turbo engine in F1 evolved from a very long development exercise. The second period (2002-2009 or 2010, depending on when you determine the sale occurred) was cut short by the race fixing at Singapore 2008, but Renault had already shown signs of departure.

      So how will a ten year staged or stepped purchase of Enstone work out? Even if the execs convince themselves that it is possible, will the oversight board agree?

      As for money to run the team, we can expect Total to rejoin as a major sponsor following Pastor’s leaving. It’ll be a French national team so it will find another big French backer, probably from the financial sector. The team will have access to the best French brains in aerodynamics. Overall, it looks a plausible package to me as long as the ten year commitment is addressed.

  7. I would be happy to see the back of Lopez & Lux rather sooner than later. They (or Genii) have brought NOTHING to F1 or the Lotus Team. They have no interest in Motorsport and have always admitted to seeing their involvement in F1 as a business opportunity.

    F1 teams don’t need such team owners (or people to pretend to own a team if behind the scene Ruhan is actually holding the reigns).

    I’m also skeptical about the whole Renault affair. Traditionally they’ve been an engine supplier and their stint as a team owner was a short-lived affair.
    Now they have a mountain to climb just to get their engine / PU competitive and their public struggle to do this (after they’ve been a driving force in getting the turbo-charged hybrid engines into F1) is a real PR disaster for them.

    I don’t think Renault being a team owner will magically solve all their problems and restore their reputation. More likely it will cause additional distraction when they need to sort out their engine.

    For the Lotus F1 team (or whatever they will be called) to go back to Renault engine supply must also feel like a real step backward. But maybe this step backward is offset for should Genii disappear from the scene.

    1. “They (or Genii) have brought NOTHING to F1 or the Lotus Team.”

      This is bullS#!^. A not so insignificant reason Renault has Lotus at the top of their shopping list is the fact Genii has invested many millions into the team over the last few years, a large portion going into the CFD, wind tunnel and simulation.

      F1 became more exciting when Lotus brought Kimi back and built a fast car. Excluding Ferrari and Red Bull, you see about as much Lotus team kit walking around the grandstand area as any other team.

      Also, if it wasn’t for bridge loans from Genni, Enstone may have shut down by now.

        1. If what you say is true, then why is the Lotus team constantly running into debt issues? All the sorrow affair with Kimi not being paid, various test or reserve drivers being strapped of their cash and then send away again?

          Genii likes the visibility from F1 but whatever has been invested into the Lotus team has clearly not brought them out of the red figures. And was it really their money they invested? All I ever heard from Lopez was about business opportunities.

          VC’s are not known for spending their own money. and I stand by my opinion that they have brought nothing to F1. But then again, in CVC, Lopez had a good “role model” in how to exploit F1 for you own fortune …

  8. Doesn’t $100 million for 65% value the team at around $154 million?

    If it goes through, I would love to see Renault bring in Hulkenberg in place of Maldonado. He could parachute into Hulk’s seat at Force India, I imagine they’d welcome his money. But I believe a previous post of your’s suggested Hulk’s extended his time at FI?

  9. Thank you for the insight Joe. As always, an eye opener. Even though those in the hierarchy of F1 may want to see Red Bull with a Mercedes engine, even Todo Wolff has expressed reservations in the past. Personally, I think Mercedes Benz would be foolish to do so as well. Several months back, Ferrari said they’d be happy to supply Red Bull, however that may just before press attention. I think with Red Bull’s petulant, ingrate, foot stomping, spoiled brat attitude they have expressed this year, I’d be amazed if anyone would take them on, even Honda.

    1. Chris R

      “I think with Red Bull’s petulant, ingrate, foot stomping, spoiled brat attitude they have expressed this year,”

      I absolutely agree, not good brand partners as Renault have found out.

  10. They may not necessarily want two French drivers, but they couldn’t go wrong with Grosjean and JEV. Just a thought…

  11. “This is not expensive, particularly when one considers that Renault is only willing to commit to an immediate payment of $11.5 million. This would then be followed by annual payments of $8.8 million for a period of 10 years. After that the French firm would commit to finding the money required to cover the annual costs of running an F1 team.”

    How would the team be funded in the mean time?

    I may not be understanding this properly but it looks like it’s being bought cheap on a payment plan and then little investment is going to go into it?

    1. > How would the team be funded in the mean time?

      +1 to the question. Sounds like a recipe for (financial) disaster on the scale of Mastercard / Lola to me.

      If the team had found a way of financing its own runing costs, it wouldn’t be in this mess.

      As well – it’s been reported elsewhere that this deal is going to give the team the budget to compete on equal terms with the top teams. But you’re saying (I think) that the reason that Renault want to make relatively tiny payments over many years is that they don’t have the budget / cash / willingness to spend to do more. Which sounds like the old saying about Ford in F1 – a day late and a dollar short. Only worse.

      Is Renault’s money really as limited as I’m reading it here?

      1. No, they are not that limited. The deal seems to be that Renault buys out the current owners with deferred payments. These have nothing to do with the running cost. I can see why they would do this, and why the current shareholders would agree: if Renault buys the company it gets 65 of the team, but also 65 percent of the debt. If the team goes bust, the shareholders get zip; if it gets taken over, they at least get something (even if it takes 10 years). And of course, they are rid of a money draining operation. As for the running cost of the team: obv. this will be considerable more than 10 mio, as Renault well knows.

  12. Joe do you have a ballpark idea what it would cost to put together a operation with the facilities of Enstone if you started with a green field site?

  13. This is the strangest “baleout” I’ve ever read, even though we’re all not privy to the details.
    1. How is the current accumulated debt satisfied by this meager annual 10 year buy in?
    2. Where does the annual operational funding come from?
    3. As Lotus has the best infrastructure available, can there be another alternative out there?

    Thanks Joe.

    1. The debt has “gone away”. The annual funding will come from Renault and associated companies/sponsors.
      There is Force India, but it’s not very attractive in terms of infrastructure and I’m sure that you have to have Vijay as part of the package

      1. Yeah, conveniently “gone away”, leaving countless small suppliers well and truly screwed over, while the F1 bandwagon rolls on without caring one iota!!

        1. I believe that the debts have been stuck into an account where they will remain with interest payments being made until they can be paid off. It is not nice and I agree you have a right to be angry.

          1. Surely in the “real world” somebody would go to prison in a similar situation? Continuing to commission services and supplies with no ability to pay for them constitutes fraud, or have I missed something?

  14. I think when Joe says “after that” he means over and above the purchase plan….there will be little point in a manufacturer buying an F1 team and then not providing a sound annual running budget?

  15. Given Alain Prost’s previous venture into the management of an F1 Team (compared to Niki Lauda’s experience gained in running an international airline) do you think he will have an active role in the management of Renault’s team (if they finally get there), or do you think it is real tokenism?

    I understand about the 10%, but is it his money? Or does it come from someone else with AP as a front man?

    I find that an equally intriguing situation as the Lopez, Lux, Ruhan one…

  16. I think if Bernie keeps his promise of including Renault as one of the historic teams, then additional funding could be made available from there. But Renault will also have to inject more money into the project and I doubt they can throw in enough to match Ferrari or Mercedes.

  17. Do you really think Prost would be a good ambassador? Niki is on another planet compared to Prost who has zero rep with fans these days.

  18. This seems a steal to me if Renault pulls it off, apart from the ten-year commitment. Getting the team to be competitive for the money Renault can throw at it might be a challenge, although if I remember correctly Enstone has always been run at a lower budget than other teams, even in their first Renault guise in the early noughties.

    Do you see Fernando going full circle to end his career at Renault if they prove competitive quickly enough for him to have a final shot at that drattedly illusive third title, Joe?

      1. “I think a steal is the problem…”

        Quite. None of the current owners and creditors powerful enough to cause a ruckus should feel they are being cheated (hence probably Ruhan’s hesitation). At the same time it needs to be cheap enough for Renault’s board to swallow it – although the case for withdrawing now would probably be even worse.

        I don’t know that much about how close Renault and Nissan really are, but if I interpreted correctly, you have suggested that they’re not all that close (for all the platform sharing they do). Otherwise, Carlos Ghosn might try to offload some of the cost to Nissan.

        Would the option of putting the team into administration have negative consequences for Renault, since they will be the ones snapping the remains up anyway?

  19. The French government owns slightly less than 20% of Renault so I don’t think it’s fair to say that they control the company. Carlos would certainly disagree,

  20. I am sure money is not a minor issue. A couple of years ago, Renault was supplying five customer teams. Not bad business. Now they have spent 200m or so developing an engine no one wants. I have no idea if the rumours of an early divorce are true, but the loss of Toro Rosso would mean a further shortfall of 30m and no F1 revenue at all in the short term.

  21. Joe,

    Some interesting thoughts on the Enstone problem.

    In the City it is not known if Andrew Ruhan has ever come out the wrong side of a deal, so if we are to believe what is been proposed here, then this could be the first time. We do know that he is currently been sued by a former business partner on a deal for £100M, and that is heading for court in 2016, plus he is now been sued for divorce. His wealth is at or rumoured to be around the £200M mark. In 2013 he became a Director of both Lotus and the Genii companies. It is believed he put funds into both of them.

    As for Gerard Lopez and not Eric Lux or even Andrew Ruhan retaining a share in this new set up is a little puzzling. I didn’t think Genii Capital could afford or that there partners would allow them to take such a big haircut on the funds they have put into Enstone. The same with Ruhan, he would take a pretty big haircut on his “investment”, and that is of course to say nothing about the $30M Loan, that Proton has given to Enstone, been all pushed off to the side in to a separate account, hopefully to be forgotten about.

    With it been classified as a “Works” team, then yes it could attract some serious sponsorship funds, which of course it needs, but even in its previous form, they never really had the “mega” budgets that we see today. They did well and always seem to punch well above their weight in the Championship. I think that was more down to the staff and all they wanted do to was go racing. They have lost pretty much all of them, but as we saw at Spa, they still might have a few good talented people around the place.

    I hope the Renault Board do know what they are getting into with this buy in of, the Enstone factory. Yes it is dressed up to look “Cheap”, but there is s till a heck of a lot of money to be ploughed into the place, – clear all suppliers’ bills and pay staff for a starter

  22. I have been trying to look up your old postings of the time, but I can’t find how much Genii paid Renault for the team? Did they actually pay anything for the share capital?

  23. The new Infinit Q30 has A LOT of Mercedes parts in it, especially in the interior as can be seen from pictures released today.

    If Daimler are happy to provide parts to a ‘rival’ to build basically an A-Class clone/ competitor, I doubt something like Renault (via Infiniti) part-funding an Infiniti-badged Mercedes engine for Red Bull in exchange for ending contract 1 year early would be a problem.

    Infiniti using M-B engines in its road cars already after all, and M-B is using some Renault engines in its road cars.

    Doing so in F1 would be perfectly consistent!

  24. I see it being reported today that Bernie Ecclestone paid the staff wages last month….

    It also being reported that the team are currently on their way to Monza.

  25. Interested in what happened to the gang from Lotus, I believe that Lopez has stayed on in some role, but what of Matthew Carter and Fedrico Gastaldi?

    1. Lopez is doing what Lopez always did. Finance stuff and he was in oil for a bit last year. Matthew and Federico, no idea.

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