More on the Lotus situation

More details are emerging about the Lotus F1 team situation, with further media pressure being added to the mix, presumably in an effort to get the current owners to agree to sell the business. I am told by several people who know these things that Lotus has yet to receive an actual offer from Renault, but the terms that will be offered have been leaked in the media, one presumes that this is designed to quieten any political questions that might be raised by Renault buying the team, given that the company is controlled by the French government (which has the right to block any big decision) and this does not want to be seen to be throwing money into such things when it has plenty of other problems to deal with. The government needs all the money it can get because it is in the process of offering tax breaks to businesses and to the French middle classes, in an effort to improve the economy (and to get re-elected).

There is a report in The Times today quoting Bernie Ecclestone, saying that he paid the salaries of the team last month. Making this public is clearly not something that Ecclestone would usually do (he loans money to teams on a fairly regularly basis), so there is clearly a desire to use the media to move things along rapidly.

At the same time I have been sent a document that indicates that Her Majesty’s Revenue and Customs (HMRC) has an administration hearing scheduled for September 9 (the Wednesday after Monza). This documents lists a large number of debts that the team has collected and asks for the team to be administered by Geoffrey Carton-Kelly and Geoff Rowley of FRP Advisory, the company that recently oversaw the Marussia F1 Team administration. HMRC has also asked that the court dismiss three pending winding-up orders, arguing that liquidation would destroy the value in the company as it would constitute what is known as “a cessation event”, as detailed in the secret commercial agreements that exist between the teams, the Formula One group and the FIA. That would mean the team’s entry would disappear and the creditors would only get what value could be derived from selling off the remaining assets. The primary asset is the entry.

The pressure is clearly on for the current owners but it is not clear why, that being the case, the Renault offer has not been made. One must assume that the French company is now waiting for an administration order and will then swoop in and try to do a quick deal with the parties involved. This would mean that most of the small creditors would get their money (or at least a percentage of it), but the big losers would be the owners, who have loaned the team money, or who own the shares. Obviously the situation can be resolved if there is an injection of cash into the team from the current owner, or from a buyer. What is clear is that the team is worth more than the money that is on offer for it, as long as it remains solvent. Logically, this should mean that those with the ambition to own an F1 team would be queueing up to make offers. The problem, as always, is not so much the purchase price, but rather the costs involved in running the team on a monthly basis, as this costs several million to be available every month. The bigger the company buying the team, the better the situation is, which is presumably why there has been so much press about Renault.

Another reason that Ecclestone is keen to have Renault take over the team is that this would mean that the French company would put its own engines in the Enstone cars and that would free up a supply of Mercedes engines. Red Bull is talking about leaving F1 if it cannot find a competitive engine and obviously the best choice would for them would be Mercedes, although it is hard to see why this makes sense to Mercedes, which would prefer to go on winning with its own factory team.

 

49 thoughts on “More on the Lotus situation

  1. I always found the concept of “loans” as opposed to “marketing budget” interesting, but i do understand that its more beneficial finacially from a tax perspective to hold debt. But i wonder if Genni comes out of these few years satisfied with their investment?

  2. Interesting that Mercedes sponsored this weekend’s TV coverage of the Red Bull soap box race.

    This is a clear sign that the two companies are working closely together.

    Either that or Mercedes are saying that the only Red Bull cars they want to support are ones without engines. 😉

  3. Good news for F1 teams in general that the lumbering beast of HMRC has reached the point where it understands the value of not winding up an F1 team. This could save many a team in the next couple of years…

    1. I think you are in error. HMRC’s only interest is to the exchequer. They will chase the owners to ninth circle of hell to get their dues.
      The administrator may have a different view. They will be interested in getting as much value as possible for the creditors

  4. The best thing for all involved – well, perhaps not ALL – would be if:
    – Lotus goes into administration
    – Michel Sapin blocks Renault from wasting shareholder funds (to feed Carlos Ghosn’s ego)
    – D. Mateschitz pulls Red Bull funding for RBR and Torro Rosso, and no other possible owners/sponsors are dumb enough to step into the gap
    – FOM is in breach of contract at the start of 2016, unable to field enough cars
    – FOM collapses, all existing contracts between teams and FOM and circuits and FOM unwind
    – F1 restarts with normally aspirated V8 engines from Cosworth and manual gearboxes from Hewland.
    !

    1. you forgot about Avon tyres. Not a scenario that I would call “best thing for all involved” at all Gary.

      Sure, it might feel good to you to “teach Bernie a lesson” like that, but surely BE would be clever enough to prevent such a scenario. He has enough money and contacts to find someone to step in before risking FOM being out there. See him paying for Lotus salaries to keep the show going for the spa weekend.

  5. Thanks Joe for this inside info. Always appreciate your analysis on this most complex of sports. There’s nothing else like it for intrigue and back room deals!

  6. I wonder what kind of subtle and not-so-subtle pressure will be put on Mercedes to link up with Red Bull. It could require a new prize money scheme specifically for Mercedes if they were to lose to Red Bull

  7. Hm, so Renault would “save the day” by stepping in to scoop up the team before it goes down? Either as soon as an administrator gets installed or by having the current owners come out and “ask Renault if they would be so kind to step in for the amounts circulated in the press”?

  8. So Bernie paid the team’s salaries last month, to me this is like discovering that Don Corleone has been helping with your housekeeping budget. It also rather emphasises the point I made yesterday, where is the day to day running cost going to come from?
    If they go into Administration all the suppliers will get ripped off, then having accepted 4p in the pound as the best of a bad deal you are asked to supply the new owners, who smile because they know you cannot sell their unique parts anywhere else and please can they have credit, and no they are nothing to do with the team that owes you megabucks, they seem surprised if you are not keen.

    Will Red Bull please just stop moaning and bitching and go and take their millions and sponsor something else. (If there are any sports left that they dont already sponsor.) Or go and invest it in rare earth metals, buy heaps of tailings. Sponsor Richard Branson doing something stupid. (Around the world in a one man submarine) I think most of us have had enough, first it was Vettel and his toys and now its Mr Spice.

  9. I can hear the fall out already! Fernando quits and heads to redbull Mercedes! Ha ha!! Excellent! Bring it on. Only one problem for Teflon. That young verstapen lad is about as fast and skilled as it is possible to be, and won’t cost 50 million! Fernando must be kicking himself! He is like the Black Death. Reap what you sow…..

  10. This smells of some pretty unsavoury behaviour on the part of Renault. They give the appearance of waiting for the team to collapse into administration before swooping in to pick up the pieces on the cheap.

    No doubt French domestic politics also had to be considered but surely all of that must have been sorted out by now.

    No doubt there is more to it than that (and I hope I am wrong) but it doesn’t look good. Sure, it’s all business and business is a tough game but a lot of peoples’ livelihoods are being messed with in all of this.

    1. I don’t see how Renault can be held responsible for the chaos at Lotus. Those problems have to be landed on the shoulders of Genii Capital.
      Renault need to extract shareholder value not run a charity. Lotus is now a distress sale.

      1. No, you are right, Renault is not responsible for any of it. I just think they could have jumped in a bit sooner and sorted it out, if that is what they intend to do eventually. Plenty of worse things have been done in the name of ‘extract shareholder value’ (examples all over the place in F1), but this (administrators, winding-up orders, impounded cars) is making the sport look bad again.

        If Joe’s theory is correct and other hyenas are now circling the carcass, Renault may live to regret that they were not a bit more expeditious.

  11. Wow, F1 really is a mystery wrapped in an enigma, wrapped in a riddle wrapped around a man of very small physical stature – probably the only part of his stature that could be considered small.

    The only way I could see Mercedes tolerate Red Bull is if they know it’s a one or two year affair after which some other patsy steps in as whipping boy for Der Dietrich.

  12. Interesting Joe, thanks. I think if I were the Lotus car company, I’d ask the F1 team to remove the “Lotus” name from its cars so as to avoid further embarrassment to Hethel.

  13. So do you think this Lotus/Renault deal will happen Joe? I hope it does as the Enstone factory has a lot of F1 history just to let it go to waste

  14. Honda are claiming that they now have more power than Renault.

    Logically, the Renault management need to see a big improvement in the engine at Sotchi, before committing to a chassis programme as well.

    That would also mean that they can keep RB as a customer in the short term to help offset the PU development costs.

    1. From what I’ve read, apparently they DO have more peak power than Renault, but are unable to deploy it consistently. It’s a bit it was in the ’80’s, most powerful engine but a nightmare to drive with it. However, it eventually got sorted and the rest is history… Will be interesting to see what happens over the next few months, it’s quite possible that, within a year or so, the Honda engine will be the one to have… Let’s hope so, anyway. 😉

  15. To quote Joe:

    “The pressure is clearly on for the current owners but it is not clear why, that being the case, the Renault offer has not been made.”

    A deal of a similar structure . . . with varying share percentages . . . was reported by Autosprint as long ago as Spain. At the time, Mathew Carter said the shareholders had no interest in a sale to Renault and, pointedly, he added: ‘We are very happy with Mercedes engines’. After 2014, I think that goes without saying.

    Mr. E’s intervention does suggest pressure, but maybe both sides are dragging their feet? In recent interviews with Cyril Abiteboul, he always talks about 2017 as a start point.

    In the meantime, Honda says it has found 25 horsepower over Renault. If the claim is substantable, it can’t be encouraging news for Renault.

      1. Yeah Honda may have 25 more horsepower however they have no clue how to get it to the wheels. Money talks Bullshit walks. Honda did not invest enough money in copying someone else’s design to make it their own.

    1. Isn’t the Honda quote a duck & dive answer from Japan extolling the power of the ICE over Renault’s, whilst completely ignoring the fact that their ERS is broken (and probably won’t be fixed until redesigned in the off-season)?

  16. I don’t think Renault want anything to do with the debt current ownership has accumulated, and the surest they can eliminate it is through administration.

    Otherwise the “offer” would have been presented. The leaking of various schemes to take over the Lotus operation is a not too subtle message to the future administrators that there is a takeover contender waiting in the wings once the debt has been dealt with.

    Unless Genii and partners are willing to accept full responsibility and gradually pay it all off. But will the debt holders accept that scenario? Sounds dubious at best.

  17. This is the most interesting story in F1 at the moment, what with Hamilton walking off with the title and the majority of the drivers unchanged for 2016.

    Off on a slight tangent here, Joe, but what effect would Renault coming back as a full team have on the chances of a French GP? Do Renault give a stuff about their ‘home’ race? If Bernie’s so keen for them to get involved, I’d like to think they would encourage him to do a deal at Magny Cours or Paul Ricard.

  18. I noticed today, that at Companies House, the Proton £30M loan note – floating Charge over all the Machinery & Equipment at Enstone is still in place. Therefore one wonders where this sits in line with the other “Creditors” been the loans that Genii have made to the company. The only real investment I can see is in the Simulator, and that isn’t cover from the paper work I have regarding the floating charge.
    But yes the main – prized asset is the F1 entrée and therefore you do need to keep the “patient” alive to sell on.

    Does anyone know how much of Maldonado’s sponsorship monies is stilled own, or has he paid it all over at the beginning of the season?

  19. I still find it crazy we can be in this situation, a winning team like Lotus/Renault/Enstone struggling like this when there is so much money in F1 as a whole. I hope a deal gets done and preferably not through administration which surely can’t do the image of F1 and the team any good.

    If Renault does take over the team do you think there would be any chance of Jean-Eric Vergne getting another shot in F1?

    1. F1 Pete – agreed.
      the Enstone team has won 4 WDC’s between 1994 and 2015. I think it’s fair to say they won’t win the WDC or WCC this year.

      On average, over the last 20/21 years they won 1 in 5 WDC’s on offer. This makes them them more successful than McLaren, Williams, and pretty much anyone else over the same period aside from Ferrari. There is an argument to be had that perhaps Red Bull have been just as successful over the same period, allowing for their earlier incarnations as I have done in the case of Lotus (Enstone). It’s true that their last successful campaign, if we measure success in WDC’s, was a decade ago, but again, we can look at other great teams such as Williams who haven’t won a WDC in nearly two decades. McLaren are a little less than a decade away from their last WDC.

      Averages are of course deceptive. Ten years ago the Enstone average was roughly 1 in 3 for 1994-2006.

      I understand success comes from many factors, and that many of these factors might not be in place with the current structure. I also understand many successful teams see their fortunes wane and disappear from the sport. Also that I’ve been selective by using 1994 as a starting point – I don’t do so to be disingenuous, and I acknowledge anyone who wants to go back to the first WDC for a more complete data set, which of course will change my figures drastically.

      My point is that over the last two decades Enstone has been one of the most successful teams. It might not have dominated for blocks of years in the way that RBR and Ferrari have. It might not come close to McLaren or Williams for overall WDC’s, but they haven’t been minnows or back markers (no offence to minnows or back markers intended).

      It’s a terrible shame when any team goes under or faces administration. How much more successful does a team need to be in order to maintain it’s presence in the sport.

  20. As the French government now owns less than 20% of Renault it is unlikely that is the reason they have not yet acted to buy Lotus. They Ard probably leaving it as long as possible to get it for less.

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