In the Pitlane: Here come the billionaires

Was Zak Brown right when he warned recently that Formula 1 could lose four teams due to the current crisis gripping the sport?

Well undoubtedly the sport is, in Zak’s words, “in a very fragile state”, but I feel his analysis was geared around the continued involvement of the car manufacturers. The worry is will we see an exodus like the 2008 financial crisis when F1 did indeed lose several manufactures.

Nothing concentrates the mind of a CEO more than their market value and since the start of 2020, the stats make depressing reading. Daimler has dropped $13.1 billion, Honda $9 billion and Renault $3 billion so yes, it is a very real problem.

But the biggest issue will be engine supply. Due to the number of teams involved F1 will need Daimler to continue with the Mercedes AMG High-Performance Powertrains production as a stand-alone business. This will be critical and may require financial undertakings from the sports stakeholders.

Renault may do the same with Mecachrome and supply whoever eventually (more later) takes over their team.

Honda is problematic for the Red Bull and Alpha Turmeric teams but with a bit of creative accounting by Red Bull solutions could be found. Let’s not forget in a worst-case scenario there are engine manufactures that could fill the void, Cosworth being an example.

The actual teams themselves will likely evolve in the coming months and adapt to the new reality F1 faces and this is when the billionaires will step forward.

Let’s look at the teams on an individual basis and speculate on possible outcomes.

Mercedes
So, will Daimler pull out of F1?

The Chief Executive of Daimler Ola Källenius claims publicly they are here to stay, “Participating in Formula 1 is one of the greatest returns on investment within the whole Daimler group. This is an exercise that costs little in comparison to the billions of marketing value that are being generated.”

It may well be an entirely different matter in private and Daimler could shock the F1 world by announcing their withdrawal from the sport.

Well, step forward one Sir Jim Ratcliffe the richest man in Britain with a fortune of £21 billion and his Ineos group. Ratcliffe has already become a “principal partner” to Mercedes with a £100m investment as well as a tie-in of expertise over 5 years.

I reckon it was always Ratcliffe’s game plan to buy the team as it fits neatly with his petrochemical empire and provides synergies in engineering expertise not to mention the small matter of clean fuels. Covid-19 has just accelerated the process and the only question that remains is does he do it with Toto still on board?

Ferrari
Although Ferrari the so-called heart and soul of F1 is owned by the worlds eight largest car manufacturer Fiat Chrysler Automobiles, the power behind Fiat is one John Elkann an American-Italian industrialist. He was the chosen heir of his grandfather Gianni Agnelli the founder of Fiat. Elkann chairs and controls the company and he is the chairman and CEO of Exor, the holding company controlled by the Agnelli family which holds a controlling stake in Ferrari.

Here’s the simple fact, as long as Ferrari produce road cars then the F1 team are here to stay.
F1 may need Ferrari but as sure as the sun rises in the morning Ferrari needs F1 just as much if not more.

Why?

Well in Ferrari’s own words, in published IPO documents they state: “Formula 1 Racing allows us to promote and market our brand and technology to a global audience without resorting to traditional advertising activities, therefore preserving the aura of exclusivity around our brand and limiting the marketing costs that we, as a company operating in the luxury space, would otherwise incur.”

This sport provides – as Ferrari themselves claim – “a strong marketing advantage in the luxury performance car market”.

Ferrari also benefit from R&D developed by the F1 team to enhance their road cars and speed up development.

So, ignore Ferrari’s constant threat to walk from the sport they are going nowhere. If Ferrari is short of cash, then the tobacco giant Philip Morris International will simply stump up more sponsorship cash facilitated by Louis Camilleri who is the chief executive officer of Ferrari and wait for it also the chairman of Phillip Morris International.

Red Bull and AlphaTauri
As long as Red Bull can sort out the engine issue then I’m sure they will continue in F1. Red Bull’s core business has no doubt suffered a drop in sales due to the closure of pubs and clubs worldwide, but it is a very profitable and well-funded business. Its owner, the Austrian billionaire Dietrich Mateschitz, will still value the brand exposure the teams provide, and would he be willing to write off the millions spent building the team into a winner?

To his credit, Mateschitz has announced all employees at the Red Bull Ring circuit will be paid in full during the crisis so would he really throw his team under a bus at this stage?

Another sign of his commitment to F1 is the recent announcement that Red Bull are trying to acquire the sport’s broadcast rights in their home market of Austria.

No, I think Red Bull is safe in the hands of the 53rd richest person in the world.

McLaren
The situation at Zak’s team hopefully is straightforward. McLaren is majority-owned by the Bahrain royal family’s Mumtalakat investment company and this is a long-term strategic investment from a geopolitical and economic perspective. Mumtakakat can financially afford to take the long-term view and will remain in F1.

Renault
It’s hard to imagine Renault staying in F1 given the parent company’s many challenges financially and structurally. Renault’s debt was downgraded to “junk” status last week following poor results last year when the group’s profits were almost wiped out. There is also the relatively poor performance on the track which does not bode well for further involvement.

The solution could rest with one Alain Prost, who apart from being a legend in France is also an international ambassador for Renault. Prost could persuade the French billionaire Bernard Jean Étienne Arnault to join the F1 grid. Arnault is the chairman and chief executive of LVMH Moët Hennessy, the world’s largest luxury-goods company. Some of LVMH’s brands would be a perfect fit — Tag Heuer Watches, Princess Yachts and Moet & Chandon to name a few.

Could Arnault afford to become involved given the current crisis? Well, he was briefly the richest man in the world in December of 2019. Also, he has the essential F1 billionaire credentials with yes, a 333 ft super-yacht called Symphony. Come on Alain, make that call!

Racing Point
The team is owned by a consortium of investors, but the major shareholder is Lawrence Stroll, a Canadian billionaire businessman and collector of vintage Ferraris. Lawrence and his chums have committed to the building of a new £25 million state-of-the-art factory.

Also, the consortium has as we all know purchased a controlling stake in Aston Martin. Stroll and partners initially injected £55 million and due to the Covid-19 crisis a further £20 million in emergency funding. There is an old saying, “in for a penny in for a pound” so I think this applies to Stroll and his consortium with their deep pockets.

Alfa Romeo
The team is Sauber motorsport with Alfa Romeo being the title sponsor after entering into a technical and commercial partnership with the team. Sauber was renamed at the beginning of 2019 to Alfa Romeo racing.

Sauber was purchased from Swiss businessman Peter Sauber in 2016 by Swiss investment firm Longbow Finance S.A. The mysterious Longbow Finance has as its president one Raymond J. Baer and Longbow is but one of many boards that Baer sits on. Bloomberg the financial, software, data, and media company’s profile on Baer paints a very clear picture of a man who is socially and professionally connected to everyone — and every business — worth knowing in Switzerland. This person “is connected to 14 board members in three different organizations across four different industries,”

Baer has had links to the late billionaire Tetra Pak owner Hans Rausing who coincidently sponsored Swedish driver Marcus Ericsson –which may have been instrumental in Longbow’s purchase of Sauber — small world, F1.

As it stands there is nothing to indicate Longbow is not committed to F1 and within the secretive world of Swiss business, I’m certain Baer will access any capital the team requires.

Haas
I think Haas will be sold; the team is owned by American businessman Gene Haas. In an exclusive interview with Autosport pre the coronavirus crisis, Haas said he was juggling the investment needed to stay in F1 against its competitive fortune.

“I’m just kind of waiting to see how this season starts,” he said when asked about what his thoughts were for the future.If it starts off strong then maybe there’s a possibility that we can continue.”

“But if we have another bad year, then it would not be that favourable.”

Given the current situation, it may be time for Haas to walk away.

The most likely suitor is Saudi Arabia in the shape of their Public Investment Fund. Saudi Arabia has previously disclosed plans to host a race at its upcoming new circuit in Qiddiya.

Additionally, the State-owned Saudi Aramco — the world’s leading integrated energy and chemicals company — has recently signed a long-term global sponsorship deal with F1.

The crown prince Mohammed bin Salman bin Abdulaziz al-Saud may be taking his lead from his smaller neighbour Bahrain, who of course stage a GP and own a team.

Any proof? Well during last year’s acrimonious split with William Storey, the owner of its title sponsor Rich Energy, Storey in a parting shot, said on Twitter: “We wish Haas the best of luck in negotiations selling the team to Saudi investors”.

Haas team boss Steiner responded at the 2019 Russian GP, “I really do not know what to say except I also wish the investors good luck, because I don’t know them.”

“Haas is not for sale. This is one of the usual tweets from them (Rich Energy) and I’d rather not get into it. It’s not our style,” he added.

Maybe Steiner does not know them, but Gene Haas probably does!

Williams
Sadly, it’s no secret that the team majority owned by Sir Frank Williams (51.3%) are in trouble financially

Williams represents all that is good about F1 – run by Franks daughter Claire it is an organisation with motor racing at its very heart. Williams has held to the core value of being a constructor and refuse to become a “B” team in the mould of Haas.

Nevertheless, times have been hard on and off the track in recent years with Williams selling some of the family silver in the shape of Williams Advanced Engineering late last year.

Williams has just announced a loan from Michael Latifi a Canadian billionaire and father of newly signed driver Nicholas through his Latrus racing company. The loan is secured on the team’s contract to race in F1 and also covers 112 historic cars. It could be argued Latifi is securing the drive for his son something Lawrence Stroll did at Williams to the tune of a staggering $80 million but I think not.

Latifi has a taste for team ownership with his 10%stake in the McLaren team and this is most likely a pre-emptive move to take control at Williams. Why move so quickly? Well apart from Williams need for cash Latifi will be only too aware of a possible adversity in one Sylvan Adams, yes you guessed it, another Canadian billionaire.

Adams is backing Williams new test driver Roy Nissany and has a desire to see Nissany fast-tracked to be a F1 driver in 2021. Adams commented, “Of course, he has a few hurdles to accomplish before he can be selected to be one of the two drivers”, but buying the team would certainly get his man over said hurdles!

Latifi has placed himself in pole position if Williams situation deteriorates but he may want to look over his shoulder in case Toto Wolff returns post-Mercedes to his old hunting ground.

 

So, all ten F1 teams I predict will survive and take on the new challenges post Covid-19. We may be seeing the start of the billionaire era just like we saw the “garagistes” era in the 1960s onwards with the likes of Ken Tyrell, Colin Chapman, Frank Williams, Ron Dennis, Eddie Jordon and not forgetting the first billionaire Bernie Ecclestone.

 


Note: Garry Sloan is the author of “In the pit lane – F1 exposed” details at inthepitlane.com
Copyright ©2020 Garry Sloan

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