GP RACING JULY 2020 29
Essential guideto the business of F1STRAIGHT
TALK
Afterdecadesofwonderingwhat itwou ld take
to level the playing field in Formula 1, we now have
the answer – a change of commercial leadership,
two years of agonising negotiations and a vicious
global pandemic.
Like some unexpected superhero, the solution
has turned up in the nick of time, although insteadof wear ing its underpants on the outside it comes
in the form of a USD$145m budget cap. It’sa
nail-biting moment for McLaren and Williams, the
former group having lost £133m in the first quarter
of this year, the latter £13m for thewhole of 2019.
Job losses are in focus,McLaren pre-empting
publication of its first quarter results with news
that a restructuring of the group would leadto the
loss of 1200 jobs across its three business units:
Automotive, Racing and Applied (technologies).
The company has enjoyed great success with
Automotive,which last year shifted 4662 cars,WILL BUDGET CAP
BE A SAVIOUR, OR
IS IT TOO LATE?
a slightdrop on 2018 butstill strong.Aglan ce at profitability shows
Racing lost£67m andApplied £21min 2019.Tobalance that,the
F1 team’s surge to fo urth place inthe constructors’championship
promised increased revenuefrom prizemoney this year anda further
uplift in sponsorship,always a stro ng point for CEO Zak Brown.
Then came COVID-19, working its way from one key automotive
market to another. This translated into McLaren selling only 307 cars
in the first three months of this year, a year-on-year decline of almost
70%, and thiswas beforethe full effe cts of theextensive worldwide
lockdowns seen in April and May...
To help steady the ship, McLaren’s existingshareh olders ploughed
in an additional £300m in March, but even that has not been enough.
Costs have been slashed as the company has sought additional
funding, most notably by aiming to borrow against its Norman
Foster-designed Woking headquarters and historic car collection.
Even this has not been entirelystraightforward. Back in 2017,
McLaren raised £525m through a bond sale, £275m of which was
destinedto pa y off Ron Dennis in what might be described as a less
than suboptimal outcome for itsformer
boss. Bond holders have alleged the car
collection was already used as collateral for
that transaction, something McLaren denies.
For McLaren, COVID-19 has beena
perfect storm, but with drasticaction
taken by themanagement team, headed
by rece ntly appo inted Executi veChairman
Paul Walsh, recovery willoccu r, although
the time scale is uncertain.The COVID-19
pandemic cannot end quicklyenough, but if
it is then f ollowed by aprolonged recession
the market for expensivesupercars islike ly
to remain weak.
An hour’s drive away, at Williams,
COVID-19 is the latest unwelcome visitor,
coming hot on the heels of poor results,
shrinking prize money and shakysponsors–
specifically sponsors that fail to pay, leading
to ROKiT being given the rocket.
The situation had already prompted last
December’s sale of a majority in Williams
Advanced Engineering to aprivate equity
business. That already felt a littlelike the
beginning of selling off the family silver,
even before CEOMike O’Driscoll announced
recently that serious consideration is being
given to selling the team outright.
COVID-19 is the last straw but, thanks to
the timing of the budget cap, this is perhaps
the very best moment for Williams to attract
new investors and transition into a new era.
For Claire, Frank and the staff it can only
be hoped that this leadsto an overdue and
much needed reversal of fortune.Deres et a nimi, nestempe eumexcerovit,
sequis mi, quatur, omnita duciet estrum ilis
enditae remporerum ea quam esPICTURE:McLAREN.ILLUSTRATION:BENJAMINWACHENJEMARK
GALLAGHER
@_markgallagherMcLaren has considered borrowing
against itsHQ to secure more funds
to help it through these difficult timesPRO
GP RACING JULY 2020 29
Essential guideto the business of F1STRAIGHT
TALK
Afterdecadesofwonderingwhat itwou ld take
to level the playing field in Formula 1, we now have
the answer – a change of commercial leadership,
two years of agonising negotiations and a vicious
global pandemic.
Like some unexpected superhero, the solution
has turned up in the nick of time, although insteadof wear ing its underpants on the outside it comes
in the form of a USD$145m budget cap. It’sa
nail-biting moment for McLaren and Williams, the
former group having lost £133m in the first quarter
of this year, the latter £13m for thewhole of 2019.
Job losses are in focus,McLaren pre-empting
publication of its first quarter results with news
that a restructuring of the group would leadto the
loss of 1200 jobs across its three business units:
Automotive, Racing and Applied (technologies).
The company has enjoyed great success with
Automotive,which last year shifted 4662 cars,WILL BUDGET CAP
BE A SAVIOUR, OR
IS IT TOO LATE?
a slightdrop on 2018 butstill strong.Aglan ce at profitability shows
Racing lost£67m andApplied £21min 2019.Tobalance that,the
F1 team’s surge to fo urth place inthe constructors’championship
promised increased revenuefrom prizemoney this year anda further
uplift in sponsorship,always a stro ng point for CEO Zak Brown.
Then came COVID-19, working its way from one key automotive
market to another. This translated into McLaren selling only 307 cars
in the first three months of this year, a year-on-year decline of almost
70%, and thiswas beforethe full effe cts of theextensive worldwide
lockdowns seen in April and May...
To help steady the ship, McLaren’s existingshareh olders ploughed
in an additional £300m in March, but even that has not been enough.
Costs have been slashed as the company has sought additional
funding, most notably by aiming to borrow against its Norman
Foster-designed Woking headquarters and historic car collection.
Even this has not been entirelystraightforward. Back in 2017,
McLaren raised £525m through a bond sale, £275m of which was
destinedto pa y off Ron Dennis in what might be described as a less
than suboptimal outcome for itsformer
boss. Bond holders have alleged the car
collection was already used as collateral for
that transaction, something McLaren denies.
For McLaren, COVID-19 has beena
perfect storm, but with drasticaction
taken by themanagement team, headed
by rece ntly appo inted Executi veChairman
Paul Walsh, recovery willoccu r, although
the time scale is uncertain.The COVID-19
pandemic cannot end quicklyenough, but if
it is then f ollowed by aprolonged recession
the market for expensivesupercars islike ly
to remain weak.
An hour’s drive away, at Williams,
COVID-19 is the latest unwelcome visitor,
coming hot on the heels of poor results,
shrinking prize money and shakysponsors–
specifically sponsors that fail to pay, leading
to ROKiT being given the rocket.
The situation had already prompted last
December’s sale of a majority in Williams
Advanced Engineering to aprivate equity
business. That already felt a littlelike the
beginning of selling off the family silver,
even before CEOMike O’Driscoll announced
recently that serious consideration is being
given to selling the team outright.
COVID-19 is the last straw but, thanks to
the timing of the budget cap, this is perhaps
the very best moment for Williams to attract
new investors and transition into a new era.
For Claire, Frank and the staff it can only
be hoped that this leadsto an overdue and
much needed reversal of fortune. PICTURE:McLAREN.ILLUSTRATION:BENJAMINWACHENJEMARK
GALLAGHER
@_markgallagherMcLaren has considered borrowing
against itsHQ to secure more funds
to help it through these difficult timesPRO