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Number 22 (10:00)
Lotus brain drain continues (11:00)
Ecclestone to stand trial on criminal charges (11:31) UPDATE (13:35) Ecclestone to step down
RBR10 launch plans change (12:30)
The future of F1: Mark Gallagher – Part II
Last Friday we published first part of an exclusive interview TJ13 associate, F1WEB.it, had with Mark Gallagher where the cost and sustainability of F1 was the discussed. The second part has now been released and probably at a very appropriate time considering Il Padrino’s meeting with the teams to “talk about the overall approach to Formula 1″ and to look “at the problems with F1” has in effect been hijacked by the FIA.
As we wait for details of the FIA meeting to surface we are left to ponder how F1 will address the escalating cost, is it the teams that need to take ownership or the FIA? It now appears there is a third party involved, the manufacturers, who are indirectly contributing to the cost of Formula 1.
Mark feels the regulation changes for the 2014 season is too early taking into account the current economic climate and the FIA should have waited until at least 2016. “The timing of these regulation changes are wrong – we should have waited until 2016 when the economic situation had improved and been translated into new sponsorship in F1.”
He does acknowledge that there has been pressure from manufacturers to make Formula 1 more relevant to the road and in doing so, consumer. “Renault made it very clear that unless there was a road-relevant engine in F1, they would quit the sport. And the FIA was very keen to introduce ‘green’ technology.” Mark feels these are the reasons for the new regulations.
He goes on to explain, “At Cosworth we pushed very hard for the new engines to be cost-capped to an R&D budget which would enable the teams to continue paying no more than €8 Million per year (the same as a V8 engine Plus KERS) but the manufacturers were not interested in cost.”
Questioned about Cosworth in particular, he said: “Renault was determined to increase it’s customer base; after using its automotive manufacturer status to attract Caterham away from Cosworth in 2011 it did the same with Williams for 2012, leaving Cosworth with only HRT and Marussia.
“When HRT collapsed it was pretty clear that Marussia would not be able to fund the Cosworth 2014 engine programme on its own, so the project had to be stopped.”
Mark said if he was a running a private team he would have preferred to have a “unique relationship with Cosworth [to] produce ‘works’ Cosworth engines [rather] than to be the 3rd customer of a car manufacturer.”
He finishes by saying the he hopes a car manufacturer or new F1 team works with Cosworth in the future as he believes it is a great company.
Is Cosworth a casualty of the new regulations coming in early and would they have been able to produce a competitive power package for any team, even in a ‘works’ agreement considering the cost of R&D? Regardless, commercially it made sense for Renault to increase the customer base in order to fund the development of the new powertrains and as the saying goes, all is fair in love and war, and the war in F1 has been raging ever since the money men arrived to bleed it dry.
Ecclestone bids for the Nurburgring
Some 300m euro’s in debt and with an attached amusement park which was built on ill advised assumptions, the Nurburgring is up for sale. The regional government who have so poorly managed the finances of this national treasure expect to realise 100m euro’s at best.
Such is the status of the legendary 20km long ‘green death’ circuit where Niki Lauda had his famed crash and near death experience in 1976, that special permission had to be sought from the EU commission for the site to be sold. Well… that and EU development funding rules….
Anyway following Lauda’s crash, F1 never returned to the Nordschleife and it was 8 years before the new 5.1km circuit was built that F1 returned to the Eifel region of Germany.
TJ13 reported some months ago that there has been a bid from the German equivalent of the AA (ADAC) to buy the Nurgurbgring, though it is expected that their bid is much lower than 100m euro’s. The ADAC are the operators for the F1 race in Hockenheim which alternates every over year with Nurburgring.
That said, the Nurburgring F1 race is dependant on regional governemtn funding regardless of whether ADAC owns the circuit or not.
Reuters is reporting that a certain Mr. E has now registered his interest in the asset. However, it appears he is only interested in the Nordschleife and not the modern F1 circuit. The vendors have indicated they are prepared to sell the pieces which comprise of Nurburgring as individual units.
This would make sense because even though Ecclestone and FOM own the odd F1 circuit or two, they make very little money when compared to most of Ecclestone’s other financial interests.
Though why Ecclestone or CVC would wish to own an ageing piece of concrete which will not add to the billions they have already accumulated – is anyone’s guess.
Neither of those F1 partners do sentiment and nostalgia when faced with hard financial facts.
Having apparently crushed the collective wisdom with the last #22 and #20 McLaren quick quiz, here’s an easier one. Another number 22, but what can you tell me about it?
A little reminder folks that at 1800 Zulu the next Bar Exam takes off. If you don’t want to start the 2014 leaderboard with a points deficit, make sure you have answered last week’s edition.
Lotus brain drain continues
Williams confirmed a strengthening of their engineering talent earlier this week. One of the new recruits was Rod Nelson of Lotus who will to fill the roles of head of vehicle dynamics and chief test and support engineer.
Today Williams GP holdings announce the arrival of a new IT director, Graeme Hackland, who also is leaving Enstone to join the Grove outfit.
Following comments 2 days ago from Gerard Lopez, there have been a number of reports suggesting the Lotus team is between $100-150m dollars in debt.
Whilst technically true, most of this is owed to Genii. There was a loan from the previous team owners Renault which should now have been repaid, There is a further loan from Proton of some $50m as part of the deal for the team to use the Lotus name and the Proton car division of the same name (a la Infiniti) gains the benefit of the brand exposure.
The debt to Genii is not enormous when considering Vijay Mallya paid around $120m for the Spyker team and later Sahara invested a similar amount for a stake of between 40-50%.
The problem for the Lotus team is not particularly debt, but cash flow. Whether this is down to bad management and overspending, or an over ambitious anticipation of new funds by Genii – only those on the inside of the organisation know the truth.
Reckless spending by operational directors is unlikely as Eric Bouliier has regularly stated the issues are cash flow related. This would suggest those in charge of the cash budget have not got their sums correct.
What is clear, the venture capital investors behind Genii have been told they will not begin to see their investment paid for the foreseeable future and it is in their interests to sit tight and ensure the team remains viable.
Gerard Lopez makes clear the extra cash spent in pursuit of second/third place in the WCC has now been covered by the Genii investors and that Mansoor Ijaz is unlikely to show his face around F1 any time soon. “The Quantum money never arrived, [so] we broke things off with them, [but] we have a full budget for 2014 with our new sponsor PDVSA, and we won’t run up any more debts.”
TJ13 reported exclusively at the time of the Maldonado announcement that PDVSA had insisted on seeing a proper business plan for 2014 before a dollar would be forwarded to the accountants in Enstone. The problem was that to fund any kind of 2014 campaign, the debts of 2013 needed to be paid off.
The problem was that there was a stand-off with the Genii investors who were refusing to come up with any more cash. Common sense prevailed and to receive the $30m ‘gift’ from PDVSA. the investors made a like for like investment which ensures some kind of budget to run 2 cars and drivers for the 2014 season.
In return for this forbearance, the investors have with PDVSA demanded the team begins to live within its actual budget. Simple steps can be made to improve Lotus position such as ceasing to award drivers pay agreements out of future prize money – that should in fact be used to fund the following years operations.
Other areas to save cash include, skipping a test in Bahrain and Jerez, reducing the number of highest paid managers/directors within the team and in 2014 there will be less cash for the development throughout the season for the car.
The problem is that the word Lotus has become a byword for lies, false promises and complete financial fantasy.
Even if we believe Lopez statements about ‘approved budgets’ it looks impossible for Lotus to maintain their 2013 level of competitiveness in 2014 as they will compete on a significantly reduced budget.
Still for Lotus fans, Lopez is now claiming the crisis which was threatening the teams’ ability to even be on the Melbourne start line is now over.
Fat Hippo’s Rant: Meltdown at Enstone in Three, Two, One…
The gavel wielding one beat me to the Lotus story. Obviously, I see things slightly differently…
This rant is also available in German
I’m really getting fed up with Team Lotus. They’ve been the only team that could remotely challenge Red Bull in the second half of the season, but they dominated the headlines for all the wrong reasons. First of all they seem to have a business ethic that wouldn’t be out of place in some of the shadier parts of Palermo and their business plan has all the stability and viability of North Korea’s economy.
I don’t do things like buying shares or other forms of gambling at the stock exchange, because I think it is asocial. Every penny you ‘earn’ at the stock exchange was lost by someone else as nothing is ever produced at Wall Street. The stock exchanges around the world are basically just places were people congregate to steal each other’s money. As a result of that I know diddly squat about the shady world of the financial market, but even a bass-ackward pond dweller like me knew immediately that Genii are not the sharpest tool in the shed. We are talking about a group of people, who invested perfectly usable money in such a future-orientated company as Polaroid and who wanted to ‘hand in a cash offer’ for Saab!
The exploits of the finest alumni of the Vladimir Ilyitch Lenin School of Applied Money Combustion have led to impeding melt-down at the team that once brought a young Ayrton Senna into F1. Many of the team’s hard working employees were looking at the prospect of a rather miserable Christmas to be had, until Lopez and his cronies found a few coins in the back of their sofa and managed to pay the wages they owed their workforce.
Quite a few members of said workforce do no longer work at Enstone. Allison and several other key technical persons walked out and found refuge at teams, which have the slightest idea of how to handle money and quite a few of the ‘foot soldiers’ walked out or were walked-out, since the bigwigs can’t pay them anymore.
In the FIA entrants list Team Lotus is presented with two asterisks, which basically means they aren’t really there at all. That’s right – as it stands now, Lotus is not eligible to participate in the 2014 Formula 1 season. Not that they’re in any condition to do so anyway. For starters they are the only team, which doesn’t have yet an engine supplier. I’m pretty sure Lopez, Lux & Co are still scratching their heads why Renault doesn’t deliver the expensive units for the mere promise of some day being paid for it, maybe. In an interview with Auto Motor & Sport Lopez claims, they are still negotiating and want better terms than the rest of the Renault customers.
*deep breath* 3… 2… 1…
SAY WHAT?!? Are you business punks out of your freakin’ minds? What the heck have you been smoking these days? If it is legal, deposit a crate of the junk near the pond. I’ll pay for it – some day – no really, promised. The other Renault customers managed to actually pay their 2013 deliveries for starters. So if anything, you lot should get the lousiest deal there is: No engine without cash. Don’t tell us about ‘cheque is in the mail’. Fork over the dough or you can push your car around the track.
But everyone with half a brain knows that Lopez & Co are lying through their teeth. Lotus has two asterisks with the FIA, because they haven’t paid their 2.100.000 entry fee yet. They don’t show up at Jerez, because they don’t have an engine to nail in the back of their cars yet. The team has racked up a debt of a mammoth 114.000.000 quid. Every normal business would have to file for bankruptcy by now. I don’t know how things are handled in Blighty, but where the Hippo lives delay of bankruptcy is a criminal offense.
Seriously Lotus, it’s enough. Get your bloody stuff together or bugger the heck off. The last team I’ve seen in such shambles was called Andrea Moda. The only good thing that could come out of it, could be that we finally get rid of Pastor Maldonado.
Hippo has finish
Ecclestone to stand trial on criminal charges
Most legal experts believed that any further court appearances for Ecclestone would depend on the outcome of the Constantin vs Ecclestone case under consideration by Judge Newey in London at present.
In a surprise move, the Munich prosecutors who gained a conviction and a seven year jail sentence for Ecclestone’s former business associate – Gerhard Gribkowsky – have announced today Ecclestone will be forced to stand trial. No date has been set, but April is indicated as the most likely timeframe.
Anyone with a passing interest in F1 should know the broad case against Ecclestone. He paid a $44m bribe to the director of a German bank which controlled a significant share of the F1 commercial rights to sell their shares to CVC, who in turn guaranteed Ecclestone the continued role of CEO of Formula One Management.
There were apparently other buyers who may have paid more, but would not have retained the services of Ecclestone.
However, behind these headlines are further tales of intrigue. The Munich prosecutors have collected evidence from some 39 witnesses which include Jürgen Hubbert – a senior board member of Daimler Benz.
Following the collapse of the Leo Kirch Empire, the BayernLB Bank found itself holding as collateral a substantial portion of the Formula 1 shares. Gerhard Gribkowsky – who was responsible for advising the bank on the best way to manage (qcquire/dispose of) their investments.
The senior board of the Bayern bank had longstanding relationships with the board of BMW and Daimler Benz and it appears there were discussions between these parties over a deal on the F1 shares. Jürgen Hubbert’s testimony will be key to establishing whether this indeed was the case.
So why have the Munich prosecutors moved now and not waited for Judge Newey’s decision?
The case Ecclestone is fighting with Constantin Median hinges on whether Ecclestone sold the F1 shares knowingly ‘under valued’. The London trial appeared to have gone Ecclestone’s way and it is likely the applicants have not proved their claim against him.
Yet during the trial justice Newey made this comment. “I have to say I find the idea of a bribe being paid to get rid of the banks more plausible than the idea of a bribe being paid to undertake an arrangement under which shares were sold at an undervalue.”
It is the opinion of a British High Court Judge that on the evidence he has seen, it is believable that Ecclestone bribed Grobkowsky to advices the banks to sell to CVC. Somehow Gribkowsky advised the bank not to do a deal with the auto manufacturer’s which suited Ecclestone’s purposes.
This is EXACTLY what the Munich prosecutors wish to prove because this would be a criminal action. To them the value of the shares sold is of little interest.
Moving to announce the trial of Ecclestone at this point is a significant indication of confidence from those seeking to convict him of criminal activity..
CVC have a big decision to make. Do they stand by Ecclestone until proven guilty or not guilty? Or as in the corporate world put him on ‘leave’ until the matter is resolved.
Much will depend on CVC’s appetite to replace Ecclestone set against their fear that without him the tower of F1 cards will collapse. Further, Ecclestone may have information over CVC activity which could be highly damaging to them.
TJ13 believes CVC will see this as an opportunity to have a trial run and see how F1 manages without Mr. E, They can do this without burning their bridges with him and avoid creating an adversary who could hurt them as he has little to lose.
UPDATE: The board of the F1 holding company has issued a statement that Bernie Ecclestone will step down as a director, yet retain a day to day management role, “‘subject to increased monitoring”.
“After discussion with the Board, Mr Ecclestone has proposed and the Board has agreed that until the case has been concluded, he will step down as a director with immediate effect, thereby relinquishing his board duties and responsibilities until the case has been resolved. It is in the best interests of both the F1 business and the sport that Mr Ecclestone should continue to run the business on a day to day basis, but subject to increased monitoring and control by the Board. Mr Ecclestone has agreed to these arrangements.”
The approval and signing of significant contracts and other material business arrangements shall now be the responsibility of the Chairman, Peter Brabeck-Letmathe, and Deputy Chairman, Donald Mackenzie,”
The small clause regarding ‘monitoring’ is clearly designed to get Ecclestone to co-operate and tell all about how he does what he does… when and why.
more as we get it….
Ferrari attempt to influence the inevitable
In life and business, when an idea which is not popular is proposed, an easy response is to pick holes in it and declare it unworkable. However, when that idea appears to be moving toward some course of inevitable action, the participants often change their position and recommend versions of action which suit their purposes in an attempt to help define the ultimate outcome.
Ferrari are now engaging with the budget cap idea. This may be because Il Padrino’s proposed team leader summit in Maranello has been hijacked by the FIA who have demanded the teams’ attendance in Geneva January 22nd. On the agenda is the budget cap.
So for now the red team ‘hide the fox’ that is Montezemolo, and have appointed Stefano Dominicali as their mouthpiece on the matter. “Why do not we consider an approach where a team can only spend what they receive”.
The Holy Grail has been found!!!! Genius solution. Problem solved huh?
So each team has a different budget and within that budget micro budgets. There is a spending budget for the chassis, engine, gearbox etc and each is tailor made and reflects the team’s structures and income.
The first response would be – how the hell is this policed? The very argument used against budget caps per se applies here.
What happens should a team lose a significant sponsor or income stream during the year? Do we count cash in bank on the 1st of January as the funds available? Or do we accept promises and contracts for income during the year?
The main problem with this approach is if it can be made to work, it merely stops teams doing stupid things that force them to go bust. It does not address the competitive advantage of a team spending 10 times more than someone else on a prototype racing car.
Further, F1 should address the question. How much is enough? Does the sport want to portray the image of a profligate set of individuals who will blow several million pounds on developing countless new front wings – each slightly different from the other.
This proposal is predictable from Ferrari. It comes from a team who believes they should be allowed to spend whatever it takes to achieve their goal of beating the rest.
The fact Ferrari are engaging in budget cap discussions having previously refuted the idea out of hand, demonstrates the FIA have been taking a firm hand on the matter behind the scene. Are we about to see ‘Todt, the capitulator’ become Todt, the conqueror’?
RBR10 launch plans change
Red Bull had planned a public launch of their car in the UK prior to the Jerez test, though details of the event were never made public.
As with many of the teams, Red Bull are working around the clock with staff racking up huge amounts of overtime to ensure Adrian’s latest creation hits the ground running at the first winter test.
Today the team from Milton Keynes announce they, like Mercedes and Caterham, will launch their car in the pit lane prior to the first running of the cars on January 28th. Both drivers will be at the circuit that day with Vettel expected to take the wheel first up.
Red Bull will allow a photo opportunity at their launch however it is rumoured the Mercedes will just roll out of the garage at 09:00am local time when the test session begins.
McLaren and Ferrari will launch their 2014 machines online on the 24th and 25th of January respectively. Lotus will delay until Bahrain.
Pirelli contract extended to 2016
Oh joy of joys. Pirelli will remain exclusive tyre supplier to the Formula One teams until 2016. The relatively late extension comes on the back of a veritable annus horribilis for the Italian rubber benders. Overshooting the target of hobbling Red Bull by using steel belts instead of Kevlar belts the tyres proved so flimsy that early races descended into farcical eco runs. They also found out that they had embarrassed one of their major business partners, as Mercedes had chosen the wrong year to come up with a car that managed to reach Red Bull-esque levels of downforce.
Pirelli tried to sort that out with an illegal 3-day private tutoring lesson, but had the misfortune of being found out and in the end it was all theoretic anyway as the tyres were so flimsy that they disintegrated for no reason whatsoever at Bahrain and particularly at Silverstone. Onboard footage of heavy rubber debris just narrowly missing Fernando Alonso’s head were too much to pretend the things were fit for the job. Even those teams with no understanding of aerodynamics, who had heavily profited from the early tyres, unanimously agreed that the tyres had to be changed. Which was done and ruined the rest of the season for anyone but Red Bull fans – all 3 of them.
Not only Pirelli, but even their biggest pond-dwelling critics agreed that much of the problem was to blame on lack of testing. Test runs to develop the tyres were done with a 2010 Renault, which had as much to do with the 2013 cars as the Hippo has to do with less ungainly creatures like gazelles. The measures that are written into Pirelli’s shiny new contract to address this conundrum make entirely too much sense to be coming from FIA. I would hazard a guess that the negotiations took that long, because Pirelli had to do some arm twisting among officials and teams alike to get these demands satisfied.
Each team has to devote one of their allotted 12 days of winter testing to running tyre tests for Pirelli. Naturally that goes down with the teams like a fart in church. With every minute of testing vital to get the hang of the new engines, giving away a whole day will surely be met with less than enthusiastic ovations. That’ll be good news for Lotus, who already scrapped 3 of their test days and a fourth one will now be reserved for Pirelli – well if they show up at all, that is.
But that’s not all. Each team has eight further testing days over the course of the season, or more precisely seven as one of the eight days is required to be a day of tyre testing, too.
Schumacher full recovery now unlikely
TJ13 has avoided reporting on the Michael Schumacher story pretty much since a couple of days after the German’s accident.
Much of the comment and speculation has been ill informed and generalist, written by those with little or no neurosurgery knowledge or experience.
However, former F1 doctor Gary Hartstein has commented today and his views are worthy of note. He writes, “It is highly unlikely that when Michael and his family are finished with hospitals, finished with rehab centres, he will be the same Michael we had known until that Sunday. Having said that, which is admittedly saying very little that isn’t, unfortunately, painfully obvious, the range of impairment we may see spans the spectrum from mild sensory/motor/behavioral problems to more dramatic sequelae”.
This appears to suggest rather sadly, a full recovery for Michael is now out of the question.
New Mexican sponsor for Force India
“Sahara Force India is delighted to begin 2014 by announcing an exciting multi-year partnership with Roshfrans, the lubricant oils specialists from Mexico”.
Exciting??? Seems like they’ve been spending too long cooped up in the factory and need to get out more.
The agreement will see Roshfrans branding on the team’s new car, the VJM07 (rear wing endplate) as well as on the drivers’ suits, helmets and team clothing.
The Force India car will look very different in 2014. Gone will be the Mallya booze brands in will come a host of Slim empire related names. The cars colour will also be different, though teams who change their name or ownership get penalised and discriminated against by Ecclestone from time to time – so whether the ‘Force India’ name will go is as yet uncertain.
Rush fails to impress
Having bombed at the Golden Globes, the biggest F1 movie to be made in living memory fails to attract the attention of “The Academy” and receives no nominations.
Ron Howard’s work is viewed by many in the movie industry as characterised by ‘competent blandness’, and it appears those who care nothing for F1 have marked his latest work similarly.
Ferrari 2014 car name
Ferrari have published a leader board after some 100,000 votes have been cast to name the car that Alonso and Raikkonen will pilot this year.