For the past few months news has been coming to light about the finances of the Lotus Formula One team. First, Pitpass' business editor Christian Sylt revealed that British property tycoon Andrew Ruhan had become one of its directors. Then we discovered that Ruhan has also acquired a 2% stake in the team.
It is no surprise that interest in Lotus has been accelerating as it has been on a roll on track since hiring ex-world champion Kimi Raikkonen last year. Lotus currently lies in third place and the latest report reveals that there has been a hefty price to pay for this success. In fact, hefty doesn't do it justice because the price in question is a net loss of £56.8m which Lotus made last year and it is the highest ever recorded by an F1 team.
Writing in the Daily Telegraph. Sylt reveals that net losses at Lotus widened by £35.9m in the year-ending 31 December 2012. No other F1 team filing publicly-available accounts has ever lost as much money. It even eclipses the £41.9m lost by British American Racing in 1999 when it was flush with tobacco money in the first year under its new name.
The red ink at Lotus was driven by the perfect storm of increased costs and reduced revenue. Costs increased by 9.1% to £146.6m and the team's accounts state that this was "mostly due to higher driver and race related costs." This makes sense since last year saw the start of the pairing of Raikkonen with Romain Grosjean and their pay is clearly higher than the duo of Bruno Senna and Vitaly Petrov who they replaced.
The reduction in revenue requires a little more explanation. In 2012 the team's revenue reversed by 19.8% to £92.7m meaning that it received £53.9m less than it spent. Lotus then had to pay £2.9m of interest charges which took its net loss to the grand total of £56.8m. So why did its revenue decrease so sharply?
The accounts state that the drop in revenue was "mainly due to lower sponsorship revenues." In 2011 Lotus lost a handful of sponsors which came with Senna and Petrov such as Gillette and Lada. However, by far and away the biggest loss was, ironically, Lotus itself. This is where things get complicated.
The other shareholder in the team alongside Ruhan is ultimately Genii Capital, a private equity firm founded by Gerard Lopez, an early investor in Skype. Despite being named after Group Lotus and carrying its logos, the team has never been owned by the British marque. In 2011 Sylt revealed that Group Lotus had an option to buy a 50% stake in the team but this didn't last for long.
In April last year Lopez announced that the "option was taken over by us. There was one, but we have taken it over now." Crucially, he added that "the sponsorship agreement and the obligations of Lotus have been terminated... We are happy to carry the Lotus name as we believe it is a good name for F1." The termination of the sponsorship agreement explains why Lotus F1's revenue fell by 19.8% last year and you have got to wonder why the team let it happen.
Group Lotus seems to have got an extremely good deal as although the sponsorship agreement has been terminated, the marque's logo is still displayed prominently on the rear wing and nose of the F1 cars. Remarkably, Group Lotus is still even listed on the team's website as being an ‘Official Team Partner'.
If the sponsorship agreement was terminated then why on earth does the team still allow Group Lotus' logos to be displayed on its cars and for it to be known as an official team partner? We appreciate that Lopez said the team is "happy to carry the Lotus name as we believe it is a good name for F1" however there surely comes a point in time when generosity has to take second place.
Not only has Lotus F1 lost the space on the cars occupied by group Lotus logos but it has also lost the revenue under the sponsorship agreement which was the driving force behind its gigantic loss. That's not all.
Although Group Lotus' sponsorship of the team was terminated, Proton entered into a new agreement with it last year. In March 2012 Sylt revealed that Proton had given the team an estimated £35m loan which is secured on "all plant, machinery, show cars, computers, office and other equipment... and... Whiteways Technical Centre [Lotus F1's headquarters]." This is reflected in the accounts which state that the team had £39.7m of third party loans with £18.7m of this due by the end of this year and the remainder to be paid back between 2014 and 2017.
The bulk of the Lotus F1 loss was covered by a £42.2m group loan which is due to be repaid by the end of this year. This left the team with net debt of £79.8m and drove its shareholders' deficit to £54.2m.
So, to recap, Group Lotus gets logos on the cars and status as an official partner whilst the team lost the space on the cars, lost the revenue under the sponsorship agreement and also has to pay back a loan to the manufacturer's owner. It even had to take out a group loan as well as that. This all sounds like one heck of a good deal for Group Lotus and the question of why the team got itself into it remains unanswered.
There is certainly precedent for F1 teams to make losses but there is usually a reason for this being allowed. For example, if a team owned by a product manufacturer makes a loss, the parent company can justify it as a marketing expense. This is because the team promotes its products through its F1 cars carrying its logo.
Lotus promotes Genii through having its logo on the car but as the company doesn't sell mass-produced products it is hard to see how it could use its exposure in F1 to make back the £56.8m lost on the team.