14/11/2014
NEWS STORY
McLaren has moved to deny recently-published rumours that its supercar manufacturing business, McLaren Automotive, contributes to its Formula One team McLaren Racing.
The claim is the latest in a series of rumours which have been running wild after Caterham and Marussia went under. Their collapse sent much of the F1 media scurrying around trying to find out what was going on behind the scenes. It led some to jump to fanciful conclusions and, until now, the facts have not been separated from the fiction.
The first rumour doing the rounds was that Force India, Lotus and Sauber would boycott the Grand Prix in Austin in a bid to extract more money from F1 and its controlling shareholder, the private equity firm CVC. The chance of this proceeding was practically zero as if the teams had voluntarily sat out the race their sponsors could have taken legal action against them for failing to get the exposure they paid for. In turn this could have caused the very collapse that the teams have been fighting to prevent.
What made the reports about the supposed boycott an even bigger gamble was that they came little more than a day before the start of the race so there wasn't long to find out whether it would happen. Moreover, if it never came off the reports that predicted it would still be fresh in readers' minds.
Unsurprisingly, the alleged boycott was never officially confirmed, never took place and was subsequently denied by representatives of Force India and Lotus with Gerard Lopez referring to it as a "conspiracy theory."
Next up came the claim by The Times that "the boycott was only averted after Donald Mackenzie, chairman of CVC Capital Partners, the controlling shareholders, telephoned Gerard Lopez, the Lotus owner, in Austin to offer a compromise. It is thought that CVC may be willing to find as much as £100 million for the three struggling teams to prevent the sport splitting in two."
Like the boycott, the chances of a payout to the backmarkers is also practically zero under F1's existing contracts. The reason for this is that F1's commercial rightsholder is obliged to treat all of the teams equally. It may seem to conflict with the current state of affairs where several teams get far more prize money than others, but in fact it does not.
As Pitpass revealed in April last year, the best-rewarded team is Ferrari but this is not a subjective decision. It is thanks to the fact that Ferrari has been racing in F1 since 1950 which is longer than any other team. The financial and regulatory benefits that it receives could apply to any of the teams if they stick around for longer than Ferrari. Testimony to this, the bilateral agreements which commit each team to stay in F1 until the end of 2020 refer to the beneficiary of these advantages as being the "Longest Standing Team" rather than Ferrari.
Likewise, there is a bonus prize money pot of at least £60m but, as Pitpass revealed last week, it is open to outfits whose ultimate parent signs up to the bilateral agreements rather than the team itself which can be closed leaving F1 with no recourse to take action. The teams which receive the money are Ferrari, McLaren and Red Bull Racing as they are also the top three by the number of races won over the four seasons prior to 2012. Again, this is a criteria which was open to all teams and not specifically those three.
These are hardly new concepts or ones which are unique to F1. In fact, length of service and achievement are of course criteria at the heart of most hotel and airline loyalty schemes all over the world.
Even the payment of more prize money to the teams at the top of the standings than those at the bottom is treating all of them equally as any has a chance of finishing in any position. And anyone who says that the prize money should instead be divided equally clearly doesn't understand the meaning of the word because that would render the payment an appearance fee rather than being success-based.
Treating all the teams equally is a legacy of the Concorde Agreement, the contract signed by all the teams before the separate bilateral agreements came into force in 2013. It stated that the rightsholder must not "confer on any Team any material preferential right, benefit or privilege or discriminate against any other Team or subject it to more onerous material obligations than any other Team."
Pitpass reported this way back in May 2011 so it was no surprise to read F1's boss Bernie Ecclestone robustly denying the rumour that the three backmarkers would be handed £100m.
"We're not allowed to," Ecclestone told Sky Sports F1. "The only way that that could ever happen is if the teams agree to share their money. They are getting nearly a billion, so maybe they can chip a few quid in between them."
Even Ecclestone's denial ended up getting misreported with many outlets claiming that he had "refused" to pay and "ruled out" paying the £100m. In fact, this was completely inaccurate as all Ecclestone is doing is abiding by the contracts which are in place. However, you can hardly blame the reports saying that he was blocking the payment as it logically followed from the flaw inherent in the original piece. In itself, this goes to show the importance of rooting out errors at the source before they become accepted as fact.
It raises the question of what, except for embarrassment, was achieved by reporting an alleged boycott which was never officially announced and never took place and a £100m fund which could not be paid out. There was more to come.
Last week's Brazilian Grand Prix brought the claim that the backmarkers had been shown an email which outlined a plan to have Red Bull and Ferrari supply a third car for the grid next season. It was promptly criticised by Red Bull Racing team boss Christian Horner who told Sky Sports "we haven't been requested" to run a third car. Ecclestone echoed this by saying "we've not agreed anything."
Perhaps the most remarkable aspect of all this is that, in the hysteria, fact-checking seems to have gone out the window. One of the clearest examples of this came in a recent article about the budgets of F1 teams by Autosport magazine.
It was a follow up of a piece written last year which ended up getting ripped to shreds by Ferrari's infamous Horse Whisperer who stated that "when the championship finishes, the moment arrives to take stock. If it's enough in sport to look at the points standings, in business some trust in summer valuations, even if they are carried out under a parasol. For that reason, months later, a reconstruction of the budgets of Formula 1 teams developed by an Autosport colleague has transformed itself into journalistic fact. It's a pity that the cited figures are largely fantasy and they can draw even distinguished newspapers into conclusions that are wildly erroneous."
As Pitpass reported at the time, the errors were not restricted to Ferrari. The analysis arrived at Red Bull's budget by doubling the revenue of the team, without any explanation as to why, and then adding 10% for good measure. This year McLaren is on the receiving end of this kind of analysis.
The 2014 article bizarrely claims that McLaren Automotive, the company which manufactures supercars including the £1m P1, contributes both directly and indirectly to McLaren Racing, the operating company of the F1 team. This is despite the fact that the two companies have different ownership with 50% of McLaren Group owned by Bahraini sovereign wealth fund Mumtalakat and the remainder split between Group chairman Ron Dennis and Saudi conglomerate TAG. The three also own stakes in McLaren Automotive but it has additional investment from Singaporean billionaire Peter Lim.
The flow of money between the two companies isn't something you will find in Pitpass' analysis of McLaren's finances and there is good reason for this.
The Autosport article claimed that "although associate company McLaren Automotive contributes directly and indirectly, Racing is profitable in its own right - posting the largest attributable profit on the grid (£22m, 2013)."
McLaren's response is straight to the point. "This isn't true. McLaren Group and McLaren Automotive are separate companies and revenue does not transfer from the automotive business to racing." It is yet another fact which has been separated from the fiction and no doubt there will be more.