The Formula 1 field was in danger of shrinking to 18 cars until an 11th-hour deal on the eve of practice for the Belgian Grand Prix put Force India back on the grid.@DieterRencken followed developments closely in the paddock at Spa, spoke to the major players involved, and offers his insight.
In his post-Belgian Grand Prix media briefing, Formula One Managing Director Ross Brawn referred to the outcome of the race weekend for Force India thus: “What an incredible weekend for Force India. Reborn as Racing Point Force India, on Saturday it got both its cars onto the second row of the grid and on Sunday brought both cars home in the points, in fifth and sixth places.
“It was very important that this story had a positive outcome, thanks to the efforts of all those involved, including the FIA and the other nine teams entered in the championship. It was significant for the good of the sport, for its credibility inwardly and in the eyes of the outside world, and above all for the hundreds of the team’s employees and their families who were worried about job security.”
There is no disputing it was a fairytale result for a team that headed for F1’s summer break with their employer in administration, and participation in Spa-Francorchamps unsure until Thursday evening, when the sport’s governing body, the FIA, confirmed it had awarded the reconstituted team – Racing Point Force India (referred to here as RPFI here in order to differentiate it from what went before) – an unprecedented mid-season entry.
However, as the polemics surrounding the team unravelled during the weekend, so it became increasingly apparent that not all was what it seemed at first glance, and thus Brawn’s comments that “that this story had a positive outcome” may yet turn out to be overly optimistic.
As always in F1, Isaac Newton’s Third Law applies: that there is an opposite and equal reaction to every interaction; or, phrased differently, every dollar granted to the resurrected team from the teams’ “pot” through largesse is one less dollar collectively split amongst the rest. Consider the “swing” effect of that dollar: RPFI gains more performance, and the rest less.
Hence it was surprising to learn that all nine teams had (allegedly) had signed waivers that granted RPFI access to so-called Column 1 funding two years earlier than the norm. In simplified terms, F1’s prize pot is split into two equal columns: Column 1, divided equally amongst all qualifying teams, and Column 2, which is disbursed on a sliding scale (19%-4%) amongst the top ten finishers in the previous year’s championship.
Here, though, is the rub: To qualify for Column 1 proceeds, teams need to finish in the top ten in two of three previous years, and thus it follows that RPFI would qualify for Column 1 money only after end-2019, at earliest. Given that the money pot is finite (see here for further details) it follows that concessions made to RPFI have the effect of reducing total payouts to others by an equal amount.
Notes: Bonuses paid to Ferrari, Mercedes, Red Bull, McLaren and Williams are calculated separately, and not included in the “pot”.
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When Sahara Force India (hereinafter referred to SFI) went into administration during the Hungarian Grand Prix, it was clear that the preferred buyer was a consortium headed by Lawrence Stroll, with (unconfirmed) reports having it that Mercedes, a substantial creditor due to unpaid engine bills, would refuse to supply power units to other purchasers – and possibly even waive any accrued debts dependent upon final purchaser.
Indeed, on Hungary Sunday Lawrence Stroll was seen scuttling about in company with F1 CEO Chase Carey, soliciting permission for Force India, should the former’s consortium be chosen as new owner of the team by SFI’s administrators FRP Advisory LLP, to retain the Column money. The argument was that agreeing to the Column 1 waiver would save the jobs of 400 employees and keep two cars on the grid.
Our best information is that all teams bar McLaren, Renault and Williams agreed to a waiver from Column 1 conditions as outlined, although they subsequently clarified that they did not refuse outright, but had instead sought certain clarifications before appending their signatures to the document.
According to insiders, there was little doubt that they would eventually sign, as none wished to stand accused of influencing any potential sale through withholding their signature(s), with the subsequent loss of a team, 405 jobs and two cars on the grid.
The clarifications they sought are believed to relate to any newly constituted operation’s relationship with, in particular, Mercedes, as they feared that any contractual arrangements going forward could see the resurrected operation mutate into a (semi) Mercedes ‘B” team, similar to the Ferrari-Haas/Sauber axis and Toro Rosso’s relationship with Red Bull Racing.
As an aside, Wolff is not, and never has been, listed as a director of the engine supply entity Mercedes AMG High Performance Powertrains Ltd. (Company number 01760288). That may, or not, be relevant as the saga unravels.
However, the crucial issue is that at the time Stroll and Co sought the waivers for the take-over of a going concern, i.e. a company continuing as-is save that names of directors and shareholders are changed in registers with all other operational details remaining the same – with all debts settled by the administrator out of sale proceeds.
Thus the team would continue to race under the Sahara Force India licence, personnel would remain the same, and all contracts would be honoured going forward, save those that would be novated (cancelled, altered or transferred by mutual consent). Indeed, the only change would be that Vijay Mallya would no longer be team principal, with the new owners taking the place of the out-going group.
Or so they all thought, including Sergio Perez, who initiated the administration via Brockstone, an entity linked to the Mexican, and SFI COO Otmar Szafnauer, who, even before the process was triggered, spoke of “…this critical period, which might last a week or two, we have to keep our heads down, do the best we can here, go enjoy, after the test, enjoy our break and then come back fighting thereafter…”
Now compare his words, said a full six hours before a London High Court delivered his administration verdict, to what we now know: That a “going concern sale” proved complex due to delays (whether justified is not relevant here) on the part of 13 Indian banks who held orders over Force India Formula One Ltd (SHI’s holding company) and Diageo, owner of Jonnie Walker, who held a lien over the entity.
Indeed, there were doubts whether all the agreements could be obtained at all, let alone in time for SFI to reassemble in time for the Belgian Grand Prix, so Plan B was hatched: Stroll and Co would acquire the assets to the team in the name of a shelf company, but not title to the holding company. The new company, racing Point, would then need to apply to the FIA for an entrant licence – crucially as a new team.
Not so neat, after all…
An analogy: a computer consists of software and hardware, both of which are required to mesh seamlessly to operate. Effectively, for purposes of explanation, the holding company is the software portion of the operation, and human capital, facilities and cars constitute the hardware.
Stroll and Co acquired the hardware but not the ‘corrupt’ software – to apply an IT phrase – and thus the cars could not run unless a new software licence was acquired. Said license was awarded by the FIA late Thursday.
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Now consider the legal status of that original waiver, granted by six teams, including Haas, on a going concern basis, yet here was Racing Point requesting an entrant licence for a new team. Is there a difference? A technical one, certainly.
Consider: when Haas entered F1 in 2016 team owner Gene Haas did so in the knowledge that Column 1 monies would be denied them until end-2017, even if they won all championships going in the interim. True, the machine tool magnate accepted the terms and conditions and entered all the same, but the flip side is that they created at least 250 jobs – with more to come over the years – and added two cars to the grid.
Did anyone come rushing to Gene’s aid and offer waivers at the time? Had Haas, though, acquired an existing team on a “going concern” basis – which did not save jobs or add cars to the grid – they would likely have qualified for Column 1 immediately. Spot the anomalies?
Herein lies the legal challenge for F1, for RPFI and all affected parties: According to information obtained from various sources, and shared with the FIA and FOM personnel to ensure that there exists no confusion, the six signatures obtained in Hungary specifically referenced a team take-over, whereas those subsequently obtained refer to as asset sale. So oranges and apples mixed to create vegetable pie…
To add further spice, a number of sources are adamant that some clauses were retrospectively amended as the revised circumstances arose, yet not all signatories were advised accordingly. So what they thought they’d signed for is possibly not what is now reflected.
Then, on Friday Formula One Management’s legal department allegedly circulated yet another document to all teams, requesting that they attest to not having placed under duress or coerced into signing whatever waivers they signed in the first place. Curious.
This may explain Szafnauer’s intriguing choice of words when asked in the Friday FIA press conference whether RPFI faced any consequences due to the situation: “The remaining nine teams have signed, so to speak, a document that enables us to keep the money that Sahara Force India had earned in years past.”
Why the “so to speak”? Possibly Szafnauer knew then that not all “the remaining nine teams” had signed the same document? That evening, during the team’s own media session, he suggested that all teams had signed the waiver because they thought “it was the right thing to do”.
Thereafter we were requested to leave Force India’s hospitality unit as a crucial meeting had been called – and one by one the team bosses entered, to be addressed by Stroll, who reportedly explained to them why not voiding their signatures due to the changed circumstances would be the right thing to do. Curiouser.
Given the foregoing it is not rocket science to deduce that the entire sale could yet unravel spectacularly, particularly if legal challenges are mounted against RPFI and FOM – and that reckons without demands by Uralkali, linked to unsuccessful billionaire bidder Dmitry Mazepin, that FRP Advisory provide satisfactory answers to their questions – as originally revealed here.
FRP Advisory has (twice) told RaceFans: “All bidders were given equal opportunity to submit the best deal for Force India. Throughout, we (the Joint Administrators) have closely followed our statutory duties and objectives as administrators and had the advice of experienced legal counsel.” Yet, clearly, Mazepin is not convinced.
Sitting in the middle is the FIA, which moved heaven and earth to grant a mid-season entry to the team, based on the assurances that FRP has acted correctly and information from FOM that all teams had agreed a waiver – which they apparently had, although possibly not all the same waiver with identical clauses…
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It seems that, on the basis of the information provided to the FIA, the governing body acted impeccably throughout – even if the court processes which saw SFI excluded from this year’s championship could have been more transparent, and the late entry fee paid by RPFI made public – yet all its work may still be undone by the courts.
The absolute irony is, of course, that the bilateral agreements between teams and FOM permit teams to “fail to participate in more than three (3) events in the same FIA F1 Championship before they shall be considered to have withdrawn from the championship”.
On that basis FRP and any prospective buyer could have sat out Belgium, Italy and Singapore before returning to the championship chase for Russia – providing nine weeks for resolution – in an orderly manner. That way an asset sale would have been a last resort rather than a rush resort.
The sooner F1 learns that rush jobs invariably end in botched jobs and that the true victims of every botch job are very real human beings with very real families – in this instance 405 dependant units – the better in every respect.
Follow Dieter on Twitter: @RacingLines
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