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Let the Force be gone: F1's newest team makes plans

Publication: 
Bryan Edwards
chiefofficersnet

There will be some in Formula One who will miss Force India but there will others who won't. It's a name that has close to zero connection with the team and that's been the case for a while, even before the companies behind it collapsed and were rescued by, amongst others, Lawrence Stroll. This week, it was made clear: the misnomer will come off the cars at the first opportunity and Stroll's will, at least to a degree, appear on one of them.

The original idea was for Stroll and his associates to buy, through a new company which, in the traditional legal manner we'll call "NewCo," the shares in old Force India. However, because of the legal and financial positions of former owners Vijay Mallya and Sahara Roy, that was a very complex affair. Instead, then, a managed insolvency took place under which NewCo bought the assets of old Force India, including the name. However, F1 entries are not transferrable. That's why the current Renault team is the same company, albeit with a succession of name changes, as entered F1 as Toleman in 1981. There's an interesting sidelight: Renault entered F1 as a constructor in 2000 when it bought the Benetton team which had been Toleman. In 2002, it was renamed Renault F1. By 2011, Renault had decided that running a team wasn't in its general game plan. It had already sold 75% of the F1 team to Genii Capital, a venture capital / investment company operating worldwide from Luxembourg and it entered into a deal under which Group Lotus would sponsor the team with an option to purchase the remaining 25%. As part of the deal, the team, which had throughout its life been based in Oxfordshire, England, transferred its racing licence from a French licence to a British licence and the name, in 2012, was changed to Lotus F1 Team (the name "Team Lotus" not being owned by Group Lotus). In late 2015, Renault changed its mind again and announced that it, in conjunction with Gravity Motorsports, a company owned by Genii Capital, would buy Lotus F1 Team - this saved the Lotus name the ignominy of crashing out of F1 again as the owners of Group Lotus reviewed the operations of the car company as part of a full parent company review which saw far reaching changes right across the entire organisation including, ultimately, a disposal of the parent, Proton, by its principle shareholder the Malaysian government. Renault, returned to F1 under its own name and with a French licence, in 2016. This demonstrates that ownership and nationality are discrete from the actual racing operations under which constructors enter.

That established, the sale of assets could not include the non-transferable asset of the Constructor's entry. NewCo could only take that from old Force India if the FIA agreed and, importantly, so did all the other teams. Sentiment is rare in F1 but there was universal accord in the paddock that no one wanted to lose another team after Manor and Caterham's demise had left the sport with only ten teams. Force India's life expectancy had been tentative for a couple of years and denials by, in particular, Mallya, did nothing to dampen the well-founded rumours that the team was running on empty. As F1 went into the summer break for the 2018 season, the legal and financial position of Mallya, in particular, became even more complex and the team, already out of money, could not continue. Collapse or disposal were the only options and Mallya and Roy, despite denials, were reported to have tried to sell the team for a chunk of cash with no success. Mallya claimed that the team owed him more than USD120 million but he was not the primary financial obstacle to NewCo's purchase of the company: that was the 13 Indian banks that claimed rights over Mallya's assets, wherever and whatever they were. The only option was for NewCo, which now had a name - Racing Point - to buy the assets of old Force India but not the company. Racing Point thus had all the material and personnel aspects of a team but no constructors' entry.

And so it was that the company that started as Jordan, became Midland, then Spyker no longer existed except as money in a bank account pending litigation and distribution and, technically, the team didn't exist so far as F1 was concerned.

The FIA created a process under which Racing Point could apply for a late entry under an accelerated process. Historically, there has been a long and tortuous system in place before a team can enter F1. The first step was to expel old Force India (of which the full name was Sahara Force India) from the Championship. This was easy: Article 8.2.f of the Sporting Regulations says that teams must undertake to appear at every Grand Prix. That's why Marussia/Manor sent a skeleton team to an event, not expecting to actually put a car on track for more than a sighting lap. But there's more: under the agreement each team enters into with F1 (the company that owns the rights to Formula One) teams lose their rights under the agreement if the team becomes insolvent. That's not enforced - plenty of teams operate and have long operated under technical insolvency which means that either or both of two conditions are satisfied: first is that a company cannot meet its debts as they fall due and secondly that the assets of a company are exceeded by its liabilities. Force India's financial problems were, irrespective of Mallya's, insurmountable and made even worse by the claim of main sponsor, BWT, that the money it had passed to the team was in fact a loan not a payment for sponsorship services and, therefore, the company's balance sheet took an even bigger dive than expected.

The next challenges were administrative but meant that Racing Point, for the 2018 season at least, must include the name of the chassis in its entry name and so it became Racing Point Force India. But there were conditions: the FIA set a "late entry fee," a guarantee that all old Force India's creditors would be paid in full (which, it is understood, did not include moneys claimed by Mallya or BWT), all 400 plus staff would be retained and, crucially, the team had a viable business plan which did not depend on prize money.

(that included what was seen as the final straw when driver Sergio Perez' management company issued a winding up petition claiming some USD4 million in unpaid salary. Even Force India's prize money, earned as a result of its 2017 results and which made up almost 40% of the team's revenue, was not enough to keep the engines running. As old Force India lost its points, the company, even if it continued to race under new owners, would not keep its entitlement to prize money.

Here's where HAAS raises its point: if the rules are that a new entrant's points for its first three years in the sport do not allow it to be paid prize money that, after year three, would accrue as a result of those points, then Racing Point Force India, which after the summer break appeared as if nothing had happened except that, legally, everything had changed, cannot receive prize money based on the 2017 performance and - more materially, cannot earn money based on the points gained in the second half of the 2018 season. In the second half of the season, Force India have achieved something remarkable: in just half a season, they have won enough points to be seventh, beating the full season results of Toro Rosso, Williams and even Sauber which is now being touted as the Ferrari B team. As they went into the summer break, old Force India had bagged 59 points. Add that to the 52 won in the second half, and if the sale of the team and company combined had gone smoothly, the team would have ended the 2018 season in 5th place, significantly ahead of the team that eventually finished 5th with 93. That team is HAAS.

How money is distributed within F1 is less opaque than it once was but it's still far from clear to outsiders. Suffice it to say that the commonly held view is that points money is one thing and championship places are another and that championship places are worth, in the mid-field, around USD10m for each step up. If new Force India gets paid for its points, that could mean somewhere in the region of USD60 million, some say. Here's the rub: the money that has been forfeit as a result of old Force India's exclusion is divided equally between the remaining teams. That almost certainly does not include new Force India. That money is expected to be worth more than USD4m to teams and Williams, in particular, really needs the money because its sponsorships are unravelling and its own points haul is an embarrassing - and costly - seven. While all eyes have been on the shock that has been McLaren's season, they have (mostly due to the now departed Fernando Alonso) collected 62 points. It's still dismal but it's a lot better than seven.

If new Force India does not earn prize money to be distributed in 2019, that will be divided between the teams. So, to a degree, HAAS is akin to a stalking horse, leading the pack and, if it is successful, all teams will benefit.

But, as last test of the year means that the drivers go home and the teams pack up and drive back from Abu Dhabi, Racing Point Force India has announced that it will change its name. The chassis and therefore the team will be known as Racing Point. Lawrence Stroll, who seems to have a particularly large pot of money : according to Forbes he creeps into the world's richest 1,000 with a "net worth of USD2,700 million." That should be enough to keep even a Formula One team going for long enough for his son, Lance, to prove himself worthy of a seat in the world's top flight racing series or to prove his doubters right. Whether it's enough to achieve his stated intention to take the team into the top three is debatable: there are some things money can't buy, as McLaren have amply demonstrated in the past few seasons.

This week, it was finally announced that Lance Stroll will drive for Racing Point in 2019. That means that Williams is losing the approx GBP20 million that it is rumoured his father paid for his seat. To be fair, almost everyone in F1 pays for their seat in one way or another and it's unfair to say that there's a difference between being sponsored by one's dad rather than being sponsored by a national oil company. And in lower racing classes, pretty much everyone should start with "sponsored by dad" on the back of their overalls and, insofar as there is a team, right from the beginnings of karting, dad owns the team.

In 2018, F1 has thrown up a lot of surprises but Stroll joining Racing Point isn't one of them. And, given the performance of the Williams cars this year, a seat at a team that was broke only six months ago is, on the face of it, not much of a gamble. As his new team mate, Sergio Perez, said recently "the kid's got talent..in the wet he's always up there .. he needs a better car and here he'll have that and one of the best engineers in the world." And Perez should know: he had options - he could have walked out in the summer when he was owed so much and there are several teams that would willingly give him a home. But he chose to stay, and he chose to stay on for 2019, demonstrating considerable faith in the team.

Will HAAS win its funding battle? Who knows. Will it matter? Well, there's a back-story. HAAS' main sponsor is HAAS Automation a company 100% owned by Gene Haas, a company which he founded. His "net worth" is said to be USD250 million (Forbes says that but in another article it says he has an "estimated USD740 million fortune). That isn't enough to sustain a Formula One team for long. Indeed, Forbes magazine has reported that the team ran, in 2016, on a budget of around USD120 million, "around half that of the front-runners." HAAS, the team, therefore needs to see both sponsorship, which is in short supply up and down the grid, and prize money and its sweetheart deal with Ferrari appears to be gradually unwinding. If, as some reports say, keeping Racing Point our of the prize money could be worth around USD66 million to HAAS (we can't see how that figure stacks up), then HAAS would find that money very handy indeed.

For the Stroll family, which is very close and was often all together in the pits at Williams (since the summer break, for obvious reasons, Lawrence has been a bit further along the pit lane) the fact that their name isn't on the nose of the car won't matter much. It will be on the side of the car, alongside the head of Lance, and that, as any racing father will tell you, is the best feeling there is.

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