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Away from the track Renault ask Bernie for a sub, as tensions increase
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Away from the track Renault ask Bernie for a sub, as tensions increase
Posted By: James Allen  |  24 Jul 2010   |  10:22 pm GMT  |  36 comments

This has been an enthralling weekend on the track, but there has been quite a bit happening behind the scenes too. The teams are actively engaged on a number of discussions, but the eye catching story is the one about the Renault team asking Bernie Ecclestone for an advance on money due to it at the end of the season.

Normally this is something teams do when they have serious cash flow problems and aren’t sure if they can make it to the end of the season. No-one suspects that this is the case with Renault, but team principal Eric Boullier has confirmed in the last 24 hours that the request was made because of a cash flow issue. He says he wants to accelerate development of the 2011 car and doesn’t have the resources at present to do so, with payments from sponsors due after the August break.

Ecclestone will advance money as long as the other teams agree unanimously and that did not happen in this case as the support wasn’t there.

Renault F1 owner Gerard Lopez


There are several teams who are not in great shape financially, but it is a surprise for Renault’s name to come up in this context. The team was taken over in December by Genii Capital, run by internet entrepreneur Gerard Lopez, who has featured on the JA on F1 site several times this season. Lopez was one of the original investors in Skype and Genii own many household name new media companies like Lumension (formerly Securewave) and Nimbus as well as businesses in alternative energies, like solar and variable compression engines.

I’ve had several meetings and interviews with him since last December. His plan for Renault F1 team is not to seek to make money out of the team itself, he plans for all the money that comes in to be invested into the team and into development. But he plans to use the team as a business platform to expand his business outside of racing, working with companies who are attracted to sponsoring the team.

Lopez owns 75% of the team, with Renault corporate owning the remaining 25%. The team has an innovative business model, whereby instead of selling stickers on the car, Lopez engages companies in joint ventures, either with one of his many companies in the software, tech, solar or renewable energies sectors or with Renault itself. There are deals like this with HP computers and Lada.

Genii has recently done a Renault F1 sponsorship deal with Trina Solar, a Chinese manufacturer of solar panels, whereby they are now building hardware for six solar projects with one of Genii’s solar power companies. Lopez is also giving them an entree into the US and European markets. And through activation of their branding on the F1 car, they are able to increase brand awareness globally.

“If you go to the CMO of a major corporate and ask for £10 million for sponsorship you will have a hard time, “ says Lopez. “But if you present a 360 degree package, where he gets to increase his business via a joint venture, gets access to the Renault group of companies, he can make the sponsorship fee back as well and then double it in value through the ROI in media value from the branding on the car.”

With a billionaire owner and clearly a very active development programme going on at the Enstone factory judging by the amounts of new parts they bring to the car at each race, it seems odd that the team should be seeking an advance on its FOM money.

But there is more to this than meets the eye and it comes at a time when relations between the teams are at an interesting point. FOTA has achieved some things in the sport and was tested last summer when it stood up to then FIA president Max Mosley and refused to accept his proposed budget cap. The stand-off took F1 to the brink and FOTA even announced a breakaway series during the 2009 British Grand Prix.

They did so without having every team under the umbrella; Williams and Force India withdrew from the Association shortly before the stand-off.

Today FOTA contains all the teams, including the new teams and they have even more conflicting needs and priorities than they had then. What is important to Hispania, for example, is quite different from Ferrari or McLaren. It is tough for established teams like Williams, McLaren and Ferrari to have to accommodate ideas on shaping the future from teams who have done only ten races and may not even be around in 2011.

Indeed I’ve had several conversations with team principals lately about the Resource Restriction Agreement, which came into force instead of the Budget Cap. Devised between the teams at the low point of the credit crunch, it calls for a serious reduction in manpower and spending by the teams by the end of 2011.

Now that the economic picture, while still threatening, is at least more positive, some of the leading teams are making noises about reviewing the RRA with a view to being allowed to raise the minimum staff numbers and therefore raising budgets again.

Teams at the other end of the scale are not so keen on this idea. There are also disagreements within FOTA on KERS and testing, but so far the union holds together because all are aware that there is a major negotiation coming up with FOM and the FIA about F1 from 2013 onwards, in which the teams will be looking to raise their share of commercial revenues from 50% to more like 75% or 80%, which will be very hard for CVC, the commercial rights holders, to deal with and service the debt the business has with the banks. The teams will only have a chance to achieve a result like that if they stay together.

So Bernie Ecclestone, who keeps saying that FOTA has no place in F1, will welcome opportunities to pick off some of the teams and the more financially vulnerable members of FOTA will be relatively easy targets.

The racing has been great this year, largely unspoiled by politics. But sadly I think we are heading into another difficult period for the sport. Mosley liked F1 to do its dirty laundry in public. Let’s hope that with Jean Todt in the FIA president’s office, there will be a different approach to getting things done.

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36 Comments
  1. RichyS says:

    James,

    I suggest you take another look at the Renault car, and tell me how many of the names on it are not linked to Renault itself. Lada is part owned by Renault, DIAC (the big one) supplies finance for people to buy Renault cars, etc. etc. However innovative. Lopez’s business model, he is still 90% or so reliant upon his 25% business partner. In my line of business, I’d call that a major risk!

    1. Tom Allen says:

      Sir,

      In my line of business that’s a viable risk, and one worth taking.

  2. Anthony Cliffe says:

    Great post as usual James. Fantastic to see the inner grumbles before it comes to a head in public. My question is you mention 7 teams in trouble. Can you shed light on who they are?

    1. James Allen says:

      I didn’t put a number on it

  3. Scott Bloom says:

    James,

    Why on earth would any team agree to Renault having an advance on revenues in order to fund 2011 development? Each team learns to work within its budget and does the best it can under the circumstances. If FOM were to advance funds due one team, then it must do so for all of the teams. This takes us back to the spending race that nearly split the sport in two and drove out three manufacturers.

  4. HowardHughes says:

    Excellent article James, though I’m not sure I hold a great deal of hope for Lopez’ ‘alternative methods’ of generating revenue from the team. Indeed, you’ve written on the one hand ‘instead of selling stickers on the car’ before also writing ‘through activation of their branding on the F1 car’ – which is, to my mind, exactly the same thing.

    People have come to F1 time and again with new-fangled notions of how to leverage cash from team ownership; anyone recall ‘Prince’ Malik, the alleged Nigerian royal who arrived at Arrows in a flurry of bright idea about soft drinks, global brands etc, and disappeared before the season was out amid allegations of dodgy dealing? Or Simon Fuller’s disastrous notions of how to position Honda F1, culminating in the unanimously derided ‘MyEarthDream’ fiasco? Even the mighty Red Bull, ostensibly masters of brand management, have only recently begun to squeeze some cash from their cars, having had to fund the whole thing pretty much from Uncle Dietrich’s spare change til this year…

    Let’s face it – since Chunky Chapman first cut a deal with John Player Special pretty much the only way to fund a team via B2B dealmaking has been to make the car a high speed advertising hoarding. End of story. Some teams, like McLaren and Williams for example, have proven to be excellent at forging high-level B2B contra-deals with other organisations, sharing technology, co-developing initiatives etc; but if Williams Grand Prix Engineering acts in a consultantive role on a car manufacturer’s suspension, or McLaren helps develop an electronic gizmo for an aviation firm, these deals aren’t paying the wages of the F1 team.

    So it seems to me as though Lopez needs to get his head down, crack the whip on his sponsorship team and get more hard cash in the door in return for stickers on the car.

    Simples.

    1. malcolm.strachan says:

      You mean Gold Leaf… JPS came later. ;-)

  5. SidewaysBob says:

    I’ve said it before and I’ll say it again. You can’t go racing to further your business interests unless your going racing to win. F1 is not about glad handing punters to network your portfolio, it’s about developing the nuts off the car so it beats the next sucker in the next garage along.
    If you take your eye off the game to shake Mr Bladry De’blahs hand from the pink Elephant Corp, McLaren, Ferrari and Redbull will have redesigned their suspension and will be 2 seconds up the road.

    Lopez is the same as Branson and Fernadez. Playing around for a few year, drink a little champers, make a few friends than high tail it the moment it all gets a bit expensive.

    I fully expect Petrov to get fired before the end of the season for “not performing well enough”. Whilst Branson will bring up some performance clause before the end of the year and sell up to to some other flyby nigh two bit wonder. Maybe he’ll pay for next years car until that fails after 3 races.

    To be Fair to Mr Fernadez, he does appear to be in this for the long term, well 3 years at any rate. After which point he will discover that being a jolly nice chap does not move you up the grid past similar jolly nice chaps like Peter Sauber.

    It all started to go wrong when Chapman sold out to gold leaf.

    1. HowardHughes says:

      Fair points, but I’d say Fernandez is probably in this for the long haul. Equally Mateschitz has stuck around, funing two teams, and Mallya has by and large been doing an excellent job with Force India. So there’s no more reason to discount today’s wealthy team patrons out of hand than there would have been when Tyrell began using timber profits to fund his team…

      Perhaps the difference lies in the various types of businessmen who enter F1. Mallya, Mateschitz and Fernandez have all BUILT businesses from scratch that produce things; they’ve all started with next to nothing (or in Mallya’s case inherited chairmanship of something that he subseqently grew exponentially himself) and built empires that place cold, hard products in marketplaces.

      I see Branson as more of a ‘financial engineer’ rather than an industrialist, and Lopez certainly is, and I wonder if perhaps the difference isn’t in the philosophies of the two types of wealth creation. The industrialists are prepared to invest, to show patience, to develop, whereas the finance guys tend to want quick returns or else their interest wanes…

    2. malcolm.strachan says:

      “I fully expect Petrov to get fired before the end of the season for “not performing well enough”.”

      I doubt they’ll fire a good source of income, if they are asking for money from Bernie.

  6. Chris R says:

    I find it interesting, more so for all the mystery and rumour, and how little I know about people’s motives/strategies.

    To me it looks like the teams have very little power, besides threatening to make their own f1. But surely Bernie’s whole organisation is worth so much that to organise their own would be too costly/futile.

    With several teams in FOTA financially insecure, surely Bernie is someone who could help them with that. Im sure he has a plan for the more established teams too.

  7. saltire says:

    I wonder why Lopez can’t just advance the team some money and get it back again after the sponsors pay up, it does seem an odd situation and I’m intrigued as to what they will do to find the money.

  8. CHIUNDA says:

    James, so there is why Renault is having cash flows problems – their money is doing rounds in Gerard’s other companies through those barter trade deals. The prima facie problem with barter trade is that cashflows, the substance that fuels about 99.99999% of modern culture, are not generated even if the direct exchange still gets things done on the operational side. Looks to me like Gerard has to devise a tracking mechanism for Renault’s cash and redirect it to the team.

    It would be unfortunate for him to expose his team to Bernie’s political machinations against FOTA and once again risk the very survival of the sport. The F1 model might be a robust and hardy business model but it can not survive too many of those extreme 2009-style structural tests forever. Everytime it takes a hit from one those tests, it becomes weaker for the next one. Eventually the whole thing might crumble and become another has-been formula. Luckily we are far from this possibility but moving closer obviously makes it only much more likely to happen.

    1. Jimchik says:

      I have to add my 2¢ in on this idea, in that it seems entirely plausible. Gerard’s corporate agreements may have been a little (or more) too sweet, and now the team’s finances are tanking. And their standings in the Manufacturers’ championship is not good, especially considering that they are supposed to be a major force. I think that this suggests that money has been an issue for some time now, in the possibility that it has been disproportionately allocated in the agreements.

      Great article, again, James. Thank you.

  9. hesus says:

    Great stuff James! This kind of “from under the carpet” insights are really interesting.
    Renault’s request for money is quite shocking.

  10. Andy c says:

    I must admit I am slightly surprised as well given Gerards wealth and financial backing, that they are going to Bernie over this one.

    I can understand why they want to push on with the 2011 design as they have made real progress this year. It just seems like a strange call.

    James
    great to see Williams getting their stuff together. Any insight into whether they will run Cosworth or Renault next season? I heard a bit of a rumour they would be running Renault…

  11. Damian Johnson says:

    I’d expect a few pure racing teams to leave FOTA again when FOM/FIA start to threaten to exclude teams from F1 that say they will not sign up by a certain deadline. We saw Willams and Force India leave in the last negotiations. The three new rookie teams will do the same.

  12. Spenny says:

    Assuming that Renault are not actually in financial trouble, why would the other teams agree to a change in the funding timetable for one team to give them a development advantage? TI’d also assume that there is nothing stopping Renault getting a loan underwritten by the guaranteed GP earnings.

    It also smacks of the financial recklessness that endangered F1 in the past – inflating the amount the team is spending – spending next year’s money this year, and then what will they do next year? It highlights the desire of the teams to spend more when they publicly claim to be reigning in spending for the good of F1.

    The only way to do it fairly would be to pay everyone early – but I can’t see Bernie being happy about that somehow.

  13. Luca says:

    So does this mean there’s more hope of seeing Kubica get into a Ferrari after all? I’d like that.

  14. Vik says:

    Renault’s rate of development has been nothing short of incredible this season. That costs money. I doubt the engineers have been counting the pennies. Maybe this is an example of new management enjoying the thrill of racing while underestimating the price of success. If possible, I’d like to see the Renault corporation step in, because the team have completely rejuvenated their image. From a brand perspective, this year seems like an unqualified success.

    1. malcolm.strachan says:

      Exactly… I think Renault just wanted an advance so they can design another 20 or 30 front wings before the end of the year. ;-)

  15. Nick Hipkin says:

    Interesting article James. I have to ask, do you know if CVC puts any money back into F1? My understanding is they dont, surely the teams should try and buy them out as they can only be damaging the sports best interests.

    1. James Allen says:

      Not sure about the sport in general, but the boss Donald McKenzie has donated generously to the Grand Prix Mechanics Trust

  16. Nilesh says:

    Great post James. Very informative as always. Lopez seems to have quite a different business model. Last year there was a word around that YouTube’s Chad Hurley was interested in sponsoring USF1. Any idea if they are still looking at sponsoring other teams or partnering F1 broadcasting?

  17. shortsighted says:

    Any reasonable financial help to the teams in the current season and the next appears reasonable to me. Why should the money be kept by Bernie and earn interest without using it to help the teams to get better for the benefit of the viewers and fans when it is needed most?

  18. CH1UNDA says:

    JAMES, HOW CAN FERRARI ABUSE THE TEAM ORDERS RULE SO BLATANTLY!!!!

  19. er,go says:

    “Ecclestone will advance money as long as the other teams agree unanimously and that did not happen in this case as the support wasn’t there.”

    i would be interested to know who did and who did not support the request.

    1. parte says:

      im also interested, my bet would be Williams, Force India and perhaps Mercedes, one of more teams from these three

  20. MorrisOx says:

    James, you know as well as anyone that F1 is a world full of ‘rich’ people. The world, too, is full of these rich people, some of whome regularly make it on to ‘rich’ lists.

    Admittedly not quite as regularly, when push comes to shove these rich people often prove to be rather less liquid than one might assume.

  21. Fulveo Ballabeo says:

    1. People need to stop seeing this as the Renault team. It is Lopez’s team, with a Renault label. Were it Renault, they wouldn’t be going to Bernie, hat-in-hand.

    2. Same old song, different tune: Bernie will divide-&-conquer the teams. Same as it ever was. He’ll advance the weak ones $ so that they survive…and vote his way in FOTA. How utterly predictable, and sad that the teams don’t get it.

  22. indy says:

    hi James interesting article thanks! I have one question that you haven’t mentioned or answered.

    “There are several teams who are not in great shape financially” from your report

    Please can you enlighten us of these teams? I think we know two teams Hispania and now Renault but who are the others?

  23. F1Maniac says:

    Hi James

    I heard that Hispania bought Toyota’s operation from last season, does this mean they going to run Toyota’s proposed 2010 challengers for the rest of the season?

    1. James Allen says:

      I believe they are working towards 2011, but I will check

      1. Tom Allen says:

        James,

        Are the rumours true that you’ll be replacing Jonathan Legard for next season?

      2. F1Maniac says:

        That would be a major win in my opinion, come back James!

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