More on the background to Honda deal

I’m delighted that Brawn GP has emerged from the rubble of the Honda GP team. It is a bold move by Ross and knowing him, he would not have done it if he did not think he could be successful. Everything he does he does well. The money must be solid because Mercedes would not have done the engine supply deal if it wasn’t. The money is coming from Honda, is my understanding.

It’s an enormous challenge, but the rewards are potentially enormous for him too. After all he’s now 100% shareholder in a business with guaranteed income of at least £45 million per year (from TV) and on which Honda spent £70 million in capital expenditure on hardware in recent years. If he keeps the team alive over the next few years and then, who knows, Honda comes back again, maybe as an engine supplier only, or if someone wealthy like a Mallya or Abramovitch type wants to buy in, Ross will have a very valuable asset, which will make him very seriously rich.

This way the thing stays nice and open. It buys Honda some time while the automobile industry is in crisis. Honda will always build cars and Honda will always have racing in its corporate DNA and if F1 becomes cheaper and financially sustainable as FOTA and the FIA intend, then it will represent a sensational return on investment in a few years time.

Ross said in the last few weeks that “My job is to save jobs” and although they will trim down the 700 workforce at Brackley, many of the jobs will be saved by this move. We do not yet know whether there are any sponsors in the sidelines, but we do know that this deal would not have happened without FOTA teams supporting Ross and the new deal for independents of three years engine and gearbox supply for under £5 million per season.

There is no truth in the rumours that Mike Gascoyne is the new technical director.

As for Mercedes they are supplying the engine to the team and Brawn’s engineers have had a Mercedes engine at Brackley since the end of January, to do the installation work. This means that they will have had less than two months to adapt their 2009 design to the Mercedes engine, which is very tight. Lack of time to work on engine installation often leads to reliability problems, as Williams found when it switched from BMW to Cosworth a few years ago.

Ross will have seen this coming and will have put a working group in place to make that transition as smooth as possible. He is a consummate organiser and a genius at knowing where to put human and technical resources and when.

My understanding is that Brawn GP is getting the engine only, not the whole gearbox and hydraulic system from Mercedes/McLaren as Force India has. The FI deal is a very special one and this is not the same.

Jenson Button and Rubens Barrichello will drive cars 18 and 19 in this year’s championship. Barrichello will extend his record as the most experienced driver ever and it’s no surprise that Brawn chose him over Senna as he is a brilliant technical driver and he will help them far more than Senna would have done to get the car sorted quickly. Senna would have faced a mountain learning F1 with no testing time.

It indicates that the finances must be solid because Senna brought around $10 million with him in sponsorship. Button has his severance pay from Honda so he will not be too out of pocket, whereas I imagine Rubens is on a lowish retainer, but he’s just happy to still be in F1.

The team are not making Ross or the drivers available, but a Q& A with him will appear on the team’s new website at 2pm GMT today. You can keep up with the latest news and see pictures of the new car, maybe even later today, on their new website http://www.brawngp.com/

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Honda will race in 2009!

Former Honda CEO Nick Fry was at the FOTA press conference this morning and after FOTA president Luca di Montezemolo confirmed that the team had been saved, he felt obliged to confirm this and to say that it would not have happened without FOTA support.

“Our team has been and will benefit from FOTA, first in cost reductions and help for the next three years and also from the level of support over the last three months from the all the teams.

“On the day Honda announced that they were pulling out we had support from Luca di Montezemolo and from Ron Dennis and everyone up here (the team principals on the stage) has helped us to preserve the team. I and the 700 employees thank them for that.”

Interesting that he should choose to mention the 700 employees as surely that number will be reduced by at least half as the team faces a new life as an independent operation?

Fry said that the announcement of the team’s salvation would come out ‘very soon’. Ross Brawn was not at the press conference today.

Fry refused to say any more.

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What shall we call the new Honda team?

Honda F1 team looks like it has been saved by a management buyout headed by Ross Brawn and now it needs to be renamed and rebranded. So what shall it be called?

If we had a bit more time we could propose to the BBC that they do a reality game show to find a name, along the lines of the ones where they find a lead actor for Oliver or Sound of Music. Graham Norton could come flouncing on to our screens on a Saturday night to host it, with Bernie and Max as the gnarly old judges.

It’s a clean sheet of paper really, they could come up with anything, within reason. I remember a few years back when David Richards was put in charge of BAR by the parent company British American Tobacco. He conducted a name finding exercise with focus groups and all that carry-on and the winner was “Pure Racing”. It’s a nice sentiment but not a very punchy name for a racing team. And it wouldn’t have sat well with a title sponsor name alongside.

There’s no point reviving an old name like Lotus or Brabham or Tyrrell because you should never go backwards in life and those great names had their day. This is not it.

One innovative approach would be for Brawn to sell naming rights to the team, of course, like Arsenal did with the Emirates Stadium, but it was only the stadium that got named, not the team. It would be quite a novel approach to sell the team name to the highest bidder and it would give them a sensational return on investment. But you’d have to be sure they were in it for the long haul, because you couldn’t go changing the name of the every three to five years.

Funnily enough Emirates were looking at a sponsorship with Honda when the plug got pulled and I’ve heard that there is some Middle Eastern money involved in this deal.

These days a sports team is a brand. Think of football teams like Manchester United or Liverpool or the Chicago Bulls basketball team. It’s a huge merchandising and branding operation, built around the name and so the name has to be right. There is a suggestion that he may be lining up to call it Brawn Racing and has registered some domain names with that title. Presumably that would mean that this year’s car, powered by the Mercedes engine would be called the RB01, same name coding as Red Bull uses.

Teams have generally either been named after the owner (McLaren, Williams, Tyrrell, or the company which owns them (Benetton, Honda, Toyota). A third way is teams like Pacific and Spirit and FORCE, with neutral sounding nothing names. I really hope that Ross doesn’t go down that route, but Brawn Racing isn’t great either.

So what shall they be called? If I were in Ross’ shoes I would call the team “Speed F1” or “Speed Racing”. That’s the best I can come up with after ten minutes reflection on a Saturday lunchtime. What ideas do you have?

Tomorrow we’ll take a look at what colour the cars should be…

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The Honda story hots up

In the last hour or so I’ve read the story on the Real Honda F1 site about an imminent announcement of a management buyout and had an urgent message from one of my regular readers, saying the same thing.

Real Honda clearly have some solid sources within the team, because they have broken a fair bit of news about the team in recent years. Meanwhile I don’t know what insights Finn has but he is most specific about an imminent announcement (see his comment at the bottom of the Bernie/Honda post).

I’ve checked this afternoon with a party who would know if this were the case and apparently things are still quite finely balanced and an outcome is still a week or so away.

The gist of the urgent stories is that a management buyout deal has been done with Ross Brawn and another party and that Nick Fry is not part of the package. I have to say I’ve been hearing for some time from various sources that Nick is not part of the MBO deal that Honda wants to do, so it was interesting to see that he was mentioned in the News of the World’s ‘Honda snubs Bernie’ story yesterday.

Nick arouses mixed reviews, some really rate him, others really have it in for him and I certainly get a volley of correspondence whenever I mention his name here.
I’ve always got on well with him, but am aware that factions within Honda management in Japan feel that it is time to move on.

What is certain is that this morning in Tokyo, Honda had a press conference at which they announced that the president Takeo Fukui, a real F1 nut, is being replaced in June by Takanobu Ito, who is only 55.

Changes in presidency at Honda are always seismic events because what tends to happen is that two factions develop, one behind the new president and one behind the old and some serious politics ensue, which makes decision making prety tough sometimes. The F1 programme has definitely fallen victim to this phenomenon over the years, if you think of Harvey Postlethwaites’s Honda development car which never got raced, the decision to supply BAR, then Jordan as well and so on.

Speaking this morning, Fukui did not sound like a man who was about to announce a deal had been done either with Virgin or with the management. According to AFP he said, “The reality is that talks are proceeding with great difficulty.”

Honda has received several proposals, “but actually there are very few who are serious about buying it.”

This chimes in with what I’ve been hearing now I’m back in the UK, about Virgin, I think this could be another Northern Rock, where Virgin looks at it and gets lots of publicity but doesn’t actually do the deal. It’s no co-incidence that Virgin is celebrating its 25th anniversary and Sir Richard Branson is flying around the world to celebrate this fact and this F1 story has certainly got everyone talking about them. His appearance on Radio 4’s Today programme last week was certainly double edged, as he wanted to talk about Virgin’s 25 years and the interviewer wanted to talk F1.

This situation could still go either way; Honda has not ruled out the option of disbanding the team, but hopes to reach a deal in time for the first race on Match 29th.

Again according to AFP, the new president, Ito made the following, very interesting remark; “Racing is very challenging but also fun. Unfortunately, our company has a slight cold right now. But we would like to cure this cold as quickly as possible and work towards reaching that happiness” (of racing). In other words they would like to come back. But would they be able to?

Mercedes is on standby to provide engines and although there are stories about today being a deadline for them, that is not Mercedes’ style. I imagine they would want this deal to happen for the good of the sport and if that were not the case, or if there were a deadline they would have said so on the record, which they have not.

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Why did Honda turn Bernie down?

Interesting tale in the News of the World today, where Ian Gordon has managed to get an exclusive with Bernie Ecclestone on how the Honda management team turned down his offer of financial help with their buyout of the team.

Bernie has done a series of ‘exclusives’ lately; with the FT, the Telegraph, the Express and now the NoW. The Times has been his channel of choice for years, but he now seems to be spreading it around a bit more.

This story is interesting because in it Bernie reveals that he proposed putting up some of the money to back the management buyout in which both Nick Fry and Ross Brawn would have taken 17.5% of the equity in the team. The value of Ecclestone’s offer and the percentage he would have received are not revealed. A figure of £100 million is mentioned as the cost of competing this year, but they will be able to do it for less than that, if they have to, and there is no suggestion that’s what Bernie offered. I would be sure the figure he had in mind was less than a third of that. It’s all a bit Dragons’ Den, where every now and then the money man gets turned down by the poor soul pitching his business idea.

So why did Honda and the buyout team of Brawn and Fry turn it down, and was it as simple as that anyway? Well you can be sure that it must have had a lot to do with the strings attached. One aspect of the deal which Gordon highlights is that a share of ownership of the team would have given Ecclestone the right to access to the Formula One Teams Association, which has been holding private meetings to discuss how ultimately to improve the show and get more money out of Bernie. I’m sure he’d have loved to see all the minutes of those meetings.

An aggrieved Bernie told NoW, “I tried to help with the management buy-out. They should have taken what I offered. It was a very good offer for everybody concerned. It gave them complete protection but they wanted to do things on their own. Now all we can do is hope and pray!”

As I mentioned in my post on Virgin, Bernie will still be involved in the deal if it goes that way, because Sir Richard Branson has made it clear he’s sticking pretty close to Bernie through all of this and he will want some assurances. Branson had his say on BBC Radio the other day, now Bernie has chosen this moment to break the story about his rejection. This must be significant, why would he do it otherwise?

I think firstly it is his way of showing that he has tried his best to save the team and that it’s not his fault if it fails. A bit like Donington and the British Grand Prix. He’s taken to doing this kind of pr appearance where he says “I’m doing the right thing, I’m the good guy here” a lot more lately, especially since he took such a hammering over the story about racism being ‘a joke’ late last year. He wants to show that he’s a strong chief executive – standing at the bridge and steering the ship through the stormy waters.

But his intervention in NoW also has to do with putting pressure on Honda at what is now a critical juncture in this process. They have had chances to save this team, he is saying, they still have chances to save it and do the right thing. But in his words they need to “make up their bloody minds.”

They do indeed.

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How a Honda-Virgin deal might work

As the momentum gathers behind a Virgin takeover of the Honda team, with Bernie Ecclestone throwing his weight behind the idea, I’ve been looking into how a deal might be structured and how that might compare with a management buyout, to see which is more likely and which Honda might prefer.

I should stress at the outset that this is just a look at how these deals are done, I don’t have any of the precise numbers or inside information, but these kinds of deals are not that hard to analyse from the outside if you know the right people to ask, which in this case are people working in Mergers and Acquisitions at merchant banks, because they do these kinds of deals all the time. So I’ve been asking around in those circles.

Looking at this from Honda’s point of view, they have to dispose of the F1 team in a way which will cost them the least in terms of money and loss of face. To close down the team and fulfil all their obligations, which include redundancy payments will cost around £40 million. There are assets to dispose of, which will bring income, such as the wind-tunnel, for which there is a potential buyer and the estimate is £10 million from striping out the assets. Honda has confirmed that this is still an option.

The problem with the management buyout option is the financial capital. Three years ago Nick Fry and Ross Brawn would have been able to go to a bank like RBS, or to a venture capital business like Apax or Bridgepoint and would probably have been able to get a deal which brought in working capital, in return for a 40% shareholding. But F1 is no longer very fashionable in the City, too many banks have lost money in the sport and it would be a very hard sell to any major bank at a time like this. They could look to the investment arm of an Emirate government, like Dubai or Qatar, but these too have become much more wary.

An operator like Richard Branson will be aware of Honda’s numbers. Let’s not forget he picked over the bones of Northern Rock bank with a view to taking it over. He will be in a position to say to them that he will take it off their hands if they pay him £30 million, which is cheaper for them than closing it down and it provides a credible buyer. With the £40 million they are due from TV money for last season’s results, he now has £70 million. Bruno Senna brings with him significant sponsorship, I’ve heard $14 million, which is around £10 million.

With costs due to come down that makes the team viable and I wouldn’t be surprised if he doesn’t get Ecclestone to advance him some money as a sweetener to commit to F1, or underwrite the Mercedes engine deal for example, because F1 would benefit massively from Virgin’s seal of approval at a time like this. Bernie has had an ‘involvement;’ in many teams over the years.

Branson would take the view that three years of F1 would give huge benefit to his brand globally and then he would either close it down himself, or sell it on once the downturn was over.

As I said earlier, he got a lot of headlines from his Northern Rock bid and he likes headlines, they provide free publicity for him and Virgin and this may just be another example of this. He is not a big spender, cuts everything to the bone. He has some good managers and would certainly leave Brawn in charge of the F1 team, if he had any sense. In some ways he would be an odd fit in F1.

But from Honda’s point of view, he represents a way out of a nightmare with minimum expense and maximum credibility.

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FOTA faces the public at last

I’ve just been invited to a press conference in Geneva on March 5th, where FOTA president Luca di Montezemolo will outline what the members of the Formula One Teams’ Association have been discussing lately. It’s been very intense behind the scenes, with all the teams heavily involved in discussions covering all areas of the sport.

The invite says, “Luca di Montzemolo, the FOTA president, will make a speech in which he will unveil FOTA’s plans for the future of Formula 1.

These plans are the result of a series of meetings held over the past few weeks and months, all of them with a common goal: to make Formula 1 commercially sustainable, environmentally friendly and compellingly attractive for spectators, TV viewers and internet consumers alike for years to come.”

As I see it, FOTA want to work together with Bernie Ecclestone’s organisation to improve the show, the turnover and the media reach of the sport and collaborate with the FIA and Max Mosley to come up with rules which make F1 sustainable and entertaining. The vibes I get are that both men think that there are some big advantages to dealing with one man, Montezemolo, who represents all the teams, it takes out a lot of the politics and nonsense of the past. That said, the teams’ demands are more than either Mosley and Ecclestone want to give away, so there is a serious negotiation to be had here. Rules wise it’s about 2010 and the longer future, money wise it’s about 2013 onwards, when the current deals expire.

On paper FOTA is the best thing that’s happened to the sport in decades and now FOTA has decided to become more than just a private members club for F1 team members and to become a public facing organisation at last.

Initially the senior FOTA figures I spoke to back in September were not sure whether they would ever become public facing, but now they have decided to deal out on the open, which can only be a good thing for you the fans.

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The Honda goosechase

Time is short with the first Grand Prix of 2009 just six weeks away. The former Honda team is in a race against time to be ready with Honda still paying the bills to keep the team a going concern in case a deal can be done to save them. Honda has a strong desire to see this happen as does Bernie Ecclestone.

Behind the scenes work goes on; the team has had a Mercedes engine and gearbox for some time to get the installation worked out in case the deal to save the team comes off. The problem is that those last minute engine changes always breed reliability problems.

Remember Williams when it clinched a late deal with Cosworth for 2006 after BMW pulled out? The car had been designed around the BMW engine and the following year’s car had all sorts of reliability issues with exhausts and so on. I’m afraid that even if the team is saved, they will surely have some smoky retirements in 2009. More frustration for Jenson Button..

The Honda rescue has become a bit of a soap opera. There has been a lot of misinformation in recent days about the future of the team. A lot of stories have been and continue to be, written which are well wide of the mark.

Last week everyone seemed to be getting very excited about a Brazilian sponsored management buyout, but that seems to have been fanciful. Petrobras was the only big sponsorship deal the Honda team had managed to do, but they made it clear that they were in it because of the business dynamic with Honda and are not interested in the new team. Bruno Senna does bring a hefty chunk of sponsorship with him, so his part in a future team could still be on cards.

Actually that Petrobras deal was done ages ago, last summer in fact, but was not announced. It was the deal Williams used to have.

Now a new party has entered the picture, a serious bidder with a strong brand, we are told. I’m in Italy at the moment and there is some speculation here that it could be Virgin.

Virgin is certainly a strong brand, but they’ve not done a lot in this kind of sport before. They’ve had a go in bike racing, but why would they want to get involved in F1? Well maybe they wouldn’t, but as we all know they are happy to licence their brand to credible third parties, as they have done with the Cola, for example.

I’ve seen Sir Richard Branson at Grands Prix in the past, always looking pretty impressed at the scale of the thing. Bernie Ecclestone has an interest in keeping this team going and there could well be some complicated deal being worked because at a time when strong brands like Honda, ING and Petrobras are quitting the sport, F1 could do with someone swimming against the tide and showing F1 in a positive light.

Who knows, it seems a strange fit with Virgin, but stranger things have happened.

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Hope for Honda as costs set to fall?

There is a deafening silence coming out of Honda at the moment. The initial deadline of 31st January has passed and now it seems that efforts are focussing on a management buyout. This, of course, requires capital funding, which is in very short supply in the world at this time.

Honda likes the idea of a management buyout because it will turn out to be much cheaper for them than simply shutting the factory down and laying off all the workers. There is some interest in the assets of the team, should they be sold off. I’m told that one of the America’s Cup yacht racing teams is interested in the new wind-tunnel which was commissioned just a couple of years ago.

But the picture seems to be that there are some players out there interested in F1 if the budgets can be brought down to a realistic level. There are people willing to play for £50 million a year, but none willing to play for £150 million. Cost containment is an area where much work is going on at the moment within the FIA and FOTA, the teams’ association and, from what I’ve learned in the past week, the next month will see some dramatic changes there.

What’s important to remember is that a team like Honda, which finished 9th in the world championship last season, will receive around £40 million from Bernie Ecclestones FOM company, its share of the TV and other commercial revenues. This is a pretty good start, if your total budget is only £50 million per year, but a drop in the ocean if you need £150 million to compete.

The hope for Honda is that over the next months the FIA is looking to slash the costs of competing to such an extent that it is realistic to go racing on a budget of around £50 million for an independent team.

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Does Jenson have a future?

Jenson Button was out on Sunday night at the Autosport Awards. He tried to look relaxed about his predicament, but it was not easy and there was a fair bit of sympathy around the room for him.

He renewed his contract with the Honda team in October and must now wait anxiously to see whether the team will be sold in time to take its place on the grid for the Australian Grand Prix on March 29th 2009, whether the new owner will want him in the car or whether another team offers him a ride.

It is another setback in a career, which has not fulfilled the immense promise he showed when he made his debut in 2000, aged 20, with the Williams team.

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