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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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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Things are moving Honda and USF1’s way

I’ve written extensively about the moves afoot to bring down costs in Formula 1 over the last couple of months and talked about how the FIA intended to produce a set of rules for 2010 based on areas of non-compete on the cars to reduce costs for everyone. The key proposal is for the big teams, who choose to spend money on a technology, to be made to sell that technology to a smaller team at a capped price.

Today the FIA put out a statement which shows that it is going for this sooner rather than later, in an effort to help the sale of Honda and in plenty of time to give the USF1 project and other similar initiatives a chance of life in 2010.

The statement said, “In view of the difficult economic conditions which continue to affect Formula One sponsors and major car manufacturers, the FIA is preparing radical proposals for 2010.

“If adopted by the World Motor Sport Council, the new regulations will enable a team to compete for a fraction of current budgets but nevertheless field cars which can match those of the established teams.

“These regulations will not affect the established teams which now have stable backing from the major car manufacturers, but will enable new teams to fill the existing vacancies on the grid for 2010 and make it less likely that any team will be forced to leave the Championship. The proposals will be submitted to the World Council on 17 March.”

This is a bold statement, if rather more vague than the FIA has been in the past when laying out its plans, this is possibly a pre-emptive strike ahead of next week’s FOTA press conference in Geneva, at which we will learn exactly what thea teams have been plotting for the last few months. The FIA’s proposal does, of course, affect the larger teams as the purpose of the changes will be to allow small budget operations to compete with them.

The FIA is in a position to ram through anything it wants using the justification of force majeur, because of the global recession. Although the wording of today’s statement makes that less likely because it acknowledges that the leading teams have ‘stable backing’ from the motor manufacturers.

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Branson has a sense of humour

Not a serious posting with any great insight into the Honda negotiations, but just a photo someone sent me with an advert for Virgin Trains, which I absolutely love! It shows that Branson has a great sense of humour. We could do with a bit more of this kind of thing in F1.

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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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Virgin, Danica Patrick and more

I suggested on Monday that Virgin might be the ones negotiating with Honda and I see now that Honda has confirmed it. Already there have been some good jokes, like “I hope they are faster than their broadband!” But there is no doubt that Virgin would be a huge asset to F1 if it happened.

The backstory here appears to involve Adrian Reynard, who knows Sir Richard Branson well, apparently and who set the BAR Honda team up in the first place before being eased out of the picture. Like David Richards, who also ran the team, he has some scores to settle and some unfinished business there. Isn’t it amazing how powerful men cannot let something lie? It’s like an episode of Dallas.

Anyway, I imagine that Virgin would only be interested if the costs really do come down to £50 million per year, as the FIA has been suggesting lately. They will have done extensive research on the return on investment you get from F1, the media value of screen time etc and would calculate that if the costs of competing were at that kind of level, you are looking at around £10 million as the cost of your sponsorship. This is probably affordable for them and they would get ten times that value back in brand exposure, so it’s a no-brainer if they plan some global initiative like a bio-fuel or some airline related activity or something. The catch is that the rules for 2010 haven’t been done yet and there is no guarantee that the costs will come down to that level.

I said in my Hope for Honda post, a couple of weeks ago that the £50 million package could some soon enough to save the team, but look at the teams which have gone down waiting in vain for F1 to become affordable, like Super Aguri for example. It may not happen.

I was phoned by TalkSport radio today asking me to talk about Danica Patrick and the possibility of her racing for the proposed USF1 team. It’s certainly a story everyone wants to know about. A woman driver would be great for F1 if she were good enough and Danica has won in IRL, beating Dan Wheldon, who was a contemporary of Jenson Button and others. Of course if Danica was good enough she would probably have been in F1 already, but why shouldn’t she get a second chance? Honda was looking seriously at testing her a few years back, I remember talking to Nick Fry about it. But it didn’t come off.

I know my old mentor Murray Walker has always been dismissive of the idea of women drivers in F1, but I’m all for it – it’s the last great barrier to be broken down. I don’t think Danica would be the first woman to win an F1 race, nor even to get a podium, but she might well open the door for other women who could break down that barrier.

USF1 is another idea which depends on the £50 million budget being possible and competitive. It is unlikely to happen without it. This is a start up, as far as I can see it, not based on an existing team and therefore not eligible for the TV money to start with. It will take pretty huge investment to get started.

The man behind it, my journalistic colleague Peter Windsor, has made a few comments on the story lately and there will be an announcement next week. The problem is that F1 has moved away from the US in the last few years, rather than the other way around. We don’t even have a race in Canada, for goodness sake!

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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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