McLaren used Latifi’s £200m to cover cost of Honda split

2018 F1 season

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The £200 million McLaren received from a company owned by Michael Latifi, the father of F2 racer Nicholas Latifi, was used to cover the costs arising from its split with former engine supplier Honda.

McLaren ended its relationship with Honda last year after struggling with the Japanese power units for three seasons. Instead of receiving Honda’s engines for free it now purchases units from Renault. Other costs arising from the split with Honda include a severance package and the loss of Honda’s contribution to McLaren’s budget.

As RaceFans revealed in May, McLaren Group raised £200 million in investment by selling 800,000 shares to Nidala, a British Virgin Islands-based company owned by Latifi. McLaren confirmed to investors last week that is being paid in three instalments: £100m has already been received, £50m more will come before the end of 2018 and a further £50m will follow next year.

McLaren Group’s acting chief financial officer Paul Buddin described in a call to investors why the team took the investment.

“The reason we went for that equity was that we recognised our decision, for performance reasons, to take the Honda engine out of the Formula 1 car, would have a significant impact on our cash flows within Formula 1,” said Buddin.

“We have a plan to recover that over the next three, three-and-a-half, four years as we improve performance that will come with improved cashflow from Formula 1 and also knock-on improvements within sponsorship. But for that period we have to fund it and that’s what the equity came in to do.

“We anticipate an improving cashflow position over the next two to three years and we will move back towards cash positive in that timeframe. But it is unlikely to be next year, apart from the investment of course.”

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McLaren did consider cutting how much it spent on its Formula 1 team in line with the loss of income from its Honda deal, said Buddin.

Stoffel Vandoorne, McLaren, Monza, 2018
Why McLaren is falling far short of F1 perfection
“If things do not go to plan then we can take costs out of the Formula 1 business. There is choice there. We could have chosen last year when we took the Honda engine out to have taken an equivalent amount of costs out and still compete in Formula 1. But that’s not McLaren.

“We want to get ourselves back to the front of the grid and therefore we chose to take the equity instead and continue to spend at the same rates we have been spending at in the past.”

The team is hoping to reduce its expenditure on Formula 1 when Liberty Media begins its planned overhaul of the sport in 2021.

“Formula 1 itself is looking to reduce the cost of competition through cost caps [on] the teams, a fairer share of the money that comes in to enhance the overall value of the franchise. So from 2021 competing in Formula 1 will be a completely different business model that should require a lot less investment to go into. We’re very much poised to take advantage of that.”

Asked whether the Formula 1 team is a “drag” on the performance of the rest of group, Buddin said: “It’s a short-term drag on performance for the company. We’ve been clear on that since we went public with the bond.

“One of the key variables has been our decision to take the Honda engine out of the car which we have done to improve the performance of the car. We have funded it through equity. But at the end of the day participation in Formula 1 is our choice.”

On Tuesday McLaren confirmed the latest stage in the overhaul of its technical team as Pat Fry will return to assist with its 2019 car programme, as RaceFans reported last weekend. The team do not expect its new technical director James Key, who is currently under contract to Toro Rosso, will join them early enough to contribute to next year’s car.

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Keith Collantine
Lifelong motor sport fan Keith set up RaceFans in 2005 - when it was originally called F1 Fanatic. Having previously worked as a motoring...

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38 comments on “McLaren used Latifi’s £200m to cover cost of Honda split”

  1. So from 2021 competing in Formula 1 will be a completely different business model

    I wouldn’t work under that assumption. From yesterday’s article about the cost cap we are seeing already that the original plan isn’t going to be introduced for 2021, and in my opinion I think that it is quite possible that the glide path proposed won’t either work or be implemented at all, such is the nature of this things in F1 (as was greatly detailed by Dieter’s article from yesterday).

    The teams doing so are risking a similar scenario as the one the new for 2010 entrants faced when they got there – severe lack of funding and perpetual lack of comeptitiveness until eventual drop out.

    1. It will be introduced in 2021, but for 200 million dollar, not 150 million. Sounds like the ideal situation for McLaren.

  2. So not just poor performance sporting wise, but disastrous financial performance. No business this size should be burning 50M equity (he calls it a ‘bond’! – a bit like the BWT sponsorship then) a year.

    And absolutely nothing I hear makes me think they are on the way up; very sad but it seems McLaren is doomed financially. I can only hope that Ron has sufficient investors behind him so he can pick it up before it is really too late.

    1. +1000

      My thoughts exactly, Ron swooping in for the rescue too.

      They really threw the baby out with the bath water. They should have binned Alonso when they binned Honda, or Just binned Alonso and kept the £200m to fix the car.

      Seems like McLaren is full of stupid leaders.

    2. I dare say that Ron could find the money if he wanted given his current position. I know I’d be waiting my time to take my company back if I were in the same position, but i’m a vindictive prick.

  3. And now they’re worst than any point last year. Dead last.
    They gotta say a big thanks to the aero team that kept bragging about the quality of the dog of a car they designed that supposedly was being hurt by the Honda power, a thing that helped immensely on the taking of this decision. Now they don’t have any performance, Alonso is gone, the money is gone, the free engines are gone..

    The future is dark and not very promising.

    1. Indeed – very sad – I’m not a great McLaren fan but I don’t like to see the mighty fallen. This includes Williams. Maybe both have brought this on themselves, for different reasons, though…

    2. Yes, one dumb decision after another, it boggles the mind that at this level they keep making so many obvious bad decisions. Should have kept Honda and all their cash, and let Alonso go, his way of cutting down Honda publicly didn’t help anything.

    3. Actually they had a decent but not great chassis last year. This year’s car is an absolute disaster and the switch to Renault didn’t bring them much performance-wise. The bad decisions started in 2009 and now it may be too late to recover.

      1. @f1infigures
        How do you determine last years car was good?

        1. Especially as we see how the Torro Rosso performs with the Honda engines granted a new version

        2. How do you determine that the last year’s car was bad? Just because this year’s car is bad doesn’t mean a different car – a different chassis – last year was bad.
          McLaren performed extremely well on the tracks that required high downforce levels (which is not the case this year; they weren’t good at Monaco or Hungaroring). In Interlagos last year they were even faster than Red Bull in the second section. And they were great in Mexico.

          1. This.

            Recall too that Button, who is not known as the worlds best F1 qualifier, jumped into the 2017 McLaren without ever having driven it or any of the new generation cars prior to Monaco, and put it 9th on the grid. This alone tells you that the 2017 McLaren really wasn’t too bad – especially around Monaco.

        3. @9chris9 I analyzed fastest lap times per weekend and then I tried to separate chassis performance from engine performance based on track characteristics. According to that analysis McLaren had the fourth-fastest chassis, behind the top teams, but ahead of the rest. This seems plausible as they were good but not great on tracks where engine power wasn’t too important, and they were not that bad on tracks where engine power was important.

      2. McLaren has spread that falsehood as a way of defending their constant blame on Honda, without even acknowledging that they may not have had the “best chassis” during previous years as they often proclaimed. It’s really a cop-out excuse, and coming from one of the largest teams, makes their exposure even worse — how could such a big and well-established team design a significantly worse car than last year? In fact, with Honda still developing their PU, McLaren were in a prime position to compensate for the performance loss by working to further improve their chassis – much like what RBR had done with their under-performing Renault. Instead, they chose to do nothing, and blame others for their poor performance.

  4. José Lopes da Silva
    6th September 2018, 18:16

    Yes, we all know that Latifi will drive for McLaren very soon.

    The future of F1 is 4 Ferraris, 4 McLarens, 4 Red Bull Hondas (well, this is the present), 4 Renaults, and 14 one year-old cars bought by Strolls, Ericssons, Latifis, Sirotkins, Mazepins, and others, and run by former ‘proper’ F1 teams than ran out of money and now use the second-hand F1 cars of the manufacturers, like McLaren, Williams, Jordan (defunct 2005). And this way we’ll have a great 30 car grid, with 16 drivers and 14 millionaire dummies pretending to be F1 drivers.

    All in all, we’re close to reach that number of having only 16 drivers on the grid.

  5. It won’t be long until a Pay driver wins the WDC…

    when the field is full of Pay drivers, means 1 of them will win. Sad day but it’s coming soon.

    1. F1 has had various pay drivers who won the WDC since 1975!

      1. @ColdFly do share, other than Lauda I can’t think of one.. but I don’t class him as such really because once he proved he belonged any team would take him on merit alone. A true pay driver in my eyes is one who when the money dries up finds himself without a ride.

    2. off the top of my head, one notable pay driver who became WDC is Niki Lauda.

      1. To not talk of before WW2 and after. With princes and counts and other nobility… ah and a team lesser driver giving his car to the team lead driver when his just went kaput even with race going on…

        What about bringing nobility back to F1? <:)

  6. They lost Honda to keep Alonso for one more year. Absolute disaster

    1. I want to believe that none of them, including Alonso, the shareholders, Boullier and others knew the situation was as bad. Alonso drives the car. Boullier manages people. Others put money on the team.

      They all were reliant on the design team that kept saying the blame was on the engine. That their car was championship material but running on the back only because of the engine.

      At the end of the day, they should’ve accepted Honda’s offer to supply to another team and have more feedback. They would evolve much faster and the team would have acknowledged that their chassis is as far from perfect as it can be before giving up on the partnership and the money.

  7. What a decision to drop Honda, having no clue how bad they were themselfes. How is that possible, they must have tons of data?
    I mean, they were not quick woth Mercedes engine, what excactly made them think about themselfe like Alo does himself? No results for many years, neither of them, Alo now leaving after ousted Honda… Nobody is better than their last result, so how could so many clever peolpe mis judge data this bad? What was new? What was different? Nothing, just slow.

  8. The team is hoping to reduce its expenditure on Formula 1 when Liberty Media begins its planned overhaul of the sport in 2021.

    “We have a plan to recover that over the next three, three-and-a-half, four years as we improve performance that will come with improved cashflow from Formula 1 and also knock-on improvements within sponsorship.

    Wow this makes for some grim reading. The medium/long term financial standing of the team hanging on quite a few variables and assumptions there.
    If even one of those don’t materialise then the team could come into some serious financial difficulties. Suddenly dropping Honda doesn’t look like a very clever idea…

  9. Only the foolish and ill informed would think that McLaren will be in financial trouble.

    1. Their own ‘well informed’ CFO revealed that they will burn 200M in 3 years :P

    2. Are you saying they’ll print their own money? Because if you spend 66M a year, without showing anything in return, your shareholders will flay you, faster than you can shout for mercy! Being on their way to be close to last in the championship isn’t great advertising for the rest of the McLaren group, IMHO.

  10. As RaceFans revealed in May, McLaren Group raised £200 million in investment by selling 800,000 shares to Nidala, a British Virgin Islands-based company owned by Latifi. McLaren confirmed to investors last week that is being paid in three instalments: £100m has already been received, £50m more will come before the end of 2018 and a further £50m will follow next year.

    Nidala is Aladin backwards.
    Close up, Sesame. The robbers have taken everything.

    1. It was Ali Baba and the robbers you got your fanatasy tales twisted.

      Any how the fact is whatever money McLaren is going to get burnt up very soon if they don’t get any sponsors. Sad to see them at this state.

  11. Banking on future investments to offset buying out their Honda commitment is a questionable decision. If their plan doesn’t pan out, McLaren will run out of either the money or the dignity required to attract top talent before they have a chance to return to the front of the grid.

    They burned bridges with Honda and Mercedes, and Ferrari is unlikely to ever give them engines. With Renault primarily developing new and exciting ways for their engines to blow up, it’s hard to see them being competitive enough to attract more sponsors in the near future. The reports on their internal culture is almost as condemning as what is public. None of it bodes especially well.

    I think that McLaren have consigned themselves to the same fate as Williams. Hopefully I’m wrong.

  12. Time for McLaren to build thei4 own PU’s, they already build them for their road cars.

    1. And only rev to 8000 RPM.
      Can one trust Mclaren with anything to do with F1 at the moment?

    2. Lol they can’t build a chassis, let alone a chassis and PU. It’s pretty much useless trying to come into the sport now as an engine manufacturer, Merc has been developing its PU for 6 years (?) & the development curve hasn’t yet dropped off. Any new comers would just make Honda and Renault look competitive for the first 2 years at least. That and McLaren simply doesn’t have the funds to back such a program. There’s no genius engine developer out there that can compete with the might of the worlds biggest and best engine manufacturers without substantial backing.

    3. If their engines are as good as their chassis and aero kit, they can buy one set of tires for two cars…

  13. What a waste

  14. McLaren seem to be a company lead by failed car designers. They know in their hearts how bad they are, so they cynically change drivers and engines on regular intervals to cover up their own failings. They do it so they can keep the scam going a little longer and cash in a little longer and continue a cozy life despite being frauds.

  15. So they say the f1 side of things for which they exist is the thing thats dragging the business group down… Makes soo much sense…they really need to realign their objectives. They exist to win (in f1) or has that changed?

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