Otmar Szafnauer, Guenther Steiner, 2018

Analysis: Why Haas’s ‘defeat’ in Force India protest was really a win

2018 F1 season

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“The stewards decide to dismiss the protests lodged by Haas Formula One Team”, concluded the stewards’ verdict on the team’s case against Force India. But what looks like a defeat on paper may prove a victory in the long-term.

Contrary to the bottom line verdict in the Haas F1 Team versus Racing Point Force India (RPFI) matter – in which the former unsuccessfully alleged that the latter is not, in fact a constructor as defined within the FIA Formula One Sporting Regulations, and thus not an eligible in the 2018 F1 championship – Haas are the real winners here, for the stewards found that RPFI is a factually new team.

Team principal Guenther Steiner admitted this was their goal when he spoke to Sky after the verdict was handed down. “The argument was they are, in our opinion, a new constructor, because they came in with a new licence.”

This was a point Force India tried to challenge in the hearing. The stewards rejected their stance unequivocally: “In relation to the submission by the Racing Point Force India F1 Team that it is not a new team, the stewards decide that the Racing Point Force India F1 Team is indeed a new team.”

The verdict potentially holds major ramifications for Liberty Media (FOM) and RPFI.

F1’s commercial rights holder had previously decreed the resurrected outfit should be eligible for an equal share of F1’s Column One prize monies. These are paid only to teams that have finished in the top 10 in constructors championship in two of the previous three years. Clearly RPFI, a “new team” in the eyes of the FIA stewards, does not meet that criteria.

Therefore FOM faces two options. This first is it continues to honour its decision by including RPFI in Column One payments on a goodwill basis – although that has knock-on effects down the line, for each of the remaining teams then receives 11 per cent less in Column One monies for 2018/9 – and makes an ex-gratia payment of around $60m to Haas for monies not paid for 2016/7 as a new team excluded from the ‘two in three years’ clause.

This option, though, potentially costs Liberty at least 20 per cent of its projected 2018 bottom line profit. Imagine the impact of that on the FWONK share price

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Esteban Ocon, Force India, Yas Marina, 2018
Force India could lose some of its prize money
In addition, one can foresee the remaining (eight) teams knocking on FOM’s door, seeking their shares of RPFI’s (thus irregularly paid) 2018/9 Column One amounts, totalling around $6.6m each over two years. Potentially another $60m…

Alternatively, FOM could withholds Column One monies from Haas and RPFI in line with bilateral agreements which stipulate the ‘two in three’ clause. But that may risk sending RPFI to the wall all over again, plus extended litigation with shareholders on the basis of commitments made. Of course, the exact substance of any commitment is (as yet) unknown, but was clearly sufficiently watertight for RPFI to accept the offer in the first case.

This messy situation could have been prevented through proper due diligence prior to the FIA and FOM rushing into what was clearly a flawed entry process in a haste to save a team within three weeks, a process which in turn held clear commercial and sporting implications – which had been foreseen here.

The Haas protest was only the latest stage in a dispute which has been bubbling beneath the surface since August. The final act is yet to play out.

The ultimate winner is yet to be decided. Who it will be isn’t clear: FOM potentially stands to shell out an unbudgeted $60m while losing enormous face in the process. RPFI could well forfeit its Column One monies and now faces an uncertain future even if its status as a constructors has been (reconfirmed). Haas has not yet obtained the $60m it had bargained on and has been widely, if unjustifiably, criticised within the paddock in the process.

In the meantime the saga illustrates once more the sad and sorry state in which the sport finds itself.

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Dieter Rencken
Dieter Rencken has held full FIA Formula 1 media accreditation since 2000, during which period he has reported from over 300 grands prix, plus...

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43 comments on “Analysis: Why Haas’s ‘defeat’ in Force India protest was really a win”

  1. This is quality. Really, really smart by Haas, have to hand it to them. Can’t but feel that it’s unfair in a way that Force India managed to keep their prize money, but then again, it’s necessary for the sport. However, if the Stroll consortium can create 125 new jobs, you have to wonder if they need the prize money, whereas Haas, who deserve the prize money by virtue of limiting their spending to match their income, get shafted. There is no wrong or right. But Haas have played this really well.

  2. This isn’t going to end well……

    1. @bernasaurus, it does suggest that, in the end, this might be pushed up to the World Motorsport Council level given that they have the right to overturn a decision by the stewards.

      Whilst the decision might have been a partial success, in as much as they have got the stewards to rule that Racing Point is a new team, the question is whether they might yet, in the process, be making things worse for themselves in the longer term.

      After all, Force India traditionally has been the team that has generally been the most successful in rallying support for policies that help the smaller teams, including outfits like Haas – screwing over Force India might gain something for Haas in the short term, but it is questionable whether it is that beneficial for Haas’s longer term interests to be attacking the team that is probably most effective at fighting for policies that are in their interests.

      1. Anon – I agree with this comment, but… only if FI remains as “the team that is probably most effective at fighting for policies that are in their interests”. – which I doubt…

    2. I’m hoping, really, really hoping, that what this leads to is enough of a stink that all 10 constructors sit down at a table with Liberty, and tear up the current financial sharing arrangement, and draft a new one that really does treat everyone equally.

  3. I glad to see that Haas has recognized and is willing to play the political game that Formula 1 is. Good on them.
    With that said, it’ll be interesting to see what Liberty Media will do. Personally im expecting them to exclude RPFI from colum one money. However they might be able to throw them a lifeline in order for RPFI to stay out of financial trouble. A loan rather than price money or something of the kind, depending on what is legally possible.

  4. Haas chose to let Manor go bust to start a new team instead of taking on their debt.
    Stroll payed off FI’s debts and rehired its staff.
    I don’t feel Haas should be entitled to a similar share of the prize money as RPFI.

    On another note, the rules for new teams are really prohibitive for newcomers. If that were to change this whole situation would not have arisen.

    1. Bart – I don’t see why Haas should have been obliged to ‘save’ Manor if they preferred to go it alone.
      Stroll ‘saved’ FI because it suited him rather than start a new team.
      Haas did this knowing they would not get the payments for two years.
      Stroll did it expecting to continue to receive the payments.

      I agree that Haas should not receive back payments. But I also feel RPFI should not get payments for their first two years. If Stroll doesn’t like it let someone else buy the team…
      And I totally agree “the rules for new teams are really prohibitive”.
      I also feel it is criminal that payments for any year are paid during the following year (always in arrears) and, when a team pulls out they forfeit their final year’s payments…

    2. Stroll didn’t pay off Force India’s debts. He paid off specific F1-related debts. Vijay Mallya’s 100+ million in debt that was tangled up with Sahara Force India remained with Sahara Force India.

      Otherwise, wouldn’t have been a need to create a new constructor.

      1. @grat The reason a new constructor was needed was because it was impossible to get the 13 banks to release Force India in time. This was because they were freezing all of Mallya’s assets in the hope of getting around $2 bn from him. It’s not even clear if the Strolls would have been legally permitted to pay Vijay’s debts for him, given that they were also hoping to get a conviction of guilt (or enough additional money in settlement to allow them to feel it was worth skipping it).

        The $149 m in debt Vijay attempted to wrap around Sahara Force India was dismissed by the UK courts, and therefore was not a factor in that specific situation – although it surely helps to explain why there was no buyer beforehand.

  5. Bittersweet for Racing Point, rather than negotiate the asking price they “saved” the team but the package price is likely to be the same if not more.

  6. Well played, Mr. Haas and Mr. Steiner 🙂
    Nice article, Dieter.

  7. @dieterrencken Intersting article as always. Is the Uralkali situation resolved now?

  8. I agree fully that HAAS probably got what they wanted out of this, including making noise so that FOM will have to react, finally. I do not think that the outcome will have to be a) both RPFI and HAAS receive all of that money b) neither get any.

    As I wrote in the previous article on this, I am not clear why FOM cannot decide there’s a special reward (which the in-the-end-not-manifested-saviours-of-Manor, potentially could have gotten too) for saving an existing team from going down, even if they are legally a new entity.

    Of course, we’d all like if FOM payments were fair and based on reasonable, and competitive grounds, which would have seen Force India receive more money over the last few years (because they were 4th), and might have prevented their demise (not quite sure, bc. of Mallya issues), and in that world, HAAS would definitely have a reason to feel aggrieved.

    But, that’s not the structure that is in place, as is clear from the diverse reasons why Ferrari, Mercedes, Red Bull, McLaren and Williams, and any PU manufacturer get various bonuses quite apart from how they performed in the previous season. Several of those teams got their money officially for previous performance (even if it really was ‘because we needed to buy your vote’), so why not for saving an organisation that has decades of F1 legacy. FOM might even say ‘well, had HAAS taken on the Manor org. instead of starting newly, they would have an argument to get the same treatment, but they chose to go another way’ as I think Bernie would have done (he likes to troll those he argues with, after all).

    1. I that case though, the money they pay to FI would have to come out of FOMs share of the prize money, not out of the column one pile.

      I really am not sure though that HAAS really would have a right to such money either. They signed up to the rules as were.
      Now the situation with FI came up and an agreement was made (sort off, it was messy). That means a new situation has arisen.

      Would Haas be happy for any new team to come along to get a share in of the pot right away? Somehow i doubt it.

      The solution is likely to be some form of payment (less than 60 million) being agreed to Haas as well. Maybe in return for signing up for more years.

    2. @bosyber Liberty cannot decide this under the current financial system as it would disrupt the system of bilateral contracts that currently binds the teams. There’s a limit to how much 2021-2024 flexibility there is too, given that Renault has a Bernie-era deal with Liberty (though not with the FIA, which is why the latter doesn’t have to consult with Renault over its 2021 regulations). For 2025 and after? Absolutely.

      It’s a great idea though!

  9. Mark in Florida
    24th November 2018, 13:06

    Haas chose to let Manor go bust. No Haas wanted to come into the sport as Haas not Manor. They were starting a ground up operation not purchasing debt from Manor. How are they they the cause of Manors failure? I think that can be laid at Bernies feet. Don’t blame the Americans, it was a greedy British guy about the size of a yard gnome.

    1. No Haas wanted to come into the sport as Haas not Manor.

      Yes, I can see how a team might wish to join up with a clean slate, rather than pick an existing team’s entry. Even to this day I hear commentators mention how a team has evolved from yesterday’s Spyker or Jaguar, whether or not that historical team has any relevance (beyond name/ancestry) to the current team’s performance.

      I too don’t see how Haas can be blamed for Manor’s demise, and how that can be held against them in their current form of questioning.

      The solution is likely to be some form of payment (less than 60 million) being agreed to Haas as well. Maybe in return for signing up for more years.

      @bascb – agreed – it appears that a mediated settlement will be arrived at behind closed doors, and one of the terms of which will be that the details remain private.

      Now the situation with FI came up and an agreement was made (sort off, it was messy).

      Yeah, but Haas’ argument would be that they specifically signed up to RPFI being a running entity takeover of FI (I recall Steiner mentioning that they didn’t get the updated document to sign, that mentioned it was an asset purchase).

      I really am not sure though that HAAS really would have a right to such money either. They signed up to the rules as were.

      Again, I think Haas’ argument is that the rules today are the same as what they signed up to, I don’t think the rules of new team vs. team rename/takeover have changed in that regard. And if RPFI was formed as a new team, its a bit disingenuous of Liberty to play with semantics to still give them part of the pot like they were a continuation of an existing team.

      1. Linking this issue with Manor is a huge red herring… ;-)

        1. BlackJackFan: Linking Manor to herring, even huge red ones isn’t fair either.

          1. Hahaha – do you remember ‘The Big Red One’…?

      2. That’s the beauty of FWONK as Dieter mentioned! As a publicly listed company, it can’t remain behind closed doors as per the old, Bernie days…

        Thanks Dieter, I love this side of F1. Billionaire Lawrence Strulovich might not have the bargain and good will that he thought he had (boo hoo). Billionaires versus car manufacturers: it’s back to the 1920’s/30’s days of Patronage.

        Does anyone know what the percentage ownership of the “consortium” is? I’m guessing it’s a vanity project (Stroll is paying most of it). None of this should detract from the fact that the FI staff have continued employment thanks to Stroll etc.

        Saw you on the world feed with the 2 or 3 other people interested in Sirotken’s views on FP2 (poor guy).

  10. I have long been bored by the whining from Haas… and I have long been an admirer of FI…
    But FI is no more – or, at least, is now a different entity, as will become more apparent over the next twelve months…
    So, overall, I’m now inclined to hope this is solved ‘properly’.
    Haas is after what RPFI are getting, but this would make no sense. Therefore RPFI should NOT be receiving these payments, for the next 24 months since August, this year. I know having a mid-year accounting will be confusing. Chase will just have to deal with it…!
    While the jury is still out, my vote is in Haas’ favour.

  11. I’m wondering if this is a bad decision for F1. There is a question in my mind about Sahara Force India because their debtors should have been entitled to at least the Column One payment, if not the Column Two payment as well, because that was part of SFI’s collateral when they took on debt, so the Administrator of SFI should be entitled to collect those payments too. When the Administrator sold SFI to RPFI took over the debts of Sahara Force India as well, so shouldn’t RPFI be entitled to collect those particular Column One and Two payments too?
    So the “new entrant” question isn’t about the payments for the for first half of this season, but more about the second half of this season and the next two seasons. Teams get credit on the basis of Column One and Two payments, so surely there is an obligation to pay out to creditors if the team folds as well.
    Earlier this year the rug was pulled out from under the feet of SFI, and the team morphed into RPFI when the Government appointed Administrator sold the team to a new owner. Now the Stewards have decided that RPFI is a new team, and the rule is they have to go for two years without Column One payments, meaning they only get paid for their performance. I don’t like the idea that the Stewards, who are really racing experts, should be deciding financial matters, so the answer Haas got was more or less to be expected.
    This decision has raised a very important question about an existing team: What if a team’s owners change the way they own a team for administrative reasons? For example, In October 2014 (i.e. while the F1 season was still in progress) Fiat-Chrysler, made Ferrari a standalone company. At that time no one questioned whether or not Ferrari were entitled to any of their FOM payments because of the change in the way the team was owned.
    I tried to understand the history of Sauber. Sticking to the recent events, in July 2016 Longbow Finance took over ownership of Sauber, yet despite there being completely new owners this doesn’t seem to have affected their entitlement to payments by Formula One Management.
    I found the history of the current Renault team difficult to understand too, but it seems one of the two “Lotus” teams became the Renault team in December, 2015, and raced as Renault Sport F1 for the 2016 season. I’m not entirely sure whether or not there was a change in the ownership of this team, but I suspect there was. Regardless, FOM payments continued to be made to the team.
    As Mark in Florida just above says, maybe if Haas had taken over the Manor team they might have been able to get FOM payments right from the start. Instead they chose to build an entirely new team from scratch, and so weren’t.
    Anyway this decision by the Stewards is RPFI are a new team despite the fact RPFI took over an existing team and their debts, so they aren’t entitled FOM payments. So what about the next F1 team owner who changes the way the team is owned, e.g. as in the case of Ferrari, or where a team owner sells the team on to someone else, e.g. as with Sauber in 2016, or changes from a minor shareholder to a major shareholder, e.g. as in the case of Renault? Shouldn’t the same rule apply?

    1. @drycrust: Just refine this a bit more, get Todt on side and Liberty won’t have to share revenue with any of the teams. 2021 FWONK shareholder mission accomplished.

    2. Sahara Force India rendered itself ineligible for any and all prize money by not showing up for the Belgian, Italian and Singapore grand prix– or, they may have been excluded for bringing the sport into disrepute.

      I do wonder if Racing Point paid their late entry fee, however. ;)

      1. Not true: the original team was disqualified from the championship after “admitting” that it had no cars or kit – these having been sold to the new team, which was granted a late (mid-season entry) at a substantial late entry fee.

  12. In terms of F1’s covenants a team contractually forfeits all unpaid revenues going forward after a ‘bankruptcy event’ is triggered. So the creditors have no claim to the monies at all and they revert to the ‘pot’, which is shared by the balance of teams.

    Hence the the administrator initiated the ‘Budapest Agreement’ referred to in the stewards’ decision – in which signatories waived their rights to Force India’s revenues in the event the team found new owners.

    Haas was a signatory, but crucially stated that their signature applied only to a sale as a going concern, and when the administrator switched the sale to an asset sale Haas withdrew their signature as Force India in Haas’s opinion effectively became a new team and thus not entitled to Col1 money for at least two years.

    That Force India is a new team and not an existing team was confirmed in Abu Dhabi and now the bunfight over Col1 started

    1. Oh good. Something to keep the lawyers busy (and the rest of us confused) through the winter. I will pledge £20 to any charity nominated if RPFI or whatever they are called, appear in this form for the first race of 2019.

    2. @dieterrencken Thanks for helping me to understand what is going on. I’m sure it is obvious to everyone I don’t understand accountancy.
      Shouldn’t the money from last season that is yet to be paid and what they’d earned from the start of this season until the point where they were bankrupt be paid out? I can understand a hesitation on the part of FOM to paying out until they are sure of who the new owners are, but annulling the right to fulfilling their payment obligations means teams can’t trust FOM to payout if they get into financial strife. Do teams use their FOM payment as collateral to get credit? If FOM don’t payout that money that was owed to SFI then basically they’re saying to all the teams that they can’t use that as collateral when trying to get credit because FOM are … sorry, I’m not very good with these accounting concepts, but isn’t it something like FOM are an unsecured debtor?

      The Stewards have decreed that after SFI was sold to RPFI the team became a new entrant. The difficult bit is how is that different from, say, Sauber, who were sold in the middle of a season and kept getting paid for the old team’s efforts in the previous season and the current season up to the point of takeover by the new owners? Assets and debts were transferred from one owner to another, and in doing so the new team was considered to be the heir of the old team’s rights and privileges.
      Or again, when Ferrari was made an independent company by Chrysler-Fiat in 2014, they were treated as an existing team even though the ownership model changed. Again assets and debts were transferred, and again the new team inherited the rights and privileges of the old team.
      Here, we have a case where the new team isn’t allowed to inherit the rights and privileges of the old team even though they bought all the assets (bar FOM’s obligation to pay them) and all the debts of the old team.

      1. Teams get paid on projected current income in ten tranches – adjusted in the final payment to reflect actual income – but based on their previous year’s championship performance. So SFI got paid its monthly dues until administration, with RPFI receiving the payments thereafter, the first one coming in beginning Oct.

        1. @dieterrencken Thank you for that information. So RPFI should have received the October payment that was originally going to be paid to SFI.

          1. Yes having forfeit the Aug/Sept monies while they negotiated

    3. Haas was a signatory, but crucially stated that their signature applied only to a sale as a going concern, and when the administrator switched the sale to an asset sale Haas withdrew their signature as Force India in Haas’s opinion effectively became a new team and thus not entitled to Col1 money for at least two years.

      This is the interesting part, thank you Dieter! I wonder if this will come down to how/when Haas withdrew their signature, legal issues are funny.

  13. The truth is, if Mallya had sold his team rather than let it go into administration the team would have been legally seen as the same team, and foul no rules. Mallya was the problem.

    Its hard to enter into a debate when the real problem comes from all the archaic rules which went into effect when motor racing was a much more iffy enterprise. Spreading out payments, splitting payments, delaying payments is all an accounting method meant to keep the enterprise alive and give you time to solve financial problems. Those times are over and these stupid and unnecessarily complex rules should be ended.

    My vision of F1 is that it transforms the role of teams into franchise owner. The FOM should sell the right to be in the game with a franchise like license. Ten million dollars to buy and your in, no matter what happens you don’t get any of that back. You can’t resell the right only FOM can do so and if the FOM should want to take the license away from a team they can. That would put the teams in their place. A further rule would be that if you buy in and after three years you haven’t scored a single point, your license is up for review, which means if someone wants to get into F1 they get to buy that available license. Eventually the whole license product could be an entirely separate item to monetize through the stock market.

    One of the things we have learned from this Haas/Force India issue is there needs to be some kind of exception in certain rules when the outcome will negatively effect the contracts which the FOM have agreed to. As I understand it the broadcast contracts mandate there be 20 cars per race, that means 10 teams. If there is an event which would lead to the FOM not living up to their contract they should be allowed to take actions which in the end favor all teams. This RPFI thing would seem to fit this proposed new rule.

    1. Graham D Shevlin
      24th November 2018, 23:57

      My understanding is that the minimum number of cars per race, in the contracts with race promoters and broadcasters, is 14. However, FOM gets more revenue if there are more than 14 cars. Whether FOM’s revenues would have suffered if Force India went out of business is difficult to know.

  14. I feel this is mean-spirited. Force India changed ownership in a complicated move necessitated by the urgent situation. Not ideal but either that or we lose a team, now Haas is just taking advantage. Yes new owners in a complicated set up but in reality we all know it’s the same team same mechanics designers drivers management… they deserve the prize money, it’s obvious despite whatever tricky legal gimmick Haas want to play.

    1. Well, Liberty pulled quite a shady move by getting teams to – apparently – sign different documents. While there might not have been malice behind that, it was necessitated by the fact that the initial documents were based on the assumption that FI would be sold as a running entity, and the later ones on the reality that it was an asset sale. However, Liberty – apparently, again – didn’t take any subsequent measures to rationalize that situation with the other 9 teams, but instead just assumed that they had 9 signatures from the 9 teams, so all was hunky-dory.

      Yes, Haas’ protest gives an appearance of pettiness that detracts from the sport (and that is something I never enjoy), but I think Haas are entitled to push for a clear explanation, and if it is warranted, clear and fair actions from Liberty.

    2. But are they new owners or a thoroughly new team?
      Companies House shows Force India Formula One Team Ltd as still in administration and still with Bob Fernley and Subrata Roy as current directors. Its filing history also shows the company originally started in 1965 as Tyrell….

      That was the team that earned the prize money, not a company that was not even formed at the time.

      1. Tyrell?!? That makes no sense. If they’re Tyrell, then how is Mercedes getting Column 1 payments?!?
        As far as I knew:

        Tyrell is the root team for BAR,
        which is the root team for Honda,
        which is the root team for Brawn,
        which is the root team for this iteration of Mercedes.

        If Tyrell really is the originating team for the version of Force India currently in administrator (I thought it was a holding company called Totas Something-Or-Other), then F1 is even more complicated than I thought it was…

      2. If you follow the link above and go to the first filing data it shows it filed as Totas Euroservices, not Tyrell. Not sure where things go sideways for the previous poster but it was not established as Tyrell in 1989.

  15. I am always amazed to see in the comments that people who have followed F1 so closely lack any real understanding of the the FIA regulations, the existing Concorde Agreement, how FOM divides and distributes money to teams, and the side deals FOM has with various teams (Williams and Ferrari, for example). Posters continually confuse obligations taken on through contractual agreements with the requirements of the FIA regulations. Some of the people commenting on F1 sites seem to toss all of these things together in a blender and then run on about what’s fair. There are plenty of things in the way F1 operates that are silly, stupid or simply unfair, but if you come into the sport, you agree to be bound and guided by the contracts you sign and the regulations you agreed to. Other competitors have a perfect right to insist that you honor your obligations.

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