Why McLaren and Williams are two great teams with one similar problem


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First Williams, now McLaren seeking ‘sales interest’ in urgent searches for liquidity – what is going on in F1?

These are not only two bastions of Britain’s renowned Formula 1 industry, but the third- and second-oldest teams on the grid with nine and eight world constructors championships respectively. The latter shaded Ferrari in the overall race victory stakes until the Scuderia’s 2000s hegemony.

That Williams would end up in such straits has long been on the cards for the team operates to an outdated constructor business model, producing an entire car in-house and buying in only power units (currently Mercedes), while a run of poor results have left the Grove-based team languishing in the lower reaches of the points logs, trounced by others who outsource the majority of their hardware.

But McLaren? The company is, after all, a manufacturer of gorgeous supercars, vying with and at times beating Ferrari’s best in the performance stakes. McLaren Applied Technologies (MAT) has an enviable reputation, being an accredited NASCAR, Formula 1 and Formula E supplier.

Carlos Sainz Jnr, McLaren, Circuit de Catalunya
McLaren’s F1 operation will lose a small number of staff
Add in that McLaren enjoys considerable backing from Bahrain’s Mumtalakat sovereign wealth fund and a Saudi billionaire family, and suggestions that the company is cash-strapped are surely wide of the mark.

Not so: In April McLaren Racing was amongst the first to place staff on furlough and late last month McLaren Group announced plans to lay off 1,200 workers (of 4,300) after the British government rejected its £150m state aid application. A week later Sky announced that McLaren was seeking interested parties to buy up to 30% of its F1 team, indisputably the jewel in company’s crown.

Although a spokesperson declined to provide details, matters came to a head last week when McLaren launched urgent legal proceedings against a group of bond holders who refused permission for McLaren Group to raise funds – believed to be £280m – by mortgaging its state-of-art Surrey headquarters and hallowed heritage collection, which includes a number of Ayrton Senna’s race winners.

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Court documents seen by RaceFans state that McLaren Group is “now facing an impending liquidity shortfall. It has an urgent need to raise new money by no later than 17 July 2020” and that “additional liquidity of approximately £280 million would be sufficient for the Group to be able to support its operations into 2021”.

McLaren MCL35 launch. McLaren Technology Centre, 2020
Covid-19 has wreaked havoc since McLaren launched its MCL35
The document adds that ‘the Group received further capital through the issue of new shares to its shareholders in early March 2020, for which it received cash proceeds in the sum of £291,000,000’ but curiously omits mention of a £203m injection – revealed by RaceFans in May 2018 and subsequently confirmed by the team – by Michael Latifi, father of Williams driver Nicolas.

This investment was intended “to strengthen the Group’s balance sheet and underpins its ambitious growth plans laid out in its five-year business plan”, McLaren documents show.

Add up the various amounts and it is clear the Group has raised around £800m in two years. This does not take into account a £650m raised by the Group – currently the subject of the dispute before the courts – via a 2017 City bond, which according to a McLaren report was “used to purchase the shares of Mr [Ron] Dennis, refinance debt, and settle shareholder loans and transaction fees”.

Such numbers do not paint a pretty picture, but it is important to note that the F1 team is just one entity, and while it has struggled since officially splitting with Mercedes from the 2015 season – its switch to Honda power proved disastrous and IndyCar distractions hardly helped – the fact that 95% of recently-announced 1,200 retrenchments (from a total headcount of 4,300) are outside its racing division indicates the major problems lie elsewhere.

In this regard the court document states: “Forecasts prepared by senior management showed the Group would likely be faced with unprecedented losses and operational complexities.”

It adds: “These forecasts have unfortunately proved to be accurate, and the pandemic has had a massive and detrimental effect on the Group’s trading performance. The start of the Formula 1 season has been delayed. Car dealerships have temporarily closed; supplies have been interrupted; manufacturing has been suspended or impeded; customer orders have declined; sponsorship revenues have fallen; and additional costs have arisen from new health and safety measures.”

According to McLaren sources, Mumtalakat eventually stumped up the cash required, but the word is that litigation will proceed as a test case simply to enable McLaren to understand its rights under the bond covenants. The verdict could prove crucial should McLaren need to mortgage assets at short notice in future. Newly appointed (ex-Diageo) chairman Paul Walsh sure is a tough cookie…

There is, though, said to be serious dissent amongst the shareholders, a situation exacerbated by the company’s complex structure. Although floated under the McLaren name, the automotive division was a separate legal entity from Racing and MAT, with unique shareholders – and vice versa – and the factions are understandably disgruntled by turns of events outside of their original investment vehicles.

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After McLaren’s various activities were consolidated under a Group umbrella in 2017, shares were issued on a participation basis. Post Latifi’s buy-in, the diluted shareholding structure is: Mumtalakat 56%, Saudi’s Ojjeh family 14%, and Latifi 10%, with the remainder split amongst various shareholders, mainly early automotive investors.

Now consider how complex a 30% sale in Racing is given that it shares Group services and facilities. Equally, one wonders where the cash will come from to pay for the new wind tunnel and other upgrades.

There are those in the paddock who rub their hands vigorously while gleefully mouthing ‘I told you so’ whenever teams hit trouble, invariably pointing to this bad decision or that unfathomable call. True, both Williams and McLaren committed blunders over the past five or so years and both stick rigidly to constructor models, but such paddock sages overlook a major contributing factor, namely F1’s inequitable revenue structure.

Thus, odds are stacked against any team outside of the ‘big three’ – Ferrari, Mercedes and Red Bull – all of whom earn vast bonuses simply for lodging an entry form in November each year. It can be no coincidence that, of nine teams outside of that trio to have contested F1 since the sport’s previous owner CVC Capital Partners introduced the structure in 2013, all bar two have faced serious financial issues in that period.

Esteban Ocon, Manor, Interalgos, 2016
Some teams collapsed under F1’s inequitable revenue structure
Two (Manor and Caterham) disappeared totally, Lotus was saved by Renault while on the brink of administration, Force India was bought out of administration by Racing Point, Sauber was saved from extinction by a family of billionaire creditors, and Williams and McLaren are now actively seeking cash injections or shareholders. That makes seven.

The two exceptions are AlphaTauri and Haas. In both instances they exist as marketing platforms for the products manufactured by their wealthy owners. The former is a sister team to Red Bull Racing and benefits from synergies provided by its sibling’s superb facilities. The latter is regularly said to be cash-strapped despite operating as a Ferrari satellite courtesy of its ‘listed parts’ business model. Nonetheless, both outliers criticise F1’s inequitable structure.

True, Williams and McLaren have both benefitted from non-performance-linked bonuses since 2013, but these amount to fractions of the payments made to the ‘big three’. Williams received 7.5% of Ferrari’s bonus payouts, McLaren 30%. Imagine what either might have achieved with $500m more.

During 2019 F1 disbursed around $300m in bonuses to five teams – the figures reflected under the ‘LST’, ‘CCB’ and ‘Other’ columns reflected in the schedule. Columns 1 and 2 refer to championship classification payments, i.e. performance-linked revenues paid on a sliding scale.

Based on an extrapolated (pre-Covid) schedule and adjusted for Mercedes as per the note below, the estimated total bonus payments per team for the eight-year (2013-2020) period are as follows:

TeamBonus since 2013
Red Bull$560m
Racing Point

NB: Mercedes was late to the bonus party, first needing to win consecutive titles before qualifying for CCB payments, which it did in 2014-15. Equally, 2020 forecasts have been withheld by F1 due to Covid-19. Although the final numbers may vary slightly due to Covid-19 the proportions remain largely constant and are not expected to vary by more than 10% on an overall basis.

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On this basis it is little wonder that 75% of the grid finds itself severely cash-strapped? Equally, CVC and former F1 tsar Bernie Ecclestone should hang their collective heads in shame, as the structure was forced through under their watch, having been devised in 2012.

How did it come to this? Back in 2012 CVC planned to list F1 on the Singapore Stock Exchange and needed headline names to make the initial purchase offering stick – hence the sweeteners offered to Ferrari, Mercedes and then dominant team Red Bull, while McLaren were considered ‘so-so’ names and offered a selection of sour balls. The rest weren’t even invited to the party.

Then, as global markets suffered in the wake of the global economic crisis, F1’s reputation was tainted in financial circles by association with Ecclestone, who was charged with bribery and embezzlement by Munich prosecutors – he denies wrong-doing but settled the $34m charges by way of a $100m payment – causing CVC to abort the listing. But, by then all agreements were signed, and lasting damage to F1 done.

The ‘big three’ cannot be blamed for availing themselves of the bonuses offered – they would, frankly, have failed in their fiduciary duties to their shareholders had they walked away from such riches – while the rest could stand accused of failing to fight their corners by, at the very least, challenging the contracts on offer, whether in court or via EU Commission structures, but to a team they were afraid of being marginalised.

Others tell similar stories: Manor was initially not even offered a commercial deal – basically being told the team was not welcome – while around the same time Caterham Tony Fernandes ended up buying Ecclestone’s 66% stake in Queens Park Rangers football club, a transaction that subsequently caused the Malaysian an element of heartache.

Another team boss told me: “Bernie said ‘I don’t care if you don’t sign…’, so what I was to do? Close my team and lay off my people?”

A story related at the time by a team boss and subsequently confirmed by a McLaren source wonderfully illustrates how CVC and Ecclestone operated: The 2011 Bahrain Grand Prix was cancelled due to political unrest, with the 2012 edition hanging in the balance. McLaren’s management rejected the paltry bonus on offer from CVC, and were warned the 2012 race could be cancelled on political grounds unless accepted.

The majority shareholders placed the race ahead of the team’s interests and issued a decree – to the team’s obvious detriment.

Nicholas Latifi, Williams, Circuit de Catalunya, 2020
Williams’ new hire Latifi is linked to McLaren via his father
With Williams, different tactics were applied. Then-CEO Adam Parr campaigned against the inequitable structure, so Sir Frank Williams was allegedly encouraged to replace him with a more compliant individual – minority shareholder Toto Wolff was named executive director – with promises of a $10m annual bonus. Williams signed and the rest is history. It can be no coincidence that results slid as bonuses came into play.

To illustrate this point, consider the ludicrous situation in 2016. After Williams beat Red Bull to third place in the championship, the former received a payouts totalling $87m while Red Bull creamed $144m – a difference of almost $60m. Any wonder Williams ended up taking on Lance Stroll and his mega budget, then later ‘sold’ Valtteri Bottas (to Mercedes) and rehired Felipe Massa?

Next time you see glowing testimonials about the cost-effectiveness of Mercedes’ F1 programme, read references to Lewis Hamilton’s mega stipend, remember that the numbers are massaged by almost $500m in bonuses denied to 75% of the grid. Ironically these bonuses were negotiated not by Wolff, but by Ross Brawn when he headed the Mercedes team in 2012, who in his current capacity in charge of F1 is now tasked with levelling a grossly imbalanced playing field.

Over the past 70 years teams have come and gone for different reasons – think Vanwall, Cooper, Lotus and Brabham for starters – while others were serially sold (Tyrrell sold to BAR before acquisition by Honda, which sold to Ross Brawn’s syndicate which sold to Mercedes; Stewart GP became Jaguar before mutating into Red Bull). But never before has 75% of the grid teetered so close to bankruptcy as in the past eight years.

Williams is likely to be saved – numerous qualified offers are believed to have been received by joint advisors Allen & Co LLC and Lazard & Co Ltd, and a positive outcome seems on the cards. McLaren’s shareholders have come good with funding, albeit under duress.

But it should never have come to this for two of F1’s most successful and storied teams. Kill the sport’s history and you ruin its future. That is a lesson F1’s new owners need to take on board as they finalise the 2021-onward Concorde Agreement, which includes F1’s revised revenue structure – bonuses and all…


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45 comments on “Why McLaren and Williams are two great teams with one similar problem”

  1. I think the issue is very simple. F1 is not a profitable business. The only to go in there is if:
    – you receive large amounts of money from the organizer (Ferrari)
    – you’re winning everything (Mercedes)
    – you have a big construtor paying the bill (Renault)
    – you have a giant sponsor paying and naming the team supported by a constructor (RB and Toro Rosso)
    – you have a millionaire trying to give a car to his son
    – you are a B team (Alfa, Haas)

    1. With the costcap now installed, there IS a way forward (since you cannot any longer spend endless amounts). But it needs a serious amount of equalising to make the sport work well.

      I guess it is good that we (Liberty, the teams etc.) get this reminder now, when they are in the process of establising new deals for the next years.

    2. Reminds me of that age-old adage – to make a small fortune in Formula 1, you must start with a large fortune.

      1. Jack (@jackisthestig)
        24th June 2020, 16:16

        I’m not sure even that is true any more.

      2. @telvee32

        to make a small fortune in Formula 1, you must start with a large fortune…

        and get out quick.

      3. To become a millionaire, start as a billionaire in F1.

    3. It produces advertising revenue – the whole circus is essentially a collection of fast-moving billboards.

      1. But that advertising is being seen by fewer and fewer viewers thanks to pay per view, another short sighted nail in F1’s coffin.

      2. Very true. That is why every team needs to have at least one of their cars seen on the TV broadcast at every race. Legend has it that Mr Ecclestone insisted the TV cameras should be focused upon cars from the best funded teams and ignore the rest. Fortunately Liberty Media have adopted a much better approach to how the TV cameras are sited and what is shown on the live race feed.

        1. @drycrust Yep – they need to have a reasonable distribution of airtime for the teams. Focus on the front more than the back, but midfield battles are probably the most competitive part of most races now, and interesting stuff probably happens at the back of the field just as often as it does at the front now.

  2. The bonus system is inherently flawed!?

  3. Ashley Grimshaw
    24th June 2020, 12:29

    If McLaren and Williams were no longer in Formula 1 it would be a disaster, I have spent my whole life living around Woking or Didcot and can see the impact both have on the areas. From my personal point of view hopefully both will carry on as I have no idea who I would support without both, other than supporting Brawn in 09 I’ve very much backed McLaren first, Williams second over Drivers for the last 23 years of watching. @Dieter Am I understanding correctly McLaren’s owners won’t let it go bust and therefore they will be fine and its just a lot of fuss over liquidity but someone will provide it?

    1. Not wide of the mark. No doubt there is a liquidity issue but I thinks more a shareholder dynamic.

      1. Surely Zak Brown has to take responsibility for McLaren’s woes? Spending $100 million to give up a race winning engine for two years and the Indy car fiasco with Alonso?

        1. I did state there had been errors at within McLaren, but these weren’t worth a billion bucks.

  4. Great article Dieter.

    1. JR Love (@dermechaniker)
      25th June 2020, 16:01


  5. Imagine how Riccardo’s head is right now…
    Is he the new king of unlucky choices? Alonso dethroned?

  6. Very good as always, Dieter. As you say…it should have never come to this! Instead of inventing and re-inventing various and multiple quick band-aid solutions, fixing the grossly unbalanced revenue distribution should be the No.1 priority for F1, as it will lead to improved competition, more fair sport and better show…which everybody seems to be concerned with the most.

  7. No one seems to be mentioning that, even if they manage 20 races, profits to share will only be about half of that projected due to the loss of ticket sales. Many teams will already be in debt to the tune of this years income and will have no money to continue and prepare for 2021.

      1. Neville Litterick
        25th June 2020, 13:34

        I often wonder what the unintended consequences of decisions to influence market forces will be. Even Bernie Ecclestone was short term in his thinking, always going for the quick and now, rather than having a love of Motorsport in the long term. And here we are, reaping the “benefits”.

  8. McLaren sounds like a mess. Seems like some playground for shareholders rather than anything remotely solid, and half of what I just read went so far over my head it’s not even funny. Sigh.

  9. This has been suggested in previous articles on the financial woes of various teams, but I’ll make the point again – why are the teams not just paid equal amounts of money from the kitty? Between them, the ten teams received ~$1B in payments from Liberty in 2019. If they were all paid $100M, it would still not cover the cost cap, so the teams would still have to find other sources of funding, but an equitable split would mean that the teams nearer the back weren’t spending half of their time desperately trying to get every little bit of cash they could. As a result, they might be able to develop some level of organisational stability (they would be more able to put staff on decent, longer-term contracts and wouldn’t lose them to the bigger teams as readily), and therefore they might be able to develop some institutional knowledge.

    The big front-running teams would still want to win (obviously), and they would attract sponsorship easily anyway because sponsors would want to be associated with winning teams, but it could even the playing field somewhat. It’s not even a particularly radical idea – the NFL in the US, or the AFL in Australia have a similar system in place.

    I know the answer to the question – the big teams have disproportionate power in negotiations, and they influence those negotiations in their own favour to maximise their short-term benefits. But at what long-term cost?

  10. What a brilliant yet devastating report!

    But based on this report I can’t blame F1 money distribution as the main culprit of McLaren downfall. If you had raised £800m in two years but there’s £650m in dispute, nothing can save you.

    1. I did make the point that the Automotive side was the big drag. If you took the F1 team in isolation and have it the $500m delta that Ferrari earned it would be solvent. So would Williams if you have them the $700m delta to Ferrari. Same applies to all others.

      1. @dieterrencken

        It isn’t 500 million extra to Williams if you share it evenly.

        I find the rest of the argument hard to accept as well. It isn’t a sign of something bad if F1 teams aren’t making big profits from racing. They shouldn’t. If they can’t leverage their F1 presence commercially that’s going to mean they can’t compete at the top end – just as it is in any other sport where money talks.

        That said, the revenue sharing has been set a certain way and could be changed. It’s perfectly plausible it isn’t optimal and needs adjusting. But the arguments presented here amount to nothing more than saying everyone should get equal revenue shares, and that’s not how proper sports work: there’s a reward for winning.

        1. I did not say that at all – you really have a problem reading what is written. What I have consistently called for is an EQUITABLE structure – not an EQUAL structure – with performance-linked prize monies and without ex gratis bonuses paid to the chosen few.

          In other words: if Haas wins the championship it gets the same money as Ferrari would if it won the title. That is not the case at present: If Ferrari finished 10th and Haas won the championship, Ferrari would still get more money than the champion.

          Please read articles before making assumptions or false claims, as you also have in other threads. Thank you.

  11. McLaren sounds like an even bigger house of cards than initially thought. Was it already in such a state when Dennis was still leading it?

    Their automotive program was very ambitious and very optimistic, in thinking that they could emulate the Ferrari program within a decade…

  12. Dieter,you’ve forgot to mention one team, namely HRT which has also come and gone.

    Besides that, good article.

    1. HRT folded before the current bonus structure was introduced and hence was excluded. The team withdrew end-2012 and bonuses came into effect 1 Jan 2013

  13. It’s a shame these two teams have this problem. They are very important to Formula 1, not as much as Ferrari which has an unparalleled fan base worldwide, but beyond popularity sportingly its extraordinary past cannot be denied.
    In my opinion the problem has always been the staggering way in which the owners of the category (the English pirate before, the cowboys Yankees now) have distributed the enormous profits.
    Until this system is not transformed into one that pays all teams a reasonable and equal sum plus some bonus to teams that have a great historical heritage; but a reasonable bonus, more as a tribute than anything else.
    Will we see something like this in the short term?
    Frankly, I don’t think so.

  14. while the rest could stand accused of failing to fight their corners by, at the very least, challenging the contracts on offer, whether in court or via EU Commission structures

    Didn’t Force India try this with the EU commission and got nowhere?

    1. Far too little way to late – Force India and Sauber started the action in 2016, four years into the deal, then withdrew it when Liberty acquired the rights on the basis ‘cooperation’. By then Sauber had changed hands and Force India was on its knees.

  15. George Bowling
    25th June 2020, 1:20

    BE has long been the problem; alleged bribery, corruption, bullying and admiration of Hitler. The teams let it go for the money and fame, showing little integrity.

  16. A great article.

    We’re also reminded that as yet, no new commercial arrangements have been put in place, so whilst it’s great that a proper budget cap has been agreed upon and signed off, it will be useless if the commercial arrangements are so woefully low sided.

    Until those arrangements are sorted, no team, including the top ones, can afford to think that they have a future in F1.

    As for Williams and Mclaren specifically, I really believe that part of their problem was that early on, they believed they’d be back at the top after a year or so, because up until around 2007/2008, they were reasonably competitive. They just failed to realise how far behind they had, or were, fallen and didn’t really understand the sheer difficulty in clawing that back, because it was something that they’d been able to do relatively easily prior to that.

  17. “Force India was bought out of administration by Racing Point”: the tangible assets (less holding company) of FI were purchased from the administrator & are run by a brand new off the shelf company while still retaining FI’s historic rights. Has Haas’ objection to this been settled? It sets a terrible precedent.

    Of the current 7, non-top 3, Williams have a side deal (heritage), McLaren must have something (otherwise their current financial mis-management would be a drop in the ocean compared to dropping that ball) & didn’t Renault negotiate something on their return? Suddenly it’s 4: 2 (maybe 3 with Haas?, 4 with shadowy Tetra Pac owners with AR Sauber) of whom are owned by billionaires. Where’s the problem? Pay your own way or get out. Manor/HRT/Lotus-Caterham/US F1 were bound to fail when Max reneged on the budget cap, and should have bailed at this point if they’d been acting in the interests of their shareholders (which is every company’s legal duty).

    F1 isn’t obligatory; I’m getting a bit bored of the have nots bleating about how it’s so unfair. Emotional attachment is 1 of the biggest mistakes an investor can make. Numerous zombie companies were kept afloat in the 2008-9 financial crisis when the economy would have been healthier if the finance & HR talent keeping them chugging away (value trap) had been released into something new with prospects. Look at how McLaren had a new lease of life under Ron.

    1. It would make it lot easier if you read the full article (plus other reports we’ve written) before commenting: the Williams lowly bonus is reflected as is McLaren’s – and the backgrounds outlined. Renault’s deal kicks in IF they win two titles in five years which was always unlikely and can’t now happen in any event.

      Sauber’s sale was also covered and Haas was a late joiner to the party. As for Racing Point/Haas – as we have variously reported, the matter is heading for arbitration. However the issue has nothing to do with bonus payments, and is a case for administration lawyers.

      As for ‘fairness’ – all the so-called ‘have-nots’ are asking for is a level financial playing field: I provided the example of Williams beating Red Bull to third yet receiving $60m less than the fourth-placed team. Did you actually see that? You call that fair?

      You’re right: F1 is not obligatory, just all things in life bar taxes and death are not obligatory. But when 75% of the grid in a business profitably turning over $2bn per annum has financial issues something is seriously wrong.

  18. Thanks for a great article @dieterrencken

    One thing that strikes me about the budget cap is that it’s actually singularly unhelpful to bigger teams like McLaren. It forces them to reduce spending in the one area where they can improve performance (and thus earn more in winning, bonuses, and potential sponsorship) while doing nothing to reduce the overall spending of the associated group. That reflects the inflexibility of a large organisation which has relentlessly expanded during the ‘boom times’ while making no preparation for the possibility of a downturn. For whatever reason, McLaren has failed to come up with competitive performance in the last decade, and they’ve fallen into that zone where failure contributes to failure, with them now unable to attract the best talent either on the driving or engineering side, which then means they can’t attract backing from individuals or corporate sponsors. A vicious death-spiral.

    What does strike me though, is that Ferrari have earned over three times as much in bonuses than McLaren during a period where neither team has won a single championship. Indeed, Ferrari have received more in bonuses than the two teams who have won every single championship during that period. The regular cash injection flatters to decieve, when surely Ferrari have underachieved just as badly as McLaren when you consider how well financed they’ve been.

    McLaren are trapped in a situation where they’re unable to make big changes to their business model without hitting the nuclear option on their automotive business, selling the technology centre, and retooling as a lean, racing-only organisation.

  19. Mr. Dieter Rencken, Sir, this has been the best report I have read for decades about F1. Thank you for your competence, and honesty.

    1. I’m pleased you enjoyed it, thanks

  20. Ron Dennis must be smirking at McLaren’s situation.

  21. Possible solutions – or partial ones:

    A claiming rule, as in MotoGP – no point in spending too much.
    Open meetings – in which anyone can rock up, get scrutineered, and (try to) qualify.
    Inverse incentives – such as allowing lower-scoring teams to add more fuel or downforce.
    Free to air TV – teams can once again get sponsors!

    If F1 is to survive, it must change. The racing has been lamentable (mostly), if not contrived, for years. We may as well make it contrived in a way that is more entertaining and sporting.

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