Why the timing wasn’t right for an Andretti-Alfa Romeo F1 deal

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Andretti Autosports’ latest attempt to acquire a Formula 1 team has hit a roadblock. The US-based company headed by CART Indycar champion and former McLaren F1 driver Michael Andretti – son of 1978 F1 champion Mario – filed a bid for Force India in 2018, held tentative discussions with Haas and is said, by sources with knowledge of the talks to have submitted an offer to acquire 80% of Sauber, currently racing as Alfa Romeo.

The same sources now indicate any deal is off the table after talks broke down, allegedly after both parties encountered a number of ‘red lines’. Thus, it is back to square one for Andretti. Sauber remains in the hands of Islero Investments, a subsidiary of Swiss-based Longbow Finance, which acquired the company by default after converting debt accumulated by the previous management to full-blown ownership.

Crucially, Longbow had not planned on becoming an F1 team owner; nor, though, does the deep-pocketed finance house need to exit Sauber at any cost, particularly after making substantial capital investments in stabilising the company and upgrading the team’s facilities in Hinwil, outside Zürich.

For his part, Andretti sought the ‘right’ opportunity, indicating he was not prepared to enter F1 at any cost. In 2018 Andretti bid 25% of the eventual price for Force India, which provides a pointer to what he considers to be the ‘right’ opportunity. These are just some of the key differences between the parties.

Michael Andretti, IndyCar, 2021
Andretti is looking to return to F1 as a team owner
Under the 2013-2020 Concorde Agreement – which defines the relationship between F1, its competitors and the FIA – an average of one team per year either changed hands or folded completely. Yet apart from recent flurries of excitement surrounding a potential Sauber/Andretti deal it has been all quiet on that front this year, with good reason. The teams’ 2021-2025 deal with F1 provides a more equitable revenue structure and streamlined governance process, both which improve the lot of independents.

The latest covenant includes the much-derided and disputed ‘anti-dilution’ fee clause, which artificially boosts team values by demanding that newcomers pay a $200 million (£146m) fee to the current teams to join a ‘franchise’ they don’t even own (!). Thus, the only realistic option for a wannabe F1 team boss wishing to enter before 2026 is acquire an existing team at a premium.

That premium only applies, though, if somebody is daft enough to pay well over the odds given that the fee is likely to be scrapped from 2025. What had been a buyer’s market until the end of last year quickly became no market. Budding team bosses are biding time, ready to invest that $200m in their own teams for 2026 – four years away, a blink of an eye in F1 terms. Why waste $200m on a clause that could prove temporary?

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The 2022 F1 season also sees the arrival of new technical regulations and the first cars designed under the budget cap with less complex (cheaper) technologies. While it is impossible to predict who will get 2022’s regulations right, conventional wisdom has it that there is less scope for teams to get it wrong. The spectacle should improve and income with it, and the teams’ values should increase. Hence Longbow’s belief that Sauber has untapped worth.

Any potential buyer of Sauber also faces complexities created by the team’s location in a non-European Union country with stringent labour laws and one of the strongest currencies in Europe. Ironically, a country that not only bans non-electric circuit racing, but has no established automotive or motorsport industries to call upon.

Sauber’s team has been branded as Alfa Romeo since 2019
True, since the beginning of 2021 UK teams are now based in non-EU territory, but they can rely on an extensive supplier network nurtured over many years and draw on a broad pool of personnel able to chop and change teams without having to worry about relocating their families. That labour pool also has considerable depth due to the large numbers of feeder series teams operating out of the UK.

Attracting experienced (mainly ex-UK) F1 staff to Switzerland is no easy task as employees either need to commute on a weekly basis or uproot their families. Once there they are less likely to be poached, but the trick is getting them in the first place. Equally, various British universities offer motorsport degrees of some kind – Switzerland offers little to none of the above, and thus has less homegrown talent.

While average wage rates do not apply to F1 payrolls, they provide pointers about expectations. The UK annual average runs to £31,000; in Switzerland it is the equivalent of £48,000, 50% higher. Clearly labour input costs – whether within the factory or for locally sourced items – are substantially higher, while items sourced by Sauber from traditional UK-based F1 suppliers face duties.

Yet Sauber’s prize money and sponsorship income are paid in F1’s universal currency, US dollars – and more so for Andretti, who would target American partners. These currency factors complicate what is a challenging business environment; Andretti, used to liberated US markets, could do without such distractions. In addition, Alfa Romeo remains unknown in the USA, yet Sauber signed a multi-year extension with the brand.

Against that background the wonder is not that any talks have broken down between Andretti and Sauber, but that they were initiated in the first place. There are few doubts that the Andretti name will eventually make the move into F1; there are even fewer doubts that Sauber will be sold – but both parties are likely to hang about for a while given that F1 is neither a buyer’s nor a seller’s market right now.

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17 comments on “Why the timing wasn’t right for an Andretti-Alfa Romeo F1 deal”

  1. How hard is it to change a team’s base of operations? It might be financially profitable in the long term to ‘rebase’ Sauber.

    1. The infrastructure can’t be moved – for example the wind tunnel. Probably a lot of the work force wouldn’t want to be working under an american working contract compared to a swiss one. Also a lot of supplier are based in Switzerland. So you would basically create a new team. Overall you need close to 1 billion to create a top notch team.

    2. @aapje Moving literally everything an F1 factory houses to another location, especially a different country is easier said than done. Not like a person moving from one house to another.

    3. It would mean they would throw away all of the infrastructure that is one of the advantages of investing in an existing team if they do that @aapje, and off course it would mean a large chunk of the employees who are based in Switzerland would jump ship, so you would start at a new base, with new infrastructure and equipment and a largely new crew.

      That doesn’t look like a good idea, you could just as well start a new team from scratch then.

  2. The next poll should be whether or not F1 will get an 11th team or be down to 9 teams in the near future.

    1. Considering the generally optimistic view this article presents, which is that the 200m fee will be scrapped in four years time, along with the cost cap, I feel like we should wait and watch. We might soon see some new teams.

      1. @major-dev The cost cap won’t get scrapped. I don’t see any implication, even an indirect one, in the post.

        1. I should have phrased myself better. I meant the scrapping of the anti-dilution fee, along with the fact that the cost cap is making things much easier for smaller outfits, means that we should wait and watch. Ofcourse that assumes that the fee will be scrapped.

  3. I would not take Andretti’s “25%” Force India bid as a measure of his commitment to entering F1. When buying a company out of bankruptcy, the bid itself is the tip of the iceberg on the total investment. Stroll paid $117M for the team by the same measure. But look how much he has plowed into the team since, with the cash put in, the $270M capital build-out, the extra 400 employees he has/plans to hire. Add it all up over 7 years and it dwarfs the bid price.

    1. He actually had paid substantially way more for Force India, its funny how it’s not mentioned in articles but Stroll had to inherit Force India’s massive debt that came with it and he had pay off, the debt total was more than the listed purchase price. The total actual amount paid for the team depends on how well he negotiated the amounts needed paying off to settle the debt.

      Then add the amount you listed he’s invested afterwards upgrading the team. I haven’t always been a fan of the Stroll family in F1 but you have to hand it to him for raising that kind of money and committing that much to the team. This SHOULD make Aston Martin a competitive team and on the grid for a long time to come which is a good thing for F1.

      Creating a brand new full featured competitive F1 team (mid field) from scratch, plus entry fee would probably be around $1.2+B (if they’re lucky) plus 3-4 years getting it ready (non competing) before it’s first FP1.

      I believe Andretti was way overly optimistic to buy and sustain a proper F1 team like Sauber with what funds he had available.
      The monies needed for running an F1 team is crazy, crazy high whether its in the UK or Swiss (even more so). Especially when you don’t have a good paying primary sponsor signed up willing to pay market F1 advertising prices. I applaud Finn Rausing’s request to Andretti to prove/guarantee he has the adequate funds to sustain the team at the very minimal level which he did not.

      I hope Andretti does make it to F1 but only if he can be competitive on a regular basis (and not like Haas) and can sustain it financially for many years to come and not become another HRT team. That is no easy feat.

  4. Why not set up a new team? I can see it will take time to get the people and infrastructure, but wouldnt you save a huge amount and also get other advantages? Red Bull says that it costs about the same setting up an engine production facility as buying engines, and can do it in a year for example.

    1. Setting up a business from scratch is never easy. Red Bull already has a functioning team and a proven engine.

    2. Why not set up a new team?

      @balue Creating a brand new full featured competitive F1 team (mid field) from scratch with it’s own infrastructure like a typical F1 team (mid group), plus F1 entry fee would probably be around $1.2+B cash at the minimum after it’s all said and done (if they’re lucky), plus 3-4 years of time needing to get it ready (non competing years & no prize money) before it’s first actual FP1. Then don’t forget the needed extra $100m hard cash sitting in your bank to pay all the running expenses of an f1 season or two before you start receiving any prize money to fund the team. Initial investment payback is a very long term commitment that very few investors would be willing to take.

      This makes it a total no brainer to buy an existing team (not Haas) at a huge discount that is immediately ready to properly compete and generate income; and bypassing the needed huge startup money and 3-4 years of no income and the $200m buy in entry fee.

      But I hope someone steps up and does that. We could really use 22 cars on the grid, plus there’s no lack of driver talent to fill those seats.

  5. If Gene Haas is looking for a way out, Andretti would be a logical solution, backed by Mr Uralkali.

  6. From 2025 Keep and rigorously enforce the budget cap, lift restrictions on technological advancement on engine and chassis and get rid of the stupid 200 million dollar buy in fee. Give new teams unlimited testing until they start to consistently score points.

  7. Whatever happened to the Lotus/Caterham factory? Andretti could look there for 2026.. Or he could do a similar deal to Haas/Ferrari/Dallara. They could share parts and resources cutting costs some more.

  8. Another possibility to consider:

    Andretti was looking for an opportunity if one presented itself. The fact he was willing to walk away indicates to me it was an interest not an imperative. It could have been more of a fact-finding mission than anything else to gauge what it would take to enter F1 as either a buyer or as a new entrant. I think this was a probe, not a thrust.

    If I were to enter F1, I would base my team in the UK and outsource as much as possible to the extant motorsports infrastructure there. That would enable a team to get up and running without all the logistical headaches of being based on the Continent. That may be the plan for Andretti down the road. He may be able to play a waiting game for now by seeing how things shake-out beginning next year.

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