Liq­uid­ity is es­sen­tial to all teams’ fu­tures

F1 Racing - - INSIDER - DI­ETER RENCKEN

to man­u­fac­ture en­tire cars in-house) while dis­pro­por­tion­ately dis­ad­van­tag­ing those in most need of ex­ter­nal sourc­ing.

Overnight, ru­mours sprang up of teams not meet­ing pay­roll, or gas bills be­ing in ar­rears. F1 be­ing F1, such woes were im­me­di­ately broad­cast to the wider world: in one in­stance, in­ter­nal mem­o­randa sent to team per­son­nel ad­vis­ing them salaries were de­layed landed in the hands of ri­vals within ve min­utes, and were on the in­ter­net 30 sec­onds later.

This set in mo­tion a vi­cious ‘run’ not dis­sim­i­lar to that ex­pe­ri­enced by banks: spon­sors and sup­pli­ers got edgy about their in­vest­ments, and thus sought re­as­sur­ances be­fore mak­ing the next pay­ments, re­sult­ing in fur­ther slip­pages as pres­sure on cash ow (and thus per­for­mance) tight­ened. Still the sit­u­a­tion was man­age­able. Un­til com­mer­cial rights holder For­mula One Man­age­ment pub­licly shared the nan­cial woes af­fect­ing the back­end. Lines of credit im­me­di­ately dis­ap­peared for those in most need of nan­cial sym­pa­thy.

The re­sult was pre­dictable, as borne out by the ad­min­is­tra­tions of Cater­ham and Marus­sia, with the lat­ter’s per­fectly il­lus­trat­ing the point: at last count Marus­sia owed £30m to cred­i­tors and lacked the liq­uid­ity (and credit) to travel to the nal three races, even though they were due at least that from the share of 2014’s ‘pot’ – rev­enues di­vided up by all qual­i­fy­ing teams.

Non-ap­pear­ance caused po­ten­tial spon­sors and in­vestors to shy away. Who, af­ter all, would sink mil­lions into a sink­ing ship? This fur­ther tight­ened the noose. Thus two teams with all fa­cil­i­ties re­quired to go rac­ing in a sport turn­ing over well over a bil­lion pounds a year face ex­tinc­tion through lack of cash ow.

The fall-out has been hor­ren­dous: sup­pli­ers have been forced to down­size, or have gone into liq­ui­da­tion. Two broth­ers, each of whom sup­plied one of the two ex­tinct teams, are on the brink of los­ing their re­spec­tive houses af­ter a com­bined 30 years in the busi­ness, while var­i­ous small busi­nesses on the cred­i­tors list re­ported bleak Christ­mases. Vi­tal links in the sup­plier chain stand on the verge of col­lapse.

The top end, too, has been hit: Fer­rari and Re­nault are each owed around £15m for en­gines, while one blue-chip team said they had been asked by long-stand­ing sup­pli­ers for cash up­front for ser­vices – not be­cause said busi­ness did not trust the team, but be­cause other (F1) cus­tomers had re­neged on pay­ments such that said sup­plier was un­able to meet com­mit­ments and was in dan­ger of closing. Had the team not ac­qui­esced, a cru­cial link in F1’s sup­ply chain would have been lost…

Worse, spon­sors and sup­pli­ers view the sharp end with jaun­diced eyes, wary that de­pleted grids will fur­ther re­duce the sport’s di­min­ish­ing global pop­u­lar­ity and set fur­ther teams on a down­ward spi­ral. To suc­ceed, F1 must not only be suc­cess­ful, it must be seen and be said to be suc­cess­ful.

In no other busi­ness sec­tor would prin­ci­pals so read­ily and openly crit­i­cise their sup­plier base – and, in purely busi­ness terms, teams are ven­dors to the com­mer­cial rights holder, which packages their ser­vices into a mar­ketable en­tity – yet for more than two years now, FOM has den­i­grated its pri­mary sup­pli­ers, sug­gest­ing some sort of strat­egy may be in place to re­duce grids to just eight teams of three cars each.

In the process, the com­mer­cial rights holder risks re­duc­ing the sta­bil­ity of F1 by over­look­ing the ba­sic tenet that liq­uid­ity is oxy­gen to busi­nesses large and small. So the mes­sage is clear: be care­ful what you wish for, FOM…

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