Liquidity is essential to all teams’ futures
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…