MCLAREN’S NEW INVESTORS
The deal, which will help the cash-strapped F1 team pay for much-needed infrastructure upgrades, also points toward the future for F1 itself
Who are they and what is the effect on Mclaren’s finances?
Shortly before tying up third place in the constructors’ championship at the Abu Dhabi Grand Prix, Mclaren announced the partial sale of Mclaren Racing to a Us-based investment consortium for £185million. Under the terms of the deal, which values the company at £560m, the consortium will take an initial stake of 15%, growing to 33% by the end of 2022.
MSP Sports Capital is the lead investor, along with The Najafi Companies and UBS O’connor, a subsidiary of the Swiss bank which offers wealth management services, including hedge funds. There is some overlap between the investors – Jahm Najafi is a partner in MSP as well as being the founder and owner of his eponymous private equity company. And all three entities enjoy prior connections with Mclaren Racing CEO Zak Brown via Just Marketing Inc, the agency Brown founded in the 1990s and sold to CSM in 2013. JMI had a number of clients in NASCAR, where Brown met MSP founding partner Jeff Moorad, owner of the Hall Of Fame Racing team; Brown also tied up sponsorship accounts for JMI in Formula 1 with UBS and Rexona, an antiperspirant brand ultimately owned by Najafi.
Moorad made his name – and the beginnings of his fortune – as an agent representing players in Major League Baseball in the 1980s; he and his then business partner Leigh Steinberg also acted as ‘technical consultants’ on the movie Jerry Maguire, and were reputedly the inspiration for the main character. Moorad has owned stakes in the Arizona Diamondbacks and San Diego Padres, buying (relatively) low and selling high on each occasion. More recently he has owned shares in companies specialising in sports events, travel and betting. MSP Sports Capital has also invested in second-tier football teams in Spain and Portugal.
While Najafi’s career encompasses a stint on Wall Street, his Iranian-american family’s wealth stems from prudent real estate investment during the boom years of the 1980s and 1990s. The Najafi Companies was initially set up as a subsidiary of the family business, the Phoenix-based Pivotal Group; its modus operandi was to scoop up undervalued companies, restructure them and establish profitability, then sell them on to other investors. One of its most significant trophies was the web services company Network Solutions, acquired by Verisign for £21billion in March 2000, just weeks before the dotcom bubble burst. In October 2003 Najafi, then known as Pivotal Private Equity, relieved Verisign of the majority of the business for a reported $100m, selling it on to General Atlantic (a venture capital company) for a reported $800m four years later.
The parties of the first part therefore have form in spotting companies which are, in some form, down on their luck. Mclaren Racing has been the lame duck of the Mclaren Group for several years on account of its poor on-track performance, reflected in diminishing returns from the F1 prize pot. Rather than generating revenues it was propped up by other companies in the group, notably Mclaren Automotive. But the onset of the COVID-19 pandemic shut production down and hobbled sales, precipitating redundancies across the group and a wholesale refinancing of the business.
It has been known for some time that Mumtalakat, the Bahrain sovereign wealth fund which has a majority stake in the Mclaren Group, is looking to reduce its shareholding. One of the contributing factors to Mclaren’s financing problems last year stemmed from the expulsion of Ron Dennis in 2016; to buy out his shareholding, Mclaren took out loans leveraged against assets including its historic car collection, forcing it to look elsewhere when it needed cash urgently in mid-2020.
It was as a guest of Mumtalakat that Moorad attended the 2019 Bahrain Grand Prix, where
Mclaren vice-chairman and Mumtalakat board member Shaikh Mohamed bin Isa Al Khalifa reintroduced him to Brown. At that point Moorad had already been involved in trying to buy Force India out of administration, and more recently he was connected with the sale of Williams.
“It [Force India] was a good education for us, frankly in retrospect, in getting to know the sport a bit,” Moorad said in a Zoom call with media after the Mclaren deal was announced. “We had a much less serious interest in Williams, but certainly took a look.”
What’s interesting about the deal is that the new money will go not to servicing debts but to fund the many capital projects underway at the MTC, including the replacement of the obsolete windtunnel (which has not been used for the F1 programme since 2013), as well as the similarly obsolete driver-in-loop simulator. The announcement was also at pains to point out that Mclaren Automotive is not part of the deal; last September, Automotive boss Mike Flewitt alluded to a stock exchange float forming part of the exit strategy for investors in that business.
Moorad will sit on Mclaren Racing’s board of directors and Najafi will become vice chairman, indicating a deeper strategic involvement in the future. They have experience, through previous investments in sports franchises, of the financial model enshrined in the new Concorde Agreement. As F1 moves closer to the American model of teams-as-franchises, this investment could usher Mclaren towards the front of the grid in more ways than one.