Saving Force India: How team pink came back from the brink

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Through Formula 1’s off-season the fate of over 400 Force India employees, a team which had raced in F1 for 27 years, and two of the 20 cars on the grid, hung in the balance.

How did it come to this? How close did the team come to going under before being pulled back from the brink? And did a hasty deal to keep them racing leave unresolved contradictions which could cost F1 millions?

New documents from the administrators and behind-the-scenes developments in the F1 paddock yield some answers.

The report released by administrators FRP Advisory, appointed to restructure Force India and prepare the team for sale, makes for fascinating reading, not only for its wrap of the process, upon which we reported extensively – from revealing Sergio Perez’s key role in the process, through the granting of a mid-season FIA licence, to the latest legal challenge by Uralkali – but for the peeks behind the scenes it provides.

In short, the report illustrates how (not) to manage a team, for an insolvent entity will soon fade from F1’s entry lists. Thus the primary objective of any F1 team should be survival, not winning (whether races or titles), which is secondary. True, on-track success usually begets commercial success, but the bankrupt don’t race – and thus tight management controls are paramount.

Saliently, FRP’s report details that Force India, incorporated in 1989 as Totas Euroservices Limited by Eddie Jordan, ultimately changed its name five times – each time after a financial crisis. This seems to be the way in F1: of the current 10 teams, just two are still majority owned by their founders: Williams and Haas, with the former now being a listed entity, and last-named only in its third season.

However, in contrast to public comments made by then-team principal (and 42.5 per cent shareholder) Vijay Mallya, the report reveals that Force India knew it was in deep trouble well before it entered administration on 27 July. On 30 May the company approached FRP to provide advice on short-term funding, the team’s relationship with primary sponsor BWT, and the practicalities of running the team while in administration.

As part of the process, a potential sale of the underlying business and assets as “a going concern” was discussed – crucial given the eventually outcome – with three potential purchasers identified and deemed sufficiently credible and able to support the team going forward. The catalyst for the meeting was a looming winding-up order from Her Majesty’s Revenue Collection for non-payment of Pay As You Earn tax and of employee deductions.

MIchael Andretti
Michael Andretti was among prospective Force India bidders
Although the potential buyers are not identified, it is thought the trio consisted of the (ultimately successful) Stroll consortium, the Uralkali/Mazepin syndicate, and a group of investors assembled by Michael Andretti, son of 1978 F1 world champion Mario, and a successful IndyCar racer and team owner.

Following completion of the administration process, the company known as Force India Formula One Team Limited will eventually be liquidated. “It is currently estimated there will be sufficient funds available to pay all creditors in full,” FRP reported. While that is reassuring for many within the F1 community, the list reveals that the company’s management had clearly prioritised certain suppliers.

For example, Toyota Motorsport is owed £2,200, while two photographers are due around £20,000 each, some of it extending back 90-plus days. One provides crucial wind tunnel services coming in at £100,000/hour, and crucial to the team’s performance; the other clearly rank lower down the food chain. It follows that Toyota were kept sweeter than snappers, as was Pirelli, which does not even appear on said creditors list…

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Liberty subsidiary Formula One World Travel’s debt of £22,000 for supply of travel and accommodation is listed as current, while the Montreal Intercontinental (£5,000) has been outstanding for over 90 days, probably on account of the fact that F1 is not due back in Canada until June next year, which is the earliest the bailiffs could make a grab. Ditto Granollers Hotel, owed a paltry £2,000 since March testing.

The largest debt by some margin is £13.5m owed to Daimler AG and various Mercedes subsidiaries – for engine and ancillary supplies – yet ‘just’ £2,5m stretches beyond 30 days, with the bulk being current at time of administration, This, incidentally, chimes with comments made by Mercedes Motorsport CEO Toto Wolff in Hungary, who said the main debt was semi-current, with outstanding sums being manageable.

Mercedes, Suzuka, 2018
Mercedes was Force India’s biggest creditor
Clearly, though, alarm bells had begun to peal loudly in Stuttgart by that stage, for Daimler robustly supported the administration application brought by Brockstone Limited, Perez’s management company. However, in mid-June, well prior to this intervention, HRMC had applied for a winding up order – supported by German composites contractor Formtech, owed over £2m.

Although the HMRC claim was settled, Formtech remained unpaid, so the winding-up petition was not withdrawn. Thereafter it was a matter of time before it all unravelled: on 1 July primary sponsor BWT terminated its contract, while Brockstone, owed £4m for over a year, lodged its application on 20 July.

At that point in time the team had just £240,000 in cash reserves, and once Santander got wind of the court action, the bank froze all team accounts – highly inconvenient in the run-up to the Hungarian Grand Prix, at which considerable costs would be incurred, and a week before the (pre-summer break) end-July payroll run. It was time for action, and hence Brockstone’s (successful) application on 27 July.

Perusing the creditors list, though, raises interesting questions. Given the number of paddock folk and companies owed anywhere between a few thousand and upwards of half a million quid, why weren’t the team’s financial issues flagged, particularly after Mallya said all was well? The likes of Red Bull Technology, Travel Places and Riedel Communications are all owed amounts stretching back to April, yet kept shtum.

What happened after administration was granted is highly illuminating, for clearly the team faced immediate closure unless sufficient funding was raised to meet its July/August payrolls, the ongoing car preparation costs for Spa and Monza, operating costs at both events and ensuring that crucial factory shut-down maintenance could be completed.

The amount required? A not-inconsiderable £9.6m. Given the team’s annual budget of around £100m, a figure equally a tenth, or roughly equal to a month’s racing in a 20-race season, seems about right. But where to source such funding urgently given the team’s history and the fact that no meaningful revenues were due during August, particularly given that BWT had triggered its exit clause a month earlier?

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Inexplicably, though, BWT provided an unsecured (note) £5m loan. This being the same BWT that cancelled its sponsorship deal in July and subsequently advised the administrators of a material claim; the same BWT that supported Brockstone’s application; the same BWT that previously lent the team £1.25m to assist with cash flow; the same BWT whose pink livery remains on two Force India cars lent the team five million…

You couldn’t make that up, yet it happened…

With £5m in the bank, the administrators could commence the restructure and sales process. In total, 20 expressions of interest were received, eventually whittled down to five credible parties. Of these, one – by implication, the Stroll consortium – made an offer for the team as a “going concern”, whereas Uralkali confirmed to RaceFans (in Russia) it had considered this to be unfeasible, so bid on an “asset sale” basis.

Lawrence Stroll, Singapore, 2018
Stroll won the race to take over Force India
Then Lawrence Stroll, a billionaire by virtue of building and listing brands such as Tommy Hilfiger and Michael Kors, played a trump card: His consortium provided a key loan of £15m to enable FRP to square with BWT, and settle urgent debts. Forget not the August payroll, roughly £2.2m gross (£1.3m net), was due three weeks hence, and there were fears key personnel would (understandably) seek alternate employment.

Thus the Canadian fashion billionaire, who had assembled an impressive team of co-investors, jostled his way into pole position, effectively being granted first refusal on the team, an option he duly exercised on a “going concern” basis.

As detailed here, that option could not be completed due to the intransigence of, amongst others, 13 Indian banks, so the sale was hastily switched to an asset-based purchase – a process currently being disputed by the Uralkali syndicate, and said to be challenging FRP’s decision in the courts.

However, Force India’s payroll provides an interesting insight into the costs of running an F1 operation: We know, for example, that the company employed around 400 full-time staff at time of administration; hence an average monthly salary of £5,500, or £66,000 per annum (excluding bonuses).

We can safely assume that Force India could not afford top dollar wages, whereas Mercedes F1, situated just 10 miles up the road, has a flush parent company, receives massive F1 bonuses and is sponsor-rich – so the average wage is likely to be 10 per cent up, so around £72,000 per annum (£6,000/month), before win bonuses. We also know from company filings that Mercedes F1 employs 800 heads, so simple mathematics point to a monthly payroll of £4.8m or £57.6m before bonuses. That pans out at nearly £60m in wages, to race two cars for two hours on 20 Sundays, or £1.2m per hour. Expressed differently, That equals a wage bill of £3m per grand prix, or £50,000 per lap completed, assuming both cars finish…

How Force India found itself in this predicament is easily explained: When billionaire industrialist Mallya acquired control (85%) of the former Spyker team, his intention was to use the team as platform for his various brands, including Kingfisher Airline, a lager going by the same name, and various spirit labels. Funding shortfalls were met by internal transactions: loans dressed as sponsorship.

He sold half his holding (42.5%) in the team to compatriot Subrata Roy, with the Dutch Mol family holding the balance. No sooner had the transaction been completed than Roy was arrested to answer allegations of suspicious money transactions. Concurrently, the airline went under.

Vijay Mallya, Silverstone, 2018
The British Grand Prix marked Mallya’s final appearance as team boss
With banks and other creditors circling on Mallya to recover their loans, no brands to punt, his partner in jail, and the Mols unwilling (or unable) to chip in, the team increasingly slipped into the red, despite finishing fourth in the championship two years on the bounce. To remain competitive Mallya put expenditure ahead of funding, with the shortfall for 2017 alone being £31m, and accumulated losses to the end of 2017 being £270m.

Mallya had not grasped F1’s golden rule: stay within budget; put pounds before points.

Thus Lawrence Sheldon Strulovitch (Stroll) and partners – trading as Racing Point Limited via Racing Point Holdings Limited, both registered on 2 August – acquired the team for £90m on an asset sale. In addition, the syndicate was required to deposit £20m in an escrow account to meet future claims, a number of which are pending, including commission on the BWT deal, and another believed to be linked to NEC sponsorship.

Where to now? The team, competing as Racing Point Force India, continues to punch above its weight, and is on target to claim sixth in the championship despite its points having been reset when Force India Formula One Team Limited officially withdrew from the championship, with RPFI taking its place.

This caused dissent in the ranks of team owners over RPFI’s eligibility for F1’s so-called Column One money.

However, RaceFans understands that during the Suzuka weekend all teams were advised by Liberty that Force India would be receiving its dues from the end of September onwards, having forfeited August monies on account of being in administration during that month. The decision was allegedly taken after all teams allegedly signed “going concern” waiver despite the team being sold on an “asset sale” basis as per FRP’s report…

So when is a new team not a new team? When it inherits the former operation’s engine count, or when a suspended penalty doesn’t get handed down for a repeat offence on account of it being a new entity, or when it suits F1’s commercial managers to keep a team on the grid?

Although Guenther Steiner of Haas, which did not qualify for Column 1 monies for two years on account of being a new entity, refuses to comment, the odds in the paddock are that he will push for at least £45 million in back payments, being two years of Column 1 monies. Imagine what that would do for the US-entered outfit’s competitiveness.

All in FRP’s report, illuminating as it is parts, raises more questions than it answers – which is about par for F1.

Follow Dieter on Twitter: @RacingLines

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Dieter Rencken
Dieter Rencken has held full FIA Formula 1 media accreditation since 2000, during which period he has reported from over 300 grands prix, plus...

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  • 36 comments on “Saving Force India: How team pink came back from the brink”

    1. Very illuminating.
      I think the reason people keep schtum is the fear that loss of confidence will send it under, when the entity might be promising they have a solution to keep going.
      Is there any information if the owners claimed any outstanding loans in the winding up process?

      1. In my experience when debts get overdue (particularly when the sums are chunky), creditors tend to try open a dialogue to try get paid rather than start sabre rattling and threatening the debtor with winding-up petitions. Reason being, if you gather information you can try work with the debtor to help them through their situation which will ultimately ensure you get paid.

        1. This is true. However, the sheer number of creditors here, combined with the tendency of F1 people to gossip like starlings at the best of times, makes it surprising that none of the journalists knew that this time was different to the other 12 times Force India was said to be about to go into administration (or worse) until the week leading up to the administration. The people who’d said it was going to go down were the same who’d been wrong on the previous 11 occasions, and the ones who were more cautious were just as cautious this time as the others. Usually, when things are about to collapse, at least one sponsor lets on that things are worse than usual…

    2. Great analysis. Pretty shocking to see that Mercedes were the biggest creditor and effectively pushed a fellow team over the edge.
      Am I the only one who thinks the engine manufacturers are the problem in F1? They overspend and force up costs, then block any changes because they’ve invested so much money (as if anyone else should care about massive conglomerates wasting their own money), and then have the nerve to still charge teams to use their engines.
      Engine manufacturers should be told that if they want to be in Formula 1, they have to supply their engines to any team that wants them, for free.
      And if they don’t like it they can all leave and Cosworth can build entirely road-irrelevant 1500bhp hybrid V12s for the whole grid, which is what we all want anyway.

      1. I think you got that wrong there @Olliej – it was not Mercedes that was pushing them over the edge. The team had been sailing closer and closer to that edge and had been riding it for several months already – the HMRC issue was there, Formtech wasn’t going to back off, BWT had cancelled their sponsorship but had loaned money to keep the ship afloat and there was no money in the accounts to pay salaries and cost to run the coming two races.

        1. Indeed – listen to Eddie Jordan interview with Tom Clarkson on the Beyond The Grid podcast, and you will realise that a key learning by EJ was not duly implemented or followed by the crooks that ended up in control some years later… that being, keep 10% off the top to invest later!!

          G

      2. Think the current engines are too expensive? Alain Prost indicated that his team’s engine deal in 2001 cost him $21m. Today’s engines are a steal compared to that given how much more complex they are.

        1. @geemac – but wasn’t that the era of profligate engine use? So the per-unit cost would have still been cheaper, wouldn’t it? Not to take away from your point, because I know you’re referring to the cost per season, irrespective of how many units that brought in.

          1. One can easily say that the reason the per engine costs in the present time are so expensive is because they are made to last longer, no?

            1. @deidunxf1 – true :-) Performance and reliability don’t come cheap.

      3. And who would pay Cosworth for developing those engines, produce them in sufficient numbers to supply several, if not all, teams, and to maintain them, @olliej? How would Cosworth pay for the staff required to do that + the staff going to every race to assist the teams?

        1. Dave (@davewillisporter)
          10th October 2018, 20:45

          Not only that, but the very DNA of F1 is engine and chassis not homolugated engine!

        2. @bakano, as you say, Cosworth definitely cannot fund development of those engines by itself – every single one of their more recent engines have been done on commission, and they have made it clear that, if anybody wants a racing engine, they’ll have to stump up the cash up front and will only get it if they keep up the payments.

          I might be mistaken, but I think that Cosworth aren’t even producing any racing engines at the moment – they were involved in the design of Nissan’s VRX30A engine for the ill fated GTR-LM LMP1 car, but I think that Nissan owns the design of that engine (and, even then, that engine has fallen out of use in the WEC). What was the last engine they built for use in motorsport before that – I guess it would be the CA2010 series V8 engine for F1?

          When you look at their website, they don’t actually mention any racing engines as being in development. Their main services these days are all electrical systems – telemetry logging systems, ECUs and the associated software mapping packages, ride height sensors.

          As for the comments about road relevance, that is actually the direction that Cosworth is going in – they’ve been focussing on the mainstream passenger market in more recent times, such as creating data logging systems for Chevrolet and Cadillac, whilst their future expansion plans are heavily focussed on autonomous road cars (logging and transmitting data from cars, creating collision avoidance systems and so on).

          They might have the Valkyrie engine under development, but their public development strategy shows that is probably going to be increasingly irrelevant to Cosworth in the coming years – as, indeed, is the vision that OllieJ is painting.

      4. @olliej, as others have noted, it was not Mercedes who pushed them over the edge – the article explicitly states that it was actually Formtech, a composites manufacturer (and owed a substantial debt of £2 million in its own right) that pushed the team over the edge by filing the winding up order. Did you read the article, or had you already decided to go on your rant before you got to that part?

        As for the idea that the engine manufacturers have to supply engines for free – you are complaining about the power of engine manufacturers, but then propose a rule that guarantees that only major automotive manufacturers could compete in F1? That seems incredibly counterproductive to say the least.

      5. I think it had reached the point where it was inevitable that someone was going to push Force India over the edge; the only question was who.

    3. Great article there @dieterrencken, really enlightening in which clues, hints and questions it lays bare!

    4. How does it feel being lied to by Mallya, Dieter? Not trying to be antagonistic, but do you feel annoyed, or do you feel it was the right course of action for him, in his circumstances?

    5. The largest debt by some margin is £13.5m owed to Daimler AG and various Mercedes subsidiaries – for engine and ancillary supplies – yet ‘just’ £2,5m stretches beyond 30 days, with the bulk being current at time of administration, This, incidentally, chimes with comments made by Mercedes Motorsport CEO Toto Wolff in Hungary, who said the main debt was semi-current, with outstanding sums being manageable.

      Also – how much (approximately) does a year’s engine supply cost, and how are the payment terms structured? A flat rate each month? A bulk payment for each pair of engines delivered?

      It is interesting to note that FI ran up a bill of £11m in just a month, which is why I ask.

      1. @phylyp, I believe that Wolff has previously mentioned a figure of £14 – 16 million a year, depending on the terms (such as whether the team is also buying supplies of lubricants and fuel and so on), although he did not discuss the payment terms.

        It is worth noting that Mercedes supplies quite a bit more than just the power unit though, as Force India also buy hydraulics systems and gearboxes from Mercedes – I think that they might also buy some components for their electrical systems from them too.

        1. Anon, thanks for pointing out the other listed parts that FI but from Mercedes, I’d conveniently forgotten that.

    6. Although he ultimately lost it, in all fairness Mallaya at least came in as a racer who wanted to be successful in F1…and basically has been for as long as Eddie Jordan, who founded the team initially. The same cannot be said of Midland or Spyker. Let’s see what Stroll & Co. can do.

    7. That was a really interesting read. Thanks in particular for the breakdown of the debt amounts.

      I have to mention however that the amount of your debt means little in the event of an insolvency of a company registered in England and Wales, what matters most is what class of creditor you fall into.

      Essentially, all creditors of the same class get treated equally. The general hierarchy for distributions on insolvency is as follows: firstly, holders of legal mortgages; secondly, holders of fixed charges and creditors with a proprietary interest in the assets; thirdly, the expenses of the insolvent estate (in this case, FRP’s fees); fourthly, preferential creditors (such as employees); fifthly, holders of floating charges; sixthly, unsecured creditors; and
      finally, shareholders (unluck Mallya, Roy and Mol family).

      So, for example, a creditor owed £10 who has a fixed charge would get paid ahead of an unsecured creditor, even if that unsecured creditor had a far larger claim. Luckily for Force India Formula One Team Ltd’s creditors, no one has outstanding security registered against it at Companies House so I assume all of the creditors are unsecured and will be treated equally.

    8. An interesting read. Also, an interesting synonym for silent ‘shtum’ is.

    9. I still have trouble understanding it all, but it’s fascinating to know all this show here, Dieter. I hope they do get the money they deserve, because it sets a precedent for future teams in trouble looking for rescue options. Thinking Manor would’ve benefited quite a lot if they were bought by someone that knew the money would come eventually.

    10. All this makes me wonder. Does the mol family still own a piece?

    11. Great article @dieterrencken . My follow-up question to you is why do you think BWT supplied the £5m unsecured note? It just doesn’t make sense, something doesn’t add up!

      1. Saw a note in another summary a few weeks ago that mentioned that it is common practice to structure sponsorship payments as loans with the provision that the “loan” would be considered discharged at some later time. Assuming that suitable terms or exposure had been received.
        Not sure why, but I expect that there is a good reason for the practice.

        1. Not sure why, but I expect that there is a good reason for the practice.

          @rekibsn – I’d guess the reason is that if the team don’t run a car/both cars at a race (for any reason), the sponsor will not have received adequate exposure of their brand, and could pursue repayment of the loan.

    12. Great article. One more thing I’d like to know is where Bob Fernley sat in the middle of all of this. Was he the one “managing the books” or was he the one that somehow held it all together against insurmountable odds.

      All we know is he was dispensed with as soon as Racing Point took over and there’s been little or nothing said since then. I had the impression that he was one of the really good team principals in terms of leadership (having led th m to 4th for a couple of years) and was the glue that was holding it together.

      Any chance of a follow up?

      1. Good question @dbradock. Have a good answer @dieterrencken?

        Fernley sure disappeared quickly once the racing point started.

      2. Where’s Bob…? I’ve been asking this same question on various sites for two months… and nowhere has there been any answer/response/comment – he just disappeared, and nobody seems to care, or even be interested… Apart from us three… ;)

        1. @BlackJackFan: We’re the founding members of the premier Bob Fernley fan club. ;-)

          There was this mention from Autosport in August about his firing/departure.

          Long associated with Vijay Mallya, Fernley held the role of deputy team principal since the former Jordan, Midland and Spyker team was rebranded under new ownership in 2008.

          He was in effect in charge of the team on race weekends when Mallya – who has been unable to leave the UK for the last couple of years – was not in attendance. He also dealt with matters related to the FIA and the F1 organisation.

          It’s understood that Fernley was informed by Stroll last week that he would not be part of the revised team structure. Chief operating officer Otmar Szafnauer is currently heading the management team.

          Hoping that @dieterrencken would expand on this. Maybe next decade when the Stroll $phere of influence has left the sport. ;-)

    13. Just while we are on the subject of money, I sometimes really wonder if sponsors get a reasonable return.
      For example, I have absolutely no idea what BWT do, and looking over the Force India car I saw at least 8 other sponsors I can say the same about (I am sure several are probably well known in Mexico).
      On a Mclaren (British team) I see at least five I don’t know what they do.
      On Hamilton’s Mercedes (British driver) at least four I don’t know what they do.
      Then I tried to remember who sponsors Ferrari (without looking) I could remember two names.

      1. I recall many years ago when Barclays were F1 sponsors but, as I didn’t bank with them, I ignored them… lol…

    14. Great summary and presentation.
      For anyone to jump in at the 11th hour and save the Team, would be considered a master-stroke. But to do it in under a month, not miss a race and get the FIA, F1 community, creditors and the F1 Rights Holder to all go along with the scheme, unbelievable.
      It will be fascinating to see how they manage in 2019 and beyond.
      Looking forward to the early next year follow-up summary. Yep, no peace for the wicked.

    15. the money owned to Mallya’s F1 race division is peanuts compared to 1.5B Euros whats owned to the consortium of indian banks. yes you read that right. one thing people dont know is that mallya was getting easy loans just on the virtue of his reputation and his companies in India….banks were writing him blank cheques without any due diligence. largely due to the fact that the banks wanted to manage lesser clients and focus on a few big clients. Which is fine but they did it without any due diligence. So now he’s on the run and avoiding extradition to India. Probably he wanted to do well in F1 but lacked financial acumen and was surrounded by conmen.

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