The measures that could save F1’s struggling grandee teams

After decades of wondering what it would take to level the playing field in Formula 1, we now have the answer - a change of commercial leadership, two years of agonising negotiations and a vicious global pandemic.

Like some unexpected superhero, the solution has turned up in the nick of time, although instead of wearing its underpants on the outside it comes in the form of a USD$145m budget cap. It's a nail-biting moment for McLaren and Williams, the former group having lost £133m in the first quarter of this year, the latter £13m for the whole of 2019.

Job losses are in focus, McLaren pre-empting publication of its first quarter results with news that a restructuring of the group would lead to the loss of 1200 jobs across its three business units: Automotive, Racing and Applied (technologies).

The company has enjoyed great success with Automotive, which last year shifted 4662 cars, a slight drop on 2018 but still strong. A glance at profitability shows Racing lost £67m and Applied £21m in 2019. To balance that, the F1 team's surge to fourth place in the constructors' championship promised increased revenue from prize money this year and a further uplift in sponsorship, always a strong point for CEO Zak Brown.

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Then came COVID-19, working its way from one key automotive market to another. This translated into McLaren selling only 307 cars in the first three months of this year, a year-on-year decline of almost 70%, and this was before the full effects of the extensive worldwide lockdowns seen in April and May...

To help steady the ship, McLaren's existing shareholders ploughed in an additional £300m in March, but even that has not been enough. Costs have been slashed as the company has sought additional funding, most notably by aiming to borrow against its Norman Foster-designed Woking headquarters and historic car collection.

Even this has not been entirely straightforward. Back in 2017, McLaren raised £525m through a bond sale, £275m of which was destined to pay off Ron Dennis in what might be described as a less than suboptimal outcome for its former boss.

COVID-19 is the last straw but, thanks to the timing of the budget cap, this is perhaps the very best moment for Williams to attract new investors and transition into a new era

Bond holders have alleged the car collection was already used as collateral for that transaction, something McLaren denies. It has managed to fast-track its case through the UK courts but, since the timing was tight, it has concluded a £150m loan arrangement with the National Bank of Bahrain which has eased the cashflow pressure.

For McLaren, COVID-19 has been a perfect storm, but with drastic action taken by the management team, headed by recently appointed Executive Chairman Paul Walsh, recovery will occur, although the time scale is uncertain. The COVID-19 pandemic cannot end quickly enough, but if it is then followed by a prolonged recession the market for expensive supercars is likely to remain weak.

An hour's drive away, at Williams, COVID-19 is the latest unwelcome visitor, coming hot on the heels of poor results, shrinking prize money and shaky sponsors - specifically sponsors that fail to pay, leading to ROKiT being given the rocket.

The situation had already prompted last December's sale of a majority in Williams Advanced Engineering to a private equity business. That already felt a little like the beginning of selling off the family silver, even before CEO Mike O'Driscoll announced recently that serious consideration is being given to selling the team outright.

COVID-19 is the last straw but, thanks to the timing of the budget cap, this is perhaps the very best moment for Williams to attract new investors and transition into a new era. For Claire, Frank and the staff it can only be hoped that this leads to an overdue and much needed reversal of fortune.