Is Mercedes’ Ineos deal its first step towards an F1 exit? · RaceFans

by Dec 23, 20200 comments


It became clear something was brewing at Mercedes’ F1 team became in May 2019 when we revealed that talks had been held between Liberty Media and team boss Toto Wolff about the possibility of F1 CEO and chairman Chase Carey being replaced by the Austrian once the former’s contract expired at the end of this year.

Although Wolff’s (non) denials were carefully phrased, he fell out of the running when Ferrari threatened to invoke its veto over his appointment – should it have come to that. The matter in any event became moot when we scooped that Stefano Domenicali had got the nod for the top job. However, the fact Wolff had even been in the running raised questions about the exact nature of his 30% shareholding in the Mercedes F1 team.

Although such matters are shrouded by confidential clauses, a source with knowledge of the situation advised at the time (early May 2019) that Wolff and Niki Lauda held 30% and 10% respectively on a time-bound basis, with Mercedes parent Daimler holding the balance of 60%. However, their shares were due to revert to the German car company at the end of 2020 at pre-determined valuations unless an alternate deal was struck.

Lauda’s passing on May 20th meant his shareholding would be held in suspense by Mercedes until a new deal could be thrashed out (or if the F1 team closed, more of which later), effectively giving the company 70% control until the end of 2020. Whenever Wolff was asked about the future his answers invariably contained “complex”, “shares”, “Lauda” and “contract”; with “good relationship with Ola” Källenius, Mercedes chairman, featuring more often than not. Which left nobody any the wiser.

Wolff was linked to Carey’s job last year

Still, a decision needed to be taken, for time was running out. There were pointers that various scenarios were being worked through, not least as a valuation was required to settle with Lauda’s estate, and with Wolff should the Mercedes board vote to exit F1, whether in full (team and engine supplier) or as team only.

“I know there was some speculation in the press,” said Källenius during a media call last Friday, “but we never seriously considered pulling out because [motorsport] is such a strong part of our heritage.”

The key to this sentence lies in the word “seriously”, for it indicates that consideration was up for discussion, as the next sentence proves. However, some media outlets interpreted this as: ‘did not’.

“But we did ask ourselves in the board what are the pillars that make up F1 beyond the emotional connection to the sport, how do we look at this from a rational point of view,” Källenius explained. He listed four of these pillars:

“The first is how is the show? Is the show good? And what about the fan base?

“What we have seen in the latest year, particularly through social media, is an explosion in the reach. And the best news is the younger fans are coming – so the 15 to 30-year-olds – through esports and through social media and through a great show. I don’t know a motorsport spectacle that is better than Formula 1. So that was question number one answered with a ‘yes’.

“Two is that we have made a very clear commitment as Daimler and Mercedes to go into a CO2-neutral future. We have an ambition for 2039, we want to achieve a CO2-neutral position in three product life cycles, within 20 years.

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“I don’t know a motorsport spectacle better than F1” – Kallenius

“There has to be a credible path towards sustainable motorsport as well and I have spoken to Greg Maffei [CEO of F1’s parent, Liberty Media] about this, who very much agrees with it. We put out a manifesto to the team earlier this year of how we are going to take the Mercedes Formula 1 team towards CO2 neutrality, and technology is an important part of that.

“It’s a hybrid formula already today. I can see the electrical piece of it increasing and I can see it as a testing ground for lower carbon and no-carbon fuels that will play some role in the world going carbon neutral eventually. So can you credibly make the sport sustainable? I believe yes, and we are committed to it.

“The third thing was financial sustainability. The [budget] cap helps, we were an advocate for it, and it makes the economic proposition better, so I think we are ticking that box as well.

“And the fourth one is does it always have to be a cost centre and can it be a sports franchise like a football club of an NFL team? We can see now that people are starting to look at this more like sport franchises.”

Clearly F1 ticked all boxes and a decision was taken to remain. Would Mercedes have remained had the boxes not been ticked? Although he mentioned Maffei, Liberty may take a big bow, for its make-over of F1 since acquiring the rights in 2017 have grown the ‘show’ and attracted younger audiences, made F1 environmentally and financially sustainable, and facilitated (US-style) franchise models.

It is debatable whether Mercedes could have identified said four pillars under F1’s former regime, but that is a separate argument. The fact is that the board was able to tick the desired boxes. Still, having taken a decision to remain in F1, the question was how to restructure the team for the future in view of the team’s ‘complex’ shareholder structure, and the board’s desire to move towards a sustainable franchise model.

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Mercedes Ineos branding, Royal Automobile Club, 2020
Ineos was revealed as a new sponsor in February

The first building blocks dropped into place in February 2020 – before Covid bit – when the team announced a multi-year principal partnership with Ineos, the deal being an extension of a relationship between the chemical giant’s yachting and cycling teams and Mercedes Applied Science, the consultancy division of the F1 team.

A further building block slotted in place on 8th December when Ineos confirmed the purchase of Daimler’s Smart factory in Hambach, Alsace. Not only will Ineos (owned by one of Britain’s richest men, Monaco-based Sir Jim Ratcliffe) manufacture its Grenadier 4×4 Land Rover Defender lookalike in France rather than in Wales as planned, but contract-build Smart for Daimler until the end of the current model cycle.

It was only a matter of time before the final block fell in place: Ineos as a shareholder in the F1 team, announced last Friday.

So what if the company’s environmental record flies in the face of Daimler’s commitment to carbon neutrality; so what if Grenadier uses ‘foreign’ engines supplied by mortal enemy BMW provided the primary criterion is met: Ineos is willing to sink mega-bucks into the F1 team, thus Daimler’s financial burden.

Thus, it was no great surprise when Källenius on Friday confirmed that the F1 team would in future enjoy a three-way, equal ownership split between Daimler, Wolff and Ineos. Effectively Wolff adds 3.33% to his existing holding to take him to one-third ownership while Mercedes reduces from 60% (albeit effectively 70%) to the same, with Ineos taking up the balance.

At the same time Wolff confirmed his intention to remain as team principal for another three years with the option of moving into an alternate executive role thereafter. Not a word about Lewis Hamilton’s contractual situation – he is yet to confirm his plans for the 2021 F1 season – although the seven-times champion did allow that he was “super proud” that Wolff was staying on.

Seven-times champion Hamilton is expected to re-sign

“On the super, super plus side, I’m really proud and grateful to see Toto’s signing,” Hamilton said during the annual FIA awards media conference on Friday. “He’s such an important leading figure within this team, and the success that we have achieved would not have been possible without him.

“He is such a great figurehead, and I think that the team is just better for it, to have that longevity, and it’s great to see that commitment from Mercedes.

“But the added bonus of having Ineos who came in this year and have been a part of our success this year, it’s great to see they’re going to be a part of this team and help with the stability of this team moving forward in growing to be better.”

Note the lauding of what was not only a team sponsor but is now an equity partner by a man who professes to be “doing everything he can” to reduce his carbon footprint, who turned vegan and invested in a bio-burger chain to reduce bovine gas emissions yet is happy to accept a third of his massive annual pay cheque from a entity which Greenpeace accuses of having logged up 176 permit violations between 2014 and 2017!

The Scotsman last year claimed emissions from Ineos sites in Scotland made it the country’s “worst air polluter”. The newspaper reported: “Petroineos, in Grangemouth, itself accounted for 1.6 million tons of harmful emissions, while four other associated companies – Grangemouth CHP, Ineos Chemicals, Ineos Infrastructure and Ineos FPS Ltd – combined to generate a further 1.95 million tons of greenhouse gases.” Any comment, Ola?

The wider question is, though, why, after years of subsidising the team, Daimler chose to divest of half its holding in the F1 team just when F1 is poised to reduce costs (via budget caps) and improve the ‘show’ (from 2022 under the ‘new era’ cars). Indeed, it seems perverse to dilute the potential profit, and does not confirm the company’s commitment to F1 as Källenius and Wolff claimed, but in fact halves it.

Fernando Alonso, Renault, Yas Marina, 2020
Renault is to become Alpine next year

More concerning though, is a discernible trend of major automotive brands reducing their involvements with F1: In September Renault announced that it would rebrand its F1 team as Alpine from 2021, with Honda a month later confirming what had been widely feared for a year: the Japanese company would exit F1 at the end of 2021.

True, Renault is bullishly positioning Alpine as its performance brand, but the sole model, the A110, last year battled to break the 5,000-unit sale mark and is unlikely to improve on that this year given the global situation. Let us assume that F1 doubles the appeal of the brand – and that is a massive ask – any increase in profitability would not cover the running costs of the team.

Another brand that was closely allied to F1 was Japanese luxury marque Infiniti – first as Red Bull title sponsor and latterly as an associate partner via the Renault-Nissan alliance. Now comes news that it, too, will exit, further reducing the number of motor brands linked to F1. Meanwhile Audi and BMW last month called time on their Formula E campaigns, with the former now heading for the Dakar rally, not F1.

Alfa Romeo recently extended its title branding deal with Sauber, but for a single year. The word in the paddock is they will withdraw totally once F1 goes ‘new era’ form 2022. Porsche, once mooted to enter F1, is returning to endurance racing. Even McLaren last week announced the sale of up to 30% in its F1 team.

Spot the trend? Could the next step be a total F1 sell-out by Daimler to Wolff and Ineos? Consider that the three-way deal excludes the Mercedes-Benz High Performance Powertrains facility in Brixworth, being confined only to the F1 team based in Brackley. Further, Wolff is not listed as a director of HPP – Lauda was, though – and there are seemingly no plans to change that status quo.

Toto Wolff, Mercedes, Imola, 2020
Wolff increased his stake in the team and will remain as principal

However, Wolff retains overall responsibility for the motorsport elements of Brixworth, which undertakes Formula E and group engineering activities on behalf of the wider Daimler group in addition to providing F1 power units to 40% of the F1 grid in 2021. It does, though, seems a strange structure, and maybe for good reason.

The sale of one-third of the Mercedes team to a chemical giant has a whiff of Smart production to it: off-load the hard stuff while the going is good, then gradually sell off the balance of the brand (or team). It is, after all, easier to sell 33.3% to two suitors than 100%. Already Smart has exited the North American market, with future Chinese market vehicles to be built by Geely, owner of Volvo; this week Autocar reported that Smart’s UK market share had halved in 12 months.

The three-way deal makes enormous sense for Wolff, who gains additional shares (and possibly the option of more), for Ineos, which gains a world championship-winning team spearheaded by a global personality with whom to launch a ‘sportwashing’ programme, and, last but not least, for Mercedes – which can phase out of F1 gradually. Indeed, that phase-out started last week.

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