Will Lotus still be on the grid next year?

[John S]

Bernie's not helping Marussia stay, but should he worry more about Lotus/Genii?

With the huge losses the Enstone team are racking up, reported by  F1Plus.com below, will they even be able to pay staff wages let alone sky high engine costs next year?

Looks like Kimi will almost certainly be driving for a different team next year,    but who???????    

http://www.f1plus.com/en/news/item/3879-lotus-dealing-with-financial-and-driver-woes-

[Jericoke]

Enstone is an investment from Genii.

It is possible for them to lose money, and still be a good investment.  (Don't ask me how, it's not my specialty).

The team itself is sound, they've got a history of getting good results, so they've got the equipment and personnel.  Genii wouldn't simply shutter the team, they would sell it.  My guess is that Enstone will keep losing money until Genii can find someone to buy the team.

I'd even guess that Kimi will continue racing for the team.  There will be a complicated contract that gives him what he wants (we all know that he'll take time off glad handing over mountains of cash), and the team will continue to have a champion on the promotional material.

[John S]

Yes I can understand an investment vehicle is what it appears to be Jeri, however when you look more closely - as in the article below from Pitpass.com - it appears the team is supported by loans from both it's beneficial owner and the Proton car company; the latter's loan being guaranteed by the fixtures and fittings at Enstone. This leads me to surmise that there may be very turbulent times ahead for this F1 team. 


Lotus burns up biggest loss of any team in F1 history

Writing in the Daily Telegraph. Sylt reveals that net losses at Lotus widened by £35.9m in the year-ending 31 December 2012. No other F1 team filing publicly-available accounts has ever lost as much money. It even eclipses the £41.9m lost by British American Racing in 1999 when it was flush with tobacco money in the first year under its new name.

The red ink at Lotus was driven by the perfect storm of increased costs and reduced revenue. Costs increased by 9.1% to £146.6m and the team’s accounts state that this was “mostly due to higher driver and race related costs.” This makes sense since last year saw the start of the pairing of Raikkonen with Romain Grosjean and their pay is clearly higher than the duo of Bruno Senna and Vitaly Petrov who they replaced.

The reduction in revenue requires a little more explanation. In 2012 the team’s revenue reversed by 19.8% to £92.7m meaning that it received £53.9m less than it spent. Lotus then had to pay £2.9m of interest charges which took its net loss to the grand total of £56.8m. So why did its revenue decrease so sharply?

The accounts state that the drop in revenue was “mainly due to lower sponsorship revenues.” In 2011 Lotus lost a handful of sponsors which came with Senna and Petrov such as Gillette and Lada. However, by far and away the biggest loss was, ironically, Lotus itself. This is where things get complicated.

Although Group Lotus’ sponsorship of the team was terminated, Proton entered into a new agreement with it last year. In March 2012 Sylt revealed that Proton had given the team an estimated £35m loan which is secured on “all plant, machinery, show cars, computers, office and other equipment...and...Whiteways Technical Centre [Lotus F1’s headquarters].” This is reflected in the accounts which state that the team had £39.7m of third party loans with £18.7m of this due by the end of this year and the remainder to be paid back between 2014 and 2017.

The bulk of the Lotus F1 loss was covered by a £42.2m group loan which is due to be repaid by the end of this year. This left the team with net debt of £79.8m and drove its shareholders’ deficit to £54.2m.

So, to recap, Group Lotus gets logos on the cars and status as an official partner whilst the team lost the space on the cars, lost the revenue under the sponsorship agreement and also has to pay back a loan to the manufacturer’s owner. It even had to take out a group loan as well as that. This all sounds like one heck of a good deal for Group Lotus and the question of why the team got itself into it remains unanswered.

There is certainly precedent for F1 teams to make losses but there is usually a reason for this being allowed. For example, if a team owned by a product manufacturer makes a loss, the parent company can justify it as a marketing expense. This is because the team promotes its products through its F1 cars carrying its logo.
Lotus promotes Genii through having its logo on the car but as the company doesn’t sell mass-produced products it is hard to see how it could use its exposure in F1 to make back the £56.8m lost on the team.

Despite its revenue being down, it didn’t stop the team investing. During 2012 it hired 20 staff, giving it a total of 520. It also spent £6.4m on its factory and machinery.

This is where the group loan came in handy and the team also burned through half of its cash in the bank taking the total down from £3.4m to £1.7m.

Perhaps surprisingly, despite having £1.7m in the bank at the end of 2012, Lotus only earned £756 in interest during the year – it goes to show how low interest rates are at the moment. Nevertheless, on the strength of its latest financial results it looks like Lotus may need more than an upturn in the economy in order to turn a profit this year.

Published 27th May 2013.
Copyright © Pitpass 2002 - 2013.

[F1fanaticBD]

I think they are keep investing in it, even though the company is incurring huge losses, as because they believe they will be able catch new sponsorships, which may cover up these initial losses. I think Mr. Lopez is waiting for a buyer or partner who will bring fresh investments, to write off all these losses. But these all speculation will work only they could keep both Kimi and the pace of the car as it is. If either of them leave, the other will follow and once again the team will find itself in the financial debacle.

I think there might another way out for them, and that is if they keep performing the way they are doing, the Proton may re-negotiate their loans and thus they might be able to work things out between them, because for Group Lotus it is a very good exposure for their brand, so might be more interested in keeping it up, rather than letting it fell of the cliff.

[Jericoke]

if a team owned by a product manufacturer makes a loss, the parent company can justify it as a marketing expense. This is because the team promotes its products through its F1 cars carrying its logo.
Lotus promotes Genii through having its logo on the car but as the company doesn’t sell mass-produced products it is hard to see how it could use its exposure in F1 to make back the £56.8m lost on the team.

That's the point I was trying to make.  If you don't understand how the business works, it's very hard to comment on how the business works.

Just because GENII doesn't sell cans of swill like Red Bull, or penis compensators like Ferrari, doesn't mean they don't get value out of advertising.  Think about all those yachts moored at Monaco or Singapore that have owners who are in need of high end financing...

[Alianora La Canta]

Financing is one of the few areas of commercial practise still profitable (at least for companies who found chairs when the music stopped in the 2008 round of bankers' musical chairs). It wouldn't surprise me if GENII made several times its outlay from additional sales and interest garnered from customers finding them through the Lotus exposure. Using a secured loan to fund it means that the team will have to pay back the monies if the financial sector tanks again. However, I don't think that will happen until next recession, so Lotus should be safe for at least another decade, if not two. By F1 standards, that's really long-term.

This is one deal that makes sense to me.