A Shortage of Cash Flow Causes 2nd F1 Team to Enter Administration
Without a doubt, Lesson 1.0 of business economics is always that cash flow is king, which struggling formula 1 teams, Caterham and Marussia found out to their detriment this month with both being placed into Administration within a matter of days.
It is thought that both teams ran out of funding after faltering seasons on the track causing their billionaire investors to lose faith and pull out.
Local business Marussia, currently employs 200 staff at their Banbury headquarters, all of which risk losing their jobs if the business cannot be sold out of Administration.
Will the employees lose out in Administration?
The Administrators initially advised that all staff have been paid up to the end of October 2014, giving them time to sell the business whilst the employees continued their day to day duties. However, with no sale having yet been announced, I can only assume that this sale is either imminent or, that the Administrators will hope that employees will continue further unpaid, whilst sale negotiations continue with buyers, who they then will hope will pick up the tab within the sale agreement. This type of passing on costs, or selling salable assets and passing on certain debts within a sale of a Company in Administration as the Administrator’s duty is simply to get the best result for creditors so the end net effect is what matters here.
What is the future of the smaller teams in Formula One?
Caterham and Marussia are not the first and will not be the last companies of the motorsport world to be forced into an insolvency process as a result of the high costs and the difficulty in getting long term financiers in place. You only have to look at the regularity of the changes in driver lineups to see that decisions on drivers are often based on their financial backing rather than solely on talent.
If F1 teams can achieve progress and improve their cars at a steady pace whilst also maintaining funding then success is within reach because it is not always the well known names that top the tables. A good example of this is Lotus, whose name is second only to a handful in the motor industry but whose fortunes have not reached the same heights in F1 for some time. Whilst on the reverse, the likes of Brawn GP, achieved great successes in a short time (admittedly with the backing of Mercedes) but the point is there.
My opinion is that team bosses must run with small staff numbers, achieve stability by tying in key staff to long term contracts, run their cash flow with military precision and only take up the challenge of competing in F1 in their either genuinely believe that they can compete for wins in the future or keep their chosen billionaire investor entertained for long enough to maintain their interest in their play thing and not replace it for a football club or other chosen way to spend their cash. Either way, let’s hope a buyer is found and the mantle is passed on because F1 would certainly not be the same without the davids’ of this Goliath story.