You’d be forgiven for wondering why a major team that hadn’t won a grand prix for almost a decade until Daniel Ricciardo’s triumph at Monza has decided to go beyond Formula 1; especially when that team, despite that double in Italy, is part of a group in financial trouble, which has had to make difficult cuts, to the point of now renting the house on which it spent £300m .
But in McLaren’s growing involvement in IndyCar , Esports and Extreme E, along with the chances of landing in Formula E and the World Endurance Championship, there is at least one historical precedent: it is a company rooted in the idea of getting into in different types of motor sport competitions, although it has not done so in recent years.
Back when the factory had a dirt floor and you could count the number of employees on one hand, Bruce McLaren contested several sports car events before taking the company on the adventure of Formula 1 . Even then, his small group continued to build and sell single-seater chassis and sportscars to customers, while doing concurrent stints in the big circus and the lucrative Can-Am sports car championship, as well as entering the Indy 500 .
At that time, having to work with staff on such an extensive schedule of world tours was very tiring, and would not be accepted in an age where human resources are more developed. The growth and evolution of F1 also discouraged the idea of covering too much, as its calendar expanded and the technical demands multiplied.
Under the leadership of Ron Dennis , McLaren focused on F1 and prospered on the track during the 1980s, later developing successful side businesses in electronics, technology and road car manufacturing. However, the drop in competition level in the last decade has proved costly. By the time of Dennis’s ouster in a 2016 change of direction, McLaren had become a profitable tech group with a losing racing business.
The group’s new management appears to be undoing Dennis’ grand vision of McLaren as a patriotic technology leader and returning to its origins as a racing organization and car builder. Asked by GP Racing if McLaren is no longer a technology company, its CEO, Zak Brown, was unequivocal.
“Exactly,” he says. “McLaren is in the racing business and there are two ways to deliver value to our shareholders. One is obviously to be a profitable business. But the biggest gain is building the value of the franchise, the value of the entire operation. But everything also relates to the support and growth of our F1 team. So while the different racing activities – Extreme E, Esports and IndyCar – stand on their own, they also help build the Formula 1 brand.”
In F1, McLaren has been remarkably successful in assembling a cast of sponsors to replace the previous model, which relied on a large title partner. Expansion into other series opens up the possibility of accessing new markets, either in spaces where Formula 1 does not have as much of a presence as elsewhere, or in demographics that F1 has not yet adequately addressed, but are vital interest for potential partners.
The Extreme E, in which electric-powered off-road vehicles compete off-road, is still viewed with skepticism in some quarters – the rationale for “highlighting remote environments threatened by climate change” by running through them doesn’t win everyone over – but it contains a powerful message of diversity, forcing each car to have a male and female driver. Similarly, Esports (electronic sports) are ambitious, diverse and accessible, as the financial barriers to entry are much lower than those of conventional motorsport.
“For most of our partners, North America is a very important market,” explains Brown. “So by having an IndyCar programme, we have a broader and deeper offering to our business partners who say North America is really important. F1 is growing there, but having an IndyCar team drives it, and I know some partners are They have joined us because we had a bigger presence in North America than F1 alone.
” Arrow Electronics , which is our main sponsor in IndyCar, has joined our F1 team, and BAT , which is a main partner in F1, has joined our IndyCar team, along with Tezos , Darktrace , etc. So even though IndyCar is a profitable business, it’s great for our brand, because it’s also helped bring more partners into F1.”
“It’s the same concept with the Extreme E: sustainability. We were the first team to go carbon neutral back in 2011. Most other teams are now struggling to make that same claim. McLaren has been true to sustainability ever since. a decade ago and Extreme E is a great way for McLaren Racing to showcase our commitment to sustainability, as well as gender and diversity, issues that are very important to our partners.”
“And then the same concept with Esports – we were the first F1 team to get into Esports in a meaningful way. It’s focused on the younger generation, grassroots motorsport if you will, and diversity, because there are men and women all over the world who want to get their hands on a steering wheel. It gives us that younger audience that F1 is targeting, but it’s not where it needs to be yet.”
Brown says McLaren Racing is on track to turn a profit for years to come, provided revenue grows and Formula 1’s budget cap continues its path from $145m a year today to $135m in 2023. And it needs to get profits, as the McLaren Group has been forced to sell family assets to stay afloat in recent seasons. Having leveraged its collection of historic cars to buy Dennis his 25% stake in 2017, McLaren had to look elsewhere when a liquidity crunch hit during the early months of the 2020 pandemic. The automotive arm, which previously profitable and had buoyed up revenue, it was unable to continue to do so as sales dried up.
McLaren secured a £150m loan from the National Bank of Bahrain (an obvious destination, as Bahrain’s sovereign wealth fund owns 62.6% of the company) and planned to lay off 1,200 employees, though only 800 ultimately left. It also put the McLaren Technology Center on the market for $200m, which it eventually sold to investment firm LNG for £170m. And furthermore in December 2020, they sold a minority stake in McLaren Racing to American sports investor MSP Sports Capital .
The group’s financial engineering has continued apace this year. In July, McLaren announced a new round of refinancing worth £550m, of which £400m was new capital from the Saudi Arabian Public Investment Fund and investment company Ares Management ; and a further £150m from existing shareholders through preference shares and share warrants. This allowed McLaren to repay the loan from the Bank of Bahrain. More recently, it has sold its McLaren Applied division, which has supplied F1’s standard ECU since 2008. Once seen as the group’s main engine of growth, McLaren Applied has been sold to its current management, backed by the company. venture capital Greybull Capital , a specialist in distressed assets that has also swooped down on the remains of Monarch Airlines and Carillion.
That leaves the automotive and racing sectors as McLaren’s main revenue generators. Asked by GP Racing if that was a strategic decision or necessary financial engineering, Brown reiterated that cars and racing are the future of McLaren.
“Paul Walsh, our president, viewed our core business as being an automobile and racing company,” says Brown. “It wasn’t about the financial needs, but more about where the McLaren Group wants to be strategically in the long term, and they want to be in the automotive and racing business.
“It’s projected to be profitable in a couple of years. And I suspect other F1 teams will already be doing that, which is really how a business and a sports franchise should work. And I think that’s why now you see investors coming in. and they acquire teams. You’re going to see the F1 franchises become much more valuable and more in line with what you see with the NFL and NBA teams. Leaving aside Ferrari, because it’s combined with the company of road cars, you have to wonder why F1 teams are listed for less than a billion dollars – in some cases considerably less – in a sport that is globally bigger and has more revenue than others.
McLaren Racing currently occupies Brown’s “significantly smaller” slot: the deal with MSP Sports Capital valued the company at £560m . The F1 team continues to flourish under the leadership of Andreas Seidl , hired in 2019, while McLaren is in the process of expanding its stake in the Schmidt-Peterson IndyCar team, which it joined as a partner in 2020. A process Brown likens to with “rent before you buy”.
There remains the possibility of further expansion in Formula E , in which McLaren has an option to join the grid in season nine, and in sports car racing through the upcoming LMDh class of hypercars , which will be eligible for compete in the US-based WEC and IMSA . Currently those projects are only being evaluated and there are those in the world of motorsports who believe that the possible entry into Formula E is just a ploy orchestrated by the bosses of the series at a time when the series desperately needed to deliver good news. , as Mercedes, BMW and Audi have announced their departure from the series.
“We know that historically manufacturers come and go from motorsports. So Mercedes leaving is not positive, but Jaguar staying is. And we also hear about other manufacturers who are probably coming in.”
“That will drive our decision-making and of course we are paying attention to trends when we review motorsport activities. It has to fit our brand. It has to be economically viable. It has to support our mission in F1 and it cannot be an operational distraction, that’s the lens we look at [every deal] through. IndyCar, Extreme E and Esports met all of those requirements, and Formula E and WEC are still being reviewed against those criteria. We’ll make a decision by the end of the year “.
McLaren Automotive , like most automakers, is feeling its way to an electric future, so there is potential interest in that project. Andretti Autosport , which managed the BMW team during the marque’s official presence, has partnered with McLaren before, when Fernando Alonso contested the Indy 500 in a McLaren-branded Andretti car in 2017.
That program was far more successful than when McLaren tried to go it alone two years later, and the lessons drawn from that – avoiding such “operational distractions” – have been the basis for McLaren’s recent expansions into parallel categories. If it does enter Formula E and the WEC, it will do so through partners it could colonize later, if the projects are deemed a success. There will be no going back to the days when Bruce McLaren , Denny Hulme , Tyler Alexander and others toured the world, racing in F1 one weekend and Can-Am the next.
“Nothing can distract our F1 team,” says Brown. “As I experienced in Indianapolis in 2019, if you don’t give the same dedication to Extreme E, to IndyCar or even to Esports, you will fail. It’s about building different teams by sharing some technical resources, technologies, things that are back in the factory. But I’m not going to have a person working in F1 one weekend, and then they have to go to IndyCar. That clearly didn’t work out in 2019.”
McLaren’s attempt to run a full IndyCar season with Alonso in 2019 failed miserably as engine policy – Honda did not want to work with Alonso for a whole year again – forced it to part company with Andretti and reduce to one car. for Indianapolis, an event for which he did not even qualify. The litany of mistakes was comical, from the car being painted the wrong color to Brown having to borrow a steering wheel from Cosworth because the internal design wasn’t finished.
“I had hired Andreas Seidl [as F1 team principal], but he didn’t start until Barcelona,” says Brown. “I had Gil [de Ferran] in F1 [as sporting director], but his first race in IndyCar was the 500 miles. I should have waited longer, because I did it wrong and I paid the price, so I learned a lot from that. “Now all the McLaren people in the IndyCar team are dedicated to that project. They are people from F1’s past, but they don’t have a dual role, because you can’t be in two places at once.”
“2019 was probably a year too early for my apprenticeship there. I couldn’t give IndyCar the time and attention it deserved, and the result we got was the proof of that. That’s my fault.
So it is likely that McLaren will continue to explore other avenues of motorsport, but in a gradual, cautious and rigorous way, as Brown points out.
“When I joined McLaren, I felt the best thing to do was to be in multiple forms of motorsport, as we have done historically,” says Brown. “That was always my vision when I came in, but it’s all about timing and making sure we’re in a good place. I joined McLaren when we were hitting rock bottom, so to speak, and that wasn’t the right time. being our center of gravity,” he concluded.
