Ron Dennis has said he wants a major 'off-track overhaul' at McLaren. "The process we are going through at the moment is with regard to how we can be bigger, stronger, to build the organization to match the resources some of the other players have because it's not easy to race against Mercedes or Ferrari."
After losing Vodafone, Hugo Boss, Tag Heuer and Johnnie Walker, there's finally some good news for Big Ron as he signs an extension to 2020 of the Santander sponsorship for his F1 team. Santander came on board with the arrival of Fernando Alonso in 2007, but stayed with McLaren following their acrimonious separation.
"Santander and McLaren-Honda have enjoyed an incredibly strong and mutually beneficial relationship since 2007,' said the managing director of McLaren Marketing. "Our renewed partnership demonstrates a well-founded belief in the team's ability to successfully activate brands around a shared, common vision for the future. I look forward to developing the relationship and hope to see it continue to go from strength to strength for both brands."
As a passionate cyclist, this provides Jenson with the opportunity to develop the Santander Cycles brand further."While first and foremost I'm a racing driver, I'm also a passionate cyclist, and so I'm looking forward to doing more with Santander Cycles and helping encourage more people to get involved."
This deal follows recent comments from Ron Dennis on how he is seeking to secure McLaren's long-term financial future in Formula One. "The [F1] business model is not attractive in the long term, not least because 110 F1 teams have come and gone since 1966, and we don't want to be one of those,' said Dennis.
Big Ron would seem to be suggesting that Bernie Ecclestone's business model for Formula One is never going to provide a level financial playing field for those trying to catch Mercedes and Ferrari. Of course McLaren have diversified into creating revenue from high-end sports road car production together with the diverse activities of McLaren Applied Technologies. This includes consultancy contracts like the one streamlining Heathrow Airports take off and landing capacity.
Clearly the kind of budget McLaren can expect from F1 and their sponsors of around $180m p.a. falls well short of the Red Bull and Mercedes' spend of $300m plus and the whopping reported $400m p.a. associated with Ferrari
"The way to avoid it is you build a broader base that supports a Formula 1 team, which is an important part of the business,'Dennis explains. "It reflects badly when we are not succeeding, but it is part of our brand and part of our business. You can achieve growth in two ways in a private company – you take the money you call profit and you invest it in the future.
"Or, if you want to move faster than that, you have to find a completely different approach, and that's been focusing my mind for four months at least, which has been the primary reason why you've not seen me at the Grand Prix'.
For the well versed F1 fan, they could be forgiven for seeing plenty of Ron-speak in those statements. However, the key words are 'private company' and 'if you want to move faster than that, you have to find a completely different approach."Dennis recently asserted all the McLaren companies are profitable, but this is clearly just not enough.
Ron Dennis' longer term goal may then be to take the McLaren Group public, though at present he is looking for private Chinese investment. Dennis recently reclaimed a position of dominance in the McLaren Group, now allegedly owning 75% of the shares to Mansour Ojjeh's 25%. The Mumtalakat Holding Company retain a 41% stake in the subsidiary McLaren Automotive division.
In 2009, McLaren bought back the Daimler held 40% stake in a deal which valued the McLaren group at Â£500m and recently Dennis has claimed the group is now worth Â£1billion, so there should be room for maneuver to raise additional cash for equity.
The problem Dennis faces is that building a 'bigger base' to support the F1 team requires this new investor cash – and to build a bigger base of McLaren entities to support the financial requirements of the Formula One team requires the new cash from new investors be used for an acquisition of a cash generating entity – or a new 'fast cash' producing operation. From Dennis' comments there is no indication this is the plan.
Even if Dennis had a cash cow acquisition lined up, the value to the investors will be diluted if the proceeds go towards spending on the revenue needs of the Formula One team. Reading between the lines it is likely any new investor monies will be spent on the McLaren Formula One team in the hope it will bring McLaren back to winning ways and thus increase the McLaren brand value.
However, funding a Formula One team is often like filling a black hole. So for McLaren to compete with Ferrari and Mercedes, they require at least another $100-150m a year budget and all this spend of the new investors cash will occur long before any there is any improvement in the 'McLaren brand' value – which will only occur if they eventually start to win in Formula One. TheJudge13