Honda website
Honda website

SEPTEMBER 24, 2002

Has Arrows's American investor gone away?

The word from America is that the mystery investor who was going to save the Arrows team is no longer interested. This would not be a surprise given that it is now more than a month since an agreement was announced and at the time Tom Walkinshaw said that he hoped the deal would be concluded within a few days.

The team has not been seen in F1 since it packed up on Friday evening at Spa and disappeared into the night. The team will now miss both Indianapolis and Japan and this will mean that the team will have failed to compete in six races (although there might be some argument about France where the cars ran a few slow laps in qualifying). This is more than one third of the F1 season.

The team now seems to be surviving on just hopes that someone will turn up and pay $30m for the team and its assets. The big question is whether they are worth the money. The biggest asset of any normal F1 team is its entry. In Formula 1 one does not use the term "franchise" but this is in effect what it is. The Concorde Agreement provides for 12 teams and so there is, in theory at least, an intrinsic value in a "franchise". This was the case a few years ago when teams were changing hands for $100m or more but at the moment the value of a "franchise" has dropped because the 12th "franchise", available since the demise of Prost Grand Prix, has not been picked up. That is still available for anyone who is willing to pay a cash deposit of $48m, which will later be returned with interest.

The assets of the team are difficult to assess because it is not entirely clear what is owned by Arrows and what is owned by others and there is also the question of what is being used as security for loans and other liabilities.

When all is said and done it is fair to say that Morgan Grenfell Private Equity payed far too much for its purchase of the team and that it will never get back the money invested. Those responsible for that decision have now moved on and so the current management is simply hoping that there is a way to get something back, even if it is a fraction of what was invested. There is a law suit going on between the team and MGPE about what is owed, but whatever happens this will not improve the situation much.

The other debts amount to anything up to $30m, depending on who you talk to and these will need to be settled if there is to be a team next year. But the biggest problem is that there is a dispute over whether or not Arrows has broken the Concorde Agreement and lost its rights to own "a franchise".

There is talk that the teams may get together and agree to reduce the number of "franchises" to 10 so that everyone will get a share of the TV revenues (which is not the case at the moment) and the value of the "franchises" will rise again.