McLaren Racing were undoubtedly in the ascendancy when the Formula One season screeched to a halt before it even started back in March.
The Woking, UK-based outfit had arrived in Melbourne full of optimism, primed and ready to challenge for a coveted world championship after a year marked by promise and progress. A fourth-place finish in 2019 had engendered an air of positivity heading into the new campaign, but when a member of their own team tested positive for the coronavirus on the eve of the season-opening Australian Grand Prix, McLaren suddenly found themselves in unchartered territory.
“It’s been very difficult for everybody at the truly macro level, unbelievably disconcerting at a global level,” reflects Mark Waller, McLaren Racing’s managing director of sales and marketing. “Then when you drop down for the sport that we’re in, which is obviously a travelling sport that travels the globe, it’s been really badly impacted, as has all sport.
“And at the group level, our core businesses are automotive supercars and racing. Both of those businesses [have been] really impacted, so that’s hurt a lot, hurt our people a lot.”
In the weeks since the Formula One circus packed up and left Australia, the entire sport has been sent into something of a tailspin. An unprecedented spate of race postponements and cancellations, not to mention wholesale disruption to the broader automotive industry, has precipitated widespread economic turmoil. For McLaren in particular, it quickly became clear that immediate cashflow issues would need to be urgently resolved if the team was going to be in a position to remain solvent, let alone compete, whenever the season finally got underway.
After recording a UK£133 million (US$166.6 million) loss in the first quarter of 2020, the McLaren Group, the team’s parent company, renewed its efforts to refinance in the face of what it called ‘severe and unexpected financial difficulty’. The pandemic would lead to a projected drop in revenues from its on-track operations, which account for roughly 20 per cent of the group's annual income, and in turn would have ‘a massive and detrimental effect’ on its ability to operate, the company said. Almost UK£300 million in fresh capital invested by existing shareholders in March had already been spent, and emergency funding was needed no later than mid-July.
In May, the group cut some 1,200 jobs across its technology, automotive and racing businesses, part of a broad scale restructuring plan that saw about 70 employees in its Formula One team made redundant. The layoffs came amid reports that various funding options were being considered in a bid to help raise hundreds of millions of pounds, including the potential sale of a minority stake in the team and a proposed loan secured against their factory in Woking and heritage car collection.
In the end, a UK£150 million (US$185 million) loan was eventually secured from the National Bank of Bahrain (NBB), which is owned by the state’s sovereign wealth fund, Mumtalakat Holding Co, which itself holds a 56 per cent stake in the McLaren Group.
“Like many organisations, we’ve had to go through a process of furloughing and now into a restructuring phase,” Waller tells SportsPro. “So [it has been] very difficult, but at the same time, like most challenges, it’s created great opportunities to do things differently, and also opportunity to put your business on a better footing for the future.
“Those challenges have led us to a number of areas where things will be different in the future and hopefully we’ll be a better, stronger sport and organisation as a result of it.”
Besides shoring up the team’s finances and participating in the Ventilator Challenge, an initiative that saw UK-based Formula One teams help manufacture life-saving medical equipment in response to the Covid-19 crisis, Waller says there has been “a real focus on employee wellbeing and health and safety” ahead of the return to racing in Austria on 5th July.
He adds that the pandemic, “a bit like 9/11”, has provided “a real wake-up call” for organisations that might have previously overlooked the importance of ensuring the necessary “risk mitigation and contingency plans” are in place.
“From the sports standpoint,” he continues, “it’s shone a light on how ultimately we need to make the sport more sustainable economically for the long-term. You have to have economic viability, and ultimately you have to have competitive balance in order to get economic viability. It’s definitely shone a light on that.”
'Ten teams unified'
Within days of the pandemic being declared in March, Formula One bosses renewed discussions with teams over tighter cost controls that would help mitigate against what promised to be a crippling financial fallout. New sporting and technical regulations, originally slated for 2021, were delayed until 2022 for cost-saving reasons, and after prolonged negotiations teams agreed on a spending cap that will be set at US$145 million next year, before decreasing to US$135 million by 2025.
While the cap does not include certain key expenditures, such as driver salaries, US$15 million for engine costs, and marketing and hospitality, its introduction was seen as a necessary step to achieve greater competitive parity across the grid and ensure long-term sustainability for the sport as a whole, particularly with a global economic recession looming large.
On reflection, Waller believes the experience of the past few months has brought teams closer together in many respects. “And it’s not just our sport, or even sport,” he says. “Who would have thought, 12 months ago, we would be having conversations about whether airlines were going to stay in business or not?
“A year ago the airline industry was probably at its most profitable and viable levels ever. And so I think the collective experience of seeing sport, business, travel, hospitality all being massively undermined in their viability leads to an examination of how you work in your own business, but with the other businesses around you.
All teams have an accountability to help grow the sport for the benefit of all of the fans.
“You realise quickly that you need to have a sustainable business model and sustainable partnerships, whether that’s within your sport or with the people that you’re dealing with. Within Formula One, there’s definitely been a real realisation that the sport’s built on the passion of fans, and ultimately the passion of fans is driven by a belief in their own teams and their own drivers, and a desire to see those teams and drivers succeed. So you’ve got to be able to fuel that passion by giving them the sense that, on any given race weekend, all ten teams can be competitive.”
Formula One’s three biggest spenders - Mercedes, Ferrari and Red Bull - had initially been resistant to the changes before agreeing to the cost cap, which was originally set at US$175 million for the 2021 campaign. For Waller, that the dominant trio ultimately came round to the idea of a tighter spending limit was a hugely positive step, and could be a sign of greater team cohesion to come.
“We've got really good alignment across the teams around establishing the right level of cost cap, but I also think you’re starting to see rallying around how we can work more collaboratively together,” he says.
“I think you’ll see the initiative that F1 has rolled out under the #WeRaceAsOne umbrella. You’ll see all ten teams unified underneath that and activating behind that initiative because it is a time when you feel pulling together is necessary, and not only necessary but beneficial.
“We’ll always be competitive - that’s the nature of sport, that’s the nature of business and in other areas. But that competition doesn’t mean that you can’t be collectively, mutually beneficial for the whole entity that you represent. For F1, all teams have an accountability to help grow the sport for the benefit of all of the fans.”
Mark Waller, McLaren Racing’s managing director of sales and marketing
'Alternative value streams'
A key focus for Waller during the enforced hiatus has been managing relationships with existing partners. To that end, the Englishman says his team’s approach has been “a combination of listening and communicating” with clients, understanding the challenges they each face, and attempting to create value in the absence of actual racing.
“It was very evident very quickly that all partners were impacted by this in some way, shape or form, not just in the specifics of our partnership but in their own business environment,” he recalls. “They were under cashflow pressures and under potentially top-line growth pressures. Some of them, maybe their top-lines were growing but maybe they had supply chain issues or production issues, so it goes back to that realising that everybody has an issue and therefore you need to pull together to solve it.
“We were also proactive in addressing the issue of shortfalls in expectations, and going to our partners proactively with a plan. Each plan is separate and individual because each partner’s goals and objectives are somewhat different, and I’d like to think we did a good job of getting ahead of the conversations. We’ve been very focused on communicating well - frequently, comprehensively but not endlessly, and with pertinent information.
“I would hope, when the dust settles and we review with our partners, we will get well reviewed for being proactive, for having listened well, and having built specific initiatives. For some partners esports has worked very well, but we’ve a lot of work in other areas, in digital and social. We’ve done some great programmes.”
Waller specifically points to the work McLaren has done with Dell Technologies, for whom the team created Substitute Teacher, an educational initiative that sought to help parents homeschooling their children by providing video tutorials delivered by team drivers and technicians. He also cites another fan engagement initiative which saw team partner Automation Anywhere deploy its statistical analysis capabilities to determine the ultimate driver pairing in McLaren’s history, before putting the result to a fan vote.
Looking ahead to the start of this year’s revised race schedule, Waller reveals that plans are in place to trial McLaren Slipstream, a newly developed live streaming product that has been built exclusively for the team’s commercial partners who have been shut out from race weekends due to strict health and safety protocols. To be implemented for the first time in Austria, it will feature an array of behind the scenes content, such as garage tours and at-track interviews with McLaren drivers and personnel.
“We’ve worked hard to be creative, to meet the needs of partners, and we’ve worked hard to recognise that we have an accountability and responsibility to our partners to find alternative value streams,” says Waller.
Another area in which McLaren has refocused its efforts is in competitive gaming. Formula One’s successful Virtual Grand Prix Series, which featured eight races over the course of several weeks, provided a welcome avenue through which to connect with fans and drive value to sponsors during the sport’s hiatus.
Several current drivers, including McLaren's own Lando Norris, took part in the series, which notably drew 30 million views across TV and digital platforms. Meanwhile McLaren's marketing department was able to build on their team's increased involvement in gaming to strike new commercial partnerships, including talent development tie-ups with Veloce Esports and Logitech.
“We need a younger generation, a new demographic, and esports can give us great access to that, not just for driver development but for fan development,” notes Waller. “It’s probably the most directly translatable sport - everybody gets it, there’s no barrier to entry.
“It’s incredibly accessible, it’s got a youth and exuberance and an energy to it, and we’re blessed to have a driver who’s awesome at it. And awesome at not just driving, but the whole social engagement aspect of it. He’s a native of that generation and so it fits as part of the proposition, but it also fits as part of the brand and the culture that we want to be.”
McLaren have used Formula One's enforced shutdown to refocus their efforts in esports
'A culture of openness'
McLaren’s struggles on the track over the last decade have represented something of a nadir for one of Formula One’s most iconic teams. Though their trophy cabinet has been stocked with 12 drivers’ championships and eight constructors’ crowns since their first entry back in 1966, their last titles came in 2008 and 1998 respectively.
There are nevertheless signs of a resurgence. After several years of midfield mediocrity or worse, McLaren rebounded to fourth last year - their best season finish since 2012 - thanks to the young, talented driver combo of Norris and Carlos Sainz, one of the standout stars of 2019.
Now, the forthcoming arrival of Daniel Ricciardo, one of Formula One’s most popular drivers who joins from Renault and will replace the Ferrari-bound Sainz, has added to the air of confidence brought about by team principal Andreas Seidl, who himself only joined in May 2019. And after disappointing engine supply arrangements with Honda and Renault in recent years, there are hopes that a return to Mercedes power units will inspire a change of fortunes in 2021.
Indeed, there is a positivity about the team that had been absent for some time. Credit for that must go to McLaren Racing chief executive Zak Brown, who has proven something of a figurehead since taking the helm in late 2016. With an open and inclusive leadership style, the American has sought to instil a similar mindset throughout the organisation, and has also become one of Formula One’s most prominent and influential voices.
We’re on a great growth trajectory, to be honest, and that’s a function of the optimism that we have, a function of the belief that we have, the improved performance that we have.
According to Waller, an old friend of Brown’s who, like Seidl, joined the team last year, “a lot of building blocks” have been put in place which, taken together, have created “enormous optimism” inside the shiny, glass-fronted halls of the McLaren Technology Centre.
“We’re very well positioned as a team, and as a culture, to gain from that opportunity and grow,” he says. “I’m really bullish about the prospects for sport because what the last several months has done is confirm the invaluable role that sport plays in consumers’ lives. So I’m hugely encouraged at that level. I think there’s opportunity for those brands, teams that jump ahead and embrace the ambiguity, the different environment, and I hope you’ll see we’ll do that.
"That listening, proactive approach was not just the last several months. That’s a mentality that’s been in the team for the last few years. We’re on a great growth trajectory, to be honest, and that’s a function of the optimism that we have, a function of the belief that we have, the improved performance that we have.”
McLaren Racing chief executive Zak Brown has become one of Formula One’s most prominent and influential voices
Commercially, too, McLaren are bouncing back after a fallow period which coincided with the team’s downturn in performance. A controversial but lucrative agreement with British American Tobacco at the start of 2019 was followed this winter by new technology-focused deals with data specialist Splunk, cyber-defence firm Darktrace and the FAI Aviation Group, while Unilever has also joined the party, prised away from struggling rivals Williams.
Outside Formula One, McLaren are also diversifying: this year saw the team launch a full season programme in IndyCar, while the McLaren name has also found its way into professional cycling with the Team Bahrain-McLaren UCI World Tour outfit.
All told, those various components, coupled with the recent push into esports, have built “an overarching proposition of a very technology-driven, performance-related, exciting sports team that you want to be a part of”, says Waller.
“The culture needs to exist irrespective of context and performance,” he continues. “For Zak and I and Andreas and the executive team, there’s an operational job, which is to win, but there’s a performance job, which is for people to be able to perform at their best. Generally speaking, Zak and I and others on the team would share the belief that people perform at their best when they’re at their most open, their most comfortable, their most free.
“That requires a culture of openness, it requires a level of transparency and a level of authenticity, and I think, if I was to be critical of Formula One historically, that wasn’t the culture of the sport. The new environment that Liberty are also creating is one of making the sport accessible, embracing involvement and engagement, and embracing discussion.
“That doesn’t mean that you’re not competitive, but it makes for a much more exciting experience, I think, and ultimately it makes for people being free and performing at their best.”