This is the story of how one of last, huge corporate-backed non-factory Formula One teams - British American Racing - entered the World Championship.

[image source - DeviantArt]

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This post relies exclusively on documents found in the vault of UCSF’s Industry Documents Library.

Long before smartphones and even before social media or widespread Internet there was television. Television used to be the most effective advertising mass media platform - given there was a show popular enough to fit advertisements in it for millions of people around the world to see.

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Tobacco companies were one of the first ones deprived from the opportunities electronic visual media had to offer, forcing them to seek advertising space elsewhere. Formula One has been a television entertainment program to which a significant amount of global population tuned into every other week for the fatter part of the year. The alliance between “Marlboro Man” and “Speed Racer” in the late 60s proved to be a marriage made in heaven since the demography between the consumers of tobacco products and motor sports followers overlapped greatly due to a shared projected image. F1 was a particularly important advertising space for tobacco companies due to its global reach and the ability of circumventing media restrictions, arguing that any tobacco logo on a car was meant to be presented for the people in the grandstands, any occurrence of them appearing on worldwide television was a matter of coincidence.

[image source - Wikipedia]

The 90s brought changes to the world of sport. It isn’t that just new markets were opening up, but another one was closing down. Formula One’s expansion to Eastern markets was in consequence to countries in the West shutting the door on overt tobacco advertisements. Europe was slipping away for Marlboro Man, but there was still a huge market available in the far East that went virtually unrestricted.

British American Tobacco saw one last window opening up in Formula One in the middle of the decade when Philip Morris jumped ship to sponsor Scuderia Ferrari instead of their long-time partner, McLaren Racing. Marlboro was a well-embedded brand in Western culture, dominating the better part of motorsports. British American Tobacco - on the other hand - was keeping options open in the South-East Asian region and wherever Philip Morris left a spot blank.

[image source - DeviantArt]

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Therefore, when one of the longest running tobacco co. and motorsports team cooperation was breaking up, they took it as a door left open.

In 1996, shortly after the McLaren-Marlboro divorce, BAT entered into discussion with the Jordan team about a potential advertising venture, but the stakes were quickly raised higher. A buyout of a complete F1 team seemed to be a more effective and potentially rewarding solution, as the 1997 Concorde Agreement granted a payout to teams at the end of each season ($15m by their estimation) to all signatories. Therefore, buying a cheap backmarker team as Minardi and making it a championship winning team by throwing money at it seemed like a reasonable option. By October of 1996, the decision was made that British American Tobacco would enter a self-sponsored team in the Formula One World Championship in the following years.

To achieve their F1 ambitions, BAT had to take some painful steps in the process by reallocating financial sources from their existing programmes. At the time, the tobacco company was also sponsoring Prodrive in the World Rally Championship - the 555 Subaru World Rally Team with whom Colin McRae clinched the 1995 championship title, also a round of the championship - Rally China. Also, a 500cc Motorcycle Grand Prix effort - Lucky Strike Suzuki - where Kevin Schwantz won the world title in 1993.

[image source - Nic Redhead]

It was deemed by market surveys that Formula One was appealing for a more urban and younger audience and that was the demography BAT was aiming for. A short-term phase-out for World Rally and Grand Prix Motorcycle racing was proposed that gave way to the new F1 project. Not only a two-car team was in their cards, but also the sponsoring and the naming right of a future Grand Prix in China from 1998 where they already had the WRC event running. BAT also proposed sponsoring races in South Korea and India as well. In these markets their 555 brand was the strongest, while they also planned the sponsorship of other future events through their Lucky Strike brand with the reintroduction of the United States Grand Prix and a new Russian Grand Prix.

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More serious plans included buying 50% of the television commercial rights to the World Rally Championship and 50% of all of the World Motorcycle Championship in cooperation with Formula One supremo Bernie Ecclestone and moving them into a holding company.

As far as the F1 team was concerned, BAT’s position in 1996 was to hook up with Indy-champion manufacturer Reynard and form joint venture along with engine supplier Peugeot or either Honda or Ford as secondary options and proposed a driver line-up with Damon Hill and Ralf Schumacher, also employing Craig Pollock for his expertise and other Key people as Alain Prost.

[image source - Wikipedia]

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Come 1997, a formal meeting was scheduled between Bernie Ecclestone, Normard Legault of Grand Prix Enterprises, Armand Torchia of Edelman Worldwide and Susan Osborne and Tom Moser, both on behalf of BAT to discuss latter company’s F1 ambitions. Two days before the meeting, on 25th of February, Tom Moser hinted in an e-mail that “Mr. Ecclestone is also very influential with Various [British] Government Authorities often impacting anti-smoking legislation”. This is a very likely reference to the Labour Party scandal that sourced earlier from that year when Ecclestone donated £1m to Tony Blair’s governing party who later gave the British Grand Prix an exemption from tobacco advertisement ban.

During the formal meeting with the aforementioned parties - among others - it was proposed by Ecclestone that World Rally Championship should be broken up to four regional series. Ecclestone also hinted that BAT’s removal from Motorcycle Grand Prix racing could result in Banco Banesto selling him Dorna - the commercial rights holder to current MotoGP - at a reduced price. Surely, BAT withdrew from World Motorcycle at the end of 1997 and Dorna was sold off to CVC Madrid in 1998. CVC Madrid’s parent company, CVC Capital Partners acquired a majority shareholding in Formula One Group in 2006, effectively moving MotoGP and Formula One under one roof.

[image source - Cédric Janodet]

BAT’s business strategy included advertising two of their products (555 and Lucky Strike) extensively with each car dressed up in separate liveries along with putting more emphasis on Lucky Strike on their Western hemisphere efforts and 555 on the Eastern one. Formula One in the meantime pulled a hat trick by establishing the Luxembourg Grands Prix at the Nürburging in 1997 and 1998 to circumvent tobacco advertising ban in Germany that was in force at the time (but was lifted in later years). The argument by BAT marketer, Tom Moser, was that “[F1’s] success and continuance is fully reliant on tobacco sponsorship.” It was also rumoured that Ecclestone might take F1 public and a representative from BAT could be taken in as a non-executive board member - as fixed in the Concorde Agreement - to replace Walter Thoma of Philip Morris.

On June 18, 1997, BAT’s F1 proposal received a code name: Project de Bono and a complicated structure was advised for its future operation to minimise taxing as much as possible.

Jersey

[image source - Wikipedia]

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NewCo. (which would be future British American Racing Ltd.) would be stationed in Great Britain and would produce, race, and maintain the cars.

HoldCo. (British American Racing Holdings) would be a holding company and would be incorporated on the island of Jersey. The island is merely a crown dependency of the UK and therefore not part of the EU or the European Communities, a company to which NewCo. charges VAT to sevices supplied.

Having only administrative functions carried out in Jersey and not being a resident but incorporated on the island, HoldCo could qualify for a tax exemption as it was looked at as a Controlled Foreign Company. A CFC paid less than 75% of the UK tax and 90% of the income by the shareholders was taxable. Except it wasn’t.

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HoldCo. would belong to BAT in 50%, 25% would be owned by Reynard and 25% by Craig Pollock and the board reflected this setup. BAT’s residence was - naturally - outside the UK while three out of four board members resided within the UK, one lived in Switzerland. To make the board not be a resident of the UK, the rate had to be reversed and most discussions were held outside Jersey, usually at race weekends.

Also, since the revenue for the venture was generated by the cars, it was argued that they only do so during race weekends and except for the British Grand Prix, none of them were on British soil. NewCo. - therefore - showed very little activity on paper and most of it was swallowed up by HoldCo.

There was a company that - for the whole world - seemed to have resided in the UK, while it technically belonged to Jersey from Britain’s perspective, and Jersey filed it as a foreign company. On paper, British American Racing didn’t exist anywhere around the world.

[image source - DeviantArt]

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The arrangement was controlled by five agreements. One created the joint venture between the partners, the second was a sponsorship agreement between the joint venture and BAT, the third set the purchase of the media rights and the last two recorded the promoting and naming rights to the Chinese Grand Prix.

Project de Bono calculated an overall £133.9m budget in sponsorship up until 2003, £23m in third parties’ capital, $57m in capital assets for the first three years, £17m in losses for the same period (with profit from 2000), £82m net provisional costs, £144m in payments, £5m for the engines in 1998, £9m in 1999 and £11m for capital agreement, which should have included the purchasing of Tyrrell.

There was a problem, though. Tyrrell wasn’t for sale for a price BAT found agreeable. £20m should have been paid up front with an additional £5m in 1998 and with the condition of an initial business and budget plan and the acquisition of the factory site at Brackley. As a backup plan, the purchase of Minardi was advised again with Ford being a second option supplier - after securing a letter of intent with Renault. Plan “C” included going down the Jackie Stewart route and get in F1 outside the Concorde Agreement. Finally, the deal was settled with the condition that Tyrrell adopts a new Articles of Association, making a Board similar to what BAR created to make transition easy throughout the 1998 season.

The last Tyrrell car, the 026

[image source - Wikipedia]

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As a finishing touch, BAR signed 1997 World Champion Jacques Villeneuve and Ricardo Zonta and presented its cars in respective 555 and Lucky Strike colours that had to be changed ahead of the season to the mirrored, dual branding due to FIA regulations. A handwritten note on the side of a press release - where BAR complains why they are not allowed to adopt the same formula used in IndyCar or NASCAR - writes: “Bernie says one dual brand, makes it look like NASCAR”

[image source - Nat Lockwood]

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British American Racing started the 1999 season in a clown suit and finished the season as a genuine clown in the eyes of many as they failed to score a single point during their first year with Villeneuve unable to finish the first 11 races of the season. During their operation until the end of 2005, BAR failed to win a race, but scored two pole positions.

All the Grands Prix British American Tobacco prompted to sponsor in the future made it to the calendar: the United States Grand Prix returned in 2000, the first Chinese Grand Prix was held in 2004, the Korean Grand Prix was first raced in 2010 (stopped in 2013), the Indian Grand Prix was inducted in 2011 (but got off the calendar in 2013) and the Russian Grand Prix manifested in 2014.

[image source - Wikipedia]

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In 2006, Honda took over BAR and won the Hungarian Grand Prix that year with Jenson Button at the wheel. Honda withdraw at the end of 2008 and Ross Brawn took over the remains of the team with the already developed car, now with a Mercedes engine. Brawn GP won 1-2 at the first race in Australia and won the World Championship for driver (Jenson Button) and constructor. In 2010, AMG-Mercedes took over the team. As of October 2016, they won two drivers’ (Lewis Hamilton) and constructors’ title and they are running for their third. They are still residing at Brackley.

[image source - Wikipedia]