Insight: Is McLaren Honda partnership reaching the end of the F1 road, or just a fork?

Apart from the resurgence of the Ferrari F1 team, the other dominant narrative in this year's F1 world championship has been the backslide of McLaren Honda, to the point where the management needed to get creative and find a distraction for lead driver Fernando Alonso or risk losing him.

That gamble on the Indy 500 appears to have worked and Alonso will report for duty today in Montreal with a renewed appetite for motorsport and competition. How long that glow will last when the promised upgrade to the Honda F1 engine for Canada has not materalised, is open to conjecture.

Into this already tense situation comes an interview with McLaren Executive Director Zak Brown on Reuters in which he casts serious doubts on the long term viability of the partnership with Honda.

"Our preference is to win the world championship with Honda. But at some point you need to make a decision as to whether that’s achievable. And we have serious concerns," he says. "There’s lots of things that go into the decision and we’re entering that window now of 'which way do you go when you come to the fork in the road?' "

"Missing upgrades, and upgrades not delivering to the level we were told they were going to, you can only take that so long. And we’re near our limit," he added.

Reuters will have been selected as the outlet for this interview based on its global distribution, although the way the internet works these days, quotes on this scale would be picked up and amplified from any reputable news source.

Cash is king?

Interestingly Brown refers to the received paddock wisdom that McLaren would not dump Honda because they are beholden to them for financial support; their net contribution when you take into account free engines plus financial input is around $100 million a year when compared with McLaren paying a supplier like Mercedes for engines and not having the Honda cash.

That is probably partly responsible for the partnership beginning in 2015, when ideally Honda could have benefitted from another year of development out of the public eye, having come late to the F1 hybrid turbo party.

"When you actually look at the impact of loss of FOM (Formula One Management payments) money and loss of sponsorship, it starts to diminish the commercial benefits of what Honda brings to the table," he said.

"And when you start to net it out, it doesn’t have quite the commercial benefit it might appear from the outside."

McLaren earns around $30m a year from its historic value to F1, plus $36m which is the same for all entries, totalling $66m.

The prize money component last year was $31m, compared to $52m for Red Bull for finishing second or $36m for Force India for finishing fourth. So if McLaren believe that they can race to second or third in the championship each year with a customer engine (as Red Bull does) then the net loss of being with Honda and racing at the back is $21m.

With other income from F1 not available to them as they have not won a championship for a while, McLaren's net annual loss to a benchmark team like Red Bull, using customer engines, is $64m, if they stay uncompetitive.

A further damaging number is the lost sponsorship and sponsor bonuses, which is hard to quantify, but it is certainly very hard to sell McLaren sponsorship at the moment.

That said, new sponsors have come onto the car this year, such as Logitech, which has a very specific goal in mind for its F1 activation and is happy with McLaren (although no doubt would like them to be more competitive) Hilton hotels recently renewed their deal with the team, so there is sponsor money there.

But Brown and his commercial associates are struggling to sell the big packages with the team at its current competitive level. Hence the tough talk, which has clearly been motivated by the higher ups in the organisation Mansour Ojjeh and the Bahrainis, who enjoyed being competitive at Indy and want the same for F1 as soon as possible.

There are considerations beyond McLaren's interests here. F1 and its new owners will not want Honda to withdraw from F1 having failed as it will send out a negative signal to other manufacturers, like the VAG Group, about the difficulty and reputational risk of F1 entry.

That said, work is going in behind the scenes to evolve the engines F1 will use after 2020 and simplification and cost reduction are at the heart of that, so most manufacturers seriously considering F1 would take a broader view.

McLaren splitting with Honda would, in theory, leave Sauber as the works Honda team, as they have contracted with the Japanese manufacturer for 2018.

Although everyone assumes that McLaren would look to partner with Mercedes, no arrangement is in place and it would be unlikely that Mercedes branding would be part of the package, given how Mercedes has evolved its storytelling and brand in F1 since it last supplied McLaren in 2014.

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