Branson: Behind the Mask (19 page)

Branson’s misfortune was that Button’s anger leaked amid a spate of unflattering publicity about the Virgin boss. The hostility fell on fertile ground. Some Australians were already critical of Branson’s use of scantily clad women to advertise his airline. Others disliked the projection of his face – 100 feet high – on to Sydney Harbour Bridge. To limit the damage, Virgin’s publicists replied to questions about Button’s complaint with: ‘Richard has
no memory of anything happening. They had a great night with lots of celebrating.’ But after Button described the incident to Piers Morgan in a newspaper interview, Branson’s spokesman admitted the truth: Branson had been drunk and was ‘embarrassed’. He subsequently gave up drinking for three months.

The season’s opening race ended spectacularly, with Jenson Button and Rubens Barrichello coming first and second in Brawn’s cars. The image of Branson standing between the winning drivers astride the Virgin logo on the car’s white metal body was seen by 100 million people across the globe. Nothing could have prevented him from stealing the limelight and saying things that created headlines. He had pulled off a brilliant deal. The publicity in Melbourne would have been worth about £20 million. Branson paid £200,000 per race and Virgin was the only sponsor of a team that looked certain to win more Grand Prix races. The hot question was whether Branson had become wedded to the sport.

‘I have been friends with Bernie and known him for many years,’ Branson told inquirers. ‘He has tried to tempt us in, and we have been a reluctant bride up until now. It appears we have chosen a good time to enter into this relationship; and I am glad I have resisted Bernie in the past, as timing is everything in life.’ Branson could not curb his habits and offered to improve Ecclestone’s business. ‘We plan to thoroughly enjoy our involvement in Formula One and bring some extra life to it and do things the Virgin way. We plan to be innovative and I want to pursue Bernie and Max [Mosley], not only to pioneer great engineering but also pioneer clean fuels. We have been developing a clean fuel for F1 which works, and hope to introduce it to Formula One.’ He offered to help Ecclestone reduce costs and ‘encourage more brands to join Formula One to keep it exciting’.

Ecclestone barely considered Branson’s comments. He doubted if Branson understood Formula One’s unique engineering or its
aerodynamics, and the idea of clean fuels was of no interest. Branson would be automatically excluded from any influence on the business, but Ecclestone did expect Virgin’s car to excite Formula One’s circus.

Instead, Branson posed as a global financier. His investment in Formula One, Branson spelled out, was a contribution towards rescuing the world’s economy. ‘Everyone is just frozen in the headlights of this recession,’ he told the
New
York
Times,
‘and if everybody stays frozen in the headlights, it’ll just get worse and worse. If you get out there and try and invest, we can start pulling the world out of this recession.’ Branson spoke as if £6 million would influence the slump.

Virgin’s victory in Melbourne had been carefully scrutinised by Graeme Lowdon, a British IT specialist. Before flying to Australia, he had established Manor GP Racing as a putative Formula One team for the following season. Watching Branson hugging Brawn, Lowdon identified a man caught by the Formula One bug.

Six days later, he again observed Branson enjoying the spotlight at the Malaysian Grand Prix. Brawn had won again, and the team was being tipped to become the overall champion. Branson’s hopes of continuing the sponsorship the following season for £6 million had disappeared. Brawn would be looking for at least $80 million. The billionaire, Lowdon decided, had to be persuaded to sponsor his own nascent team.

Although neither Lowdon nor his partner, John Booth, were wealthy, their motor-racing expertise had been established in Formula Three. Their chance to enter Formula One had been stoked by Max Mosley, the president of FIA, the Formula One regulator. Mosley planned to introduce new rules to limit every team’s annual expenditure to $42 million, an edict aimed at Ferrari, Red Bull and the other leading teams. Their huge budget, in Mosley’s opinion, deterred new entrants, who were needed after
the departure of both Honda and Toyota. He feared that other engine manufacturers – Mercedes and Renault – might follow.

With a $42 million cap and an experienced car designer, Lowdon believed he had a good chance of success. Fortuitously, Nick Wirth, also made redundant by Honda, agreed to develop a car for Lowdon within the limit. To save money, he would design and test the car using a computer model rather a wind tunnel, saving at least $35 million. That still left Lowdon searching for $42 million.

Lowdon introduced himself to Darryl Eales, the managing director of Lloyds Development Capital (LDC), a private-equity group attached to the bank. Over a cup of coffee in Kensington, Lowdon persuaded Eales that Mosley’s proposed new rules gave Manor a chance of success. Financing the team, said Lowdon, should be seen as support for British engineering – a scenario Eales accepted. Over the next eight weeks, said Eales, he would scrutinise the investment and prepare the contracts.

Lowdon’s next stop was Virgin. His contact there was Tony Collins, the chief executive of Virgin Trains, to whom Lowdon had sold his latest invention – wireless internet for passengers. Collins, a motor-racing fan, introduced Alex Tai, and in mid-April Lowdon and Wirth were pitching in Hammersmith, feeding Tai’s ambition to stay in the spotlight and enjoy more glory. As Tai pondered the proposition, Wirth threw down his chips: ‘Branson will never get the same deal with Brawn again. Brawn will want $20 million next season just for a sticker on the car. And $80 million minimum for the team to be called Virgin.’ Tai remained silent about the reality: ever since Brawn’s third victory, there had been no conversations between Branson and Brawn. Branson had been discarded by the winners as a man without the money in favour of serious suitors, including Mercedes, a Malaysian oil company and several European banks.

‘You personally can move up in the racing world,’ Wirth told
Tai. ‘Brawn can’t offer you that.’ Lowdon massaged Tai’s ego: ‘You could be Virgin Racing’s team manager.’ With the same studious manner that persuaded Darryl Eales about Manor’s destiny, Lowdon spelled out how Max Mosley’s new rules should attract Virgin because ‘you can take advantage of the dislocated market’. Virgin’s exposure with Brawn, he said, proved the value of sponsorship. The branding experts had valued Branson’s £6 million investment as already worth £60 million – and rising – in TV exposure. ‘Do you think you can persuade Richard to sponsor Manor?’ asked Lowdon.

To remain in Formula One, Tai knew, Branson’s decision would need to be swift. Mosley’s deadline for applications to enter Formula One’s 2010/11 season was 28 May. To qualify, Lowdon would need to name a major sponsor. His case was strengthened by Eales’s agreement to invest £12 million. ‘The prospects of healthy profits and a return on the investment are excellent,’ Eales would tell the
Financial
Times.

The bulk of the money depended on Tai’s support. In the course of their conversations, the Virgin executive told Lowdon that if his company became committed, he personally could recruit at least ten other sponsors, especially from the Virgin empire.

‘Richard likes it,’ Tai told Lowdon in mid-May. Brawn had won four out of five races, and Branson was loving the global publicity. Mixing with the rich and famous hit a high point in Monaco at the end of May. By the Mediterranean, the VIP paddock was heaving with celebrities, many greeting Branson as a hero. On the day before the race, Branson stood in the pit chatting with billionaires and occasionally boarding their shimmering yachts. That night, he hosted his own party in nearby Villefranche. Brawn had won pole position and, barring a crash, the team was almost certain to win the following day. Virgin’s executives appeared to think of little else other than the image of
two cars adorned with the Virgin logo being seen by 100 million viewers.

Nonetheless, Branson’s excitement and Brawn’s success were not the gossip in the paddock. Formula One’s insiders were discussing a spectacular argument the previous night in Monaco’s Automobile Club between Mosley and the team leaders about his plan to limit costs. Mosley’s survival was in doubt.

Mosley’s financial cap had always been opposed by Formula One’s established teams. Led by Luca Montezemolo, the chief executive of Ferrari, the managers rejected any restrictions on spending. Their opposition was the pretext for either ousting Mosley or breaking away from FIA and Ecclestone to establish their own competition. In his fight for survival, Mosley had encouraged Lowdon to embrace the financial cap he wanted to impose on Formula One to wreck Ferrari’s dominance. Inevitably, Ferrari led the coup against Mosley. Influenced by Ross Brawn, who supported the anti-Mosley breakaway, to form their own Formula One business, Branson told Donald Mackenzie, the financier who had bought into Ecclestone’s Formula One, ‘I’m going to back the breakaway.’ ‘Good luck,’ replied Mackenzie, and walked out of Branson’s office. Bizarrely, Branson failed to understand that his own interests lay with Mosley’s scheme, not with the spendthrifts. Ecclestone scoffed at Branson’s confusion.

The following morning, just before the Grand Prix, Lowdon took Tai to
Lionheart,
a large yacht moored in Monaco’s bay owned by Philip Green, the billionaire clothing retailer. He wanted a quiet conversation to secure an agreement. Tai, Lowdon realised, was ‘hotter than ever’. Enraptured by playing among the rich in Monaco’s sunlight, Branson’s envoy wanted more of the same. Lowdon played on the euphoria. To keep Branson involved, he maintained the fiction that Mosley’s $42 million cap would be implemented in the new season. ‘Richard won’t win next year,’ said Lowdon, ‘but we’ll be the challenger.
That’s Virgin – the challenger brand.’ If Branson signed the deal, Tai was promised again, he would be Virgin’s team manager and receive shares in the company. Tai smiled and returned to shore.

At nightfall, after Brawn had won his fifth victory, Branson landed in Marrakech. In his last conversation with Ecclestone, he had been encouraged to fund a Virgin team and start on the grid at Melbourne in 2010. The negative voice was that of Gordon McCallum, the chief executive in charge of Virgin’s commercial investments. ‘This isn’t going to work,’ he repeated. But, gripped by Formula One’s marketing power and the parties, Branson ignored the advice and succumbed to Lowdon’s assurances that success was possible without spending $80 million. Neither Branson nor Tai seemed to have questioned whether Ferrari intended to design their cars by computer rather than in a wind tunnel.

Lowdon spent the evening drinking in Monaco, waiting for Tai to telephone. Eventually Tai called. ‘Richard really likes it,’ he said. ‘We’re on.’

‘Alex has been brilliant to persuade Richard to do it,’ Wirth sighed.

The sting was Branson’s refusal to pay any money. He offered only the brand. The attraction, Tai explained, was that the Virgin wrapper would encourage other corporations to pledge real money as co-sponsors, and Tai would deliver sponsors from Virgin’s 300 companies. With his dream of competing at next year’s Monaco Grand Prix in jeopardy, Lowdon accepted the terms. His vision depended on securing Virgin’s name. Wirth, he knew, could not solve the technical problems with a computer rather than a wind tunnel, but that was irrelevant compared to the glory of a guaranteed place on the grid. Tai’s personal commitment was the purchase of shares worth about £4,000. Branson himself believed there was nothing to lose.

‘They’ve certainly got me addicted,’ he said after the next race
in Turkey – Button’s sixth victory. ‘We got in when it was very cheap and it’s been great for us with global coverage, but I suspect next year the price will be astronomical and we may have to look somewhere else with a smaller team. We at Virgin have most likely got the mileage we needed from it. We’ll have had a fantastic year with them, so it’d be a good time to sit down and have a word about upping my interest.’

Three days later, Lowdon’s application was submitted to Mosley. Virgin Racing was competing against other aspiring newcomers for three places on the grid. At the hearing, the FIA committee was sceptical that Virgin would want to be associated with losers, but Tai offered an Oscar-winning performance in response. ‘We don’t want to piggy-back on Brawn,’ said the team’s director. ‘Virgin likes taking risks and being the underdog.’

‘You were brilliant,’ Wirth told Tai, enthralled by the pilot’s eloquence. ‘You’ve got us on to the grid.’

‘With Branson’s involvement,’ he later said, ‘we stood half a chance to be successful.’

‘Super,’ said Ecclestone, delighted that another billionaire had joined the club. He assumed that Branson and the Virgin Group would invest about $80 million and raise another $100 million from sponsors.

Alex Tai was appointed director of Virgin Racing. ‘We’re the new car on the block,’ he told Reuters. ‘Hopefully we’ll be here for sixty years to come and making money during that time and not pouring money into it. It’s possible to have a Formula One team that actually makes money.’

In late June, Mosley was forced to resign, and the financial cap was buried. Lowdon and Wirth were now faced with what they described as a ‘nightmare’. Instead of telling Tai that their financial plan was wrecked, when Lowdon arrived at the British Grand Prix at Silverstone in July he mentioned his hope of getting the rules adjusted without Mosley. Tai wanted to believe that
fiction, as did Darryl Eales and his deputy, Carl Wormald. Both had arrived in Silverstone to finalise LDC’s investment. The party atmosphere pulped the bankers’ commercial scepticism, and both accepted the assurances from Tai and Branson that Virgin companies would be sponsoring the team. Branson, Eales noted, spoke warmly about Tai’s close relationships with Virgin’s directors. There was sufficient money, everyone believed, for Virgin Racing. The payroll was increased from five to seventy employees.

By September, the truth was unavoidable. Designing and testing the car by computer rather than in a wind tunnel was technically impossible. ‘This is a crisis meeting,’ Wirth told Tai. ‘We’re exposed to failure. We’re going to be bloody slow.’ If Tai was confused, Wirth was forthright. ‘It’s not too late to change anything, but it’ll only get better if you get some money.’ The bankers were not told the bad news by Tai. Eales and Wormald only recall being told that everything was going to plan. To bridge the gap, Lowdon relied on Branson’s assurance that Virgin companies would sponsor the team. Tai repeated his pledge: ‘I’ve got a pipeline of opportunities I’m working on.’