#F1 Features: The King is Dead, Long Live The King – Part 1

Brought to you by TheJudge13 contributor Mattpt55

Le Roi est Mort, vive le Roi! – French traditional

Sky Sports F1Just a brief flash in the sky, on 2 February, 2014 an article ran in the NY Post, a Murdoch paper, entitled “Cable TV Mogul looks to add Formula One to sports bag” by Claire Atkinson.

Meanwhile, fans rejoiced (or not) in the aftermath of the Jerez testing, depending on their loyalties while those of a more technical bent attempted to vainly read the tea leaves and predict how each team would do in the coming season. Like dinosaurs grazing in the sun, oblivious to the world-changing event happening in the distance, life in F1 land continued with no idea about the magnitude of the event they had just witnessed (or not).

Murdoch Slim Offer/rejection

Not that there was any reason for them to take this seriously, after all, just 3 years ago, Rupert Murdoch and Carlos Slim put in a similar bid to take over F1 only to be laughed off by Bernie Ecclestone, who at the time reigned supreme in the world of F1. His CVC masters bewitched by his gilded tales of epic stock valuations rapidly put the kibosh on the deal.

Despite the setback, Murdoch would go on to acquire the rights to F1 in the UK, and start a channel to give full time coverage of the sport. And even with the current offer, the principals agree that this is nothing more than the most preliminary of manoeuvrings. Yet a lot of water has flowed under bridges that were burning in those few short years.

Ecclestone’s corruption (according to Judge Newey) of the sale process to CVC (Gribkowsky) has caught up with him, nullifying CVC’s potential stock flotation in Singapore. He is shackled by his master’s oversight and if found guilty, faces humiliation in the dock.

The empire he has so carefully wrought teeters on the knife-edge with venues unable to keep up with spiralling costs and TV audiences in global decline. CVC would be wise to jump ship before the potential value of F1 takes a serious tumble.

Indeed the signs are nigh that CVC will treat this tender, should it come to pass, much more seriously than the previous Murdoch offer. But it will not be plain sailing for Murdoch as reported in yesterday’s news. Other parties are interested and for one, John Malone, Cable Mogul to rival Murdoch, has been feverishly acquiring properties for his Liberty Global company.

According to Digital TV Research, since 2012, Liberty Global has been the largest European pay TV operator by subscribers. Those of you who are Virgin Media subscribers are already customers of Mr. Malone.

Liberty Global & Virgin MediaSurprise! Go ahead, sound off in the comments and let us know how your service may have changed for better (or worse) in the last year or so since Liberty acquired Virgin Media.

CVC quietly announced that they plan to sell the rest of their stake by 2018. Given their previous reticence on the subject, that announcement alone should be enough to set alarm bells ringing, as the sky begins to turn a funny colour and the weather seems slightly off in F1 land. Despite a few misgivings, the dinosaurs return to their grazing.

Of course, to understand what a Malone purchase of the F1 rights might mean to the sport and it fans (us) a brief look at how this point was reached might be useful. One could go look for oneself (I did) but it is a truly mind numbing concatenation of tangled and incestuous dealings, complicated by the almost non-existent and sycophantic business reporting that does exist on the subject. Still history is history, and the basic facts are as follows.

  • In 2001 FIA extend commercial rights for 100 years to SLEC (Slavia Ecclestone) successor to FOPA and FOA (don’t ask) for a one time payment of  $309m (yes, $3.09m per year)
  • SLEC had already been bought out by a combination of investors and combined into Speed Investments.
  • Subsequently EM.TV and then Kirch (German Pay TV companies) acquired the rights to Speed.
  • To purchase more of SLEC (75%), Kirch borrows excessive sums of money form Bayerische Landesbank (where Gribkowsky ultimately comes in).
  • As of 2002, Kirch goes kaput and into receivership. The group is sold off, but Kirch’s share in SLEC is kept by Bayerisch, JPMorgan and Lehman
  • In the meantime, Ecclestone has changed the governance of SLEC, effectively putting Bambino in charge of the board, while the banks await approval to take active control of share
  • Banks file court case to take control, eventually win and are afforded representation
  • Gribkowsky installed on board by Bayerische LB
  • Lots of money changes hands
  • Eventual sale to CVC of rights
  • Ecclestone keeps his job

It’s important to note that underneath all of this talk of rights there is also a nested complication of management companies that are actually running the show and moving money about. From year to year, new ones will be started and old ones wrapped up. For the purposes of this article they are not worth pursuing, but for those seeking a fuller understanding of how the sport runs it would be essential.

Assuming, as Judge Newey stated, Mr E did act in a less than truthful manner, CVC’s purchase of F1 commercial rights in 2006 was corrupted by the exchange of moneys between Ecclestone and Gribkowsky. It was fortunate that the eventual sale price was just below the threshold that would require the payment of money to Constantin Media, who lost the first round of their court case regarding that sale.

For the moment it is safe to say that although the rights/shares were not undervalued, according to the legal decision the process itself was corrupt.

The most likely reason for his actions were that Ecclestone did not wish to lose control of F1, which would have happened prior to the CVC sale. In fact, according to Gribkowsky, the entire affair started when he attempted to keep Ecclestone from repurchasing the 75% share the banks owned in 2003. He told Ecclestone “you are just a CEO working on the shareholders behalf”. This was the struggle that has led to the current situation.

Of course, the mounting legal woes have taken their toll in other ways as well. Chief among them has been the permanent binning of the planned sale of shares in Singapore. Originally scheduled for 2012, then postponed to 2013, it would have been the ideal way for CVC to permanently offshore the debt they have incurred with the purchase of the commercial rights.

CVC have twice refinanced in order to take money out of F1 and pay themselves, and their investors, dividends (over a billion dollars’ worth in fact) driving their returns up to roughly 630%, according to Christian Sylt in a 2012 London Loves Business article. The article most excellently details precisely how they have extracted so much wealth from F1 in the past 8 years.

(Entertainingly enough however, one year later he completely leaves out these facts in his October pitpass.com article defending CVC and Ecclestone’s management against Mark Hughes’ article in MotorSport slagging CVC.)

In his article on London Loves Business, though, Sylt does miss-state one important fact. According to the BBC, the teams (manufacturers) that threatened to break away and start their own series did so because they were concerned about Kirch moving F1 away from terrestrial TV and onto pay TV….  Sound familiar?

In order to placate them, Kirch offered them a 25% stake in SLEC. Of course, for those paying attention the fact that the Concorde agreement has been declared “unnecessary” at this point by Ecclestone should raise certain questions, given the fact that it has been the labor agreement that has kept the peace for so long, until its expiration in 2012 with a whimper.

The answer lies in the appendix, specifically: ‘The Commercial Rights Holder may not permit Formula 1 events to be shown only by pay television in a country with a significant audience if it would materially adversely affect audience reach in that country.”

The expiration of the Concorde agreement in essence means that F1 will no longer be required to be available on FTA TV. This will certainly make the rights more valuable for CVC, but will also reduce exposure and sponsorship for the teams. It’s not very good for the fans, either.

Enter the stage, John Malone….

End of Part 1

16 responses to “#F1 Features: The King is Dead, Long Live The King – Part 1

    • But the folks that actually own it are the banksters and the fraudsters. The only question is, will the FIA step in if Ecclestone is found guilty and try to annul the transfer of commercial rights. The answer is almost resoundingly no, but the question of EU interference also lingers in the background as Big Bob Fernley has been relentless about the unfairness of the current set up.

  1. Other than restating what has been written before, a far better article would be on how Mosley and Ecclestone came to their agreement in the first place. How the commercial rights price was arrived at, why there was no competitive bidding, did Mosley get anything from the rights sale, etc………………

    As for Malone or Murdoch buying F1 the reason is simply – it’s live sports content that their cable network / cable operation need to stem the decline in cable subscribers, and stop either FOM or the FIA streaming races directly to viewers and bypassing them. Neither Malone or Murdoch have a future if that happens.

    • Yes but Malone is on record wanting to collaborate on a competitor for NetFlix. And he’s bought tremendously in Europe. It’s entirely possible that he would use F1 to drive internet subscriptions, rather than cable subscriptions. He clearly sees cable subscriptions as the easiest way to hook people on high speed internet, based on his own words. And he’s also on record as saying the traditional cable bundle is dead.

      His last offer was $4 bilion to CVC and he thinks sports cost too much. I don’t think he would just use F1 to lock viewers into existing subscriptions. It’s too expensive and shedding viewers throughout Europe.

      • “Yes but Malone is on record wanting to collaborate on a competitor for NetFlix.”

        Dozens, maybe hundreds of company’s already compete with NetFlix. Malone is a bit behind the curve on that.

        “It’s entirely possible that he would use F1 to drive internet subscriptions”

        North America and Western Europe already have 80% + internet penetration so f1 isn’t going to gain many new internet subscribers. If what you are suggesting is Malone would stream F1 directly to the home that also would be very difficult to do. Technical issues aside, many / most countries classify any subscription internet steaming service as a broadcast / cable service and require a broadcast / cable license. If you don’t have a license the national telecommunications regulator will block your feed. Which means he’ll have to sell the rights off to company’s in each country, which is exactly what Ecclestone does today.

        F1 as investment, in my opinion, is essentially at the limit of of revenue potential now. The numbers of races is at its limit. The amount that promoters are willing to pay to host an event is declining. I doubt moving F1 back to free to air would significantly increase viewer-ship

        The fundamental problem is that F1 has lost its reason to exist. It was once the pinnacle of automobile engineering which rewarded innovation. Now it’s neither. It strangles innovation and relies on gimmicks like being “green” or double points to keep its declining fanbase interested.

        If F1 stays as it is the decline will continue. It doesn’t matter who owns the rights or whether they stream the races or use social media or anything else they can come up with. F1 has passed it best before date.

        • F1 may be at the limit of its revenue potential but to me it seems that Malone’s play is not to stream F1 to you, but to consolidate and grow subscribers to *his* internet providers, particularly in Europe where he has been on a buying spree. F1 may have peaked in terms of viewership, but it is still a highly followed sport in Europe.

          In other words, he’s not after the 20% that can’t afford internet, he wants a bigger slice of the 80% and sees F1 a means to that. OR not. He’s hardly stupid and I doubt he will overpay.

          WRT to Netflix, he was talking like that at least as far back as 2009, which means that he was thinking about it even longer.

          As far as F1 losing its reason to exist, you may not like the way it’s going at the moment, but the sport has survived an awful long time and a few years of bad rules doesn’t necessarily mean it’s time to stick a fork in it. Besides, their poor choices leave you with loads of choice material.

    • Of course you know who Malone is, but many readers won’t. And if you find the subject that interesting, no reason you can’t write the Mosely-Ecclestone article yourself 😉

      • Yes cav, what about it? Do you have anything useful to share? Be great if you did although I rather suspect, not having a shot here, that you won’t for the simple reason that only the two parties in the mix will know.
        To that end I relish, unlike many who’ve coasted around the matter, the EU waking up to the likes of Bob Fernley and taking an avid interest.

    • The deal for Malone would be to copy the model of BT sport in the UK of offering free cable/tv subscription when you sign up for broadband. It’s proven amazingly successful for BT, so why could it not work for Malone and the millions of F1 fans around the UK and Europe?

      • I think it’s actually an extra £5/10 a month to get the channels on the TV.. hence my only having the free app..

          • from an interview with Tom Mockridge, head of Virgin Media

            “Virgin Media has stood on the sidelines as BSkyB and BT have battled it out over live football rights, an expensive conflict that is part of a long-term war over broadband subscribers, who are at the heart of the two firms’ business model……….

            Last week it was announced that Virgin Media would be spending £100m to double the speed of the cable network to roughly twice BT’s top speed.
            “It’s a realistic point of difference,” he says. “There are only two networks in this country: there’s ours and there’s the other one. I’m not meant to mention BT but I just did.”……….

            “Everyone else is someone else reselling BT,” Mockridge says. “Our proposition is, you’ve got the biggest, fastest, fattest and most effective broadband………….

            The rationale behind Virgin Media’s decision to spend money upgrading its network is the same rationale writ large in Malone’s European cable network acquisition spree over the past 10 years – which is that consumers will continue to demand more and more video over the internet. That means the capacity and speed advantages of cable lines into homes over the traditional copper telecoms lines owned by former state monopolies such as BT make them increasingly valuable.”

            Link: http://goo.gl/tYcD50

          • Definitely.. BT give a terrible service, my speed is slowing down from 5 years ago, and fibre to the cabinet is delayed each year to the next year… To be honest, I should be marching with my feet to someone else.. who will give a better speed over the BT copper cables.. Ugh.

  2. Matt touches briefly on one aspect of this whole thing I find fascinating: the way voting shares are set up by Bernie with Delta Topco, Delta Prefco (?), etc. etc. and how control of FOM is distributed. Basically, IIRC, Bernie has all the voting power even though he doesn’t control all the shares. He will have a big say in who get FOM; just because you own shares doesn’t mean you have any say in what happens.

  3. Hmmm…..this sounds a lot like an old Michael J. Fox movie, “The Secret of My Success”, in which a distant relative of the main character is simply running a multi-million-dollar business into the ground and getting rich off it while fending off hostile takeovers by selling off stuff. Yeah, that does sound familiar. 😛

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.