Brought to you by TheJudge13 contributor Mattpt55
Le Roi est Mort, vive le Roi! – French traditional
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.
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