Brought to you by TJ13 Editor in Chief Andrew Huntley-Jacobs
“Every idea appears at first as a strange visitor, and when it begins to be realized, it is hardly distinguishable from fantasy.”
JOHANN WOLFGANG VON GOETHE
Simultaneous reports published by the Times and Reuters last evening, claim Formula One is on course to be sold. CVC currently hold 35% of the shares and Bernie Ecclestone around 5%. However, the articles of ownership means this is sufficient for absolute control of the commercial rights.
The buyers are said to be a partnership between RSE who own the Miami Dolphins and FanVision and the Qatar Sports Investment fund.
The valuation for F1 is reported at $7-8bn, which is a significant discount from the $10bn CVC and Ecclestone hoped to achieve through the failed Singapore float.
However, in 2014 Formula One had revenues of $1,800m, of which $650m went to the shareholders prior to interest payments on the $3bn debt and other expenses such as FOM TV.
After these deductions it is likely that there is around $400m available for the shareholders to share.
A value of $8bn means that the new shareholders given the current levels of finance would have to wait 20 years to be paid back for their investment – without any interest.
Valuations of 20 times EBITDA are realisable in the crazy world of corporate finances, though are often paid for businesses with a recent track record of significant growth in profitability. In 2014, Amazon’s valuation was a miraculous 100 times profit, though the growth of the internet retailer and the sexy nature of online retail all played to create this ‘paper valuation’.
Formula One is not a growth business and the current financial model has been maxed to the limit. A valuation of single digit profit to shareholder multiples would be more realistic for such an organisation even with global reach.
To take F1 from where it is now financially to delivering substantially greater profits will be due to the skill of any new investors/managers – and for that, Bernie and CVC will receive no financial credit.
When sovereign Arab funds are involved, the price of anything can appear ludicrous. Aabar (Sovereign Investment Fund of Abu Dhabi) acquired around 9% of Daimler Benz stock back in 2009. They then gambled on Daimler Benz ‘futures’ and reportedly lost in the region of $5-6bn.
The articles of F1 offer the FIA a veto under certain conditions of any sale by CVC to another party.
CVC bought F1 back in 2005 by means of a ‘leveraged buyout’. This means they borrowed the money to acquire the commercial rights to Formula One and the deal was said to be in the region of $3.5bn.
Since then and through dividend payments and further leveraging, CVC are believed to have already been remunerated at least by four times the original investment.
Given the timing of the FIFA corruption scandal and the distinct possibility that Qatar may lose the 2022 world cup, the timing of this announcement is more than interesting.
James Allen observes, “It is possible that the recently launched investigations into FIFA and the controversial 2022 World Cup in Qatar have stimulated them into diversifying their sporting portfolio and the opportunity to acquire F1 at this time made sense with Ross the proposed partner”.
Indeed James, that is entirely possible – as is the suggestion the Qatari rulers are sticking two fingers up to the rest of the sporting world… and just because they can.
Other ulterior motives for this news leak may well include a message to certain interested parties – of “better the devil you know”.