More shady deals for F1 ownership on the horizon

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Back in 1991, Ayrton Senna was changing the landscape of Formula One. He completed the season winning what would be his final F1 championship.

This was the final year when Nigel Mansell, Alain Prost, Nelson Piquet and Senna all competed together. Prost refused to partner Senna again and took a sabbatical in 1992, while Nelson Piquet decided to quit the sport altogether.

Meanwhile, the chief executive of Britain’s largest Jeweler was to make one of the most stupid mistakes ever by someone in charge of a multi-national business.

Ratners Jewellers had been popular with the less well off in the UK and America and was a stack ‘em high – sell ‘em cheap operation – but highly successful at what they did.

Gerald Ratner wiped £500 million from the value of Ratners with one speech. He said: “We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95.

“People say, ‘How can you sell this for such a low price?’ I say, because it’s total crap.” He added that his stores’ earrings were “cheaper than an M&S prawn sandwich but probably wouldn’t last as long”.

Ratner is a renowned business case study of how a CEO should not behave. His comments were beyond foolishness.

In the week prior to the Austrian GP, Bernie Ecclesonte was quoted by the AFP news agency as saying, “I told them they have given me a crap product to sell.”

Ecclestone later back-pedalled when asked to explain himself, replying, “Really? I don’t know who said that. Bad quote”.

The F1 product is clearly not so crap if the actions of race promoters are anything to go by. In 2016 we are set for a maximum and record 22 races, given the recent confident press releases from the Qatari’s.

But Ecclestone has consistently been talking down F1 since the introduction of the new V6 Turbo hybrid engines in 2014. The rhetoric had become so obtuse that Martin Brundle asked F1’s CEO whether he was attempting to drive down the sale price of Formula One.

MB: So you’ve been openly critical as the promoter; are you trying to knock the price down and buy this back as some people are saying?

BE: Not really no.

MB: Do you want full ownership back if you can get it?

BE: No.

MB: You don’t need that aggravation?

BE: No.

MB: It’s not on the agenda at all. So that story is…

BE: It’s all nonsense.

(Q&A on SKY F1 Bahrain 2014)

A year or so on and according to Ecclestone, the CVC investors are demanding that F1 be sold. This despite making no less than 500% profit in less than 10 years.

“It’s like all hedge funds,” Ecclestone told Adam Cooper. “They invest people’s money for a certain period.

“It doesn’t matter how good they do, they have to give it back. Maybe they re-invest again, maybe they don’t, I don’t know.

“They’re past their sell-off date. They have extended it a couple of times.”

Of course CVC now own around just 1/3rd of Formula One commercial rights, having sold shares to various global finance operations and two pension funds belonging to the teachers of North America.

These new investors were enticed to purchase CVC held shares in F1, because not long after their acquisitions CVC borrowed money using F1 as security (like a mortgage) to pay the new shareholders a ‘leveraged dividend’. The ‘dividend’ was interestingly about the same for each new shareholder as the entire amount they paid for their shares.

Formula One now has a debt estimated in excess of $4bn and currently an estimated sale value of $7-8bn. Given the debt and the uncertainty surrounding the sustainability of the existing F1 business model, this price looks at the top end any analyst could justify.

Having stated just over 12 months ago he had no interest whatsoever in buying back F1, Ecclestone has now changed his tune. Last week Bernie openly discussed with F1 writers the option of he and Donald Mackenzie – head of private equity fund CVC – doing a joint venture to buy the commercial rights to Formula One.

“Donald Mackenzie doesn’t want to sell, as simple as that”, Ecclestone revealed. “He loves F1, he loves the business, he doesn’t want to sell. He may have to sell his shares [CVC shares]. Whether he’ll invest himself, maybe with me, separately, we’ll have to wait and see,”

Donald Mackenzie however is telling a slightly different tale. He says there is no deadline for CVC to sell their shares because the investors have been paid back many times their original investment so, “the pressure is off.”

Mackenzie is categorical: “We don’t want to sell.”

Make of this difference what you will.

CVC, Ecclestone and the Lehman Brothers Fund (15%) own around 51% of the F1 commercial rights, the rest own 49%.

These include Waddell & Reed (invested $1.1 billion on behalf of clients), BlackRock ($200 million), Norway’s sovereign wealth fund Norges Bank Investment Management, ($300 million), North American teacher pension funds ($400m), the Singapore sovereign ($1bn and discounted race hosting fee).

Any deal to take control of Formula One’s commercial rights must be approved by the FIA, but does not require the agreement from the minority shareholders and they may not be offered the option to sell their shares.

The big question is, who will be the next master of our beloved sport.

Given the chance, F1 needs to ditch Bernie Ecclestone. He has clearly demonstrated he will trash talk the sport for 18 months just to create an opportunity for himself to buy back the F1 commercial rights on the cheap.

Bernie may be no Gerald Ratner – in that as CEO he has devalued his F1 product deliberately, not by accident.

Further, Bernie’s divide and conquer culture will continue to infest the participants in F1 as long as he has  some level of control and perpetuates this way of thinking.

 

11 responses to “More shady deals for F1 ownership on the horizon

    • @Gregor

      How long do you think it will take Flavio to reappear, if Grandpa Bernie and Donald Duck get their way?

  1. Interesting read. Thanks. +1

    “…two pension funds belonging to the teachers of North America.”>’
    (Many lol’s)

    • “(Many lol’s)”.

      The Ontario teachers’ pension fund is no lol joke!
      http://www.otpp.com/investments/overview
      $154.5 billion in net assets
      10.2% average rate of return since 1990

      http://www.telegraph.co.uk/finance/globalbusiness/9469070/The-Canadian-pensioners-who-own-Britain.html
      bought outright or own stakes in some of the UK’s most prized infrastructure. That includes High Speed One London to the Channel Tunnel; Scotia, Scotland’s biggest gas network; the ports of Southampton and Grimsby; Birmingham and Bristol airports and Camelot, the operator of the national lottery; engineering company Tomkins; software maker Logica; Goals Soccer Centre, the biggest operator of five-a-side football pitches.

      • Thanks for the info, but I wasn’t laughing at that pension fund itself…

        Speaking of which, I feel like some baby back Texas-style smoked ribs… Off to the butcher for me.

        🙂

      • My Father is a retired Ontario teacher (great pension plan), when I tell him how excited he should be to be an F1 owner he says, “ah that’s peanuts for us big time investors”.

  2. “Any deal to take control of Formula One’s commercial rights must be approved by the FIA, but does not require the agreement from the minority shareholders and they may not be offered the option to sell their shares.

    The big question is, who will be the next master of our beloved sport.

    Given the chance, F1 needs to ditch Bernie Ecclestone. He has clearly demonstrated he will trash talk the sport for 18 months just to create an opportunity for himself to buy back the F1 commercial rights on the cheap.

    Bernie may be no Gerald Ratner – in that as CEO he has devalued his F1 product deliberately, not by accident.

    Further, Bernie’s divide and conquer culture will continue to infest the participants in F1 as long as he has some level of control and perpetuates this way of thinking.”

    Hopefully, the FIA would block Bernie taking control of Formula 1’s commercial rights for the good of the sport. If it’s allowed to happen ,it will be a very sad day for Formula 1 because Bernie is so out of touch will the fan base and what they what to see in the sport. I think that Martin Brundle was on to something when he asked Bernie those questions. Bernie knows what he wants and I think that complete control and the increased power over the teams that he could have would give him a feeling of being a dictator. I secretly think that he would love to have dictatorial type power in the sport.

    What is worrisome is if Bernie does get complete control of the commercial rights for Formula 1, I think that the sport will officially be headed down the road to a slow, painful death because Bernie is so greedy and refuses to bring the F1 into the modern era in many areas. If something can’t be monetized to benefit Bernie’s wallet, it’s not done. Can he retirement be fast tracked so that Formula 1 can be modernized in the areas that it needs too be while holding on to it’s historical bits so that the sport can start reaching its full potential? I’m not too sure about Christian Horner taking over Bernie’s position because he’s a Bernie clone and can’t seem to sort out the problems he currently has at Milton Keyes.

  3. Talking of Bernie, after reading F1 magazine article on him, felt I had to pen the following on him, as people mention, he is so out of touch with today and showed it clear as daylight in that article.

    ‘Bernie Ecclestone, what a headline person to have on the cover. I thought, great, let’s pick Mr E’s brain and get some of his in site into the sport that I love. But alas, as the questions were answered, I became more and more despondent thinking that here was the guy charged with directing the sport I love. The sport that I have watched for 30 odd years. And the sport that is in desperate trouble.

    I’ll tell you why I’m so concerned. A couple of quick examples from the article. In relation to the strategy to attract new fans, he answered, “I don’t know, maybe someone else should answer. What attracted people 30 or 40 years ago? The world has changed”

    Clearly this is a confused man! Yes, the world has changed and what worked 30 or 40 years ago isn’t going to work now.

    Next, asked on his reluctance to embrace new technology, he answers “I am not reluctant. I don’t believe it will attract younger generations to watch Formula 1. What attracted today’s 40 year olds 30 years ago? We didn’t have social media.”

    What kind of an answer is that, from a person that is supposed to be leading this sport. He wants the sport, the cars, to be cutting edge technology and then live in the dark ages to promote the sport. How will that engage younger people into the sport. Everyone these days has smart phones, so yes, social media will work.

    Reading the article about Mr E was really infuriating. It appears that he has no real concern and no plan for the future of the sport. Further to this, it comes across that he is ignoring the current fans that the sport does have. And while many of these fans are hanging in there at the moment, who knows how long they will stay on board for before they get fed up with the current situation.

    With the sport in such disarray at the moment, who can we turn to. Who can us fans, that actually make the sport happen because we watch, get heard? How can we as fans contribute to moving this sport on, this sport that we love and want to see succeed? I’m hoping that you, as a magazine body who has contact with the movers and shakers can help us in this challenge and get us some details on people that we San write to and show our concern and she’d some of our ideas on this beautiful sport.

    Who knows, maybe the answer is stop being so closed shop on the whole circus and open up and let new light and talent in!’

    Somebody like this now has no interest in the sport, only the business of F1 and as fans, this is not good.

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