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?
MB: You don’t need that aggravation?
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.