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Posted By: James Allen  |  09 Mar 2012   |  5:26 pm GMT  |  41 comments

There are some interesting things going on behind the scenes in F1 at the moment which could have a significant bearing on the ownership of the sport in the future.

It has been revealed that 15% of the shares in F1′s holding company will soon come up for sale. At the same time the media regulator in the UK has said that it is ramping up its probe into whether NewsCorp and James Murdoch pass the “fit and proper person” test for controlling BSKYB, which now has the UK F1 TV rights. Mr Murdoch is still chairman of BSKYB.

According to a report in the Guardian from a source close to Bernie Ecclestone, the company holding the assets of bankrupt US bank Lehman Brothers will sell its 15.3% F1 stake within the next two years.

“Lehman is the second-biggest shareholder in Formula One’s Jersey-based holding company, Delta Topco, which is majority-owned by private equity firm CVC. Lehman owns a 15.3% stake and a senior Formula One source says that Topco is worth “more than $10bn”, said the report.

This is interesting for a number of reasons, not least who might purchase the stake. One thinks immediately of three groups whom this might interest: the teams, NewsCorp/Exor and the Abu Dhabi investment vehicle Mubadala.

Clearly the best thing for the sport would be for the teams to have a stake. So could it happen?

The teams have often said that it is desirable for the sport if they were to hold a stake. It would also be very attractive to any future buyer of CVC’s majority stake, as it would stabilise the sport for the long term. Investors hate uncertainty. F1 is a unique global business with huge potential for growth, but uncertainty over the behaviour of the teams over breakaways, as they threatened in 2009, or demanding too much money, undermines confidence.

In an interview for the Financial Times last November, FOTA chairman Martin Whitmarsh told me,

“The teams’ equity involvement is a stabilising force. I’m not saying that the teams have got to own it. But if you are trying to create partnership in most businesses then a bit of cross equity is useful. At the moment the teams contract for a finite period to a Concorde Agreement and you then get lots of speculation about how you replace that. If teams were equity holders then it encourages all stakeholders and potential investing partners that you have some continuity, going from one Concorde negotiation to the next with standoffs doesn’t.

“If I was private equity and I had the teams committed with a percentage owned by the teams, then the value that I hold if I’m trying to exit has got to be enhanced if you have the teams tied into the sport. That’s a win/win.”


It is obvious and entirely logical. But these are not always qualities one sees in F1′s business dealings.

As regards whether this is possible or even likely to happen, it’s a major blow to the concept that FOTA has now split as an organisation, with Ferrari leading a walk-out of Red Bull, Sauber and Toro Rosso, leaving a rump of seven teams. Mercedes boss Ross Brawn describes this as a “tragedy”; the teams in question putting self interest in front of the opportunity to make a better future for the whole sport and themselves. I think he’ll be proved right.

Now divided and squabbling, it could be tough for Whitmarsh to cajole the others into looking at buying the Lehman stake, especially at a time when several teams are short of the money needed to race, let alone buy a share in the sport. Valuation is clearly going to be tricky; $10 billion looks a high figure, but relative to turnover and its potential as a business, clearly it’s going to be a somewhere between there and CVC’s outlay six years ago when buying it, of $2.8bn.

“It depends how much teams want to be burdened with debt,” said Whitmarsh. “But at the moment in expressing too frankly my opinions, it could be considered that I’m opening up negotiations in public and I don’t think that’s useful. At the moment there is an owner and it’s not us. CVC have invested in our sport, it’s been a good investment and they have profited well. “

They have indeed and this latest piece of news is another step towards the plan of exiting at some point with maximum value. The negotiations for the new Concorde Agreement have now started and although it could be a messy year while deals are agreed, CVC urgently needs to see all the teams signed up to participate for five years.

In all other respects the business is very well set up now; with many long term TV and media rights contracts in place, along with long term deals with circuits and Tata Communications’s new network for fixed-line connectivity at all races, the sport is pretty future proofed and ripe for selling once the teams are all on board. CVC have said that they don’t plan to sell, but if they don’t sell it then, it could be another five to seven years before the timing would be so perfect again.

Another potential buyer of the Lehman stake is NewsCorp, which is still working on its dossier announced last year with Agnelli family investment vehicle Exor to consider a bid for the sport.

Today’s Financial Times has a story about the UK media regulator Ofcom, setting up a project team called Project Apple to investigate whether the phone hacking allegations in the newspaper side of the business cause the organisation fail the “fit and proper person” test for an organisation to control a broadcaster like BSKYB. NewsCorp owns 39% of BSKYB and effectively controls it.

If Ofcom satisfy themselves that it does, then they have the power to require NewsCorp to sell off part of its stake down to the level where it no longer controls the broadcaster.

Last summer, under pressure from the UK government, NewsCorp had to give up on its planned £7.8 billion takeover of the rest of the BSKYB shares it does not own, over the phone hacking allegations.

Its next move after that announcement was to buy the F1 TV rights. With a large cash pot and a desire to control a major global sport, it could be the time for them to move on F1 again.

* Meanwhile in another business story this week, Bernie Ecclestone has confirmed that the two Spanish Grand Prix venues Barcelona and Valencia will alternate from 2013 onwards. And the French Grand Prix is looking to come back in a shared deal with Belgium.

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41 Comments
  1. Grabsplatter says:

    A shared deal to alternate between Belguim and France? I assume that keeps Spa, but which french circuit? Wiki has a whisper about Paul Ricard being a possibility. Would Bernie give PR a decent deal (he asked with tongue firmly in cheek)?

    1. Davexxx says:

      Bernie seems to have worked hard over recent years to show he isn’t interested in the little European minnows when there are still huge distant ‘Continents’ yet to be conquered – regardless of how bland, character-less or poorly-attended many of those new tracks turn out to be!

      1. daphne says:

        That’s not entirely true – he knows Turkey is a turkey. He’s very aware of that. In fairness, he’s just trying to grow the sport; it’s his business after all.

        Losing an annual Spa race though, that would be an Unforgivable Travesty altogether, and the fault would lie firmly at his feet. The price to the overall sport would be more than he could ever recompense through other fancy “modern” venues.

        Everyone loves watching F1 at Spa and looks forward to that race every year. It’s the best track on the calendar by far.

    2. Francois Fillon, the current French Prime Minister, a native of the Le Mans region and keen motor sport enthusiast, could probably help in landing the GP there should Sarkozy be re-elected. He won’t be PM anymore and hates the limelight. He could however become the next Sports Minister.

      If it is Francois Hollande that becomes the next president, I think we can kiss goodbye to the idea of a French grand prix. He hates motor sport and cannot see any future for it beyond going 100% green.

      Paul Ricard is way to close to Monaco and I don’t see this happening either. Magny-Cours would need state support so this one looks unlikely too.

      Maybe Bernie’s idea to go to Disney might happen in the end. Anyone who’s ever watched a certain F1 race at a Las Vegas car park will probably be horrified by the idea. :)

      1. Martin says:

        Disney GP might be a chance for Nico to replicate Dad’s win in 84.

    3. JAG says:

      Well since Bernie owns prhttt I’m sure he would give it an excellent deal…… Not that there’s a conflict of interest or anything there…..

  2. Adam says:

    Nice Rosie story James, but it ignores some very real issues. Fact of the matter is that at least one team won’t be racing by the end of the season in all likelihood (take your pick out of the back markers and even into the middle of the pack). And Lotus will be without Lotus sponsorship as that whole mess implodes this year. That should drop the value of those shares quite nicely as the economic viability of teams comes back into question. Then Ferrari is going to look like it has way to much influence when it argues against further resource restrictions and incapable of supporting the best interests of the sport.

    You can’t be sure about the long-term viability of Force India either as the larger financial arrangements that surround Kingfisher group come into play.

    As for News Corp even if the US Authorities don’t jump in and remove the Murdoch family from power in the overall company they will be too busy now fighting for survival to be distracted by F1 buyouts.

    So one of two things is as likely as the ideas you present. Bernie does some bargain basement deal when the value plunges after some teams run into problems. But Bernie has his legal problems too and will be distracted so that has to be considered. The other is McLaren, Mercedes and possibly Ferrari buy a stake.

    However If CVC was smart they would buy it and give them to the teams to sign a new Concorde agreement and make the shares theirs if they stay in the sport for five or more years. That would make the CVC investment more valuable in the way you suggest. But those shares are only as valuable as what someone will pay for them and that has yet to be proven in the current economy.

    Yes a lot of things are good for F1 as you point out. But not all by a long way and the measure of that is the team’s health, all of them, not a few. Because there won’t be a raft of new teams to replace them that are any more viable, not for a few more years until the economy turns around. The teams need to be seen as part of the whole franchise and made more valuable as something people would invest into.

    So get real James, look at things as a whole and the picture is not as rosy. CVC needs the teams; all of them, even the back markers and Bernie has not been good at deliver them cohesively. They should do the right thing and make the teams partners just like a company would to keep key personnel. The F1 world would have been a lot different for Williams if Frank had given Adrian shares years ago! He knows that now. But this is part of the same thing. One person grabbing all the resources is not the best deal, getting all the elements of the franchise to be valuable is a better approach.

    This season could be a bumpy ride!

  3. franed says:

    Bernie is so good at miss-direction, the Tata comms deal is huge and will save him many millions, it is also a possible exit plan from his huge investment in digital tv which goes way back to 1995. Once this started being discussed in the F1 media he immediately started talking about drivers and making a few controversial statements to divert attention.
    The Senior “F1 source” is of course Bernie’s office. He is taking in around $800m per year in circuit fees and traditionally has one of the highest ever profit ratios so if he clears $500m a year. We need the ROCE figure, but at first glance a value of $2.5b – $5b would seem more feasible, making a 15% stake worth $375m and $500m.
    Of course it is very unclear what is included for one’s 15% stake. Does it include other sources apart from circuit fees?
    Bernie has offered the teams a stake several times in the past, but they never wanted to risk their own money, either than or the small print was too much of an obstacle. Bernie is famous for changing the terms of a deal at the last second. I would not be at all surprised if he did not buy the spare 15% himself at a much reduced price. He has the cash or can get it, but it would be difficult for most of the teams.
    Teams having 15% ownership could complicate the Concorde agreement.
    However as James points out FOTA has been weakened and it’s now every man for himself so a FOTA stake is unlikely.

  4. Davexxx says:

    I’ll state the obvious here (Currently I’m being invited to “Be The First To Comment” but I know I’ll finally appear around 17th so will sound stupid saying the same as many others!!) -
    It would certainly be GREAT if the teams could afford to be part of the business, then there might be a little less individual-team selfishness and perhaps renewed interest in having a totally-attended FOTA. But I’d guess none could really afford it.
    Meanwhile it would be GREAT news if France and Belgium can return to F1. I miss Spa, and even if it’s every 2 years, that’s better than nothing!

    1. Wayne says:

      It is a shame, though, that a simply great race track like Spa cannot make enough money from it’s deal with cvc to survive on an annual basis while deserted desert tracks, which are often not even wanted by the population of the counry in which they reside,multiply like rabbits.

      Great article, James, excellent analysis as always.

      NewsCorp will find a way to flourish. They’ll wait until the short sighted and attention-limited public forget about their disgusting actions in the UK and they’ll cosy up to politicians in the same manner they have always done.

      NewsCorp’s lobbying of the Goverment led directly to a freezing of the BBC’s budget which in turn led to their ability to muscle in on F1. Through highly questionable logic, NewsCorp managed to convince the UK government that they could not compete with the ‘big bad bbc’. How did they convince the UK government? I don’t know but i’ll bet money, holiday homes and party funding had a lot to do with it.

      Now politicians are scrambling to distance themselves from the same people with whom they fostered a ‘special relationship’ with only a year ago. How long will this last? Only until the dust settles and the public move on to the next fashionable moral trough.

      1. HowardHughes says:

        I think you’d find that distinctly difficult to prove. And in any case, the general public were becoming ever more dissatisfied with a BBC that forced any citizen with a TV to pay their wages or face criminalisation, whilst ever more tales of gross budgetary wastage were coming to light…

    2. Rubinho's Keyfob says:

      “GREAT news if [...] Belgium can return to F1. I miss Spa [...]“.

      I will be most surprised if you end up sounding stupid for saying the same as many others :)

      [no malice intended, I just thought that was funny]

  5. Gascari says:

    Surely this is a fantastic opportunity for FOTA, as they consist of the more monied teams. It would also enable them to impose some control on Ferrari and stop them doing their usual last minute “about turn” with Bernie, to get their larger slice of the pie. Which in turn would increase their “taste.”

  6. lee saunders says:

    For the sake of the sport ,lets hope the teams get their act together , and get a stake in F1.In the last couple of years Bernie has lost the plot.The sale of tv rights to the Dirty Digger ,the poor choices of new tracks and the on going threats to the Canadian , British and Belgium GP (always resolved with increases in payments to f1 inc.)have shown that F1 has become a cash cow to its owners to the detriment of the fans.Hopefully with the teams input there would be a return to the golden years.

  7. Rich C says:

    As long as *all the teams own a *little slice it would be ok. But most couldn’t afford it and what about new teams entering?

    The minute that any 2 or 3 teams (or Agnelli)own a piece there will be an immediate outcry about conspiracies,or non-lvl playing fields.

    No, its best to leave investing to investors.

    And I’m surprised you have to be reminded, James, that we all know Murdoch is Evil Incarnate.

    1. Howard Hughes says:

      Oh please. “Evil incarnate”?! What is this, the Guardian comments board? 5th form politics?! (Pretty much one and the same…)

      Serial killers are evil incarnate. Child abusers are evil incarnate. Newspaper publishers are not. And I reckon James is probably capable of making up his own mind on the matter, as are we all.

      1. Rich C says:

        And *I reckon your sarcasm detector is malfunctioning, old chap.

  8. Alex C.D. says:

    Really? You miss Spa? Did you just come out of a 3yr long coma?

    1. Jeroen says:

      I already start missing Spa right after the race has finished ;). It should appear twice on the calendar, not once every two years.

      For me, removing Spa every other year is the best example of how F1 doesn’t listen to what the fans want. Everybody loves Spa, and financial problems should not be a reason to remove this race from the calendar.

      Bahrein and other desert tracks pay huge money to attract F1; why not use it to maintain some of the most beautiful tracks in the world. Spa, Suzuka, Gilles Villeneuve, Monza, Silverstone are all great tracks and should have some sort of ‘protected’ status on the calendar.

  9. Terry Pearson says:

    F1 at its best, never a dull moment, and motor racing as well. Pity I will only be able to listen to that live next Sunday as I will not subscribe to a provider who in my opinion is not ‘fit and propper’, that’s me and how many others? Be interesting to see the viewing figures.

    1. daphne says:

      Unfortunately you, and I and many others, may be disappointedly surprised.

      The Dirty Digger has mated with the Bernie Baron.

      Who knows what offspring that may produce.

      1. lee saunders says:

        the offspring it has produced , has found it has to explain its trust funds , off-shore accounts and sharp business practice to european courts.It might explain why F1 inc. is seeking new ventures in more ‘business friendly’ regimes

  10. Steve Zodiac says:

    When I see the ludicrously large figures being mentioned I wonder how anyone can afford to be part of anything to do with Bernie. Presumably there is a bunch of people who are enriching themselves, fabulously, at our expense. I wonder how long before they strangle the “goose that laid the golden egg” the have certainly priced me out of it.

  11. Sebee says:

    Bernie will let the teams have 15%. It will make them feel like they own it and it will shut them up. Not like they will have any say with 15% – but it will certainly make them behave and not stir up trouble.

    1. Kevin Green says:

      He is more likely to let them have 49% to keep them keen and financially reluctant to step away at any point whilst holding fully 51% regardless of how the remaining shares pan out and to who from his point of view preferably to teams rather than investors to keep the unit secure.

  12. “Clearly the best thing for the sport would be for the teams to have a stake. So could it happen?”

    Why? In what other series do teams *own* the sport? How can there be considered to be no conflict of interest when teams competing also have a steak in the sport? What happens when new teams join? How is it fair if the richest 3 teams own 10 percent between them and the poorest share the last 5 percent between them. It will only go to STRENGTHEN the rich-poor gap between teams; not decrease it.

    Now there’s the counter arguments James. I would really appreciate it if you could provide some arguments to back up that team-ownership would be the ‘best thing for the sport’.

    Thanks :)

    1. James Allen says:

      The arguments are in the story already: it’s all about stability for the sport and long term value for all stakeholders

    2. CanadaF1fan says:

      I agree that this would be a real concern — it appears to me that the teams owning a stake would be a near-term positive (for existing shareholders to monetize) but over the longer-term could create problems for new entrants. We see this all the time where shareholders insist that a corporation take steps to maximize short-term value without regard to long-term implications (because they’ll have sold their stake by then!)

      Having said that, it’s only 15% and hardly a controlling interest. It serves to give the teams a seat at the table and a stronger position to negotiate. And at that size, disproportionate levels of ownership between teams really wouldn’t matter at all – they’re all just minority shareholders. On that basis, I’m with James — looks like it would make sense.

    3. bellis says:

      SV8 supercars (28 franchise slots plus a couple spare owned by the series) in Australia owned 75% of their series up untill just recently when they sold off ~25% to boost there capital for the foray info their new COTF chassis. The sale valued the series at around $300 million.

      Worked for them quiet nicely as i think they were getting around $800,000aus (different $$ league to F1 i know) a year each in revenues from it and controlled their own destiny to some point.

      1. Worked for then fantastically. I’ve never heard of them.

  13. SK Anand says:

    Dear James,

    An interesting development. As you have rightly nuanced in your story,it is perhaps face of between the teams vs business entity like Newscorp. While the involvement of F1 team as stakeholders is a good idea and provides an anchor for the F1 story, with respect to governance, it may be tricky, as only a few would have the financial muscle to pitch in, which would mean the teams that were left out could possibly rue the fact that the stake holders could script the rules and regulation to their needs. But having said that, i think this idea needs to be explored litter further, and is perhaps more desirable than an economic entity taking the stake. At the end of the day, the stake holders ensure that the business goes to newer markets, leading to more viewers, and more revenue.

    Sincerely,

    SK Anand

  14. Snowy says:

    $65 billion for a 100% stake in F1?!

    Tell ‘em they’re dreaming!

    1. JackFlash (Aust) says:

      Where did you learn Math?
      2.8 Billion $USD was what CVC paid 6 years ago to buy F1. Some are speculating a total F1 worth of 10b$ now, but something around 5b$ or less is more likely.

      Nowhere in James story did he say the 15% stake get equated to 10b$ in its own right.

      A 15% stake in F1 would scale to 15% of 2.8b to ~5b$, depending on the details of the F1 business accounts in incomes/profits/expenses. That is only in order of hundreds of million$. JF

  15. gudien says:

    Indy car teams went down this road previously with the CART fiasco. Take note; There are too many diverse and conflicting business objectives on the team owners part to successfully operate the ‘sport’.

    Just look at European governments and the Euro for a comparison!

    1. Liam in Sydney says:

      I agree. As long as the teams, collectively, have a say in the rules and the sport’s operation, I don’t see how they need to be involved in the sport’s ownership. If they did part own it, you will have a ship being steered in 10 separate ways at once. The teams can hardly agree on anything.

  16. mad79 says:

    I know that my question is off topic,but what is the price for a subscription to skty and what do you get for it?

  17. my tuppence says:

    Teams owning a stake?

    Is that a good idea?

    We’ve seen the extent of teams owning a race series with CART/Indycar. They thought it had stability until it suddenly bombed about a decade ago.

    1. James Allen says:

      THat was the teams running the sport. This idea here is the FIA regulates the sport, the teams have a stake in it to keep them tied in

  18. HowardHughes says:

    Completed unrelated, but the last 10 seconds or so of this are worth seeing… Possibly the most unlikely, yet most heartfelt endorsement of the Senna documentary yet…

    http://www.youtube.com/watch?v=l1FnAJsJt7k&feature=related

  19. Andrew Halliday says:

    Very sad news that the Circuit de Catalunya will alternate with Valencia. I’ve been to the last few races in Barcelona and it makes for a great weekend away. Valencia does nothing to excite me.

    Same goes for Spa – I went to the 2011 Belgian Grand Prix, this race should be held every year. I’ll be interested to see what the French option is.

  20. Eduan says:

    Hi

    I did not know where to post this but I just watched the Senna movie…. Wow for me as youngster I remember vaguely seeing in the first couple of races in 1994 the rest I knew about him I read up on. What I love about the movie was to see his passion. Passion for life and his passion to succeed to become the undisputed number one in F1 and staying there. The movie really allowed you to come close to who he is. I was in tears after the movie and I realized as a F1 fan what Formula One lost that weekend.

    Sorry James did not know where to post this but had the movie really was brilliant.

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