Tous Avec Jules #17
Sochi 2014
Russian Grand Prix
F1: the $7 billion business seeking to defy the Euro blues
News
Darren Heath
Posted By: James Allen  |  23 May 2012   |  11:17 am GMT  |  35 comments

Formula 1 has set up its stall in Monaco this weekend for its most glamourous, if no longer most important race of the season.

F1 as a business is now considered to be worth around $7 billion, ($9.1 including debt) after the latest round of transactions which have seen new investors coming into the sport with others to follow.

The talk this weekend is set to be as much about shares as it is about overtakes. It has been revealed that CVC, the majority owner of F1, has sold stakes worth £1 billion to three large institutional investors, two of which are American.

These investors are known as “cornerstones” for the impending flotation of F1 in Singapore, a practice which is becoming increasingly common in Asia for flotations, as they reassure potential investors and create a sense of demand. It also gets investors used to the idea of a valuation, in this case $7 billion. This is important for F1 as there isn’t really another business like it, so how do investors work out value?

The roadshow to sell the shares will start in early June.

The new Concorde Agreement for 2013 onwards has not yet been signed, but McLaren boss Martin Whitmarsh said today in a Vodafone teleconference that teams have signed contracts with the commercial rights holders which will form the reassurance to investors that teams are tied in.

“As far as I know a new Concorde hasn’t been signed,” he said. “But a variety of teams have entered into contracts with the commercial rights holder. Some of us have spoken to bankers who are involved in a potential floatation.”

According to the Financial Times, F1′s turnover is now around $1.5 billion per year. In planning for this moment, Ecclestone and CVC have been very careful to lock in as many long term contracts as possible, especially with circuits. TV contracts are not so straight forward at the moment, as the media market doesn’t have wealth as clearly focussed as before. The withdrawal of ITV and the reduction of BBC’s involvement show the struggle terrestrial broadcasters have to pay the rights fees. F1 is striking a balancing act at the moment with free to air and pay TV markets, but it has lots of options for the future in terms of who it sells rights to and how it delivers the content.

There had been talk over the last few months that the owners were hoping for a valuation of $10 billion, but with the prevailing conditions in the world economy, the figure arrived at seems more realistic. CVC paid just $1.6 for their 63% majority stake in 2005. Now, for a similar amount, they have sold just 21% of that equity – a three-fold gain. Eccelestone’s remaining 5% stake is therefore worth just under $400 million.

Ironically, against a backdrop of these big money moves, Monaco’s importance an F1 business hub is diminishing as many executives are reluctant to be seen taking a “jolly” in Monaco these days. Just as the money F1 is chasing is moving East, so is the emphasis: Singapore is now the race of choice for most serious business people to entertain and be entertained around F1, as it is the gateway to Asia.

Added to that is the sense of decline in Europe with the Euro currency facing a crisis; markets are jittery over the prospect of Greece falling out of the Euro.

And F1 sees Europe as a declining force with only 8 of the 20 races now taking place there. In contrast Asia now has six events, a huge jump in the last few years.

Featured News
MORE FROM JA ON F1...
Share This:
Posted by:
Category:
35 Comments
  1. Wayne says:

    It’s the way of the world but…… Sigh.

    1. Davexxx says:

      Very well put! Sums it up nicely!

  2. Andrew Carter says:

    I’m tired of hearing this term “Investment”. CVC paid the banks a lot of money for 63% of the shares, but as far as I can tell have invested bugger all into the sport itself, whilst taking lots of money from it. Now we have 3 more “investers” who have paid lots of money to CVC but have put nothing into the sport.

    With this continued chase of money off to places in the far and middle east with the core audiance increasingly being marginalised, I can see F1 suffering quite a sharp decline in interest in 10 years time.

    1. CTP says:

      what exactly do you want them to put into the sport?

      1. Andrew Carter says:

        Well, if they’re going to use the term “investment”, it would be nice if they actually “invested” something into the sport. At the end of the day that probably comes down to money and where it’s spent most likely wont make any difference to me, but I know plenty of people would at least like it to be in full HD for a start.

      2. Phil says:

        I suggest you read up on Private Equity investing. It’s about investment for the people buying into it (i.e. seeing a return on their investment) not about the PE parent company investing money into something to make it better.

  3. terryshep says:

    Quote “CVC paid just $1.6 for their 63% majority stake in 2005. Now, for a similar amount, they have sold just 21% of that equity – a three-fold gain.” End quote.

    Doesn’t this mean that they have now sold off a fifth of their equity, which means they’ve made a five-fold gain? “That equity” surely refers to their 63% doesn’t it?

    What it really means is that they’ve got their original stake back and they still own about 50% of the business. Not bad at all!

    1. James Allen says:

      No they’ve gone from 63% to 41% of the whole business.

  4. goferet says:

    I find it really odd that the most expensive sport anywhere is valued to be worth just a mere $7 billion and yet I know lots of individuals worth way more than that [mod]

    Anyway it’s about time F1 listed itself on the stock market for I can see former & current drivers getting their hands on a couple of shares and thus ensuring their future should they get fired or injured like Kubica & Massa.

    And yes, Europe should sort itself out pretty quick or we just might find ourselves with no sporting entities/businesses belonging to local owners and what that means is we shall be held hostage to our new masters who may do as they please.

    1. RobertS says:

      yes, i thought f1 would be worth a lot more. When you consider facebook recently floated for around $100 billion, and that’s basically a social website with adverts. F1 is a complete sport?

      1. Woofie says:

        F1 is a short term agreement between teams and commercial rights holders of the brand F1.

        If the teams choose not to play ball, there is no F1. As such its value can never be anything near that of North American Sports Leagues – or even teams. This is despite having similar revenues.

        If you look at the values of teams in North American Sport, the difference is vast. The LA dodgers just sold for $2bn.

        But the owner of the franchise has a secure asset of which there are a limited number and has that asset “forever”.

      2. RobertS says:

        Thank you, makes sense.

    2. Justin says:

      wouldn’t that just be the ultimate irony though?

  5. HFEVO2 says:

    With only 8 of the 20 races in Europe, does anyone have figures for :

    A) the number of spectators at each race

    B) where the bulk of the TV audience is.

    If would not be surprised if the eight European races account for a lot more than 50% of the total audience.

    1. CTP says:

      it would be astonishing if europe didn’t account for the bulk of the tv audience – almost all the races are scheduled, not by chance, to be live at somewhere between “lunchtime” and “dinnertime” in europe; no other continent has such favorable viewing times.

    2. AJ says:

      I’ve been trying to find attendance information out this year.

      However, unlike most sports – mostly everything F1 is a big secret (its a cultural thing – driven by those at the top for a plethora of reasons – mostly to facilitate daft decisions without criticism).

      Hosting Fee’s paid by circuits
      Race Attendances
      Viewing Audiences – by country
      Allocation of Prize Money
      Methodology of allocating prize money
      Historic awards of money to “special” teams.
      Why we have invisible Teams during qualifying.

      I’m sure I’ve missed many….

      1. c-m says:

        This is one thing I don’t understand either.

        However once it’s a public company everything will become more more open.

      2. AJ says:

        You think? Bernie will still be in charge!

  6. NF1 says:

    James, your diction is not clear; have CVC sold off 21% of the total number of shares which would mean they now own 42%, or is it 21% of the 63% which they held in which case they now own 49.778%?

    1. James Allen says:

      They now own 42% yes

  7. andrew says:

    All this talk of Asia as the future direction of F1 is missing one key ingredient:an Asian manufacturer or an Asian team?

    1. James Allen says:

      Asian team = Caterham – all Malaysian shareholders.

      1. Basil says:

        What about Force India?

      2. andrew says:

        Caterham is predominantly a British based spors car marque, and so is the F1 team make up, with a French engine. And with GE as a major stake holder, and in technological control, that surely isn’t Maylasian.

        Force India only represents the sub-continent of Asia in sprirt, otherwise it’s a British-based team, operating with a German engine.

        And don’t give me Marrussia either…that’s Eur-Asia you’re talking about up there.

        A purely Asian or oriental parented team or more precisely manufacturers’ trophy contender currently isn’t at play in F1.

        For F1 to go Asian in earnest it desperately needs one of the Asian based manufacturers to come on board.

        Just speculation here, but maybe that’s why Bernie and CVC left Mercedes out of the final Concorde Agreement equation: Allowing room for a major oriental voice to be heard down the road?

      3. James Allen says:

        If Caterham win a race the Malaysian anthem would play. If Force India win the Indian anthem would play.

  8. Nigel says:

    “These investors are known as “cornerstones” for the impending flotation of F1 in Singapore, a practice which is becoming increasingly common in Asia for flotations, as they reassure potential investors and create a sense of demand. It also gets investors used to the idea of a valuation, in this case $7 billion… ”

    Are these investors committed to holding these shares for any length of time – or could they also be taking part in the flotation by selling some of them (in which case the ‘sense of demand’ would be a little unreal) ?

    I note that one of these investors is Blackrock, who also picked up quite a large holding in the Facebook IPO recently – which doesn’t quite demonstrate infallibility in valuing a company.

  9. Onko says:

    Mr Allen.
    How certain is the float at Singapore EX
    this year? the mighty Manchester United is
    still waiting to proceed.
    Please,in view that Black Rock was a main
    purchaser of the stock from CVC would they
    have a close business relation with a
    News Corp.
    Your coments
    Cheers

  10. Nigel says:

    I see that the shares being sold have no voting rights attached.

    No change in the Ecclestone style of corporate governance, then.

  11. Tom says:

    James, your calculations seem to be off. 5% of $9.1 billion comes to over $450 million not just under $400 million. Did you get the figures in another currency? If so an exchange rate difference could explain it.

      1. Tom says:

        That explains it. The $7 billion figure is not the right figure to use. Market capitalization is based on the enterprise value of a business which includes its debt. When you buy shares in a company you are buying into the business cash, debt and all! This is the $9.1 billion which puts the Ecclestone shares at $450 million.

  12. pablo neuquen says:

    James,any news about Argentine Grand Prix in 2013?

    1. Hello Pablo, I know one circuit – Velociudad Circuit which is trying to break into F1 in next 3-4 years. You can check their website(http://velociudadba.com/en/) or check the interview which I did with them via mail(http://rachf1.weebly.com/4/post/2012/03/unique-conceptinspired-by-nascar.html).

  13. Steve says:

    Why is free practice on a thursday in Monaco and friday everywhere else?”

    1. Eamonn says:

      There is a market in Monaco On Fridays and they require space used by the race track. This is a long standing tradition in the principality and can not be moved.

LEAVE A COMMENT

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Top Tags
SEARCH News
JA ON F1 In association with...
Download the chequered flag podcast today
Download the chequered flag podcast today
Multi award winning Formula One photographer
Multi award winning Formula One photographer