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.