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F1 poised for change of ownership as Qatar backs US sports mogul in take-over bid
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Donald Mackenzie
Posted By: James Allen  |  23 Jun 2015   |  6:27 pm GMT  |  170 comments

F1’s owners CVC are set to consider a fresh bid to buy the sport from a group comprising the Qatar sovereign wealth fund and Stephen Ross, US based owner of the Miami Dolphins, via his RSE Ventures vehicle.

CVC has received a couple of bids, including a fresh bid from John Malone’s Liberty Media for 49%. Their most recent bid is understood to be larger than that of Ross and the Qataris, but the latter seems to be the front runner at present, possibly due to terms and conditions. Any bid will have to be approved first by FIA president Jean Todt, owing to the so-called “Don King clause” which gives the FIA a veto right over what it considers unsuitable owners of F1’s commercial rights holding company.

CVC bought the sport from a consortium of banks in 2005 using $1 billion and $2.5 billion of debt financing. They have so far earned around four to five times their money back and this final deal will make it one of their most successful investments ever. Nevertheless CVC’s managing partner Donald Mackenzie said it had been “an alarming company to own.”

It is debatable what state their legacy has left the sport in, however, with no clear strategy, little in the way of investment on infrastructure over the past decade and smaller teams struggling to survive while larger teams share a significant amount of the prize pot among themselves. There are great concerns within the sport, its sponsors, broadcasters and its fan base about long term strategy and direction as numbers decline on TV and heritage venues like Monza struggle to meet the financial requirements to host a race. Ecclestone is also known to be unhappy with the ‘product’ of F1 at the moment, blaming the introduction of hybrid turbo engines and excessive rules and regulations.

CVC sold down its shareholding to cornerstone investors ahead of a planned flotation in autumn 2012, but that did not go ahead as the market conditions were not favourable post the Facebook IPO and also the Gribkowsky bribery case, relating to the sale of the F1 business to CVC, had reared its head in Germany. The cornerstone investors set the potential market value of the F1 business ahead of the IPO at around US $10 billion. The forthcoming bid from Ross and the Qataris is around 80% of that, according to the Financial Times.

The investors are Waddell & Read, a US mutual fund company, which holds a 21 per cent stake, while other shareholders are Norges Bank Investment Management and BlackRock.

The flotation has still not happened. Norges has to exit the investment as it’s not permitted by Norweigian law to hold a stake in a private business.

Start Austrian GP

The cornerstone investors need a flotation or a sale within a certain deadline which is approaching, hence CVC considering a sale. Also there are signs from Brussels that the EU Competition Commission will soon launch an investigation into F1, following an official complaint, believed to be from teams no longer in F1. It is not known whether this has any influence over the timing of a potential sale.

CVC currently holds a 34% stake with Lehman brothers holding 15% and the cornerstone investors the rest, bar Mr Ecclestone’s 5%, which is also believed to be part of the deal. “My shares will be sold together with theirs,” he told the FT.

It appears that he could remain in F1 if this sale goes through, but not necessarily as chief executive.

As for the potential new buyers, Ross is 75 years old and has made a personal fortune of around $6 billion from property and ownership of the valuable NFL franchise Miami Dolphins.

Stephen Ross

As for the Qataris, they have orbited F1 for some time without committing. There is a Qatar Grand Prix in the pipeline, which now looks likely to go ahead, while Sir Frank Williams has been courting them for years for investment.

It is possible that the recently launched investigations into FIFA and the controversial 2022 World Cup in Qatar have stimulated them into diversifying their sporting portfolio and the opportunity to acquire F1 at this time made sense with Ross the proposed partner.

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1

“CVC bought the sport from a consortium of banks in 2005 using $1 billion and $2.5 billion of debt financing. They have so far earned around four to five times their money back and this final deal will make it one of their most successful investments ever.”

VCs aim is to earn X times their money in X years. So, in 10 years, if they’ve earned 4 to 5 times their money, then it’s a good deal, but not likely to be one of their most successful. Also, they typically are out in 7 years or less. Having to carry this investment for 10+ years is atypical.

“It is debatable what state their legacy has left the sport in, however, with no clear strategy, little in the way of investment on infrastructure over the past decade and smaller teams struggling to survive while larger teams share a significant amount of the prize pot among themselves.”

It’s ludicrous to lay the above at the feet of silent investors. Bernie has been the man in charge, and even before CVC, Bernie wasn’t investing much into the sport. His biggest outlay was the $60M he spent on his early HD effort, but of course, Bernie’s spend came off the top, so it was hardly his investment alone. That money also came out of the teams’ prize pool.

“as numbers decline on TV and heritage venues like Monza struggle to meet the financial requirements to host a race. Ecclestone is also known to be unhappy with the ‘product’ of F1 at the moment, blaming the introduction of hybrid turbo engines and excessive rules and regulations.”

Identifying the problem and the cause is key to finding the solution. If you look at the above, why are the numbers declining? A fickle public who have ever more entertainment choices to distract them. A less fickle core audience is also declining, but why? Perhaps, it’s the long-term trend of moving core races in western Europe to locales in the Middle East and Asia. But if that is the cause, then wouldn’t Bernie, who’s responsible for race negotiations be to blame, and wouldn’t he deflect criticism by pointing to other reasons? Well, look at that, that’s what he’s done. The sport of F1 has had lots of rules and regulations in the past, and turbo engines and skirts and active suspension and the like, so that can’t be it.

When you treat your core audience poorly by holding heritage tracks hostage, it’s no wonder hardcore fans are looking for their entertainment elsewhere. When you lose a customer, it’s 10x as hard to get them back.

And, Bernie doesn’t care. He wants to get as much money today, and not worry about tomorrow, because honestly, how much longer is he going to be with us?

2

Thank you James, for so many insights from you in the comments.

greetings

3

What Formula 1 is lacking today is mystique. Lewis’ latest BBC-column is a case in point. Saying the cars are oh so complex to drive (what with all the tiny buttons and engine-management) sounds defensive and PR-related (because we know he’d (1) much prefer driving a beast of a car, and (2.) doesn’t want to be seen as the champion of the busdriving-era); and defending his lifestyle makes him look like a kid. To give a much-used example, would Freddy Mercury have been the legendary Freddy Mercury if he’d been on Twitter? No, he wouldn’t. What Formula 1 needs is to be aloof, and mysterious, and outrageous, and the worst thing it could do is to sell itself.

In a way, F1 is a wonderfully complex example of marketing. The sport is about the things unseen as much as the seen. The parts of the Hockenheimring the spectators couldn’t see (the long straights in the forest) actually were the spectacle.

4

The crux of the problem, I think, is this. Bernie was handed the commercial rights to the sport a good long time ago. We can mope about this – call it unfair – but that’s just silly. Ownership is the cornerstone of modern society.

So, Bernie grew the business. He was clever, no doubt about it, but at the same time the thing grew organically – as a result of the Senna/Prost battles, which raised the sport’s profile; as a result of a globalizing world, et cetera (Bernie’d be the first to admit it).

When the sport grew, the monies grew. Bernie made money, the teams made money. Now we might say it’s unreasonable that the shareholders take 40%, but this is a relative thing. You may think 10% or 15% is reasonable, but based on what?, and the only way they’re going to get a bigger share collectively (the teams) is if they can force the shareholders to take less (because why would they voluntarily agree?). Bernie’s thinking is that the teams used to spend 50 million a year – now even the smaller teams are spending at least double that; and why should he give them more? If he gives them more, they will spend more; they should live within their means.

Then CVC enters the picture. Bernie’s feeling weak. With the collapse of Kirsch the commercial rights have fallen into the hands of a consortium of banks; Bernie’s afraid they will try and marginalize him, so in an act of desperation (which had nothing to do with money), he helps the wrong people buy the business – on condition that he keeps running the show. The weakness is still there, though, so Bernie makes a second mistake – he lets himself be pressurized into separate deals with the bigger teams, which has a two-pronged effect: the bigger teams sense weakness, the smaller teams feel slighted.

So where does it leave the sport? Nowhere. Having a man like Bernie single-handedly run the sport may have been the best way to do it. The future will bring new owners, who will want to milk or market the sport, but there will still be various stakeholders fighting with unequal say, and disenchanted fans.. It’s a mess.

5

“Ownership is the cornerstone of modern society.” What does this actually mean?

Frankly, it is not about weather or not it is owned- that is a given. It is about WHO owns it. Bernie was handed the commercial rights by Max Mosley for the grand sum of £1, as I recall. Correct me if I am wrong James.

But that was where it all went right – or wrong – depending upon your point of view.

I think it might be instructive to examine another example of ownership and compare this with Formula 1 e.g.:

“The Premier League is a private company wholly owned by its 20 Member Clubs who make up the League at any one time. Each individual club is independent: working within the rules of football, as defined by the Premier League, The FA, Uefa and Fifa as well being subject to English and European law.

Each of the 20 clubs is a Shareholder in the Premier League. Consultation is at the heart of the Premier League and Shareholder meetings are the ultimate decision-making forum for Premier League policy and are held at regular intervals during the course of the season.”

http://www.premierleague.com/en-gb/about/who-we-are.html

6

What it actually means, is that (in the words of Rousseau) the whole problem started when someone put four poles in the ground, spun a rope around them, proclaimed that this was his land, and everybody said okay.

7

I only need to Donald Mckenzie and my blood boils. Sport going to the dogs. Private equity companies don’t do legacy. You reap what you sow…….

8

James, slightly off-topic yet relevant, if Bernie was to die, for example ‘right now’, what effect would it have in the short term on the F1 circus if any? Is there anything about his position and job that would interrupt the show for the teams and spectators?

(Sorry this is not meant as a cue for all the anti-Bernie sub-comments! Quirky though he may be I still think he’s the best man for the job and would be good to keep on in any new ownership, for as long as he can continue).

9

+100. Nobody knows up till today. But I don’t think anytime soon, he’s immortal!

For the fans if F1 gets better who runs it dosen’t really matter. Important that we can afford and enjoy it and most of all the racing drivers are happy and able to race flat out for at least 80%.

10

It would crash JAonF1 servers.

It would set comment records.

11
GPBacktoAdelaide

Dear Citizenfour,

Thanks to its cooperation with the British and Germans, the US govt already has access to your JAonF1 keystrokes!

Regards,

Julian

12

No idea!!

13

Given the tenuous state of the sport and instability of the business model I can’t see why anyone with a brain would pay much more than 8-times EBITDA for FOM. And that’s for the EV (equity + debt). If I remember correctly FOM’s EBITDA is about $500 million, so I’d say it’s worth $4.0 billion tops. And I bet they’ve loaded almost that much debt on the thing, making the equity worth zippo.

Good luck, Mr Ross. I hope you like going to races.

14

I’ve said this before but the FIA should own F1 end of. If they do not wish to manage the commercial side themselves they should tender a facilities management contract where they pay a fixed fee to a commercial company to have the series managed to their specified criteria. This would not include maximising profit as the FIA should aim NOT to make more than a nominal profit. This way circuits could be charged lower fees, spectators could afford to attend. The contract would run for a fixed term a little like the UK Lottery – 5 or 7 years perhaps. They could even specify that the TV contract must include free to air for countries where that is possible. The idea of a commercial rights holder is plain daft and should never have come into being. Man up FIA and outsource the management if you don’t want to do it in house!

15

Dream on; it’s not going to happen. It would need a revolt the size of the French revolution to wrestle back control of the sport. You can’t simply force someone to hand over a business worth billions of dollars, and even if the EU were to step in, the result would be something not even remotely resembling what you’re suggesting. Sure, they didn’t back down with Microsoft, but the settlement in cases like this is always proportionate to the size of the business. No, the only solution is for the teams to close ranks and play hardball. Whether something like that is in the cards I haven’t the foggiest.

16
ReallyOldRacer

+1. I don’t really know what +1 means in tech talk, but I think that it is a good thing. Spot on, warley.

17

We just need the EU to void the 100 year contract and preferably void the existing FIA as well so we can start again with a new FIA !

18

While it is trite that any purchasers will be motivated by profit, one can only assume that prospective purchasers are aware of the many challenges that are currently facing F1 and which have been leading to reduced fields, competition, attendance and viewing numbers. In the result, I believe that there is reason for optisim that the successful bidders will see that significant changes are required to not only protect the ‘brand’, but to ensure the survival of F1 and indeed growth in the coming years.

Brad

19

Come to think of it, Bernie really is an amazingly acute 85yr old. He is right about so many things. Social media? The sport doesn’t need it at all. I mean, what will it bring our beloved sport? We’re going to draw kids by bombarding them with funny messages?

And big personalities… Yes, far too many nondescript kids these days – Bernie’s right.

I’m going to miss his non-PC I couldn’t care less attitude.

20
ReallyOldRacer

@Bernd, I’m not sure if you are serious or tongue in cheek, but your comment actually makes a lot of sense. If he just wasn’t such a greedy little munchkin maybe he would have maintained more rational control of F1 over the past decade.

21

It was not tongue in cheeck, ROR, but I can understand why you would think that. It seems Ecclestone blaming is the default setting on F1-fora these days (closely followed by making unsubstantiated claims about the “untapped potential” of a bigger social media presence).

22

Whoever the owners are, just bring back the V10 or at least V8s, get rid of the bloody hybrid V6 turbo. Can’t stand anymore. I about had enough of the current ones, giving up F1 if they don’t change.

23

I just want to point out that I did not just drop off 12 coupons for pints at Steven’s mailbox. I don’t even know Steven, so how could I?

24

I personally thin we now have way too many fly away rounds of which I find pretty ordinary anyway. The current F1 crisis (because it is) is not helping the situation.

I think its time F1 revisited what made it special, go back to the past where you heard it, felt it and lived it. This generation will never witness the awesome power F1 demanded and thats sad.

25

If it involves getting rid of Bernie Eccleston, it must be a good deal. Get someone with a real love for the sport and it’s history, Jackie Stewart for instance, and happy days for F1

26
ReallyOldRacer

“Get someone with a real love for the sport and it’s history, Jackie Stewart for instance, and happy days for F1”

Steve, it’s time for a F1 history lesson, but my class is full. One thing for sure, Bernie does love F1 and, crikey, he is a huge part of its history. Greedy little munchkin and not PC, but it is impossible to question his love for the sport.

As for JYS, my fav driver all time…well, that’s part of the class curriculum.

27

A Sovereign Wealth fund, mentioned by James in an earlier comment, is a state-owned investment tool. There is some concern that foreign investment by SWFs raises national security issues because investments in strategically important industries may be for political rather than financial gain.

Qatar is a very conservative Islamic country, with a poor track record on such things as homosexuality, gender equality and of course human rights for its migrant workers, and has reported links to ISIL, Hamas and the Muslim Brotherhood, and at the same time engaging with Israel and the US – yes, go figure. In short, this tiny little country is deeply immersed in ME politics and conflict, and through its deep rivalry with Saudi Arabia seeks a form of supremacy in the region.

So you have to at least ask the question if it really is a good thing for FOM to be managed in part by the Qatari state – albeit via its SWF – and what the consequences will be both for politics and a cash-dependent sport such as F1 in the long run.

Certainly from my point of view it is not acceptable for FOM to be part-owned by Qatar at the very least because it does tend to legitimise and indeed potentially increase migrant worker exploitation, which even the Qataris themselves do not deny they are guilty of.

I do not think that the sport will improve as a spectacle either. We really need innovation in the sport so that it is not so utterly dependent on money to win, otherwise it is in danger becoming a propganda parade of the wealthiest teams winning in a sport controlled by the wealthiest investors.

28

No, No, NO!

This is just wrong! Qatar??! Whilst I disagree with the terrorist funding / GP in the desert / shady football world cup diatribe, I would base my argument on the motive or driver for their investment.

With CVC it was clear-cut: they are a PE firm and wanted to make as much money as possible. Dumb decision to sell to them, as there is only a partial alignment with the interests of the sport and its stakeholders. And a complete misalignment with the interests of the fans, without which the value of the sport is zero.

With Qatar: Self promotion. They are not interested in the sport, just on putting Qatar on the global map. Its a purely ego driven investment, that in no way aligns with the NEEDS of the sport.

The so called “ownership” of the sport needs to be (at least majority) in the hands of the stakeholders: F1 teams, the racing venues, and possibly tier-1 suppliers and sponsors. These are the people that are putting resources into the sport, so they have a vested interest in the governance.

The current “ownership” model is completely absurd. What the heck to CVC & Co put into the sport? Nothing! How can they own a “product” in which they have zero participation in the risk? The obvious corporate model is that of the Premier League, where every club is a shareholder.

Good grief, selling to the Qatari’s, a business mogul or anyone else who isn’t a current stakeholder will just further perpetuate the current status-quo. Well at least till the fans give up and turn-off….

29

Ideally F1 should be a Cooperative of manufacturers, F1 teams, circuits & governments.

I know, Venture Capitalists loathe Cooperatives as they have a very limited return. They won’t be able to milk it as they do now. However, a Cooperative would be in the best interest of the Sport, Society and the fans. Especially amidst the very turbulent times we’re dealing with right now.

On a side note. How is WEC run?

30

“Whilst I disagree with the terrorist funding / GP in the desert / shady football world cup diatribe”

How come?

31

@Ed – My bad. I should have been clearer: The terrorist funding / human rights / corruption allegations etc… are a matter of serious concern in a much wider context. But I think it would be somewhat specious to politicise what is essentially a sporting discussion in this particular context.

32

Can’t decide whether this is a good or a bad thing. Obviously, all is not well within F1 but is Qatar’s involvement going to be the right thing for the sport? After the FIFA scandals, i am a little nervous. Yes, changes are needed within the sport but is Qatar, with no tradition or history in the sport, the right people to be involved in F1?

33

I very much doubt that Qatar’s involvement in F1 would be a good thing.

34

Contrary to what people think here, my personal opinion is if Bernie leaves, the sport becomes mediocre.

Say what you will, but to spend over 40+ years in a sport. That’s love.

Falls, many.

Joys, also many.

The new people? They’ll be clinically sterile. In their approach. In their plans. In everything.

Not *really* interested in seeing Bernie go.

Peace.

35

For several billion dollars, anyone would love F1 for 40+ years. Bernie has been pillaging the sport right under your nose with your approval. Why are tracks not able to afford the fees, because Bernie keeps raising them!

With outside investors, at least we KNOW what they are in it for, with Bernie, he’s conned you into thinking he’s in it for the sport, when he’s taken out more billions than all the teams combined.

36

Make that 64 years. I agree: Bernie is Formula 1. In spite of his flaws (all too human), he loves the sport and understand what makes it great better than some new VP guy. Be very careful what you wish for here. The current mess is Bernie’s making, but mostly because in his desperate efforts to maintain his grip on the sport he’s actually lost it. The future looks bleak.

37

Count me in the crowd who thinks CVC have overseen a decline in the sport. I’m no expert but it’s rare that I see fans asking for tracks in new countries like Qatar or Azerbaijan. I also see fans of the top teams admitting that the current revenue sharing structure is flawed.

Hopefully CVC WILL sell, and sell to someone useful!

38

Whatever one’s feelings about Qatar’s involvement, it’s worth noting that the NFL’s revenue distribution is far more enlightened than FOM’s current jiggery-pokery – downright socialist, in fact (somewhat ironically).

39

Qatar want a G.P. Bernie has a “gentleman’s” agreement with Abu Dhabi and Bahrain with regards to them having a veto 0ver another mid-eastern G.P. This is one way to prove a point to your neighbours, nice to have the $$$$$ to do it.

40

There is something fundamentaly wrong when the owners of F1 can make literally billions of dollars and yet half the grid are struggling to stay afloat and countries like Germany and Italy can’t afford to host a race.

it makes me really quite cross

41

It’s called capitalism.

42

Hey….there are always reruns! In his spare time soon Bernie will put out past seasons…remastered on BluRay. Order now!

43

The article reads that it is debatable how CVC has left the sport.

I really don’t think it’s that debatable. You would be hard pressed to find anyone to argue that the sport of F1 is in better shape now than it was before they took over.

44

No use speculating really, but I think either one would be an improvement on CVC.

Frankly, the whole thing’s ironic – a sign of the times perhaps. I mean, the mistake that led to this sad state of affairs was made three decades ago; and yet, I’m convinced we will miss Bernie when he’s gone. Yes, yes, yes, I know – he made billions… but the man loves Formula 1.

And let’s not forget, recent troubles started not because Bernie’s all-powerful; they started because he no longer is.

45
ReallyOldRacer

Bernd, great point!

46

Typical private equity behaviour. Buy something of value (not just financial value), run it into the ground while milking it for every penny that can be squeezed out. Move on. Lovely. I can understand it, but I don’t have to admire it.

47

ha, ha, rasbob understands private equity all too well! A bunch of predatory financial grifters who use other people’s money and tons of bank debt to take over productive enterprises and then bilk the business for every dime, frequently destroying the business in the process. The banks in are in on the scam as well in terms of higher fees and interest. It’s literally a modern day version of piracy! Perfectly legal but piracy nonetheless.

48

Ross, Hass, Chrysler ( Meaning Marhchione based in Detroit) is F1 becoming American?

49
ReallyOldRacer

@andrew, Haas is a global marketer of machine tooling and Marchionne is Fiat CEO. Chrysler is only a part of Fiat, just like Ferrari, Alfa, etc.. Bye the bye, F1 has been in America for longer than all but the core European countries. I have no idea why Stephen Ross wants to invest in F1 other than he is a very wealthy person and can do whatever tickles his fancy. Perhaps he was upset that he couldn’t get a prime mooring during May in Monte Carlo and so decided to take action. One thing for sure, he hasn’t done squat for the Miami Dolphins other than watch his investment increase in value. He does have great seats for the games. Wait, maybe there is a pattern here. hmmm

Nick Craw, an old American racer, is probably in line to be the next head of the FIA so your American F1 reference might be on target.

50

Go ovals!

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