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Tata signs up as F1 starts to float RACECAR BUSINESS


F


ormula One Management (FOM) has moved to ensure it has more control


over the future broadcasting of Formula 1 by signing a deal with Indian telecom giant, Tata Communications. With the world’s largest


network of under-sea cables, Tata Communications is to install fixed-line connectivity at every Formula 1 venue. Once the technology is in place, this will give FOM the ability to do rights deals through live streaming without any technical restrictions. It will also save FOM a fortune in not having to transport its large broadcast centre around the globe. Speaking at the London announcement of the deal, Bernie Ecclestone said: ‘We’ve been a little bit asleep with this type of communication, so we decided we ought to wake up. We looked into the market to see who could provide the services we needed, and that’s why we’ve chosen Tata Communications.’ It has emerged that TV figures


were down in 2011, amidst talk that the Red Bull dominance of the World Championship was a turn-off for some fans.


FOM, which runs F1 on behalf


of rights owner, CVC, has not yet released TV figures for 2011, and would not respond to questions regarding the numbers over the previous year, though a source has told Racecar Engineering that they are down by at least 10 million viewers. While 10m is a relatively small number in terms of the


think everybody else would agree with it.’ When asked about the TV ratings, he added, ‘I’m surprised we survived with [the TV ratings] we got right at the end.’ The Tata deal is sure to add


value to Formula 1, meaning it takes on a further significance in light of the news that Formula 1 may be set to float. The possibility of a flotation on


“It is understood that CVC


provisionally values Formula One at approximately $10 billion”


527m total quoted for 2010, it is significant that FOM is not publicising the numbers, which have previously been released when the figures have increased and announced with much fanfare on the official Formula 1 website. Yet Bernie Ecclestone has himself suggested that the figures are down, saying, when asked about Sebastian Vettel’s 2011 dominance at the announcement of the new deal with Tata: ‘It wasn’t good. The only person that would say no to that would be Sebastian, but I


the Singapore stock exchange came to light at the start of the season, and Ecclestone has since admitted he is trying to persuade CVC to go ahead with it. Since late 2005, the majority


owner of London-based Formula One has been CVC Capital Holdings, a UK-controlled offshore investment fund, but a substantial stake is held by Lehman Brothers, the American bank that has just emerged from Chapter 11 bankruptcy and will make its first payment to creditors next month. The Formula One shares are among


a number of assets that will be sold by the administrators as part of this process. It is the Lehman shareholding that is expected to be the subject of an IPO (initial public offering) in Singapore, although CVC might also include some of its 63.4 per cent stake. After the CVC Capital Partners


investment firm, the Lehman estate is the second biggest shareholder in Delta Topco, the Jersey-based holding company of the Formula One group. Its stake of 15.3 per cent, estimated to be worth $1.5 billion, will hardly dent its massive $450bn debt. Ahead of the IPO, CVC has


appointed Goldman Sachs to advise on placing some shares with a new investor. Temasek Holdings, one of the foremost sovereign wealth funds in Singapore, has already been approached, according to unconfirmed reports. Such a deal would help to establish a benchmark valuation of Formula One ahead of the IPO and, later, a full flotation. It is understood that CVC provisionally values Formula One at approximately $10 billion, more than 30 times its net profit. This year, the group’s


after-tax profits are expected to exceed $300 million for the first time. This implies a net profit margin of more than 15 per cent, despite the fact that, under the current arrangements, the teams share between them 50 per cent of the underlying profit. Teams also receive ‘prize money’ from Formula One which, in the year ending 31 December 2010, totalled $658m. An IPO would create options


for the teams to buy into Formula One, but none has so far expressed interest in doing so. CVC’s moves towards an IPO


Sebastian Vettel’s dominance of the Formula 1 World Championship may have hurt television figures 80 www.racecar-engineering.com • May 2012


come as it negotiates a new Concorde Agreement with the teams and the FIA, which will set out the commercial arrangements between 2013 and 2020. The buzz in the grand prix paddocks is that, to secure their signatures on the new deal, Ferrari and Red Bull might have been offered shares in Formula One and seats on its board of directors.


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