STRAIGHT TALK – PAUL J WEIGHELL Does F1 float? Roll up! Roll up! It’s that time again folks T
he previous 1997 attempt to float Formula One receded when backers got cold feet,
partially due to team rebellions over the Concorde Agreement. To ensure history does not repeat, Ecclestone has sweetened the major teams sufficiently for them to agree to the new Concorde before the float. The agreement will run from 2013 until 2020 and provide extra payments to teams that have competed since 2000 without changing name, as well as to past championship winners like Ferrari, McLaren and Williams, and back-to-back champions like Red Bull. Mercedes, though, will
apparently not commit while it ‘evaluates its options’, including legal action under European Union competition laws. According to GP chief, Nick Fry, CVC ‘need’ to reach an agreement with his team before floatation can be successful. But is that really true? Mercedes may have spent
more than $1bn on grand prix racing in the past two decades, supplied engines to a number of teams and may even quit Formula 1 altogether if they don’t get a seat on the floated company board, amid rumours that loss of their team could mean a 20 per cent drop in the floatation valuation. Mercedes motorsport boss, Norbert Haug, told Auto Motor und Sport: ‘Floatation can mean many things. If you take to the market a minority share, does it change anything in ownership, give more liquidity to the owners, maybe more money to the sport?’ Ecclestone was quoted countering with, ‘Why should Mercedes have the same deal as the others? What have they done in Formula 1? They won a race and that is it.’ Board seats are reserved
for those who make a major contribution to a company, and it is too early to tell whether Mercedes will make that
contribution to the Delta TopCo commercial end of F1, as well as to the racing end. The two are not the same thing. Delta TopCo heads the
corporate pyramid that owns F1, GP2 and GP3. UK private equity
Delta Topco Ltd Alpha Topco Ltd
Delta 2 Sarl (Luxembourg)
Alpha D2 Ltd Delta 3 (UK) Ltd
Alpha Prema UK Ltd SLEC Holdings
Formula One World Championship Ltd (FOWC)
Formula One Management (FOM)
GP2 Motorsport Ltd
current investors’ shares. CVC has held stock for six years and may feel it is time for a return. The next largest stockholder is LBI Group Inc, the rescue vehicle for the failed Lehman Brothers, and they have promised to sell their
GP2 GP3
$4.7bn, plus $1.4bn from television contracts, yielding an annual average of about $475m for the next 15 years. CVC still had $2bn outstanding debt due in 2014, but that has now been rolled forward to 2018 with the debt at $2.3bn. At least 50 per cent of earnings go to teams and rose from $545m to $660m, reducing annual profit from $420m to $340m. Team payments are likely to increase after 2013 so, overall, F1 makes money, but has vulnerabilities. When Ecclestone can no
Formula One
firm, CVC Capital Partners Ltd, holds a 63.4 per cent majority stake, and a new stock market- friendly version of Delta TopCo would be publicly quoted, probably on the Singapore exchange. There are many reasons
for floatation. If banks have extended the maximum easily available credit then the market is the next resort to raise money.
F1 shares within two years. Flotation also creates an exit
route for minor shareholders, such as Ecclestone’s former wife, Slavica, who owns 8.5 per cent through family trust, Bambino Holdings Ltd. Ecclestone himself owns 5.3 per cent but says he has no plans to sell. Perhaps 30 per cent may be floated? Less would be
“Overall, F1 makes money, but it has vulnerabilities”
F1 has debts of $2.3bn, on which it is paying some $60m a year interest (2.6 per cent). That equates to quite a chunk (17.6 per cent) off its recent $340m annual profit, so paying down debt with floatation may be advantageous as longer term interest rates are on the increase. Another reason is to cash in the
unattractive to the market, and more would lose CVC its control, so the block for sale may be about 15 per cent from CVC and 15 per cent from LBI. Would one buy shares?
CVC say it has annual sales of $1.54bn and employs 200 people. Total contracted income from future races is about
longer herd the F1 cats, who will take over? And can they grow the sport as well as he has? Nestle chairman, Peter Brabeck- Letmathe, sits on the Delta TopCo board and is thought likely to head the new company, but will that lead to growth or ‘steady as she goes’ corporate milking? If the company knows its future is not rosy-cheeked growth but mere consolidation after it has already peaked, and investors want out while the going remains good, then why would anyone else want to buy into its sunset years? It may be good for current owners to cash in at, arguably, F1’s peak, but the same logic dictates that buyers are going to buy at the top of the market. Some argue that F1 is already over the top as viewing figures were virtually static at 520m in 2009, increasing only slightly to 527m in 2010. At 20, the 2012 season has
the largest number of races so far, but 24 races are being discussed, which could bring another $150m a year race income, as well as increased TV revenue, so there is still room for growth, but it may never again reach the heady rate reached during the golden era when Ecclestone and Mosley wielded the iron fist within the iron glove. F1 may float and then sink, so
yer pays yer money – or not – and takes yer choice, but as always sport fans, caveat emptor...
July 2012 •
www.racecar-engineering.com 7
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