Anyone who claims to fully understand the financial structures of CVC’s Formula 1 investment should be treated with considerable caution. It is a wildly complicated business with different companies – some of them in places where financial statements are not publicly available – being used simply to service debt in a tax efficient manner. Just to put that into perspective one should understand that Formula One Administration, the main operating company, is owned by SLEC Holdings Ltd (Jersey), which is owned by Alpha Prema UK Ltd, which in turn is owned by Alpha D2 Ltd, a subsidiary of Delta 3 UK Ltd, a subsidary of Delta 2 (Lux) Sarl in Luxembourg. This is owned by Delta Topco Ltd (Jersey), which is controlled by CVC Capital Partners.
What is clear is that CVC is still busy paying off the $2.45 billion loan that was taken out in December 2006. This seems to be reducing but with companies within the group borrowing off one another it is very hard to follow exactly what is happening. It is believed that the debt will probably have gone by the end of 2011.
What is clear is that Formula 1 is not getting any cheaper for race promoters, TV companies and advertisers. Turnover in 2009 seems to be about the same as in 2008, although the Formula One Administration (FOA) accounts for 2009 suggest this is up nine percent. The 2008 figure for Delta 3 (UK) Ltd, the main holding company of the group, was $1.06 billion. As all these companies between Delta 3 (UK) Ltd and FOA seem to be holding companies of one form or another, it is fair to surmise that the turnover is actually about the same, even if the FOA figure taken in isolation indicates that there is an improvement. This is confirmed by the fact that payments to the Formula 1 teams – which are carefully monitored and strictly 50% of the revenues – went up from $521m last year to $544m. It is clear from this that things are moving in the right direction, despite there being only 17 races in 2009 compared to the 18 in 2008. Average revenue from each race has gone up accordingly, largely due to the big new pay out from Abu Dhabi. The profit and loss statements are entirely dictated by the debt-juggling and so reports of an increase of 29.7 per cent in FOA’s operating profits should be judged accordingly. Debt restructuring meant that FOA ended up with a paper loss of $2.9 billion after it wrote off a $3.4 billion investment in its subsidiary Petara Ltd (Jersey), which is the entity which owns Formula One Management Ltd.
One area where the sport did not do as well as might have been hoped was in its VIP hospitality, which comes under the Beta Holdings Ltd company (There are Alpha, Beta, Gamma, Delta, Epsilon and even Omega companies in the structure). Revenues in this division fell by 18% from $183.4 million to $150.5 million. There were cost-savings as less money had to be spent on running the Paddock Club, but clearly the business has been affected by the recession. It may be even more significant a drop as Beta Holdings also deals with trackside advertising and official supplier deals and these have probably increased in value with big new deals such as LG included in the accounting period.
As I said, trying to analyse it all when you are not an accountant and do not have the full facts is a dangerous business…
“Just to put that into perspective one should understand that Formula One Administration, the main operating company, is owned by SLEC Holdings Ltd (Jersey), which is owned by Alpha Prema UK Ltd, which in turn is owned by Alpha D2 Ltd, a subsidiary of Delta 3 UK Ltd, a subsidary of Delta 2 (Lux) Sarl in Luxembourg. This is owned by Delta Topco Ltd (Jersey), which is controlled by CVC Capital Partners.”
My head hurts.
Robert McKay,
Yeah, mine too! The point is that people pretend to understand all this. You simply cannot because of confidentiality in some of the companies in the structure.
“Anyone who claims to fully understand the financial structures of CVC’s Formula 1 investment should be treated with considerable caution.”
Amen to that Joe, there are a few of those people around and a prime example is Chris Sylt, who claims to fully understand the CVC structures and publishes on it but merely rehashes facts from incomplete public records and interlards them with his personal opinions and wrong conclusions that he has jumped to.
So thanks for putting things into perspective.
joesaward
Fair point, excellently made…
Its very simple. It all comes down to this ….
Bernie Ecclestone.
Enough to make even Bernie Madoff’s head spin
It’s much more complicated than it was before Bernie sold SLEC to the German TV companies (remember them?) – and even back then /The Economist/ was referring to the whole thing as a “complex tax-avoidance scheme.”
Sounds like they went to the Enron school of business.
Having just watched a show where the main protagonist (an illegal drugs manufacturer) goes to great lengths to make his earnings appear legitimate (via laundering and several business fronts) I can honestly say I’m not the least bit surprised when I read about the business structure of FOA/FOM/CVC et. al.
There are entire legions of accountants and lawyers who get paid tidy sums of money to exploit international business and tax laws, and all but a few are equally uninformed about the big picture… It really gives one pause to think how much big money business can get away with, and what other sketchy kind of dealings this money could be used for. The worst part is much of this money is non-taxable or ends up in a place where it’s essentially untaxed.
I’d be pretty upset if it wasn’t the only way F1 could operate.
Is it even worth asking why FOA needs six holding companies between itself and CVC, or is that heading into Things People Were Not Meant To Know?
” What is clear is that CVC is still busy paying off the $2.45 billion loan that was taken out in December 2006. This seems to be reducing but with companies within the group borrowing off one another it is very hard to follow exactly what is happening. It is believed that the debt will probably have gone by the end of 2011. ”
Joe, do you think this is going to happen? or is there going to be a black hole in the accountig come 2011 .. is F1 ever going to own its own rights ..
But should all this be legal?
CVC Capital Partners, LP: Convoluted Venture Company Partners, Losses Prolonged
What a mess. Could you imagine if they ever went to bankruptcy court? The judge would be in a state of Coronary Vasospasm Constantly.
Has anyone done a tree (organagram) of all this?
Thank you for not being Chris Sylt!
I’m echoing Tom Moro above, but this is heartfelt mate!
(c.f. “anyone who claims to understand . . . treat with caution” [sic] comment)
I used to do external valuations of this kind for a living. Err, even that’s claiming too much. I’d say that some of my pay arose from making educated guesses, for some values of “some”.
This was with the benefit of a fairly large number of historical datasets, tax rules entered painstakingly in what used to be called a “knowledge base” (see wonderful thesis “If It Works, It’s Not AI”), a bunch of econometrics and an overlay neural net, all run compare against a (maybe still available) sell – your – soul – to – license Price Waterhouse / Coopers Lybrand (origin CL i believe) system, which was effectively a black box.
It’s not actually a lot of data to analyse, in raw form, but you make the correct emphasis on what’s not available. So, the idea was to run models, looking for variances over time, across a number of corporate groupings which did, ultimately, have to report data.
And anyone who has heard of IFRS (vs GAAP or anything else) probably feels my pain as to how futile that “baseline” is.
Notice how couched is my language above?
Pr’olly sais too much already .. i sell ads and bejesus it’s less soul destroying.
Think about that . .
No, don’t . .
Hey, in advertising at least you got really neat outcome tolerances
I will say this though: privately i’m convinced that buyout premia arise not from greenmail or competitive tender or any endemic observable economic activity, but from an externality i call the “i’ll sue you MORE” premium. Basically, if someone fibs, and you’ve paid top dollar, it really works for the plaintiff and sacks careers.
Vaguely back on topic, i’d hazard BE sold at the cusp of realizing *he* couldn’t understand / control it anymore. I’m constantly in awe of this man’s savvy.
More relevant to this blog – maybe – is the current UK PM’s office pledge to open public data. Were it not for the fact that almost every reporting govvy agcy sells bulk data to distributors who then restrictively “license” it to ass-raped buyers like my company, i’d just come here time to time & post the raw stuff to give y’all some serious hangover.
Less relevant: expensively manicured books like “Formula Money” have no bloody place or usefulness in the economy, ceteris paribus the problem noted in above para.
Hint for the searchers and delvers: if you use a “SPV” (Special Purpose Vehicle” (natch) chances are it is in a jurisdiction where you’ve formed a trust, and you simply can’t realize losses there, either because of trust law or because some other benevolent state (US, UK) will allow you to amortize that loss. So what you can look for is the outlier losses and their small print origins, from which occasionally, strutural group company insight may be gained.
E&EO.
Off with the gobbledygook!
p.s. did Horner just make me a die-hard Webber fan today, with the “he wanted VET to back off” sniping? PLEASE dig into that Joe!
For RodgerTheDodger:
trees are monodimensional in their path. You get to go up, or you get to go down.
company groupings allow you to go around and around.
or more specifically, a branch predicate cannot self mutate.
unless you feel you’ve got a monad, or generally like lisp macros.
– hand waving rubbish notice! – do not rely on blog posts! –
but what i mean is a tree diagram (or whatever name you prefer) isn’t very helpful in a self – determinate system
(i’d question my use of “determinate”, in “self – determinate”, if i was being a team player, but that’s just too much holding your line through the corner, in today’s parlance*)
otherwise we’d all pay for fancy business journals as our founts
lordy am i bitter today.
I Blame Horner.
subtitle: visualization sucks because visualization imposes visual rules of interpretation.
sub-subtitle: yer kidding me right? a better analogy is any of those wonderful diagrams which try to explain, say the human metabolic system.
* this coulda been a p.s. but you see the quandary: determinate is also influenced by events, but not conditional upon them, just as it is neither purely ex – ante. Hence i was self – determinate, until i further determined (by not choosing) to hold my same line into the corner, and that outcome is not singular, because there were no direct observable influences until some bugger turned up in my left mirror, not that it matters. Now there’s a interesting branch predicate prep question. Hint: think of the “bi” in “bifurcation” as the inadeqacy.
p.s. for the TL;DR crowd, VET sucks
Jameson:
L.P. = Limited Partnership
i am a General Partner in such a Limited Partnership.
what it means is that i can take on a partner, who invests time or money or equivalent, but i run the show and i risk my EVERYTHING in so doing. If a limited partner takes action in the LP, they risk everything without severality.
To understand why suck entities exist in law, you need to keep in mind the idea of “corporate person” and what that entails.
With a Limited Company, you trade limited liability for the requirement to behave in very strict ways. Even before we start on the Financial Services Act and it’s mutually enforceable counterparts.
My experience is that virtually no small company director in the UK is even cognizant of these rules, let alone in compliance with them. And i’m just talking letter of law, not spirit.
What do i get for having my house an my family’s inheitance on the line?
I don’t have to modify my behaviour accoring to the 776 pages of Companies Act 2006, not watch the 20,000 pages and growing of Tolley’s Tax Guides which apply solely to limited incorporations. Because the body corporate – the responsible person – is me (and my general partners) my trading counterparties have RECOURSE to me. When i take money from the company, i am taxed normally as income. The reason why Incorporated Limited Liability companies pay an additional “corporation tax” is recognition of the fact that most fail unable to pay their debts.
It is specificaly prohibited by the 1931 Limited Partnerships Act for any entity or person to be both a General Partner AND an entity with limited liability.
It appears – TO ME – that Barclays may have abused the fact that Companies’ House in the UK is solely a records office, not an enforcer. I will check that, so don’t take me literally, but see wikileaks / “The Guardian” for further data. Remember data != information.
If you ask me (and i appreciate you did not) the real scandal is the millions of traders who abuse the “LTD company” rules, never pay even lip service to those rules intended to safeguard society, and fold, leaving people out of work without recourse to wages owed (save horrendous Companies Court expenses) and many creditors unpaid.
SO, in answer to your question, SOMEONE IS ON THE HOOK, or someone will be held liable in an abuse of process action.
The rest is just normal tax and accounting, which – frustratingly for the curious – remains private until such time as a LP really effs up. Which, i note, with received wisdom from the compliance office at companies house, happens rarely, precisely for the reasons i’ve noted above.
LP = LESS PAIN (for those who actually, genuinely, mean business, and have don’t f’k people)
kind regards, – john
for Alianora:
it’s really not unusual even for a very small company to have subsidiary in another country for business there.
If you lived and conducted busines in the UK, you might have a preference for dealing with UK naturalized entities, because – unless you waived them, which isn’t very enforceable – you at least do not have a language / culture barrier to deal with if you get a problem.
I can’t even start on what a headache it is employing someone even across the supposedly homgenised main -states EU, without having a natural entity to deal with the local tax office.
Interesting times?
Or just the fact we have neighbors and play nice with them?
cheers,
– john
For Bludd:
legality has nothing to do with the way you go about it.
A heist is just that. Maybe you can hide it for a bit.
The problem with people “getting away” with heists, is that there’s no political interest in enforcing existing strict complex mind – bending rules.
Just as there are few who bother to even read them.
We do, however, have a social problem wherein those who are incluined to read the rules are biased by money to bend them.
I personally don’t see a conflict in this.
– - says me, removing unmelted butter from mouth – -
but to argue the complaint – and i recognize your complaint, because it was the reason for my career, PLEASE read up and look for the true moral hazards. They rarely exist in non – regulated private companies.
all best,
– john
Mr Saward Sir!
a note on debt:
“It is believed that the debt will probably have gone by the end of 2011.”
not all debt can be pre-paid. but all get paid unless they are repudiated.
some debt gets swapped out with new, because the old cannot be prepaid but is bought.
the reason you get to pay down the debt without enormous difficulty in terms etc is because large debt issues tend to get listed with an authority, say the LSE, or the Luxembourg stock exchange et alia.
so they get a CUSIP number, or a similar standardized registration, which is then public
by the process of registering a debt you mage it a fungible entity, i.e. one which can be bought and sold with features of behaviour which are inherent in it’s nature, and defined in its public listing. you buy the instrument, not the issuer’s word. it’s admittedly a small distinction, but an important one.
WHAT I MEAN IS (cough, splutter!)
is that i am confused as to what you mean:
e.g.:
“i bought the IBM’s 6 and threes of 2011 at 96″
means the capital comes back at 2011 per schedule, no matter the price.
(actually that phrase means you bought IBM bonds paying 6 and 3 8′ths percent at 96 cents on the pound, which deliver their 100 percent at sometime in 2011)
It also means that any straight risk with a bond is pure default risk.
The rest is you gambling on differential interest rates and the company ability to pay the scrips (used to be bits of paper torn off the actual printed bond so you could claim the interest)
If you hold long enough, then you get your interest, plus the principal amount (“capital”) at the end.
SOOOO (yeah! right, johnny!!)
if the debt matures in 2011, well it matures then.
so it will have been paid.
even if some sucker / clever cloggs buys it at a different price in the meantime, or does some kind of deal to swap it for a new debt which could mean (only could) that the debt gets paid in full earlier.
BUT
please see my points above which mean that unless there is an “event” all company debt gets paid in full.
For *really large* bond issues – and Bernie’s Bond was well covered even in the myopic Financial Times – such “events” are publicly reported.
SO,
Yes, i’m reaching out to the ghost of Sylt . . .
it doesn’t take a genius to track down the events.
But you’d be a better man than i to impute from even that “erudite elocution” a state of the overall company.
Just love yer amatooors, luv ya, i swear!
(says an amatoor)
best,
– john
p.p.p.p. {to the silliness} s:
i’m really quite against any discussion system which is moderated by a single person, where there’s no means either
a) to show there’s an editorial policy poeple can read so they understand the limits
or,
b) is sufficiently open to allow the publisher [in this sense, Mr Saward] to claim “common carrier” defense in allowing potentially nasty comments to appear.
But i am increasingly certain that this blog effort keeps nailing events WAY WAY WAY before any mainstream – or otherwise – press manages to even hint at even the bloody subect of interest to fans.
(even if my own fanatical interest here is just having a professional common with looking at silly complex companies)
Something, with full inverted quotation marks, is working well. I mean i get to slag off Horner in the middle of a discussion about – supposed – corporate ethics. I may even be relevant.
In my company we subscribe to some horrendously expensive news wires – Bloomberg Terminal, BBC Monitoring, and some others which are personal links really.
NONE of those even bares the covers on “general reportage” – - the public-consumption front – of – house web pages aren’t so far behind.
For just some issues, where my colleagues have a chance to understand a bit better the events, we might process some raw data points to infer, and i mean infer with all the guesswork that involves, better infomation for what we do.
But look at so-called global news. I get the same, bar quantity, on big events, for paying thousands of dollars a month as anyone with an internet connexion.
Yet, for this miniscule part of the Real World [TM], i’m addicted.
If i had written a company policy on writing publicly, wow i’d be in breach . . .
aside from the “fill in the blanks” posts about quali, (please skip, Joe!) and all that, or the “i told you so’s” specific to rule 43 or something which was obvious, but funny (i keep telling other people i told them, about other things) this place trips my wires, fires off my sensors, and gets me thinking.
BEING SNIDE: so can we, i mean, is there a chance, that – lets assume there’s insight as opposed to agenda here – can we up the level of thinking in the comments? I’ve noted the publisher likes to debate, in comments, where ther’s something to debate. Ooooh, sorry for calling you a lab mouse, Joe, just i think you react only to certain stimuli and we’re lacking ability to adjust to that.
BEING SERIOUS:
Joe, are you an insider about to be put out the door?
Or did you secretly marry Balestre’s daughter?
either way,
NICE ONE! THANKS!
– john
This sort of thing goes on everyday by every major company. There are lots of companies just here in America that report making profits of billions yet paid ZERO in taxes!!! So yes, of course the structuring is a tax avoidance scam, whilst us peasants that eek out a meager living have a pound of flesh extracted.
Michael,
dunno if this will get moderated so you can see it eventually . . .
the first thing i thought of when I saw the US part (a third!) of the bill for the 700bln euro or so of banking support post Greece, was “i bet the Buros in Brussels threatened the retained profits of American subsidiaries with new taxes”. There’s a wall of money which never gets reported nor repatriated normally on US balance sheets, because it’s piled up in the EU for a rainy day, and offset my a myriad of intra-company loans & tax treaties. No-one in Europe benefits from it being here either, but it likely is a significant deposit base upon which bank capital adequacy ratios rely.
“us peasants” are over here, and over there, and pretty much everywhere. The winners have been the beneficiaries of truly epoch-busting gerrymandering.
cheers!
– john