There are a couple of stories kicking around about Bernie Ecclestone this week. The Daily Mail in the UK has been reporting that inspectors from Her Majesty’s Revenue and Customs have started an inquiry into the tax affairs of the Formula One boss, specifically in relation to the offshore Bambino Trust, which he set up for his children. The various revelations in the recent Gribkowsky trial in Germany has led to questions about the level of control that Ecclestone exercised over this entity, presumably based on the fact that both he and the trust paid Gerhard Gribkowsky after he allegedly convinced Ecclestone it would be a good idea for him to do so. If the inspectors conclude that there was too much Ecclestone influence over the trust then he could become liable for a huge amount of taxation. He knows that this is the case – as this was the reason he gave for deciding to paying Gribkowsky, rather than calling his bluff. It is unlikely that anything will happen quickly but Ecclestone could have to pay as much as 50 percent of the trust’s money in tax. That would be at least two billion dollars. Ecclestone told the newspaper that he heard nothing from the tax authorities.
At the same time it is reported by not very reliable media outlets that the German prosecutors may be about to drop some of the charges against Gribkowksy in his trial. If the charges relating to the payment of bribes were dropped this would mean that there would be no way that Ecclestone would be charged in Germany in relation to such allegations. If the charges are not dropped and Gribkowsky is found guilty of having received bribes that could open the way for action against Ecclestone himself.
Whatever the case, the image of the Formula One group has not been enhanced by the whole affair, not least when CVC Capital Partners’ Donald MacKenzie appeared in court and explained that he had no idea that any payments had been made relating to the purchase of the Formula One company. This was not the sort of thing that CVC investors want to hear when they leave their millions in the hands of the private equity group.
There has been some talk of people being interested in buying out CVC, but nothing is likely to happen until the teams are locked into a new Concorde Agreement. They want more money but they have not been clever in their handling of the situation with the FOTA break-up being a very ill-advised move. The problem, as always, is that teams have different goals and some do not care about the long-term (because they do not intend to be there) while others care only about what they can get for themselves, rather than what would be best for the sport as a whole.
Thus far, no-one has popped up with the force of character to get a deal together that suits everyone. It is there to be done because CVC Capital Partners will always settle for money, if the money is right. That being the case, it is really a question of finding someone who can convince banks to fund the purchase and then agree to divide up the revenues differently. The teams would bite the hand off anyone who offered them 85 percent of the revenues, even if it that did not happen for a few years in order to pay off loans. Such a deal would mean that their businesses would suddenly be worth a great deal more money.The FIA would settle for a small percentage and the new owner would then be able to live happily ever on 10 percent of the revenues. Given that the sport is turning over $1 billion a year at the moment (and, arguably, could do better if it addressed some of the gaps in the commercial activities) that is a pretty decent amount of money, although not perhaps in the league that the Gordon Gekkos of the world need.
joeblogsf1 
Alternative view: Shakedown accomplished. Just why do we think Grib is the bad boy in all this, complicit and without friends? Who was so keen to say “yes, I was being blackmailed, look what a good boy I have been!”?
I have to say I don’t understand the teams and their backers; buying the commercial rights makes all the sense in the world, even of they don’t intend to be in F1 for the long haul. If the business makes money, and it does, then a team can be sold along with it’s “shares” of the commercial rights to someone else who will be interested in the profits generated from the sport.
At this time it seems that the only people remotely interested in buying an F1 team are the ones that see a team for the promotional possibilities that it brings, if the teams owned the rights that would bring in an additional pool of interested buyers to the table, investors and maybe someone who wants to go racing and make some money in the process.
Sadly it seems that I will be able to get myself a flying pig before the the teams extract their heads from their colons and look at the bigger picture.
Joe did you see the recent Harry Redknapp tax case? Sounds like there could be a few similarities and HMRC didn’t do very well out if that one. Before they make any case out of Bernie it would have to be 100% watertight.
I always thought odd that the trust has the masculine form as its name, a minor point I realise.
FOTA seems to be like the owners of the NFL. A whole bunch of very wealthy, very powerful and ego driven people who aren’t used to hearing the word ‘no’ very often.
The difference between the NFL and the Formula One teams is in the NFL they have a commissioner, a titular head, if you like. In F1 the commissioner is Bernie and he represents Bernie and CVC with the teams running behind that.
The NFL, and other sports, have realised they can’t let the egos run the business. Bernie has realised that too, someone needs to be the boss, unfortunately FOTA is one of those ‘too many chefs, not enough cooks’ kind of things.
If the team owners could appoint a ‘commissioner’ to act on their behalf then maybe, just maybe, things would change.
Even though the suggestions that the best outcome is for the teams to pool together and control their destiny by purchasing the rights from CVC,
Historically the last 60 years show it wont work the self interests of each party outweighs in their mind the greater good of the whole. Reading what you have been blogging recently makes me think that a visionary entrepreneurial person could change the face and take advantage of tapping into the marketing stream worldwide with new technology.
Who is that? No Idea. Have the teams the ability to achieve this? No way.
There are plenty of entities out in this world who can afford to buy the rights, but do they have the ability to change the game as such.
I have accepted that the teams are incapable of doing anything together. However, if they are given something that they want then they will accept it.
What is therefore needed is the following: one borrows money to buy out CVC. One leaves Bernie and his people to do their thing. They do it well. They are other areas where there is potential and one would find other talented people to work on these, thus increasing revenues. Initially the loans would need to be repaid, but at the current earn rate that can be done relatively easily, as we have seen with the last two rounds of F1 financing. However, if the person doing this is a lover of the sport, rather than a Gordon Gekko, he would be satisfied to take 10 percent of the revenues (which is still a massive amount of money) thus leaving enough for costs, investment in promotion, new ideas and so on, and keeping the FIA happy. This would still leave 80-85 percent of the money for the teams. And as I have said many times they would sign anything for a deal like that. All that would then be required would be to make sure that the sport continued to grow, regenerated itself, moved with the times and produced a decent show. There would be no need for further politics. It would be like a proper corporation, but without the teams needing to fight one another anywhere other than on the track. Job done.
Is it not a cruel joke, the teams probably wouldn’t even race together, if not for Bernie? One reason why I genuflect on Sundays!
More seriously, I think the teams need some independence from the F1 structure, and a medium sized note, backed by advertising rights, could be a way to do that. Tough sell on the sell side, needs some of the happier ones to take a haircut to stash away for harder times. (sort in the term) But that shouldn’t be so hard to argue. For all his detractions, BE does have the back of most everyone, it’s his interest. They will sorely miss that. Succession planning is not merely for Princes.
Joe, hope you will forgive me, but I do love this sport, and I think a 10% vig is not realistic. I am imagining that in my best Master Of The Universe voice, having presumably made enough to just cut a check. This is advertising, and you see insane cycles, third derivatives of mood. Bernie, so far the only master of this, locked in mid term deals to smooth the prices, but he is a very long term investor. Everything you see is him shuffling to get over these hillocks, well ahead of where a race organiser thinks. He is the ultimate collateral manager. State Street would be scared, if he cared. Now, when you securitize a bond, you want a smart manager. This has been done exactly once. (Hence normal souls are still scratching heads?) Sure, I am blowing holes in my above, but that is fair, too. (I have another take, just rather obscure, still back of envelope) Take away that diligence, and I am thinking the bid offer is all wrong. I don’t mean pricing for issue flips either, I am wondering what happens when some dealer sells “just for cash” and liquidity means the last tape looks bad. Used cars, “high finance”, same thing, often enough.
p.s. c’mon, Joe, try Kerkorian or Icahn, or at least someone of similar stature. I only told you who wrote Gekko’s lines, a week or so ago! 🙂