There are reports that the Formula One group is to pay its owner CVC Capital Partners a dividend of around $1 billion in cash, as part of a loan refinancing. This is no surprise as CVC Capital Partners has been looking for ways to release some of the value in the F1 business at a time when there are uncertainties about the future of the sport, in terms of the financial model, the succession planning and the willingness of the teams to accept continued exploitation of the business by financiers. The teams have failed to stick together and have only themselves to blame for having allowed themselves to be divided and conquered. As long as the Formula One group and Ferrari work together this is unlikely to change.
The refinancing plan includes not only a tranche of profit for CVC, but also a maturity extension of the loans, which were due to mature in 2013. It is believed that a sizeable chunk of the debts have already been paid, hence a new loan is not easing the burden for the sport, but rather extending it. This has now been pushed out to 2017, which is believed to coincide with the end of the latest Concorde Agreement, which is currently being cobbled together by Formula One.
The intention is to offer investors a guaranteed return of five percent over the London Interbank Offered Rate (LIBOR) of interest. This will make the sport a cash cow for financiers for another five years, while at the same time as leaving CVC in a position to float or sell the business as and when the current problems are sorted out and the business has more value. That is likely to be two to three years at least.
joeblogsf1 
The F1 bubble will eventually burst, and there will be a lot of tears when it does.
Yay! What fantastic news! /s
Joe you say that the teams only have themselves to blame, but from the various bits I’m hearing, it sounds more like Mr E has worked a flanker. Little things like the link between McLaren agreeing thanks to Bahraini ownership and the Bahrain GP being an “issue”. In the grand scheme of things, how much power do the teams really have, even united? There must be some logic to the notion that the teams are just waiting for Mr E to retire before they really get that act together. Perhaps that’s happening around the 2017 time frame?
…the teams are just waiting for Mr E to retire before they really get that act together. That act will not get together while Ferrari is under anything like the current management – it’s a corporate culture problem there.
Probably all true
This is just depressing to read.
Bernie will retire when they nail the coffin lid shut…in the meantime, F1 flounders in the internet age (my friends here in the USA are puzzled about the lack of live streaming and clips on YouTube, and the invisibility of the drivers, both of which greatly reduce the visibility of the sport), and a lot of the money generated in the sport is being used to deliver on oddball financial deals.
Some people may suggest that even after the coffin is nailed shut he may still come back…
Have to agree with you about the US. Drivers and other personalities are much more approachable in their racing classes, including retired F1 stars.
I remember meeting Emerson Fittipaldi on the Gold Coast during an Indy weekend. I had a model of his Lotus 73 as a kid in JPS livery and it was a thrill to meet one of the great drivers of the modern era.
Approachable, willing to give up some time without the appearance of wanting to be somewhere else. Came across as a genuinely nice guy.
I don’t know about you, but I could really see Bernie in one of those Futurama head jar things…
I have read your concerns about CVC and the men in suits who take profits out of F1. The perception to the reader is that CVC wears the black hat. It is equally fair to conclude that CVC is relatively good at what it does (taking piles of money and making them into larger piles of money). In that context, while the long-term financial health of the sport is critical to enthusiasts and those in the industry, CVC can hardly be blamed for doing what comes naturally.
Yes, they can. This isn’t quite the same as giving your cat a stern look when it drops the latest offering on the doormat, and then giving in a scratching it behind the ears again almost immediately. “Oh, those private equity company’s do cause us such bother, but we know we love them really and they’re just doing what comes naturally” doesn’t really sound right.
That aside, there’s also a big difference between blaming a person/organization for doing something, and not blaming them for doing it but thinking they’re a git/bunch of gits for doing it all the same.
Your beef is really with those who commoditized the sport to the point where CVC and those of its ilk are allowed to do what they do. Whether they’re gits (whatever that is) or not, is irrelevant. I don’t “love them” at all. The point is to stop expecting CVC to behave as if it holds the sport in trust, or view CVC and its members as “gits” because they don’t behave as race fans want or expect. They’re money men in a money business. We’re sports fans watching a sport. Let the incongruity ensue.
I have to say I am surprised someone at CVC had’t thought of that one years ago since it’s a time honoured practice amongst venture capital firms to saddle with debt the companies they purchase in order to pay dividends to their clients/shareholders and then sell them for a bunch of money and let the company burdened with the debt…lovely
but as you say, only the team’s shortsightedness is to blame here. It’s amazing how a group of very smart highly educated people manages to act stupidly and against their own interest at every step of the road…at least when the commercial rights are involved.
“As long as the Formula One group and Ferrari work together this is unlikely to change.”
Somebody, please remind me why the sport so desparately needs Ferrari?
Because… They are Ferrari.
I still don’t think the sport “needs”Ferrari. Especially when it continues to undermine the sport.
Quite right. How can FOM be impartial when it is in bed with Ferrari ? The sport would survive without them.
Hear, hear… all empires fall eventually.
Honestly, I believe that it may be the other way around now. Ferrari may need F1 more than ever now.
Enzo sold cars to fund racing. I think FIAT races to sell cars.
Formula One has always existed in a state of uncertainty, the tactics, strategy and competition don’t just take place on the racetrack.
You could understand FOM’S reluctance to float on the stock market some seventeen years ago, but why the deal with CVC? Surely there were other options.
Ultimately the likes of CVC and other private equity companies exist only to make money.
With all the countries lining up to get a GP, it is a true shame the teams themselves don’t own this thing.
Thanks for continuing to point this out.
GP1 instead of F1
FOM own GP1
Maybe a trademark lawyer can explain to me how it is possible to own “GP” in front of anything. I thought this battle was lost in 2007 over the rights to own the phrase “F1”. Most IndyCar races called “grand prix” of this or that…somewhat confusing.
Hmm that billion could have gone to the teams, but no, they just can’t stop themselves stabbing others in the back. Do I understand correctly that CVC is basically taking a loan on future profits and therefore paying themselves early.
I have looked at the official release on Formula1.com which says this:
http://www.formula1.com/news/headlines/2012/3/13176.html
Which is a little different to what Joe had picked up/heard whispered. In fact if the statement is correct the debt will be reduced. However I am sure there are many way to read this and it needs inside info to interpret it correctly.
Whatever it is I am sure Bernie will get a bit richer from it.
I cannot see Bernie ever retiring, he needs to do deals to remain alive, as we breath, so Bernie deals. Could he be ousted from F1? I would guess it is theoretically possible, but like the Higgs Boson it will need and enormous amount of money and energy to make it happen.
So rather than jumping to conclusions, you might stop to look at things as they really are, and apologise for your remarks
exactly, I tease you jump !
no more comments on this
This is pretty standard practise in the VC / Private Equity markets. As been mention above, you do wonder why it wasn’t done a while back.
It does mean that no float (IPO) for the next 18 to 36 months, so that the markets can see how the debt is been paid down, before a float will go ahead. Shareholders are a little bit smarter these days, and don’t want a company full of debt, which means no real dividend is paid, as the Banks get there lot first.
I think CVC were aiming for a floatation, but the potential Mercedes lawsuit will force disclosures, so this is the best way forward. Good they had a plan “B” is it not!
The way I read the release its seems to be saying:
“Good News Everybody! We’re going to retire our $2.92bn debt and take on $2.27bn in debt instead. The better news is that we now have until 2017/18 to retire this smaller debt rather than having to pay back $2.92bn in 2013/14.”
The questions it raises for me are:
1. What happened to the $650 million difference? Not for a minute do I think that CVC let F1 slide on that. Somehow, somewhere, someone pocketed $650 million and somebody paid it one way or the other?
2. For CVC to let this one go through it must make their numbers look better. They now retire their debt associated with the $2.92bn and obtain further funding to lend F1 $2.27bn but since that isn’t due for a few years their liquidity and debt ratios in relation to due dates and funding pools looks much better.
3. How dependent on this agreement was getting the ‘majors’ to agree, in principle, to a new Concorde? Would CVC have done this deal without it or would they have just come to the due date and said pay up or else we get to sell F1 for whatever we can get and minimise the size of our ‘haircut’ on the deal?
4. What would have been the financial implications for Bernie had this deal not gone through and the $2.92bn fallen due?
There’s only one word that describes F! business dealings – labyrinthine or possibly pythonesque…
My background in finance is long out of date, so I may be missing something here, but it isn’t clear to me why this is bad news. CVC owns the F1 business and I can’t see how the way they finance themselves or reward themselves can affect the teams or the fans.
The teams get their shares of a fixed percentage of the overall revenue. This doesn’t change that. The percentage they get is scandalously low, but as far as I am aware they are stuck with it. It’s part of the long-term contract, and there’s no reason to expect it to change for the better.
The fans get the worst deal, because the circuits are screwed so badly that ticket prices have to be extortionate. But again, that isn’t changed by this. It results from the FIA scandalously selling the commercial rights for an inadequate amount many years ago, so that those who own the sport have no interest in its wellbeing, only in their own profit. That’s been true for a long time and we’re stuck with it.
None of this will change if and when Bernie Ecclestone retires, nor if CVC sells their asset to somebody else. There is constant speculation and ill-feeling, which is understandable enough, but surely the basic facts of the situation are the result of the long term contractual situation which isn’t going to change.
If the teams could get their act together and buy the F1 business then maybe, just be maybe, some of these things could change. The way I see it this news is bad news BECAUSE nothing has changed.
I don’t know where you work, but if you and your colleagues could just get your act together, couldn’t you buy the company off the owners?
How much would it cost you, and could you raise the money?
Are you qualified to know how to run it when it became yours?
Would the cost of servicing the debt you had to take on in order to buy the company be so great that the workers were no better off than before?
No offence meant to you, but these are some of the questions that the F1 teams have to ask themselves. They’re not stupid, and they have decided that they would be better off concentrating on competing in F1, rather than diverting their attention into trying to run F1.
You make a good point but staff and management do sometimes take over companies, but it would be interesting to see how successful these enterprises have been historically.
I don’t blame CVC for doing what they do best but as a fan I would like to see the teams (and fans) getting a better deal. Call me a dreamer.
The fans will always get the worst deal, sadly. We are not even on the list of things to be cared about. I don’t see how that can change short of the circuits having to stop the races because they cannot afford to run because of no fans buying tickets, but I doubt that will ever happen as i’m sure, like me, most fans see it as a once yearly special treat to go to a GP (due to the price, not the view from behind 20 ft fences and grandstands a mile away from the track) – and i’m sure Bernie loves that it is seen like that, justifying (to him) the costs.
Bonjour à tous,
Pardon de m’adresser à vous en Français, je compte sur la traditionnelle curiosité Anglaise pour l’incongru et l’exotique pour être lu et, je l’espère, compris.
Pourquoi ne pas inverser le modèle économique ?
La F1 paierait les TV pour être diffusée sans aucune coupure publicitaire contraignant ainsi les compagnies qui souhaitent voir leur image associée au sport à en payer directement les acteurs (équipes et organisateurs) pour être vu sur les autos, les combinaisons ou les panneaux pendant les retransmissions avec la garantie de ne pas être “doublées” par celles qui font le choix de passer pendant les spots sans jamais s’investir réellement dans une écurie ou dans le sport.
Je vous avais prévenu, incongru et exotique.
Le bonjour.
Question intéressante mais du point de vue de la FOM (comprendre Mr. E), je n’en vois pas l’intérêt. En effet, les droits télévisés reviennent directement dans ses poches. Il s’en sert alors pour redistribuer une partie de ces fonds, via les fameux Accords Concorde qui sont actuellement en négociations. Alors que les sponsorings versés aux écuries sont, par définition, conservés par les écuries et Mr. E n’en voit donc jamais la couleur.
Votre modèle pourrait éventuellement fonctionné si, comme Joe Saward en est un fervent avocat, les écuries étaient propriétaires des droits commerciaux de la F1 et étaient capables de monayer ce supplément d’exclusivité auprès des investisseurs. Mais cela serait très compliqué puisque certaines marques ne souhaitent/peuvent communiquer que dans un seul pays (à travers la publicité à télé). De plus, l’espace publicitaire sur les voitures n’est pas non plus illimité…
Je pense donc qu’il y a très peu de chances que ce système voit le jour… 😉
Merci d’avoir pris la peine de me répondre, c’est très chic.
A propos du modèle rien ne nous empêche de garder Le Gérant (tonton bernie) en place et de lui octroyer un pourcentage. Pour les marques nationales, disons que l’on peut leur faire comprendre que la F1 est le niveau de l’excellence et que tout le monde ne peut y accéder, elles pourront pourquoi pas se montrer plus modestes et soutenir les petites écuries et si c’est encore trop pour elles, un pilote. Quant à l’espace limité sur les machines et les tenues des pilotes et des mécaniciens c’est un fait mais c’est l’occasion de faire grimper les prix.
Et avec un peu plus de souplesse, rien n’empêcherait les écuries d’adapter les couleurs en fonction des GP, de plus avec l’avènement de l’imagerie numérique il sera bientôt possible de faire apparaitre à l’écran des marquages différents en fonction des pays de réception du signal. Dans un premier temps, pour des questions techniques, cela ne sera possible que sur des surfaces fixes (les panneaux publicitaires qui bordent les pistes) mais à terme cela le sera aussi sur des objets en mouvement, nous pourrons alors avoir des autos qui apparaitront avec des couleurs différentes en fonction des pays de retransmission du GP.
Mr E ? n’est pas M. E
Parce-que ces mêmes compagnies (les sponsors) n’accepteraient pas de payer autant d’argent pour donner un tel “cadeau” aux chaînes télé.
Je vois bien l’intérêt d’obliger les TV de ne pas interrompre le grand prix pour les pubs – ayant dû basculer du BBC en UK à TF1 en France, c’est un point sensible pour moi.
Mais il faut pas oublier que par extrapolation, les pubs paient les écuries et FOM – leur argent permet les TV de payer plus pour les droits de retransmission, cet argent versé dans un pot chez FOM et puis reparti entre CVC et les écuries. Leur “investissement” dans le sport n’est pas direct, mais c’est réel.
Et rien n’empêche les “sponsors” d’adopter les deux stratégies en même temps s’il veulent dépenser autant. Les publicités qui passe au télé ont l’avantage d’être regionales – les compagnies peuvent cibler les pays dans lesquels ils veulent augmenter leurs chiffres d’affaires ou prendre en compte les divers marques qui se varient par pays (déo Axe / Lynx pour un premier exemple).
Pourtant c’est clair que certains pubs sont peut être contraires aux intérêts des sponsors directs et mêmes des acteurs principaux de F1. La retransmission chez TF1 en France par exemple est sponsorisée par Dunlop qui n’ont pas fourni une écurie depuis une quinzaine d’années au minimum. L’année dernière c’était Michelin si je ne me trompe pas.
Est-ce que Pirelli se sent “doublé”? Ou est-ce qu’il considére que Michelin et Dunlop gaspillent leur fric?
Joe – whilst I agree with you that collective bargaining would garner the teams a better outcome (look at some of the big US sport talent strikes), I think that the CVC ownership period has been good for F1. Sure there have been some mistakes made, but do you think that some of the progress you (rightly) call for could be achieved by the teams agreeing on a way forward?
I think that the Bernie/CVC partnership has put a lot of people off F1 if anything, just by the continuous ratcheting up of fees and costs.
Perhaps we’ll find this recent deal with Tata will mean Formula One for the masses will be readily available over the internet.
There is tremendous potential for growth of Formula One as a ‘lifestyle brand’ particularly in the new economically emerging nations such as China and India.
The question is; how do we present it to the Chinese and Indians?
I think the period of CVC ownership has been good for F1. I also think that the FISA/FOCA wars in the late 70’s and 80’s were good for F1 too. It doesn’t mean that it isn’t disruptive, or, negative from the point of view of the fan base.
The question isn’t so much if its been good for F1 to date, its what will happen going forward?
No VC/Hedge Fund/PE group goes into any deal without an exit strategy already in place. That exit strategy is good for the them, not necessarily good for anyone else.
CVC is having problems in Australia with their position in Channel 9 and associated businesses and I hear they have other issues with their Asian operations. At some point they need to get their money back plus their expected return out of F1.
While I am sure that Bernie is keeping an eye on that, I’m not so sure that the rest of F1 is. Not to say that F1 isn’t populated with a lot of very smart guys, it is, but its been my experience that when you get a lot of smart guys in a room, their ego’s run rampant and all of a sudden the smart guys come across as not so smart. To an outsider this is how FOTA looks.
Its all going to work out in the end – the question is how much damage is going to be done to the F1 brand and how its perceived in the marketplace once all of this settles?
Joe – Can you do a blog post, rather like a potted history of the whole FIA / FOM / FOTA / CVC / FISA / FOCA (insert any other acronym) ‘thing’, please ?
I only have limited knowledge from what I read on here and from what my dad and godfather have told me of F1 politics in the 70’s and 80’s and it would be great to see it in more detail.
Thanks !
I can’t believe how many folks are willing to fall for the by-now-standard BS, i.e., “Oh, they’re just motivated by pure greed, and since that’s their nature, it’s all just fine… no point in objecting to it because they are really, really good at their pillaging.”
We’ve been hearing this mindless noise for 30+ years as the pillagers pillage. Believe it or not, there is a very big diff between a capitalist economy vs. a capitalist society that needlessly permits and encourages a one-dimensional value system. The former makes sense, the latter relies on people being, um, considerably less than bright…
THANKS Ferrari!
F1 really does need you…continue screwing over the sport.
Well, the Dodgers are worth $2bn apparently, and as I understand it they’re not even the top team in their (dodgeball? Dunno) league.
$10bn for F1 seems achievable, but they need more – and more relevant – manufacturers involved.
Which brings us to Audi, in your next post 🙂
This must be what Karen meant by what the fans want…
She knows you know.
This has me completely gobsmacked.
Can one of the readers who’s in the markets post whether CVC will really need to pay as much as 5% over LIBOR in this market (and if so, why it’s seen as being so high risk)? I’m not a player, but that sounds like an enormous risk premium to me.