CVC Capital Partners is busy making the Formula One group look like a solid investment, despite a number of problems that might hold back the planned IPO in Singapore. The announcement that “three leading institutional investors” have together invested US$1.6 billion in cash for equity interests in the business, acquiring between them 21 percent of the shares is a significant moment.
In theory these transactions value the Formula One group at $7.6 billion, to which the $1.9 billion debt must be added to gain a full valuation of $9.5 billion.
It seems that Waddell & Reed invested $1.1 billion on behalf of clients, while BlackRock paid $200 million and Norway’s sovereign wealth fund Norges Bank Investment Management invested $300 million. One can thus make a rough calculation that Waddell & Reed now owns in the region of 14.4 percent of the business, while Norges Bank owns around 3.9 percent and BlackRock 2.6 percent.
CVC says that it will continue to be Formula One’s largest and controlling shareholder. Selling 21 percent when one owns only 63.3 percent of a business, might suggest that CVC’s share would drop to 42.3 percent. However, it is believed that the private equity group has an option to acquire the 15.3 percent of the Formula One group that was once owned by Lehman Brothers, which is now being sold off as part of the liquidation of the venerable old US investment firm that went bankrupt in spectacular fashion in 2008. If this turns out to be the case CVC’s stake in the Formula One group will be 57.6 percent. It might also have shareholder agreements that mean that new shareholders will vote with CVC and thus control can be maintained, even if the numbers are below 50 percent. It remains to be seen what percentage will now be floated, but that information will be known shortly.
When all is said and done, the sale of these shares means that any hope that anyone in the sport had of getting control of the commercial rights of the business are now effectively gone. A successful attempt to buy control of the Formula One group becomes more difficult as each new tranche of shares is sold and if the float goes ahead and Formula One becomes a public company the chances of the whole enterprise being taken private again in the future are pretty small.
One might argue that the share value might tumble to such a point that a big investor could sweep in and grab the company, but it is highly unlikely that any such buyer would have altruistic intentions and so would probably seek to exploit the teams to the same extent as they are being exploited today. The likelihood of the teams getting together and grabbing control of their own destinies is very small, as they have shown themselves to be incapable of working together for their common good.
They have only themselves to blame. The current dealings, with or without the float, mean that the sport will remain a slave to financiers for many years to come. The best that the teams can hope for is to negotiate a better deal in the Concorde Agreements in the future (be that in 2013 or 2020).
It is fair to say that they have all been outsmarted and outplayed politically by Bernie Ecclestone. He is very rich and so are the people who invested in him. But one has to wonder if this is really what is best for the sport.
But that is another story…
Can it turn out better than the two, much smaller, examples we’ve had here in the USA — CART, and NASCAR? Doesn’t auto racing work better under a dictatorship than a Board of Directors?
I disagree, V8 Supercars has been doing guite nicly with a board with team representives on it.
It will go wrong soon enough
I disagree, They have set up a good system (not perfect by a long shot). And there are few fights bettween the teams (colectively own 49%) about what the rules say.
The New investors (Archer Capitol, owns 51%) have been very hands off.
With new regulations and Manufactures it looks bright for the near future
I hear different stories. Foreign expansion may seem to be a great idea, but there are fears that the teams will lose their Australian sponsorships if they are abroad too much, and may not gain any international money because the audience is not big enough.
I have to agree with Joe here. V8 Supercars are a niche product. Take the series out of Australia and the audience is virtually non-existent.
I’ve looked at the grandstands in Shanghai and it looks like a scene from a post apocalyptic movie.
Joe, I’d – from personal experience – say that it’s great to have a headstrong leader with a vision, but only when there is a quiet one equally strong to countermand. Boards suck at just about anything unless they all have immediate roles to play. I understand the idea of having a non-exec observer in a big public company. But no company I know of does that right, as in randomly appointing on rotation someone really geek to peer into issues. So stuff the window dressing. Two heads better than one. Sometimes. I miss the rows! Rows are very productive, with the right person. Bernie maybe should not have burned Max, or left him out to dry or whatever. I can’t honestly tell you I never thought of ditching my partner. But I think it’s better with than without.
anyhow, V8 Sups rock, but here’s two misses for the broader sport: BMW not selling their roadgoing V10 lumps hard, and similar with Peugeot not trying to shift their LMP style diesels. Confession: trying to lay my hands on a now discontinued Bimmer V10 for the simple sound of it. Oh, and the driving, obviously!
little footnote: when my partner passed, I transmogrified into him. So I could replicate his thinking, which I sorely missed. Only problem: no longer was I leading a charge as me. There’s lots of good jokes in that, a bit personal, mostly business going south for too long, but these things happen in nature all the time. Funny thing, life. Or funny thing, symbiosis, which is more common than our egos permit.
People involved in F1 will rue the day it becomes public. An IPO is not always a good thing, except for underwriters and investment bankers on the day of issuance. Few others profit. Arguably, for many companies, their best performance precedes the IPO rather than following it.
I read this in the comentary to Ben Graham’s book and have been following the progress of IPO’s since.
1) Full valuation is a term that applies generally to bond portfolios, not firms. If you meant Enterprise value, then you need to back out the cash for an accurate calculation.
The larger issues, terminology aside, is does the firm really warrant a roughly $8 billion valuation? Based upon current multiples, the company would need to cash flow $800 million on the low side annually and $1.3 billion on the high side. Do you see those numbers being being achieved by F1?
Yes.
Can you break that down. Track fees, tv.sponsorship? And is it sustainable over the next 10 years?
Sunday sees two of the three (four if you like stock cars) motorsport classics – Monaco, and Indy. It would be interesting to compare the economics behind the races.
As long as Norge IB hit my eye, I could subscribe to everything you write on the topic. After it did, I think there’s more to it than meets the eye. It is the same you wrote about those moustache man in Stuttgart – they are not that stupid, aren’t they?
“if the float goes ahead and Formula One becomes a public company the chances of the whole enterprise being taken private again in the future are pretty small.”
I seem to remember the same initial fears about the float and subsequent sale of Manchester United Football Club to the Glazer family. It was bought with an awful lot of debt.
Anyway, you had some rumblings a while ago that CVC were looking to ditch F1 from their portfolio. Would this be one step towards this, possibly?
CVC would not drop F1. You should see the rate of return and the cash they have taken out of it since they have owned most of it. This is possibility one of their better, if not the best investment that CVC has made to date.
I wish I had put money into that Fund. I could retire and join Joe on his new jet, after he sells to a certain Italian gentlemen a domain name for his new F1 series. The only down side is we don’t get to hear about Joe’s trips and airport designs for the departure lounge and how best to run an airline.
According to the FT (notified via BasCB) the shares purchase by the “cornerstones” are non voting.
Unless they included specific dividend payments in the prospectus they would also need Delta Prefco shares which apparently decide on the dividend allocation of Delta Topco which was presumably what was being sold.
Of course once someone has enought shares to influence price they may short the stock in an attempt to lower the price and buy back at a lower cost or in greater volume. Share price is also influenced not only by performance ie profit but by “incidents” vis JP Mogan loosing $13Bn off its valuation due to the $2-3Bn loss by “The Whale” .
Williams shares did badly for many months but have now climbed back to €22.55.
…. which is still below the issue price
Yes agreed but only by about a €, in between it’s been way down to around €12.5
Depends when you buy. Take nothing off the green shoe. I was never inside a shop selling a IPO. But I thought at least by Netscape’s issue, a brief windy 16 years ago, everyone knew that. Some other website actually struck me as a reason to get in. Is that not stock manipulation? No, I am not he. But I’d have a real good look if I worked for the FSA. I am very very suss about purported journos pumping this game, in general.
How the ff did I mess this up? – talking about doing well on deals – I reckon just mental buy in, adland, screwed my pitch. Okay I am no Thorp* but I could take down scores when a kid. Played 21 mean. Yes, not just against the sextaguanarians of my childhood home famous for the bifocal Leyland windscreen. Then . . . . hormones. Wimmin. Whole other silly world. Oh, I blew that up too. Again. Fortunately got some years in me still! (and I might get a bit meaner about work if i can temper that with humor, but I hope not ever really mean)
What I think happened, is the insiders got scared, and closed the shop to the public. What services do you use to buy stock? It is well above median salary to have just one of them. Unless you are a big account. I mean your not paying attention lot are better bundled together. Quick take on who reads here, blimming smart lot. Problem with being smart though, is you don’t see the moves on the dumb game so readily. Not saying I’m smart (have plenty disproof) but even I got that one, in the end. Expensively. I am well short on where I could be comfy. Turning that around will be very interesting. Any tips come free, no buy advice tho’, per the proper rules.
rpaco, guess you’re on top of this, but it amazed me that NASDAQ are limited to 3MM reparations per month and have actually asked regulators to up that to 10MM. Hi & all my best, sorry been hard work lately. – j
p.s. rpaco, I am convinced someone is missing something in this market. I don’t know just what yet. But I do know, say you have a heart, there’s a new career. Like Charles Handy said, use age, it can be beautiful. Slight integrity deficit going on. Buffet and Monger giving up? Hell, no. Backup plan, my dear correspondent.
*http://en.wikipedia.org/wiki/Edward_O._Thorp
p.p.s. for rpaco, why can neither my mom nor me remember what ARNA stood for? We should know this. Naff (har har, getting a pun in) all on the internet. Mom was 14 when the war ended. A – rather striking – teen mucking around the pickup of europe, on a dime. But both our memories are swiss cheesed today. Help?
Yes but not too much, in between they were down to about 12.5 Euro.
ATM if one follows Elliott wave theory we are due a huge and long market plunge ending about the middle of next year, in the west at any rate, I don’t know how Singapore correleates with FTSE and DOW. Both will be influenced by the Greek Euro exit as will a number of banks. Spannish banks are wavering, so all in all I would not expect any IPO to maintain the offer price if issued inthe next coupleof months. Also it’s summer and tradition in the city is “sell in May and go away” so the markets are quiet and consequently smaller trades have bigger effects. But you have friends that can tell you this better than I or disagree. But all things considered it looks rushed and dangerous, Blackrock and the Norges bank did not put in much at all and I bet their arms were twisted to participate.
ATM if one follows Elliott wave theory we are due a huge and long market plunge ending about the middle of next year, in the west at any rate, I don’t know how Singapore correleates with FTSE and DOW. Both will be influenced by the Greek Euro exit as will a number of banks. Spannish banks are wavering, so all in all I would not expect any IPO to maintain the offer price if issued in the next couple of months. Also it’s summer and tradition in the city is “sell in May and go away” so the markets are quiet and consequently smaller trades have bigger effects. But you have friends that can tell you this better than I, or disagree. But all things considered it looks rushed and dangerous, Blackrock and the Norges bank did not put in much at all and I bet their arms were twisted to participate.
Elliot wave theory is very dangerous, if only because it’s ridiculed as a customer position by the pros. You will be traded against. Before you even see the depth of the order book. (which by the way, hardly exists any more, so it’s not fair play and you are paying usurous spreads) Genuine warning. There are always statistical correlations, but this is not, repeat not, engineering and physics. Some other can change the rules against you. This market is one pros don’t play in, save for the anointed few. Like the old pit fast market warning has been on for years. Please don’t try to be smart – as an amateur – when it’s all about moving dumb money. Dumb money now includes govvy treasuries. You could have made 35% last year on a simple treasury straddle, because they signalled they were doing a maturity twist and basically handed that to the big dealers. Anyone here in that club? Not me, anyhow. Old fashioned buy and hold buy here. Those are the ones that did me well. I have enough risk on elsewhere . . apols for another public announcement, not at all intended as direct criticism.
Joe. If McLaren, Ferrari and Red Bull are now directors of F1 isnt that a confliction of interest because they will be making decisions about the teams?! Maybe this is why Mercedes has objected?
@rpace – Williams also have a high price to book ratio which suggests that the flotation was necessary to bring in some operating capital but at the moment it’s viewed as a little overvalued. The low EPS means it’s not going to attract a lot of investors looking for an undervalued stock which has the potential to earn, and it’s not like you’d be using motorracing to hedge against movement in other sectors.
In short, based on 2011 performance, I wouldn’t buy it when plenty of other equities offer so much more.
But really, it’s not accurate to use as WF1G as a barometer for the F1 Group float, because they floated at the start of their worst season. If McLaren floated it would likely tell a different story. Similarly if Williams continued at or close to this pace for 2012 and 2013 seasons their story would be very different.
In short, don’t judge the prospects for the sport’s IPO based on Williams.
I was not using Williams as barometer.
But I believe there are other, wider, factors, which messed with the Williams shares, and which will affect the F1 float. Nothing intrinsic, just the weirdness we now get in markets. It’s a very strange game, when I hear of serious players staying out. Maybe it really is only now for the big boys. One time there was a phrase “Bulge Bracket”, meaning the top dealers. I recall it being boasted that Solly had overnight positions larger than Norway. Now BlackRock has AUM twice the output of the UK, and possibly positions in gross market volume many times the economy of Europe. Anyone small is being pushed off the map. Oh, come on, anyone small barely exists now. I am very serious in suggesting that the only way to do well, for the moment, is have a long view of a share / company. I’ve read more market theory papers than guys who have much nicer houses than me, out of that business. They had more suckers to play. F1 is unlikely to change, for all our cries. We’re just their bitchez. CVC wil hold control, then when they think right, leak shares to unsuspecting public. Best we can do, is avoid it. Let them eat the losses.
No, *you* weren’t Joe – but I was referring to rpaco’s “Williams shares did badly for many months but have now climbed back to €22.55″ comments.
This all assumes, that the scheme spans out for the flotation and the whole enterprise does not go pear shaped. However with new questions today over Facebook, scrutiny of future IPO’s will get more robust, at least for the short term. So if the market then decides that what CVC has is really not worth it then they could be faced with their own investors getting really mad. Anything is only worth what someone will pay for it…. And that paper profit can evaporate if a sucker who will pay does nto come along. And why might they decide that? Well a Concorde agreement that is not really signed and has agreements to sign, but not signed contracts (McLaren) and potential litigation (Mercedes). Then there is Bernie who is now spouting that he is the man and can’t be replaced “You might as well have asked Frank Sinatra who he would appoint to replace him”. There you have the appearance at least in print of a real nut job running the show or a business that will fold when he is gone. Not exactly inspiring for investors is it? Follow up with other rumors of a political nature and a few other law suits and dodgy deals and who would invest. Not exactly a sure thing is it! So may the teams are better off not holding a piece of this. It could all be worth nothing when the teams are racing GP1! I love F1, but would not put my money into it as it currently stands.
An IPO is not necessarily a bad thing.
That being said I question the enterprise value on the basis of revenues alone. The reason for that is they the product is actually owned by the teams, not the company that is selling off shares so while there may be enterprise value based of revenues there should be a discount applied for the risk associated with the fact that the teams could (a long shot to be sure) take their bats and balls and go find other parks to play in.
If anyone is aware of a similar structure in an organisation where shares are being sold to a holding company that actually doesn’t really control its product, that being owned by others, I’d like to know to see how that works.
All they are buying is a name F1 , watch Bernard next year help the teams break away for a percentage of course
I wonder if Facebook’s float (and subsequent plummet) will have any affect on investor confidence, with F1 being another large company. Of course a big difference is that F1 is both proven over the long term (with Bernie in charge at least) and is more tangible but investors have never used things like that to stop them making odd decisions (to those of us outside investment circles).
elephino, there appears to be no retail market of significance any more.
the entry price is too high.
I have a few cute screens I can pull up, because my buddy moved a whole brokerage team from one big name to another, and I helped maybe a tiny bit. In so doing, messing himself up. In the press, big lawsuit still ongoing. But that is not enough to trade. No way enough. That’s just passing orders through other players. I’d be fighting against teams of people there to scalp me. No, thank you!
The minimum budget for data feeds is probably in the region of, including programming talent and kit, 500K a year. Only then, do you get a view of what is going on, and only then if you intimately know say what stream processing is, and know Shannon’s law inside out, all they teach you at a serious science school. I’ve spent 20 years reading up on this and trying to create a very different kind of market for something else, which is big enough to deserve some fair play. One of the best papers I read was about how French municipals reverse auctioned (double reverse Dutch Auction, completely crackpot) for all their contracts in the late 80s. Have you the stamina to spend at least 12 hours a day reading, staring at screens, and writing test algos in Matlab or Mathematica, or more trending now, R? I know what 100hr weeks do to your health. If not, sorry mate, just buy who you trust to do a good job. In a way, this might not be so bad for the general public. I think it’s better for us to think long and hard who we trust with out money, long term, not speculate. Buffet cannot corner the market on that forever . . .
Turn on a adblocker. I never know when ZH is stirring it to churn page views. They are half bang to rights, half hysterical. But if you follow this to conclusion, NASDAQ has already *admitted* it would not do the IPO, had it known what was to transpire, and further asked if it can, by bylaws pay out more compensation. Such lovely people!!!!
I do give ZH credit for the sheer amount they call right, though. Just maybe ignore the talk about buying precious metals (PM’s over there), guns and farmland. I think that overvalued as a way to go on with life. I’m sorted, I know farmers, one who promised me as practically my brother (age ten, never forgotten, as the nicest thing maybe ever said to me by anyone) he’d always hold a job open for me if I messed up. Not sure so safe, tho’ – he last spoke to me from a remote place on account of his divorce, weathering the legal storm, 2yr old on the line. Lawyers just love it when they can take a cut of big assets.. I guess I might have a job on half the land . . if not, it’s going to be another farm in Wales. I can’t start on how old school that lot are. But I rather miss people being pointy with double barrels when you jump the wrong fence. Lovely civilised roughnecks.
http://www.zerohedge.com/news/nasdaq-lying-about-what-it-knew-facebook-ipo-day
That’s two days old. Those guys (estimated several under the same name, you can tell by the style and quality shifts) do dig some good dirt.
These investers only think about the big fat zeros, not interested in the sport. I think bernie lost interest as a sport long ago and had a new agenda and didnt involve the teams.There is so much money at stake here effectively the sport is ruined, the teams got greedy and the sport is niegh on impossible for a new team to be successfull. It has become too expensive and if they dont whtch out some teams wont be able to afford to stay in this exclusive club and join a new club called bancrupcy. It has always been about money but not at this level, it is crazy and the sport is no better for it….Years ago the teams threatned to start a breakaway series, they should have done it. Now it is too late and bernie would have probably put in a clause for no breakaway series to start at any time in the concorde aggreement. bernie knew the teams didnt have the balls, he was right and it wasnt about the teams didnt have the money, it was about control.control of the finance, tv rights and themselves….
It’s a shame but it’s been on the cards for a while, the teams seem utterly incapable of looking past their own domain and self interest to see the wider implications for the sport and indeed themselves down the line. as you have repeatedly said, they have only themselves to blame.
Hi Joe, Is there anything to stop the teams from purchasing shares in the company (either now as a pre sale) or when it floats. If some of them got together in a block, they must have some cash to take some control of the F1 business?
Apologies for the duplicated comment, a delay in the post appearing led me to think it had evaporated so backed up and re-posted.
To answer a couple of points raised above.
1) ARNA = Alfa Romeo/Nissan Auto. Best buried and forgotten, most rusted at Richborough (Alfa import/preparaton centre opposite the power station near Sandwich) before distribution to dealers. Alfa engine in Nissan body.
2) I use Barclays Stockbrokers (having been through several others) and Capital Spreads. (all in a very small way, ADVFN and Digital Look and Investgate for info plus lots of others). Used to SB on FX via Capital Spreads which is almost as exciting as driving. (Used to have level 2 on ADVFN which I won in a SG Covered Warrants competition one year but if you look and dig you can get most info for free. To bet or trade direct on FX is a full time intensive job.
3) Unless an IPO is undervalued it is almost inevitable that its SP will fall after release. The brokers employed to make the offer will set the highest possible price, and unless the whole residue is underwritten at the same price (most unlikely as underwriters will want a discount) everybody will know that the price is set at the max and offer less. It would be interesting to see the level 2 data from SGX on the morning of the float. (Level 2 shows the offer list vs the bid list and one can see in advance which way the price will go by the price/volumes in the stacks).
4) The Williams partial float was well documented at the time as being a reward for Patrick Head and others. The money was taken and given to various people, it did not stay in the company, at least that was what was strongly pushed at the time, nor was it intended to be development money.
Thanks rpaco!
mom and me were really confused, thinking it was a wartime acronym. You should have heard us coming up with possibles. You’d have had a real laugh. I’d better go tell her her memory is not on the blink!
I never saw a duplicate post, either. Sadly, WordPress uses a database I’d not wish on my enemies. Put database in quotes, just there.
Do you have BARX screens from Barclays? They are pretty good. Actually I’d say they are blindingly good. Just only one view of the market. You are looking at their dealbook, not the market’s. If I put on size, thankfully, I could go to who brokes Barclays’ trades. (well, not maybe like that, but a proper interdealer who would let me hear the prices and I’d not be dicked on the fills)
If your man at the bank hasn’t given you this, lean on him hard:
http://www.barx.com/equities/index.html
(get shhh loads of computer memory. It’s all Java, and simply needs everything you have, else your quotes run slow. I’m retooling because of this stuff. Think modest saloon car for a new workstation. I am solely looking at machines which can take 512 Gig or more on a self build, of memory. Seems extravagant, but I always found good kit pays, and retire it as late as possible.)
for 2) these guys supply level 2 feeds:
http://www.interactivedata-rts.com/uploads/File/2011-Q4/rts/PlusFeedDataCoverage-global.pdf
picked one supplier at random.
problem is these things cost so much because the game is speed. No discounts for having them a second late, no market for that.
Hopefully this is the beginning of a new chapter in F1. All this money should help to provide free to air viewing and significantly reduced race ticket prices… Sorry, if I caused anyone to spill their coffee.
You’re a fiend. Mein liebster Feind. I have coffee all over my desk!
http://www.imdb.com/title/tt0200849/
It’s an interesting variant on the tragedy of the commons.
There is a simplistic solution that leads to an undesired outcome and a smarter solution that leads to a good outcome. Despite the various teams intellectual prowess they went for the simplistic solution and its #fail as a result.
The main problem of course is Ferrari as they appear to be key in everything. You would think they would learn from the past.
As a Norwegian citizen and taxpayer I now find myself owning a small fraction of Formula One. I’m not particularly happy with this investment – nor a number of other risk project the Norwegian Investment Fund sinks money into (they have in reality not made any profits over the last ten years), but that’s the way it is. I guess the fund-managers haven’t read your blog Joe, otherwise they might have thought twice before shelling out $300 million, which in all fairness is a drop in the ocean for this fund. I do BTW wonder if I, as one of a few hundred or perhaps thousand people in this country that care about F1, can claim access to the Paddock Club?
Indications are that a large number of F1′s primary movers are less than happy at not getting a cut of the float. Who may be against it? At a guess, anyone in the sport who won’t receive a cut – so the teams, the tracks, the FIA, perhaps even Bernie himself.
It seems as though CVC is trying to rush the float through before opposition crystallizes. They may succeed, but they also may have to grease a number of palms to keep the deal’s many critics at bay. There are any number of things that could be revealed or done to devalue or stop a public offering. Many of the people who know these things cannot be happy.
The most puzzling non-action has been that of the FIA. I truly cannot fathom why the FIA hasn’t actively opposed the float. The FIA has the contractual right of approval on any change in ownership. A float will result in the most meaningful change of ownership in this history of the sport.
One disapproving nod from Todt and the entire float would be finished. He wouldn’t even have to disapprove it, he’d only need to openly question the prospect of approval. The uncertainty created would likely scupper the entire scheme.
The FIA’s approval is certainly worth a large sum to CVC, perhaps as much as the entire sum Bernie negotiated for the 100 year rights, not paid in another lump 100 million dollar sum, but paid annually, forever!
The FIA has complete power over this deal. By all reports, Todt is no friend of Bernie, so why is the FIA leaving BILLIONS of dollars on the table?
Bloomber TV just announced it’s official- F1 to try and raise $450m on Singapore tock Exchange.
Joe,
How will this share sell-off be affected by the Concorde Agreement?
My understanding is that some teams have provisionally signed up but this doesn’t guarantee a championship next year.
Without a full collection of team principles’ autographs couldn’t this recent sale turn out to be worthless?
No. The deals are done. It might affect the float but not the sales that have been announced.
Why so much concern about this IPO? Has this and the last couple of years been quite lucrative for the teams? I mean in teams of the payouts? While I agree Bernie is a greedy bugger and at this point in F1′s history, the teams should be earning the lion’s share of the profits, your latest postings are all doom and gloom.
Because there were always hopes that perhaps one day the teams would get a more equitable share of the profits, reflecting their role in the business. The selling off of shares hither and thither means that this is never going to happen. Thus if the teams are ever to stop being enslaved to the Formula One company, there will need to be a revolution. It is possible that there might be a Premier League concept as happened in English soccer back in 1991 when the major clubs decided to do their own thing and established commercial independence from the Football League. They began to negotiate their own broadcast and sponsorship agreements.
I don’t believe you can lump “the teams” in one group. Each has their own interests. I doubt Ron Dennis cares about Caterham one iota. The top teams and the newer back of the grid teams are just not in the same group. Point is, I think the teams being “enslaved”, which is quite a strong word, are the teams experiencing financial difficulty and not having on-track success. F1 is tough.
You’re an F1 historian. Has there ever been a time in the history of the sport where profits were distributed equitably? Has not prize money been distributed by finishing order in the constructor’s? As a result, isn’t this just a system where teams at the back of the grid will find there situations unsustainable. Meaning, there will always be turnover back there.
And, don’t newer teams come into F1 with their eyes wide open. I’m not sure it’s wise to depend on generous terms in the new Concorde Agreement, or some corporate white knight will ride and make everyone rich and happy.
Viva F.Libre!!!
Cynical hat on: so how does a new team get entry? It would not be so fluid if you handed 80% to the existing lot. I know it has not been fluid at all, not for decades, but I am very fond of the idea that can happen again.
“your latest postings are all doom and gloom.”
As they should be. The history of auto racing is that a series goes from glory days to bankruptcy (or obscurity) very suddenly, usually a victim of costs, or bad financial judgement, or domination by one make causing the others to lose interest.
Can-AM went bankrupt twice. Trans-AM, three times. CART went from $100 million IPO to bankruptcy in, what, 3 years? CHAMP Car went bankrupt fairly soon too. A1GP anyone? ASA (United States stock car racing series)? I’m sure that many here can cite a lot more examples.
Motorsports journalists should always be looking at the financial health of a series, because inevitably it will be ***THE*** story. You see, auto racing is not a sport conducted by gentlemen, it is a ***BUSINESS***. More precisely, it is a BUSINESS that is in the ***ENTERTAINMENT*** business, where revenue is gained by advertising dollars much more than ticket receipts.
Is F1 really CART and any the above examples? Look, no one in F1 is completely happy about the current arrangement because by nature any agreement is a compromise amongst teams and parties with divergent interests. Ferrari wants to be free to spend $100 million per year on the car’s cupholder and running 3 shifts in the wind tunnel 24 hours a day. Fortunately, that degree of insanity is no longer allowed. On the other hand, Caterham wants terms where they can run at the front while being able to turn a 20% return with no paying title sponsor and zero points. This may sound harsh, but not too many people give a toss about Caterham, HRT and Marussia. So their own brand of ridiculousness will not be agreed upon either.
So what does it mean when a team doesn’t get 100% of what they want? Ferrari no longer dominates with it’s own bespoke tires, 1000 team members, and half a billion dollar budget. While Fernandeseses and Mallayas just go way, beaten down, tail between legs because they couldn’t compete and didn’t have enough money. We’ve all seen and heard it hundred times with teams like this.
It’s tradition. F1′s circle of life.
Regarding motorsport journalists, Joe is vested with a team experiencing apparently financial distress and a surprising lack of on-track success. He’s going to naturally write about the plight of the his team and advocate a position that would benefit his team.
Your views seem to be incendiary whatever subject you write about. Your opinion is noted – and wrong.
Joe very well might be with a struggling team. Then again, I’ve met a ton more teams / drivers in all kinds of motor sports that are under-funded than I have teams that are well funded. It follows that most jobs, then, are with under-funded teams. None of that of course means that what he wrote (or writes) is wrong.
More directly, that doesn’t negate my point, which you don’t even address beyond the first sentence, asking if there is an equivalency. F1 is a racing series, and even F1 has imploded a few times over the decades. Auto racing series tend to go from world-beaters to bankrupt fairly quickly.
That Bernie has kept it together during his tenure is remarkable, a testimony to his genius. Without Bernie at the helm, investors need to understand that there is a very real possibility of complete financial loss, and lots of drama getting there. Racing is a “f**king disease”, and one of the symptoms is that people lose their money. As they say at Indy, “Where billionaires go to become millionaires.”
Those who think that a man will sell his soul (and pride) for peanuts are corrupt by their very nature. Not everyone has a price. If you sell your soul for peanuts what value do you have? You become the organ-grinder’s monkey and when he is bored of you, he throws you away and you have no value to anyone. I am very bored of people saying that I am with a team. I have no desire to be involved in a team, unless someone wants to make me an offer like Monisha recently got from Sauber. If someone wants to give me shares worth tens of millions I would happily leave journalism and become a team person. As I am not holding my breath on that front, I am staying an F1 journalist and I am not going to change my views on anything. I find the car company stuff fascinating and different… and completely unrelated to the sport.
What Peter S. gave to Monisha simply confirms to me Peter is the last of a generation. He chose to pass it on. With that one action, he sealed his permanent place in my personal pantheon of good guys.
A company is not any one person’s. That is also part of the problem in F1.
I would like to make a careful comment, on whether Joe would ever leave Journalism. Inflation has made life incredibly expensive. Equity – done the old way – does not pay you off every day – so full dedication of a talented mind probably is in the 8 figure territory now. I have to do huge numbers just to get my margin, cut again by insane amounts.
The unfortunate conclusion, is to get what I want going, I may need hundreds of millions. Which remains quite an ask. The most successful friend I have in my game, said the other week “well, I shall never have as nice as a house as daddy”. The economy is bunk, but deal with it.
If, however, I trip over a suitcase . . . erm . . . Transit van, I guess now . . . of used bills, I shall be trying to make an offer Joe cannot refuse
Apologies. If you are asking if F1 as a business is equivalent to the other series you mentioned, I’d contend mostly not. F1 is just on another level and the business fundamentals are just different. If you asking if there is equivalency amongst F1 teams, clearly there is not. Nor should there be. F1 is a sport and there is competition on and off track. Ferrari deserves the most. They are the most iconic team and have contributed the most. McLaren is not too far behind. Red Bull has good fortune and timing for their reported deal in the new Concorde Agreement. Mercedes, while not being around long, has pedigree, history and potential. I hope they can reach a fair deal. And so on down the grid. It should not be equal.
I agree. Most of the paddock owes their wealth to Bernie. He is an original. He took risk and built the thing to what it is today. That said, while pointing a gun at promoters and various municipalities and developing countries is effective, but it’s not an effective long term strategy. Bernie takes that same SOP to the back of the grid. Bit of who the hell are you to ask for more, and ‘take or leave it’ . . . the door is over there.
Again, apologies for being abrasive, but Joe takes the view that things are now, and appear to be in the future, unfair with the new Concorde Agreement and this IPO. I mostly disagree with him. My view is you can’t really complain about money, if the team has been unable land real title sponsor. And, you can’t really complain about a lack of prize money if the team is totally underperforming. It’s F1 it really hard. Why else do we watch? And why do we pay any attention to the back of the grid? To see someone elevate themselves, the cream rising to the top. Most won’t. Hence, my view on the budget cap and where I thought that opinion came from.
Michael from CA,
re:
“Joe is vested with a team experiencing apparently financial distress and a surprising lack of on-track success. ”
I personally think TF is a honourable guy, and will pay his way, making that moot. This new “Lotus” team is nothing to do with any real manufacturer, as far as I can see. Just very strange sleight of hand.
I am most definitely an outsider. I never met anyone inside F1.
But, for the record, Joe is sometimes a bit prickly. I know I am not so smooth, either, but if we ever met, I think I’d have as many style points to note about Joe as he of me. I think Joe bats his own side a bit hard, and that is fine with me, because I am a parochial guy too. But, yeah, style points. I get a fair knocking on that every week!
Yeah. Look.
Firstly F1 is, in my opinion, rapidly digging itself a very deep hole. The endlessly huge budgets to drive wins are unsustainable. A budget cap is a valid solution, the only trick lies in the administration and oversight of the cap.
In relation to the float:
Assuming there is a float and assuming Singapore’s listing rules are reasonable then there has to be a lot of disclosure. The cynic in me says that FOM doesn’t really want that level of disclosure and that the float is really a way for CVC to free up some cash.
The simple fact is that while McLaren, Red Bull, Ferrari and Mercedes are the main players, no one, will want to watch an 8 car race.
The little guys have a role to play in the circus, an important one. Lets not forget Williams were mid-fielders once upon a time. Red Bull too.
Its not that many years ago that McLaren were also-rans after Hunt won his championship. Lets not talk about the Ferrari drought after Jody Sheckter won his championship and Brabham as a team is pushing up daisies after a dominant run during the 80′s.
This argument has a lot of shades of grey to it.
In relation to Joe and Caterham. I have yet to see any evidence that his opinions are coloured or biased by his involvement with the road car business – as I understand it separate and distinct from the race car business.
Now I don’t know Joe, nor have I ever met the man – I can only base my opinions on what I read here – so all I can say is that the comments about him being ‘vested with a team’ don’t have a lot of weight behind them.
You may not like what he writes but if you don’t you can vote with your feet, just like I would if I felt his reporting was too one-eyed or biased.
Joe what on earth does this meanin English??
http://blogs.wsj.com/deals/2012/05/24/f1-ipo-to-be-sold-via-stapled-securites/
No idea. It means that the private equity people can baffle everyone with terminology and run away with more money.
This is why BCE and his minions set-up various operating companies in places like The Netherlands & Luxembourg, where specific forms of revenue, like royalties, are taxed at minimal rates, if at all.(As Paul Hewson would confirm)
btw, I’m not convinced Waddell & Reed put “new” money into Delta Topco. For some nagging reason I wonder if it wasn’t a debt-for-equity swap since they held corporate debt.
Dividend mixers (BV) and royalty retailers (LU) are so standard since I was a kid, you cannot compete without them. I ask customers if they have a structure setup just like a pretty girlfriend might ask if you are carrying a condom.
No, I do not agree with these setups. But neither do I agree with who I deal with not surviving.
Damned fine point about the debt / equity possibility. I’m a bit off form lately.
Simple, you are buying part equity and part lending money to them.
Oooh, oodles of new cash.
And you are not even getting the full equity per penny.
God, this is such a crock.
A stapled deal means – well just think about it, I staple two pieces of paper, one share, one scrip, together. You cannot separate them.
This means in reality feck all equity is being sold, and you better be sure you are happy lending Bernie some cash. Because you get eff all ownership.
The headline rate of 10% does need some looking into. That’s 450 basis points above where seriously dodgy companies can get loans of more than Bernie wants to raise.
Okay, that blog entry points out to tax benefits. I’ve made shareholder loans before. But not one maturing 48 years from now, nearly twice the length a typical mortgage, only you have no security!
Just looked on the BBC website. Disgusted to hear EJ repeating this FaceFail story.
This is amateur.
Sorry, forgetting it’s a F1 blog. A basis point is a 100th percent. So I mean you can borrow billions at 6.5% and yet be seriously suss. This is low quality companies borrowing.
So why 10%?
I’ll take the nice view: over 48 years, maturing 2060, long after I am likely gone, at some point we will have to re-inflate the economy. I distinctly recall prime rates hitting 20% because my dad was busting his gut to keep us afloat, aged 80.
So, this could be a smart hedge for them, with all the immediate yield just a teaser rate.
I’m not going to start quoting Fabozzi to you (the go to man on bond basics) but surely you can see that the return curve on this kind of loan will do very strange things, as interest rate environments change.
I’ve not said this in a long while, but forget your deltas gammas and vegas for hedging this, you need to hedge the bumma.
http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm
History never ever repeats, right?
p.p.s. there will also be some extremely complex interactions as to voting rights, mixed up between the debt and equity being inseparable. In baseball, this is the ultimate floating pitch. (too many puns)
Am I missing something here or have the F1 teams been done up like kippers for the next few years ?
In just under a year we’ve moved from FOTA ‘demanding’ a larger share of the proceeds and holding a fair sized ‘stick’, to what are now individual teams which will shortly be required to negotiate separately with a public company to establish what they will be paid to take part in that companies season.
Notwithstanding the deals already done – but they will eventually run out.
Surely the next step will be a rule change to make it easier for smaller teams to enter the series and thus increase the company’s leverage when negotiating, and dilute the threat of a new FOTA.
If it’s anything like what my accountant gets up to it probably means that any investment made will be considered a loan as opposed to pure cash inflow, and as such not liable for tax – as it will be repaid one day, in this case 2060.
Of course – as stated elsewhere here and in the WSJ – this money is needed for continued investment in the sport. . . . . . . . HAH !
It would be interesting to know exactly how much money the teams have been promised from this sale.
No term sheet, Interested. I would reckon they are counting on ongoing interest tax offsets, but it would not be zero rate unless a balloon payment, which means interest accumulates until the end of term and is paid in one dollop. They are just trying to shave a bit.
What I imagine has happened, is 3 things:
1. BE et.al. are certain they have no intention of risking any minority voting rights being exercised.
2. They really really fancy a long loan note. Nota Bene no sane treasury is selling long date bonds of any kind. Also, off hand, this might be the longest maturity ask in recent years, extraordinary of itself.
3. Some junior thinks it’s a sweet sell spin, a embedded tax ruse, which I call out as rubbish, a deflection.
Not sure if he was the last one, but since it is this weekend, the last person to sell a amazingly long date bond was a guy called Edmund Safra, who died in a very suspicious fire in his apartment not a stone’s throw from La Rascasse. Those were the 1000 year’s of Safra / Republic of NY. In today’s money, a tiny issue, but the date is amazing, never outstretched, and was driven by the first wave of what we now call QE. Please bear in mind they were callable. Going from memory, so please call me out if my memory a bit funny.
What I mean here is I think this is getting too complicated for public investors. I think the vendors, or hopeful vendors, are getting their knickers in a twist. Also, it’s starting to get a bit irrelevant for me to do primary research this late, because we now have something far more complex to analyse. But I’ll catch up, eventually, promise.