Perusing the international press this morning over coffee, I was struck by two stories that are unrelated to Formula 1 but interesting in their implications. The first was from Hong Kong where London-based jeweller Graff Diamonds has announced that it is delaying its $1 billion share sale in Hong Kong, citing adverse market conditions. The firm was in the process of meeting investors and the float was set to be the biggest in Asia this year, but reports say that investors have become increasingly cautious amid continuing concerns about the state of the global economy. China Nonferrous Mining, a copper producer and China Yongda Automobiles Services have also both stopped their plans to list in the last few days.
That was interesting given that the Formula One group is busy trying to rush through a listing on the Singapore Exchange at the moment. The adventures of Facebook in recent days have been an interesting lesson in the dangers of people getting over-excited about stock market listings. The share price when Facebook was floated was $38. That was 12 days ago. Today they are trading at $28.19, which means that those the company is worth around 26 percent less than it was a week ago. This has wiped around $25 billion off the books of investors and it may not be over yet, as some analysts are suggesting that the stock should not really stabilise until it gets down to around $23, at which point it will have the same sort of price-to-earnings ratio as the Nasdaq Internet Index.
This has led to much talk of legal actions against the company and its bankers because of claims that they did not disclose things properly, during the road show process when estimates were revised. It has also led to suggestions that disclosure rules need to be revised.
The other story that I found interesting was a report by the accounting firm Deloitte about the finance of football and the startling revelation that the top soccer clubs in the Premier League now pay out 70 percent of their income in salaries, although there was a wide variance between teams: Manchester United spent only 46 percent on its players; while Machester City spent 114 percent. Deloitte concluded that pay discipline is needed “in order to deliver robust and sustainable businesses”. The report also showed that the revenues of the Premier League clubs rose to £2.27 billion in 2010-11. The relevance of such numbers for Formula 1 is limited but it does show that sports can generate impressively large numbers and is increasing those numbers despite the economic climate at the moment.
It is also worth noting that UEFA, the union of European soccer associations, this year introduced Financial Fair Play Regulations, to prevent professional football clubs spending more than they earn in the pursuit of success. One might even call that a budget cap.
So such things are possible in sport.