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.
joeblogsf1 
Joe, from my understanding there were also some technical issues (software) related to the facebook ipo and that the only reason they proceded with the IPO on that day was that it was the facebook IPO and the bad publicity would have been pretty shocking.
Also how is spending 114 percent of your income on salaries sustainable, and couldn’t the rich arab shieks just increase thier sponsorship payments so it doesn’t look like a loss ?
Can I just say that Facebook and its consulting banks have done a brilliant job with the IPO? Instead of selling stock under fair market value, they managed to squeeze out upwards of 95% of the maximum price the IPO market would bare.
As such, the Facebook IPO could serve as a great roll model for what CVC/Mr E would like to achieve with their floating of F1. Unfortunately, I can’t seem to imagine a similarly coordinated media campaign to get the public interested in F1 as a business, allowing the current holders to hit that same high payout.
Then again, even Williams IPOed rather successfully. (again, for the company and it’s owners, not the sheep who thought it profitable to sink their money into the operation)
This depends on whether you judge success as being the amount of money that someone can squeeze out of over-excited schmucks, or whether you believe that people should be fair in their dealings. There is no reason to suppose that Facebook will not perform well as a stock in time, and I am not against capitalism per se, but I find this greedy squeezing of every last drop of profit out of every business, no matter what the cost to other people, disgustingly unseemly.
Sorry is it compulsory to invest in something now?
Or are the investors just as greedy?
No, it is not. It is greed in general that is ugly.
Don’t know about compulsory, but if you don’t do your own investing, chances are you have not a lot of choice. I must consider though, that if anyone here does not roll their own, then it’s because they are doing very very well, and good luck to you if you are.
I wan’t to add to this fair value thing: the idea when you go to market is you hold out your cap. You are a unknown. There are two sides to this, first you have to tell the story what you want all the money to go do, and the other is to say you leave just a bit on the table as a thank you that the banks have not eaten already. Banks used to get a statutory fee on stock trades. No longer. Then they started to compete so hard for IPOs they undid themselves a bit more. So they started to play silly games. I’m not talking about all that.
If you are cashing out at close to 100% of value, you are selling me a bond, not a stock, and I want God’s Own Rating Agency to give you a Triple-A first.
You could argue that a successful IPO for the company means investors overpaid, and a successful IPO for investors means the company (and it’s holders) left money on the table.
If I were to assign to both these potentially hurt groups a factor of deservedness, my personal morals would much rather have the company (and it’s holders) reap the benefit from their year-long work, rather than the hand-picked group of mutual funds and trading houses that are best pals with the consulting banks, and therefore got their orders filled at IPO prices.
No doubt both sides are greedy, but one side worked on the value and has to return growth from whatever capital the IPO generated, while the other’s out to make a quick buck.
Sorry but you’re wrong. The collapse of the stock the first day or two after trading was evidence that they overvalued the stock terribly. This worked out well for those employees and investors that used the IPO to cash out. However, those that bought upfront whether institutional or retail investors lost money immediately. Further, the NASDAQ mishap[s] hurt investors more because they couldn’t sell when they wanted. Finally, came news of revised (downwards) earning reports issued to select investors pre-IPO. All this (overvaluation, NASDAQ problems and preferential treatment) has left a bad taste in people’s mouths. That’s one reason the stock is down so much and it leaves everyone directly involved looking bad.
Going forward there’s going to be little goodwill toward Facebook from analysts and investors in future earning reports and forecasts. They need it as they still don’t have any reliable revenue stream to capitalize on their massive user base or to justify their (IPO and current) share price.
As far as I understood, employees did not cash out. They have to stick to their shares/options for 6 months before thay are allowed to sell/excersize. Where ever FB share price is at the 6 month mark, expect it to drop again as many employees will cash out at least a good portion.
Possible and highly desireable. I believe that American professional sports have had effective budget caps or capped salaries (whatever their motivation) for quite some time.
The alternative is probably letting some ‘market force’ operate through financial freedom and the attendant consequences of polarisation of resulting sporting performance, financial failure/uncertainty/predation.
Some bigger issues may be impressing on the markets. There is an exchange between the author (who I never knew worked in nuclear science) and a nuclear engineer of note in the comments:
http://www.cringely.com/2012/05/24/the-next-japanese-nuclear-accident-its-inevitable-will-be-even-worse/
That one is genuinely sobering and interesting. I dig that guy because he is prepared to go as far as he can short of giving names, to explain his business for general betterment.
I am thinking that although it looks like the powers that be have their head in the sand everywhere, just enough of them, the private ones, think really big manufacturers (including of cars) are on war footing. Basically it’s all change, not necessarily doom and gloom.
Part of that change might just be someone making the moral decision that rubbish businesses and sports should not be sold to innocents. I also think that we are witnessing the constructive dismantling of the banking system which did nothing for you and me. It’s going to look very nasty. It has to. Otherwise you cannot head fake the idle 50% who live off others yet still can vote (in fact more actively vote) into being more modest. Basically I call this out as a overdue rebalancing. The worry is, politicians are not desperately good at technical finance or anything much, so the room for cockup is immense. Anyhow, my view is I thought the economy was a crock before, been on a downer for sure, but I see light at the end, even if of course, that may be a delusion.
Huge huge public warning: do not listen to guys in finance, because they have been fattened by the state too long, and things are going to get very strange beyond the politician’s fancy. Not necessarily in a bad way. I have been re reading Henry Ford’s My Life and Work. Free on the net, just try out the first chapter.
What import does this have for F1?
Nothing.
The float is a damp squib. A dog.
You simply have to flip it and say, “hey, screw all that, let’s clean house and cook good, stick to our knitting” Nobody the worse off for that.
JoJ Your links sometimes tenuous to F1, but to follow this one to europe, why did Germany close down all it’s nuclear generating plants? Were Germany next door to Japan or even in an earthquake zone one could understand. Merkel’s desperation I suppose. This leaves Germany vulnerable as is the uk.
Yes, indeed, the dynamics of fuel oil are somewhat tenuous to F1.
But then again I am about to spend the rest of this weekend with a guy who will be moaning to me how hard it is to source refined petro products, and so I start to think, yeah, F1 has to get ahead of this curve.
I cannot put my finger on the N plant shutdowns. Could be lobby pressure, from the greens or the petro industry, or Russia in the case of much of Germany’s supply. Or it could simply be that we did the technology all wrong, cannot afford to keep upgrading these plants past their intended lifetime, and should hang out for a new cycle of innovation. Fortunately, there’s a market for that. China is taking up the slack, so improvements will continue. Maybe yet, we will find some deep geological repository. Or, far more likely, some microbes that like to eat nuclear waste. But calling a temporary halt is a very good idea, tectonics or no tectonics. Out with the old. Just sucks these things can take half a lifetime.
I think that as long as the UK remains a rather strange tax haven to foreigners (whilst schizophrenically being tax hell to you and I) we will be able to negotiate any energy we need.
Technically, I would argue, North Sea and all, we are slightly more vulnerable to in particular the gas market, than Germany, because they have better pipelines and I don’t think the UK – EU game is so friendly any more. We should have planted our own, over to Norway. But there is very strange pricing going on at the pipeline level (of which I hear a bit, and understand little) because of all these economic tremors.
Joe, the “Fair Play Rules” in europe are going to be as effective as the resource restriction agreement was in F1. The UEFA regulations dictate that clubs must be profitable from thier operating income, however already we see “Naming Rights” deals at the Etihad Stadium running into hundreds of millions which may be counted as operating income, but are actually just additional funds from a close relation of the shareholder.
Most important part of the rules is to in effect forbid leveraged debt to raise revenue for operating matters ie predominantly wages.
If a Russian or Arab “more money than sense” individual wants to throw cash at a club which in turn doesn’t leave the club in debt. More fool them.
Correct. There are loopholes and the big football teams will find a way around it, which stinks but there we are.
Talking of football, in 2009 UEFA said clubs from Europe’s top leagues made loses of 1.2 billion euros ($1.65 billion) between them in.
Hey Karen, did you read about the NFA club demanding taxpayers sub 77 dollars for every ticket sold (plus some)? I guess you are all over that, but it’s an excellent idea how to promote F1 in the US, hot shh right now.
Here’s you go:
http://www.forbes.com/sites/mikeozanian/2012/04/28/minnesota-vikings-asking-for-stadium-taxpayer-subsidy-of-77-per-ticket/
get that lot fixing our new tracks please!
Last I saw, Bernie was mumbling about delaying the float.
It is perhaps notable that in the Facebook float the failure to disclose has lead to the bankers now being pursued in court; one has to take a parallel view of F1 and conclude that the lack of transparency will mean that a float can never take place, it will forever be stuck in court. I would assume that eventually CVC will use private placings instead, as it already has with the three premature (sic) investors.
I know absolutely nothing about football, but am led to believe that they use a different sort of mathematics, perhaps a derivation from the well known Italian Restaurant school of advanced arithmetical possibility (as opposed to probability). When I lived in the south, the Portsmouth team went bankrupt, but as I waited for it to be closed and the grounds sold off, nothing happened, being bankrupt seemed to have no effect, apart from a lot of moaning in the local papers, it carries on apparently still. Manchester City paying their players 114% of it’s income shows a mentality so ludicrous that one can begin to understand the lack of normality in the football world.
I’d be keen to see if the claims against bankers et al are vexaious or valid. Are people pissed off and seeking recompense for the downwards plunge of the share price; or do they genuinely believe there wasn’t adequate disclosure. Australia, for example, has a government ombudsman for financial services which is struggling through an epic backlog because of vexaious claims about all manner of services and transactions.
Just because someone takes legal action doesn’t mean there’s something to take action over…
Ender
It does not matter, because the mere existence of the claims will kill the float. And whilst I am sure Bernies company configurations are legal or can be interpreted thus, just one claim against the banks fronting the float for withholding facts or data is enough to put off most investors. This is not a penny share where you can take a punt and not loose too much if it flops, this is a high profile gin palace level float.
I suspect that Bernie has been working on something else all the while. Always watch both his hands.
Joe,
Thanks for the info, whilst you are correct that this is not directly linked to F1 it is true that there is real relevance. It’s hard to imagine the ‘cut & paste brigade’ ever being able to connect the dots in the way that you do.
Mike
If I am correct, Joe, I think that French Ligue I (football championship) already has successfully implemented salary caps in order to make their clubs sustainable. The German Bundesliga (another football championship) prevents clubs from spending over 50% of their turnover in players. While a bit short of a full budget cap, it shows something can be done to regulate costs with examples in other sports. It is possible, like you said!
I do not know
I can’t find any info on a French football wage cap – but it should be noted that the French football league is by no means seen as the pinnacle of football and implementing a salary cap is an easy way to see talent walk away to competing series.
For an example of this, numerous English rugby players moved to French rugby in the wake of the 2008 salary cap, amongst others a certain Mr Johnny Wilkinson.
It’s not impossible to imagine that a financial cap in F1 could, in the long term, lead to a competing and richer series stealing the engineers, drivers and ultimately fans from Formula 1, just as F1 arguably already does to every other form of track motorsport in Europe. Always a question of being careful what you wish for.
There’s a clique who are frustrated that, although popular according to TV viewing figures, F1 cannot the momentum (aka: lolly) Premier League has.
The reason is obvious.
Football fans buy season tickets because they enjoy the weekend camaraderie, fighting, and boozing. For a few hours they become +part of+ the football match. Their noise and influence on players and officials is plain and tangible.
There’s a real rapport.
F1 provides none of this for fans because the circus moves round the globe, way beyond the pockets of me and you, even if we wanted to do the travelling.
Three years ago this problem was recognized, and moves were made to draw fans closer to the excitement. With our wonderful Joe, and James Allen at the forefront performing valiantly via their blogs and public appearances.
Much appreciated!
It’s fun to watch a race live from the track-side, but a huddle of 200 noble anoraks at Copse are never going to have the influence of the Kop on players and officials are they?
Watching a GP live in a sport’s cafe with other fans is another way to add a sense of camaraderie and rivalry.
But F1 fans are intrinsically different from football fans, aren’t we?
Aren’t we?
Hmmm, Nigel Mansell might disagree with some of your sentiments.
Well, even I have to admit to a touch of Mansell madness in those heady daze of yore. I recall walking past a car accessories outlet struggling with the temptation to steal their life-size cardboard cut-out of Noige offering me an Exide battery.
I’m over it now though.
How about 100,000 noble anoraks cheering you on? The home race advantage is well documented, although it’s true that the drivers only get the benefit once a year, or twice if your Spanish!
Oh come now, any driver able to hear or discern loonies cheering, “Come on Tim!” behind the chain-links during a race has a dead engine.
Whereas any Scouser with a loud hailer enjoys 90 minutes of in your ear chatter with his football heroes weekly.
In US sports, the NHL (hockey), NBA (basketball), and MLS (soccer), NFL (football) leagues all have salary caps. MLB (baseball) has a “luxury tax” where high-budget teams are “taxed” by the league for spending over the payroll cap. caps. So it is not only possible, it is the accepted normal practice.
I don’t follow US sport, but are/have any of them bought into by rich asian oligarchs and arabs keen to throw a bit of money at them to improve their profile and drive them up the rankings?
If a tax on spending to the top was implemented in foot-to-ball (and to a lesser extent, F1, given the existing high watermark) then the rich investors looking to flash cash would go somewhere else and said teams would go bust.
http://www.theglobeandmail.com/news/national/anonymous-threatens-to-disrupt-montreal-grand-prix/article2447190/
Whatever turns them on…
It is probably a bit easier to monitor how much fotball clubs pay in salaries than how much a car manufacturer involved in F1 spends on F1-related research.
I don’t see why that would be the case.
I doubt Mercedes have secret bank accounts named after their dogs 😀
What is interesting in the so called British Fair play league, that we go after Bankers, (Not Hedge Funds) on there salaries, and yet in UK football, as we have seen, the average £25,000 a week player takes home around £1.3M per year. Of course the ones that has a lot more skilled take home around £170,000 per week or £9M a year before all the other bits thrown in.
As for the City Banker, the average is around £48,500 before any bonus is added. From 2009 to 2011 there were 100,000 people who have lost their job in the City. Only .04% of the total city workforce is paid more than £100,000 including bonus. So it is kill the City Banker, yet kisses all around for our Football player.
One therefore has to add in the life cycle of a footballer is very short say around 10 years at the top of his earnings. The same can be said of a F1 Driver. As for the Banker, well they can have a career for maybe 15 to 20 years if they are lucky.
Bernie is just as creative as Harry in the names he gives his companies, and I am sure a lot of the F1 teams have the same view as Bernie on creative accounting, all in accordance with HMRC of course.
Ah yes, Rosie 47. Or was that an “old” flame of Wayno’s at Manc?
Never did Marylin Monroe any good, her son was still searching. (She hid her money in false name bank accounts all over the country in the days before proof of ID was required.)
Many US Sports have some form of salary cap, which limits the amount of money a team can spend on its players. I guess thats comparatively easy to monitor, one only has to look at a handful of contracts for each team. On everything else, the teams can spend as much as they like.
In F1, it is a bit more difficult. The cots for players are not the most important, some actually bring money, so one has to look at the spending of a whole organisation, which are sometimes part of larger organisation, with the possibility of knowlegde transfer and the hiding of costs in other parts of the organisation.
And in the future, if F1 has technology that benefits the road car industry, every research in these areas by a manufacturer will be usefull for a race team that belongs to this company.
Exactly.
Not only that, but there were 3 other IPO’s planned in the us for last week. Alll of those got postrponed due the FB disaster and market conditions (especially Europe). It’ll be interesting to see if F1 will go ahead still.
If General Motors spends $1 billion a year on hybrid technology research and happens to pass some of that knowledge on by allowing its engineers to collaborate with racing engineers from an F1 team they have a relationship with, how would you propose to prorate a portion of that cost to the F1 team?
http://www.todayonline.com/Singapore/EDC120601-0000081/Formula-1s-plans-for-Singapore-IPO-shelved–Source
Formula 1’s plans for Singapore IPO shelved: Source
Formula 1 is also rethinking its stock market strategy I think.
It should not take 600 staff to put 2 cars on an F1 grid. A sensible personnel limit (say 100) would hugely reduce costs.
A very simple RRA agreement could even-out the huge difference in speed between car 1 and 24.
Having the monkey off the back (CVC) of race promoters would get more bums on seats; ditto TV Cos and viewing figures.
F1 could be greatly simplified and no less enjoyable.
Great idea. Your family work in F1 and they are all made redundant. What do you feel about it?
It takes about that many to get a Tornado or Typhoon in the air. I see the technology as being comparable. In fact some materials are shared.
Not enough people know about the base crew to keep a fighter jet going.
Or that they are in maintenance about equal hours to flight time.
Or just how freaking awesome the RAF is. I forget who, but one lot of the USian brass during 91 commented something along the lines of “yeah, we had stealth and all that, but your boys were nutters”. Sure, fella, no pussies here.*
I’m so dumb I never pulled out my phone when those Chinooks were playing about outside my window, would have been a youtube hit. And good PR for the boys. I was transfixed.
* AFAIK, in the OOB, before the stealth lot had taken down some very very effective Russian built RADAR, our boys were already in there, or very least following close. I do not have a direct verification of that, just was what I recall from CNN. Plus a few other stories, all I’m afraid a bit boozy. But it sounds just the correct attitude.
sorry, I should say deployment time, not flight time
Very distinctive noise Chinooks make. (The rotor beat can be heard for miles) Before moving next to an RAF station in Lincs we lived in Liss Hants. Surrounded by: Borden training camp, a tank driving school and the Longmoor ranges. Chinooks were pretty constant, as were mock battles up the road in Liss Forest/Longmoor. (Longmoor inculdes a demolition range unfortunately) But up here it’s practically silent, just the Typhoons and the BBMF. (Plus a few training, testing and conversion squadrons)
Just a small recap, we were flying Tornados right under RADAR, whilst the F111s were high and bombing with incredible on board ELINT and no profile. Our boys saw it as doing the same job, just old school!
Apart from our Longbow Apache mod, and maybe something on the F35, I do not see enough tech sharing between UK & US. There is something very wrong, to my view, when Thales, a French company, owns too much of our systems tech. And carriers. WTF is with that? Not being funny, but we had only one scrap with the US. I favor them statistically!
Yeah, having a Chinook fill 10 degrees of your window, well, the sound is as epic as Pink Floyd live. Knowing it, it sounds reassuring.
Second time I posted this here, but you might not bore of it,
this is Steve Blank, giving a geek’s redux of how a electronic order of battle works, do watch, if not for education, then for excellent presentation:
http://goo.gl/K2rif