Bernie Ecclestone is the man who is credited with making Formula 1 what it is today. That is very true. Obviously the teams and drivers all played their roles – and the FIA, and the media. But it was Bernie who banged heads together and made things happen. If it had been left to others there would still be arguments going on now – and F1 would probably be as popular as hovercraft racing.
It must also be said that Ecclestone took advantage of the sport. He grabbed control of the commercial rights, with the assistance of Max Mosley, because others did not have the balls or the nous to see the potential. He turned F1 into a money-making machine. This was good for him, good for his investors, good enough for the teams, but it was not quite as good for the fans. He made a lot of people into millionaires, some even deserved it. But the fans paid… or got fed up and left.
Bernie never worried much about the fans. As long as there were promoters to pay the fees and TV companies willing to foot the bill, it did not much matter whether the grandstands were filled or not. He always said that empty grandstands were the fault of the race promoters. He did not care about merchandising. He was not “a teeshirt salesman”.
Race fees grew so much that no promoter could break even if they relied solely on the grandstand tickets sold. Those who pushed up ticket prices to try to balance the books were doing it wrong. The way forward was to get the local authorities to pay. They were the ones who gained most from races, but they were never keen on sinking public money into a what was seen as a rich sport. Offer these people an Olympic Games or a soccer World Cup and they would sell the family silver (and their mothers) to get one. This annoyed Bernie, and rightly so, because some would argue that F1 is far better way to promote a city or a region than a one-off two weeks of Olympic action. It is an interesting argument. A Grand Prix happens each year and so keeps the city/region in the spotlight, an Olympic Games is instant history, but it fades quickly.
Bernie was always a fast-mover. He did deals and moved on, and on, and on. He feathered his own nest along the way, but things got complicated when he did a deal with a bunch of over-enthusiastic Germans called EM.TV. They got their sums wrong and were swallowed by a bigger empire called Kirch. Leo Kirch also got it wrong and so F1 ended up being owned by a bunch of banks. That was no good at all. Banks generally lack imagination and entrepreneurial flair. Ecclestone worked a deal to win back control – the deal that is now being closely examined in Bavaria – and since he did that things have been pretty stable. Too much money leaves the sport, bound for the be-suited wunderkinds that Bernie had to jump into bed with to wrest control of the sport from the bankers. The suits have more or less let him do as he pleases, but as the Bavarian problem has loomed larger, they have begun to look at themselves in the magic mirror and the reply to the question of “who is fairest of them all?” is not “You are.” That has worried them. Ecclestone is not the Snow White that once he was and, although they would never admit it, they are now looking for a new princess. Bernie stood tall, but is there a replacement amongst the dwarfs in F1?
Although the troubles in Bavaria are foremost in their minds, the suits at CVC know that at some point they are going to have to deal with the problem. Having a CEO with 82 years to his name is not a situation that encourages longterm thinking… They do not really care, but only up to a point. A financier is a financier. Money always comes first and if they feel that the money supply is threatened then they will act. There have been hints for some time that CVC has been casting around for future CEOs for the Formula One group. Bernie Ecclestone is unique, so it is pointless trying to find someone to fill those boots, but who is say that the same boots must be filled?
A CEO needs only to have the charisma to control the divisions in a corporation. The divisional heads need to be the right people, but they must kowtow to the boss. There is no reason why a second superman needs to be found.
I don’t play golf with the CVC types, and I don’t know any journalist who does, but what I do know is that the time is coming when they have to face the mirror again. CVC wants to look solid and brilliant to the pension fund managers who give them money, and thus one can see them thinking that change is a good idea. From a financier’s viewpoint, it would be better to have Ecclestone step aside graciously before any potential trouble comes from Bavaria. That looks like good estate-planning, as opposed to post-crisis hand-to-mouthing.
It really all depends on whether they think that things will go bad in Bavaria.
F1 very funny
It’s the short-sightedness encapsulated – the disregard for the fans, as grandstand seats don’t matter. There are a lot in F1 (in the teams, the regulator and the promotor) who think F1 runs of the back of fag comanies (in the past), TV fees, sponsorship income, etc etc. They can’t see far enough to see the food chain doesn’t stop with these investors. It stops with the fans, who buy the watches, phone contracts and beer advertised on the cars, who watch the TV stations investing in F1 (and in turn support the ads those TV companies can run), and who support the teams and drivers.
It’ll be a remarkable leap forward when they start to click onto this.
I agree, ChrisP. But it is worth returning to a point that Joe makes in the OP above: “There have been hints for some time that CVC has been casting around for future CEOs for the Formula One group.”
CVC may be wondering whether it is time to find an heir to BCE, but there is no suggestion that they wish to sell up completely. They want to cash in a bit of their investment but they want to maintain control for a bit longer.
This leads to a bunch of questions about CVC’s ambitions. Who do they anticipate will buy shares in F1 — long or short term investors? Will CVC run F1 in the future on the expectation of short term returns, or will they convert it into a nice little business that still has an 80 year operating licence?
Given that none of us has insider knowledge of CVC, we can’t predict what they will do. On past knowledge we should assume more short-termism unless a further global economic disaster kicks them up the backside.
—
F1 teams and F1 fans are extraordinarily deferential to BCE. When Bernie took the Constructors’ Association in hand, 40 years ago, he was acting as the representative of teams and drivers. He pushed up standards, ensured that teams were paid and created the F1 circus. South American or Japanese promoters were guaranteed a full grid of cars, and that made F1 an international circus.
When BCE sold Brabham and ceased to be a constructor he, somehow, maintained control of the circus. The F1 teams never considered that they should be running and owning the circus. Which is where we are now.
“This leads to a bunch of questions about CVC’s ambitions. Who do they anticipate will buy shares in F1″
They have already sold a large chunk privately, after the proposed float was sunk. A lesser known US bank I think it was (Joe did tell us, but it has gone from my feeble memory) now owns enough stock to be seriously involved (if not concerned) in the outcome of the rest of it. I have still seen nothing of the stock owned by the liquidators of LBL nor heard whether the Delta stock owership/sale rules, overrule those of the US bankruptcy court whose job it is to get the best price. (I always had Merc down as a prospective buyer via suitable nominees, but that was wrong as far as we know)
“post-crisis hand-to-mouthing” – sounds like bernie’s style that won’t change
“There is no reason why a second superman needs to be found.” – Why not have a COO to look after the internal matters? The CEO can concentrate on the ore external facing issues.
I’ve learn’t more about F1 from you than anyone else. Another insightful piece I won’t see anywhere else….
Agree – superb article Joe although regarding your last point it’s surely not just Bavaria but also Bernie’s age – that said, a certain Mr Warren Buffett is doing okay – but he does have a succession plan
Interesting times…
Another good read Joe. This sort of article is the reason I read your blog. You never shy away from the topics that other sites would never dare to contemplate. Do you ever get any trouble from these topics?
Joe, have you heard anything about CVC Asia’s ownership of Channel 9 in Australia and thier reported 3.8b debt? Is this a trivial sum to them, or something worth looking into?
Reported here: http://www.abc.net.au/news/2012-09-26/nine-debt-negotions/4281184
Oh my… are we really living in a world where 3.8bn could possibly be called trivial? Boy, I hope not. Yesterday I heard story of a Vietnamese mother who had to sell everything she owned and borrow at interest to afford the plane ticket to visit her daughter in Hospital in Taiwan. For so many, just a thousand dollars is a fortune.
Been mentioned lots mate, do a search on the blog.
Let’s hope Bernie doesn’t revoke your press pass, Joe, for writing such naughtiness.
It’s not naughtiness in the slightest. The piece perfectly encapsulates the (deliberately) oft-confusing tale of Ecclestone’s influence on F1. You can take the man of used car salesmanship, but…
Great article Joe, Mr. E did a lot of great things for the sport but as they say, the cemeteries are filled with indispensable men. The times have passed him and the business model needs to adjust to an ever evolving media landscape, one would imagine that finance people with no sentiment for the sport would be the first to notice that such a change is required in order to maximize revenues from the sport.
What always bewilders me is how CVC et all seem to be perfectly content with killing the goose that lays the golden eggs, one would imagine that from a financial standpoint it would be more beneficial to harvest the eggs for a while and then sell off a healthy goose for a fat profit. But then again what do I know, im just an F1 fan.
The golden eggs are guaranteed for a few years yet whether Bernie departs or not. I agree though that the method in which they are produced will eventually alienate sponsors and fans alike.
The only fly in the ointment could be if FOM are declared unfit by the FIA (or would it be CVC unfit or Delta xx?) (Should Bernie be found guilty)
Joe,
Am I reading right: “Banks generally lack imagination and entrepreneurial flair”?
Of course we used to say “as boring as a Swiss banker”. But then, have you ever heard of Goldman Sachs and their friends? You know, those MBA-holding creative bankers who screwed half the world population.
I always wondered if maybe the smart be-suited guys have indeed out-smarted our old fox Bernie. CVC got a ROI of 600 % when they sold a stake recently, according a not-to-be-named-parrot who likes to repeat after Mr E.
I can’t help but ask myself, how is it possible that the eternal Bernie sold the golden egg-laying goose?
Answer (so I believe): he didn’t. His family trust did, much to his surprise and, I suspect, horror.
From what I remember of Joe’s writings at the time, he didn’t approve one bit of the EM.TV deal, but it was out of his hands, done by the people he thought would keep it safe (from the taxman), i.e. the trustees.
As far as I can see, all the trouble he’s had since, has stemmed from that one decision. I wonder if he ever wonders if it would have been better to keep it in his own name and pay the UK tax?…
Maybe yes, his family trust sold. But who do you think signs the contracts on behalf of it? Slavica? Petra? Tamara? And Bernie had no say in this?
I’m more surprised that they don’t want to remove primarily because of his age. After all he has the age that he could go to bed and never wake up and nobody would be surprised (to me dying of old age is not something to be surprised about).
Are there any signs that the replacements that CVC are looking at have a more fan oriented view of F1? (following the logic of more fans equals more people to extract money from)
I agree 100% Joe.
Bernie probably has something up his sleeve, he usually does, but it is difficult to see how CVC are going to get their returns on the ‘Future F1′ as it is changing/declining depending on how you look at it.
The ‘German Problem’ will have to be addressed before they can push forward too far, and although we hear that the Concord Agreement is a done deal, it still remains to be seen if this is the case.
Interesting times.
Strange that yesterday Max was in the news again, he is still more visible than his replacement, who barely surfaces in daylight. One gets the impression that he is being led around by the nose by Bernie. He (Bernie with Todt’s compliance) has recently completed a series negotiations, a collection of individual CAs which no longer affect the regs. Bernie has in one stroke increased the teams costs while calling for a budget cap, simultaneously decreasing the teams influence in several areas.
He has tied up the F1 future financial revenue stream for a good number of years and could be pleased with that. Were it anyone but Bernie, they could be satisfied now and settle down peacefully with Mrs E the third, but we know that like a shark, which must swim, he must deal to keep alive.
Should Bernie be convicted, the worst punishment for him would be to cut off his information flow and stop his hobby of property deals. If guilty would the German court try to unwind the CVC purchase? Impossible maybe, but perhaps a large dollop of compensation could be awarded.
If he goes, things will never be quite the same, he is not the fairest, nor have many of his deals been. But then to deal with Bernie is like playing chess against a Grand Master with no view of the board. Only Nicola Foulston ever put one over Bernie (used him and F1 for her own ends) and she had the good sense to take the money and depart.
Rpaco
“Only Nicola Foulston ever put one over Bernie ……”
Fascinating comment. Can you expand on that please?
Martin
Whatever happens to Bernie, the day he isn’t running F1 will be a day that it loses part of the “show”.
To be a circus, you need a ringmaster, and whoever replaces him will likely be the kind of grey suited chairman that never leaves the city of London.
Be that as it may, but the day Bernie and CVC are no longer pulling the strings is the day I start going to GPs and giving the sport some of my money, knowing that more of that money actually stays in the sport.
Joe, I wonder how long F1 can outlast Bernie himself. It’s a very worrying thought. No idea of any great worth was ever hatched in a bankers’ boardroom or any other room where money is the sole concern.
Remember that Bernie loved motor racing and was an active participant before he made money from it. It’s a crucial point. People who simply want to make money rarely make anything else.
I beg to differ, Joe, with respect, regarding a ‘second superman’.
I guess the problem here is that Bernie ain’t got a son. If he did, or even better, several sons, the most able would have taken over and pursued the “single vision” idea. Democracies are fine in themselves, but some things require the single vision of an autocratic Louis XIV type. Many will disagree of course.
Joe, you may find the autocratic idea quite repugnant, and it may be that F1 will find salvation in the hands of hybrid committees representing the varied and conflicting interests. Forgive me if I say I doubt it.
Well that process has worked well for Murdoch, so why not? Oh no, wait a minute …
Why would it have to be a son? Gender equality means that daughters are equally suited.
Oh, hold on a minute…
Seems logical even if a bit worrying….
Can you think of anyone?
Ok Joe, I’ll do the job. Who should I see in CVC about sending in my CV?
Judging by the language used in the regs nowadays you had better refer to it as a “résumé”
Very nice. Thanks, Mr Saward.
So let’s be clear – one flaky type sold shares in his business to other flaky types who then sold them back to the original flaky type who then sold a substantial amount of the shares to more flaky types?
Sounds like the way most business is done these days.
Blessed are the dealmakers.
CVC bought F1 at a knock down rate; a man is now in prison because he took an inducement to encourage the corrupt deal to go through.
When justice takes its course, you can bet that the banks will seek compensation from the beneficiaries of the corrupt deal. Hopefully, at that time the FIA will also want to renegotiate their deal with CVC as they will not want a bunch of crooks running the sport.
With luck, CVC’s whole house-of-cards will come tumbling down, and the main beneficiaries may be the fans.
I think you will find that F1 is a very small part of CVC. If the crunch came they would dump it. They have already sold some big dollops (to put it technically) so they have well covered costs several times over, a buyer can easily be found at the right price. However the FIA will have to agree, but what choice do they have? The big danger is in any legal action for compensation, which could run into several tens (nay hundreds) of millions.
“And the cheesmakers.
“Oh, what’s so special about the cheesemakers?
. .
“Romanes eunt domus”
My goodness. One of your shortest ever posts. I actually read it to the end…
Now Munich’e prosecutor have reportedly tied up the ‘sunshine’ charity legal obstacle. Along with a few other loose ends in the Gribkowsky case, their full focus is said to be firmly on Ecclestone.
Given what they achieved since tracing the Gribkowsky payments through Ecclestone’s byzantine web of deceit there’s reason to believe they’ll see it through to the end.
So your wish may yet be granted. It won’t be before time, nor I suspect will CVC be able to deny complicity or plead ignorance.
Joe wrote: “…..it would be better to have Ecclestone step aside graciously before any potential trouble comes from Bavaria”.
But that would mean CVC has to have their succession team in place to take over. Any rumors as to how CVC would restructure the responsibilities? Or how many people would it take to do the same job Superman currently performs??
I deleted my first written comment before hitting the button rashly, but there’s no point making a overly long lament that’s personal and can’t be anything other than opinion because there’s no way to write anything other than vaguely about even important people in my life.
But I have a lament that companies like CVC really twisted so many people close to me, who worked in similar outfits (but not CVC) anyhow, and I really lost so many friends to such strange worlds as those outfits inhabit. Girl I thought was the be all and end all, well she got close to all that, and one day I called her a hypocrite, and realising that was my view, it was all broken. The cruel irony is she had often protested that my business meant somehow I was twisted up, before she got into work herself and was exposed to all that.
I was the one who could not stand even to remain seated for dinner amongst these people, I ran out once or a few times too many, the atmosphere just crushing and insincere.
It’s a funny tale how the usual complaint against PE / vencap comes from people not of the same background as who wanders those corridors. I lost a lot of friends, it was a bit faster than drifting apart. This is not a boast, but even when I tried to engage business talk as a attempt to find connexion, well it was blatantly only lip service and rote learning coming back at me. Had you not been of the same social background, this you might have been thinking was the privileged saying FU, but for me it was gut wrenching, unhappy times.
Only lately have one or two important friends made gestures to repair the disassociation, and they were very close to me, and we don’t quite have the language to make that work just yet.
It’s as if sometimes I am presumed to think that their tentative self discovery is a new and alien language to me. That what is novel to them is novel also for me, that not having been there I could never have experienced anything comparable.
I guess I was a sensitive sod, and risk being a hypocrite myself, as I in reaction withdrew into my own work and business. But what I’m saying is that from my impression, up close and personal, the world of companies like CVC is really warped, and laden with conflict, dripping with poisoned honey dew and laced with regrets. Dysfunctional might be the PC label, but I think I could write the nasty version of Bonfire Of The Vanities, from what I have just known second hand. The idea they can, as a generality, set their own house in order is just ridiculous to me.
If you happen to be a good spirit or a deity and have any influence, please forgive these people at the same time as you relieve them of their control.
You could just think I am personally upset or biased, but I could pile in with far too much financial and business logic to support the idea I think they’re up their own rear ends. I just think it’s a pity. You need a real break from these people, not just in F1, and I just don’t know how long it will take friends of mine to adjust to better thinking or work, because they’ve been trapped also, and I get the idea many are quite bitter.
I’m not making a indictment, just it’s bloody awful to feel you lost close friends to a amoral and perverted system. I feel I am not pointing any finger, because for a while long ago, I almost felt I was in a arms race to be a total a-hole in business, as if everyone was numbing themselves, and financial income does allow one to deflect reality. Just I couldn’t sustain that, nearly wrecked myself trying to be the same as who I grew up with. That’s why I threw tantrums and ran out of restaurants, because I was having problems accepting I didn’t like where I was. I’m not yet successful really at my new approach to life and business, but it’s been a lot more interesting on personal levels, consistently, for a long while now. I keep thinking there’s some switch I can turn on in a “emergency” to recreate a more ruthless self, but can never find the thing when I am frustrated and want to take a short cut to some result or another. Maybe there’s no such switch. If so, then Phew, good thing.
Buttons twisted rashly JoJ. Less is more.
That’s hedge fund managers for you JoJ, along with bankers, private equity brokers and the rest of them… and that’s the problem with money!
Money affects people in many strange ways, and if your existence on this planet is purely the pursuit of money and you mix regularly with other people with the same pursuit, you will become very strange indeed. Money to men, is like meat to frenzied wild animals.
Formula One is a fantastic instant cash cow for any investment organisation. It has an excellent profit to earnings ratio, so who’s not going to be interested. All they want is return on investment.
CVC also invest in the second biggest theme park operator in the world. Why these sort of businesses? Perhaps it’s the ready cash coming in, it’s not as though they’ve had to gamble money digging a hole in the ground hoping to find gold.
As Joe says, Mr E has done a terrific job with Formula One. If any of us were in his shoes would we do it any different?
are you on acid, dude?
JoJ
What the eff are you on man, I’m clueless as to what you’re chatting about, as they say.
If you don’t get it you never will!
JoJ’s writing is a stream of conciousness put into words.When you read JoJ’s words imagine it’s Jonathan Legard, a former BBC F1 commentator, talking to you. (Hope you don’t mind me saying this John
Always a pleasure, never a chore.
And back to form…
“I deleted my first written comment before hitting the button rashly”
You left the one about cheese! Which I am sad to say my education did not enable me to comprehend. Does a classical education now include cheese?
Think Monty Python ………
I often find your posts interesting, but I’ve often wondered, well, why you bother to be honest. Now I feel as if you’ve told me. Thank you.
Everything I’ve ever read from you feels like it makes more sense to me now I’ve read this. I have a sense of context, and of the person behind the posts. Thank you for that. I see you’ve had comments here from people who don’t get it. Whatever. I’m sure I’m not the only one who did. Hope you keep up the good work.
You are right joe, eccles did a fantastic job , he brought f1 to the media and he brought f1 to the living room. He made the teams and the ceo very rich indeed and they are still not satisfied, Ive been to a few races but now its to deer. So its the box for me. As far as the bravarian fiasco goes, if they dont want to rock the boat yet,as far as eccles successor goes or the lack of one, get someone of his calibre ready and wait and see. If it turns sour execute a new ceo and side step eccles. If not and all is well why change yet, maybe for at least a few years, but there is no arguing it will have to happen sooner or later, CVC will have to look after the golden goose that lays the golden egg…..
Another great piece Joe, thank you.
When CVC decides to remove Bernie is some way (or they sell off before they have to do that) one hopes they don’t think way out side the box and decide to hire a guy who used to be a Rodeo CEO…
Of course Vince McMahon (WWE) seems to be out of the Bernie mold, maybe he’s bored and needs a change?
Hehe….they can hire a Rodeo CEO as long as he doesn’t turn into a rodeo clown. Randy Bernard hasn’t done THAT bad of a job at IndyCar, has he?
He is in many ways, the last of the great “characters” in F1. Say what you will about the “wee man”, he’s one of the biggest when he walks thru the paddock. I can’t believe I’m writing this, but I’d miss him if he weren’t there. Who will we yell at? Who will we blame (for pretty much anything, whether it’s his “fault” or not)? Who will wrap the media up in knots? (Not you Joe, you seem immune to his “reality distortion field”). I know we all like to say that no one is replaceable, but Mr. E? No, after him, they broke the mold (thank god…).
One other thing – I’m very curious to hear the Mole’s take on Hamilton’s move to Mercedes? Perhaps he (and the Penelope’s) have been busy trying to prevent it?
Is this the same CVC that is reportedly sliding down a slippery slope while in bed with Australia’s very unwell Channel 9 Network? Looks like there may be a couple of hundred thousand billion at stake there….though that’s probably small fry to them?
A bit of conjecture, that I think affects players like CVC:
This zero interest rate game is messing with way too much. My savings and more so those of the generation above me, are raped, but the big guys are screwed too, because they had too long to borrow for nothing and pick up assets. Because they eventually need to borrow again, because zero interest rates mean the only way for stock is down. Nobody will buy a IPO. That’s a real strong limitation that says “no way out”.
Apart from anything else, the PE guys have stripped any fat out of the deal, that’s their business, there’s nothing on the table left. I think their business was to ride down rate (reducing rates) stripping all the good stuff, because the trend of cheaper loans meant the next guy still had some margin. Ironically, because interest rate payments are tax deductible, you almost had a better subsidy when you had to pay more for a loan to buy a company . .
Outfits in PE like CVC are between a rock and a hard place. There’s another firm in that game, not willing to name them, who have by far too much political influence, so much so they may have shaped policy.
I think they dug their own graves. Interest rates need to go up, as part of re-inflating economies. When you are leveraged, the discount to net present value changes a awful lot when you move from zero by whole digit rates, and basically, rates up, stocks down. But any schoolboy math student knows that ratios get hairy when there’s a close to divide by zero. Damned sorry state of affairs. With rates at zero or negative for so long, way too much industry has been bought up by privateers. I have not for a long time seen any pertinent qualification of the buyers, they just bulked up because short term math looked good.
Anyhow, on the light side, so much money is chasing any kind of home that might pay off, that Andreeson Horowitz, not known as a stupid lot at all, invested 15MM bucks into a website that explains rap lyrics, this week. I wish I knew where to keep a eye out for the musical and lyrical responses from the hard core rap crowd, to that deal. Something about taking the white nerd cash . .
It’s nuts, though, because there are so many predictable factors created by the way government interventions are being dealt out, that, well, some strategies could make you handsome returns last year, by front running or second guessing policy. Better returns than actual industry likely could get you.
Just about everything is topsy turvy, to my mind. I stopped panicking because I simply had to. I have dusted off a old catch phrase of mine: save your sanity for later, no use for it today. If you read here, you’re highly unlikely to be a dim wit, but I think the watch phrase is forget what you learned before when trying to suss out the economy. My first heavy argument with my biz partner was the weekend Lehman burned out. I just had my head in my hands, because I knew not how, and the B’berg terminal in front of me was not explaining anything, that we were all doomed. Bob argued “no way will they let that happen”. We’re still both right. The markets are a crock, and yet TPTB haven’t let them completely fall off a cliff. Just all the things stuck in the middle have been bastardized beyond recognition. The markets became non markets, just proxies for how much paper the treasury can print.
Anyhow, what I mean to suggest is that it’s not a “ours not to reason why” futility when observing firms such as CVC and their impact on the world, but instead there may be opportunity for regular guys out there, if you throw the schoolbooks out of the window. I think such “investors” are going to have to sell potentially good things for scrap. I also think they as a self defined class may be under unsustainable mental strains personally. That could lead to chances to pick up good deals in fire sales, eventually. A context for this is the lunatic concentration of shareholdings in so few hands, usually pension plans, vast hedge funds (some are not run by maniacs, look up Ray Dalio for one who is actually human) and I don’t think that’s natural at all. I keep wondering lately if these behemoths will need to be slowly dismantled, and in such an event, disorderly or not, regular guys might pick up some sensible investments.
All that was a kind of thought response to you asking whether even huge deals are small fry to such people. Yeah, they have to do deals so large, because of some basic maths: if they are leveraged they will be struggling to maintain financing, so exist on small margins, in stocks and shares the zero interest has jammed prices so high there’s hardly upside (hence no IPOs), when you are already big you need to do bigger deals to show percentage growth from any one of them. It’s been almost beautiful for who rode that to the top, and a few friends grabbed the coat tails of that trend, but I think a glass ceiling has been discovered. I reckon margins are razor thin. Point in hand, I thought at the time the whole F1 floatation was a ruse to sucker people. I can’t prove it, but I think my guess was correct. Those funds who bought in may have been desperate for the boost that they imagined would happen at the IPO. But if they complain, they alert too many people that the next time they want to sell something, maybe they cannot.
Okay, last observation: I have always wondered about the fear and greed thing in financial markets. Rather that less experienced or populist observers use that fear and greed phrase to say bad things about the big boys. But I reckon instead that when fear and greed is really driving the markets, that’s the only time a little guy can do well, because otherwise they have it all stitched up. Oh, I might be indulging a little fantasy we can score one over The Man, but emotions are levellers, and these vast outfits look poised so that they have no room for mistakes.
Incidentally, in no way would I ever claim my thoughts as to a market are even measurably just a little rigorous. I’m intentionally impressionistic. But I have found, for myself, that when I can connect the dots between known situations that are illogical or make no sense, somewhere in between those satirical financial ley lines, might be something of use. It’s always worth plotting things between observations that make you think “WTF?” of that confuse you. Tons of things confuse me, thw world is big enough that will always be true, but by taking note of them, I sense, often as not, where to avoid. Markets are to big to have much of a view of them as one or even two men. But I think the WFT and confusion alerts you yourself get are very useful intuitive guides. If it sounds like bollocks, it probably is, for wont a better expression. Another one would be to be really wary of anything that needs too much explanation, or if you don’t understand it, don’t invest in it. One more, would be that all the best insights I ever had, caused a “Doh” response in me, by the time I sussed a good’un, it read back as plain obvious and fairly simple. I guess, don’t buy complexity, and in this market that is unusually true.
Probably the best article I’ve read on the matter – ever.
I wrote something myself recently on the state of play last week in Bavaria – it appears lawyers for FOM/BE have already issued injunctions against the opening of files for discovery purposes for the Bank and the Kirch family, both of whom are looking for financial recompense from Ecclestone.
The best funniest part of what I found, and I have to say I was translating German, was that lawyers for BE/FOM have apparently offered to settle any impending bribery charges for cash – Beyond irony.
Joe – Great synopsis! Bernie has survived previous scandals – the tax investigations in the 70s, the Blair/Labour political donations, etc. He is a survivor. The deals with shady characters were so that he could float the business and therefore at the same time legitimise his ownership of the sport’s rights at a time when it was under threat from the EC competition commission and the teams potential breakaway.
People need to understand the CVC business model. Their investments are are all housed in independent companies and are therefore not cross colatoralised. There is no risk to F1 if Channel 9 fails in Australia. They are in different funds of different vintages. Bad investments just threaten their ability to raise their next fund. But there will always be people with too much money seduced by new investment schemes (Tulips anyone?). Hence these characters move on to the next firm/ investment.
However the risk to F1 comes from a different source. CVC are not long term owners. Their funds have a limited life when they’re raised. Hence they were only ever going to be temporary owners. Bernie will have known this and has had plenty of time to find a solution. This is why we see CVC desperate to sell down their stake in F1 to anyone who is happy to buy a piece. Their investors have probably said they want their money back and CVC has to liquidate their investment. This is why the float was proposed. Given that it didn’t proceed, this represents a serious problem for the managers.
I predict we will just see another series of short term horizon investment funds buy stakes in the sport. Their investments are heavily leveraged and the principals are motivated through the remuneration structure to make large bets. If they go wrong, they walk away. If it succeeds, they’re billionaires. Naturally for fans of the sport, this is an issue – potentially the sport moves increasingly to those who are solely motivated by the money and have no interest in the sport. At least Bernard knows and loves the sport/spectacle.
If you’re looking to a successor, I think you have to look at Bernard’s inner circle. It will have to be someone he trusts. I think this comes down to three possibilities. Max, Flavio and Jean. At times they have been rivals, but throughout their working lives, they have built up a gruding respect and understanding of what benefits the interested parties. Flavio I would rule out as he wouldn’t be acceptable to the bankers. But Max’s reputation has been rehabilitated given the past few years out of the spotlight. He is intelligent and understands the sport. He also has the understanding of the FIA and relationships with the team owners. Jean is also in a similar position, but is perhaps more acceptable.
I think the outsider in all this is Ron. He has been Bernard’s biggest critic over the years. He is wealthy, owns one of the best teams in the sport and has a good network of investors in the Middle East who could bankroll the investment.
Off the topic of this post. But apparently Lewis has ‘dumped’ Nicole.
I really must get out more and stop reading small pebbles.
I wonder whether CVC might have it in mind to hire Max Mosley if they should need a replacement for Bernie Ecclestone sometime soon? He is after all only 72, which is quite young by their standards. And he is the only other person who knows how to bully the teams into submission the way BE does. I would guess that the teams wouldn’t like it, and nor would anybody else, but that may be an advantage.
CVC owns the commercial rights to F1 for another 83 years and I can’t see that there is anything that the FIA or the teams can do about it, unless they set up a rival series, which they have repeatedly failed to do. I don’t see why CVC should ever be more generous to the teams, as long as FOM does a good job and FIA and the teams don’t think they could do it better under a brand other than F1. Surely this would be the case under any leadership of FOM, not just under Bernie Ecclestone.
An interesting question is “what is the value in owning F1(tm)?”. Venues pay and fans watch (bringing sponsors in) to see the world’s best drivers in the fastest/most advanced cars. Bernie seems to have managed to keep the top teams just about happy enough to stay on board but presumably it’s not legally possible to prevent the creation of a breakaway series, as has been threatened by teams in the past as part of their negotiations. I’m sure there are contractual obligations in place but not perpetually and in any case contracts can be undone if the will and means are sufficient.
If Ferrari, Mclaren, Red Bull, Mercedes, Williams and others were to actually leave F1 and start their own series, identical as far as the fans see, but run in a way that most benefitted them (admittedly not straighforward to agree on but conceivable) could they be stopped?
Of course they couldn’t call it F1 but it would still be the pinnacle of motorsport and the drivers would surely folow their wallets. The “vast sums” that currently go to Mr E and the suits would be split between the teams and reducing the costs to the fans (cheaper ticktes and subsidising free to air broadcasting). This would increase fan numbers thereby maximising sponsorship.Have I missed something obvious that would make this impossible or does this scenario give the bankers cold sweats at night?
If Bernie gets indicted it will not materially change the situation of the former owners of the sport. There may be small amounts of money awarded but basically the bribery wasn’t about selling the business at a cut down price. The bribe was paid in order to make sure that the sale went to a company that was hand picked by Bernie and had a deal with Bernie before they even talked to the main owners. This was all about conserving Bernie’s control over the business while he actually had disposed of the majority of the shares long ago. The repercussions of Bernie getting indicted and convicted of bribing a German official (Gribkowsky a risk officer of a state owned bank) really is the reputation damage that CVC will suffer from it. No business of that kind can afford to employ a white collar criminal in such a top position. As soon as there is an indictment they will have to come up with an alternative just to protect the business and it’s reputation.
One wonders what happens to F1 if we see another GFC type event. Most races survived the first one (although Toyota, Honda and BMW did not) but a 2nd GFC event might be the tipping point where governments stop funding races. Maybe these race fees will come back to bite F1. Hypothetical of course…
As a fan I do not feel the same admiration for Ecclestone as you do Joe. I fly to the Aus Grand Prix most years but plenty of my friends have stopped going due to the financial costs. Tickets are expensive, as is pretty much everything else once you are in there. Hardly appealing against Melbourne’s other great sporting events (and there are plenty).
Bernie made a lot of his money by selling F1 races to corrupt governments looking for a way to legitimise themselves through F1. Oh, and the rest of his money from the swindle he pulled for the TV rights. He may be a good business man, but little else. What has he done for the fans during his time? You say he has bought F1 leaps and bounds over the years but who is to say someone else could not have done better? Maybe we need to stop comparing F1 to it’s past and compare it to it’s fellow sporting codes (Football, cricket, Basketball etc). You could mount an argument it’s performance hasn’t been that stellar.
You’ll have to forgive my frustration because I really do love F1 and have done for over 20 years now. I love the history of the sport and have watched plenty of races from every era. My problem is that fans get shafted for such little costs.
“rpaco: only Nicola Foulston ever put one over Bernie (used him and F1 for her own ends) and she had the good sense to take the money and depart”.
Is that how you saw it at the time, Joe?
In your opinion, Joe, what’s Bernie’s view of F1 after he’s gone?
a) wants to leave it as strong and succesful
b) who cares? I’ll be dead by then!
c) Bring down the building like Samson
d) What do you mean ‘after I’ve gone’? What’s the point of having all this money if you haven’t had a secret lab working on immortality all these years?
Would Bernie have had much of a say in succession planning? Might there be a scenario where Briatore figures in such plans?
Great article Joe – interesting that you’ve written it referring to Bernie in the past tense . . .
FastNick is right! “Banks generally lack imagination and entrepreneurial flair” was true before George Bush The Little signed a law to scrap Glass-Steagall. This allowed the bankers to get very smart and very creative. Just look at their profits after Bush’s signature.
I am afraid we will never know the whole of Bernie’s secret story unless he has written his unabridged & authorised (his famous parrot notwithstanding) biography to be published by his grand-children.
But hey! He’s still alive and quite kicking the last time I saw him on live TV. Am sure many too many people have banked on counting him out much too soon! I am sure the smart & creative bankers have already a plan for this, when time comes.
Of course before our Germans friends can get to Bernie, they still have the money trail to sort out, and bring the heat – spot light back on to a certain Mr. Briatore and his company which actually did the payment. It just might be at the correct time to boost his Italian TV show ratings.
The backwards flow from that is to the trustees of the family trust, which haven’t been to Germany to see the scenery yet. So Bernie has a few more years of peace and happiness with the young wife before a return trip to Germany. As a small side note, he did get some form of immunity / deal from the Germans, and one would love to know what was in the package he got from them. Remember he is an ace deal maker of the old school.
As for CVC, there return on this F1 investment is very close to going down in history of fund investments as one of the best so far. Nice to know if you’re an investor in that fund that you have got all your money back and a nice profit, so far. There are lots of people out there whose pension funds look a lot healthier than they should do because of Bernie. Yes he is not a saint yet, and I doubt he will ever be one, but good for a return on monies invested with, and has made a lot of F1 principles – owners very wealthy people.
Pierre: “Banks generally lack imagination and entrepreneurial flair” was true before George Bush The Little signed a law to scrap Glass-Steagall. This allowed the bankers to get very smart and very creative. Just look at their profits after Bush’s signature.
Glass-Steagall was repealed in 1999. IOW it was Bill Clinton’s signature.
“As a small side note, he did get some form of immunity / deal from the Germans, and one would love to know what was in the package he got from them.”
The future of Nurburgring, perhaps?
Germany does not allow deals like this.
Officially they don´t, but we are thinking the unthinkable??
At least, the prosecution body is bound by instructions from the politics….Of course there is the presumtion of innocence.
I think you need to look at Germany’s legal system again. The politicians do not control the prosecutors.
Hovercraft racing; now maybe that’s something Bernie can turn to. He’s experience of fans at the back of vehicles has he not?
one of your very best offerings joe, with the quality of reply it deserves
and will forgive you the …very true….as long as you promise not to use …completely unique….when bernie finally shuffles off this mortal coil ; you don’t REALLY expect him to retire , do you ?