In the world of espionage, sources are often revealed not by single events but rather by patterns that emerge over time. Sky News’s reportage of the business dealings surrounding Formula 1 racing reveals that the broadcaster has a well-placed source inside CVC Capital Partners and has provided an outlet for coverage that usually seems to work in CVC’s favour.
The latest Sky scoop about CVC is an interesting one because it links the private equity company with Bahrain’s Mumtalakat Holding and the Abu Dhabi Investment Authority (ADIA) in a plan to buy the sports marketing group IMG. Both of these firms are heavily involved in Formula 1 and are owners not only of the racing circuits in their respective countries, but Mumtalakat also owns significant stakes in both the McLaren Group and McLaren Automotive.
The IMG move is interesting on a number of levels. The company needs little introduction. It was established in 1960 by lawyer Mark McCormack after he agreed to represent golfer Arnold Palmer. This led to the establishment of an incredibly powerful sports marketing agency that has represented many of the top names in sport – and continues to do so. Although best known for its sportsmen and women, IMG runs successful event management, licensing, fashion, representation and production businesses. Its clients include Heidi Klum, Kate Moss and Justin Timberlake plus a number of sports leagues. The company has recently acquired the commercial rights for the FIA Rallycross Championship for a term of time. There are also strong links with NASCAR, including the management of Danica Patrick. The firm continues to expand in the fast-developing markets of Asia and Latin America and is deemed to have much potential.
If one takes a step back, one can imagine that IMG might also be just the kind of organisation that would be perfect for running the commercial side of Formula 1 when, eventually, Bernie Ecclestone is no longer at the controls. Thus to see the three investing groups, linked by their racing assets, working together to acquire such a company, is more than interesting. CVC Capital Partners has done inordinately well out of the Formula One Group, piling away billions in the course of the investment. It has also managed to offload a good chunk of its shares at elevated prices despite the fact that it is fairly clear that a flotation of the Formula One group is not going to be as easy as was first thought. Formula One’s reputation needs some polishing in order to make it nice and shiny for the stock markets and there are pages and pages (and pages) of risk factors, to make even the greediest investors think twice.
One way to solve that problem is to buy a shiny company and pass the original investment on to them. It is all about adding value and if CVC & Co do manage to acquire IMG one can imagine that CVC might then see some logic in shuffling its Formula One shares into the IMG portfolio and then borrowing against future IMG revenues to turn the value into cash…