Anyone who claims to fully understand the financial structures of CVC’s Formula 1 investment should be treated with considerable caution. It is a wildly complicated business with different companies – some of them in places where financial statements are not publicly available – being used simply to service debt in a tax efficient manner. Just to put that into perspective one should understand that Formula One Administration, the main operating company, is owned by SLEC Holdings Ltd (Jersey), which is owned by Alpha Prema UK Ltd, which in turn is owned by Alpha D2 Ltd, a subsidiary of Delta 3 UK Ltd, a subsidary of Delta 2 (Lux) Sarl in Luxembourg. This is owned by Delta Topco Ltd (Jersey), which is controlled by CVC Capital Partners.
What is clear is that CVC is still busy paying off the $2.45 billion loan that was taken out in December 2006. This seems to be reducing but with companies within the group borrowing off one another it is very hard to follow exactly what is happening. It is believed that the debt will probably have gone by the end of 2011.
What is clear is that Formula 1 is not getting any cheaper for race promoters, TV companies and advertisers. Turnover in 2009 seems to be about the same as in 2008, although the Formula One Administration (FOA) accounts for 2009 suggest this is up nine percent. The 2008 figure for Delta 3 (UK) Ltd, the main holding company of the group, was $1.06 billion. As all these companies between Delta 3 (UK) Ltd and FOA seem to be holding companies of one form or another, it is fair to surmise that the turnover is actually about the same, even if the FOA figure taken in isolation indicates that there is an improvement. This is confirmed by the fact that payments to the Formula 1 teams – which are carefully monitored and strictly 50% of the revenues – went up from $521m last year to $544m. It is clear from this that things are moving in the right direction, despite there being only 17 races in 2009 compared to the 18 in 2008. Average revenue from each race has gone up accordingly, largely due to the big new pay out from Abu Dhabi. The profit and loss statements are entirely dictated by the debt-juggling and so reports of an increase of 29.7 per cent in FOA’s operating profits should be judged accordingly. Debt restructuring meant that FOA ended up with a paper loss of $2.9 billion after it wrote off a $3.4 billion investment in its subsidiary Petara Ltd (Jersey), which is the entity which owns Formula One Management Ltd.
One area where the sport did not do as well as might have been hoped was in its VIP hospitality, which comes under the Beta Holdings Ltd company (There are Alpha, Beta, Gamma, Delta, Epsilon and even Omega companies in the structure). Revenues in this division fell by 18% from $183.4 million to $150.5 million. There were cost-savings as less money had to be spent on running the Paddock Club, but clearly the business has been affected by the recession. It may be even more significant a drop as Beta Holdings also deals with trackside advertising and official supplier deals and these have probably increased in value with big new deals such as LG included in the accounting period.
As I said, trying to analyse it all when you are not an accountant and do not have the full facts is a dangerous business…