Gribkowsky, CVC and the future of F1

Although the private equity fund CVC Capital Partners has said that it has no involvement in the Gribkowsky Affair, the Bavarian state prosecution service in Germany says that it is investigating the former chairman of SLEC (at the time the Formula One group’s holding company) for alleged corruption, tax evasion and breach of trust. He is accused of receiving $50 million from someone unknown for his involvement in the sale of the shares in the Formula One group owned at the time by BayernLB, the Bavarian state-owned bank. The prosecutors are claiming that the sale was done without a proper valuation having been made on the value of the shares, which were, in effect, publicly-owned at that point. They claim that the $50 million that turned up in an Austrian foundation, where it was spotted by a German newspaper, came from the F1 dealings.

Whatever the details turn out to be this is not good news for the Formula One group as it once again casts the sport in a less than attractive light, something which potential sponsors consider before they invest in the business.

Negotiations are believed to be going on at the moment for CVC Capital Partners to sell the company to one of the sovereign wealth funds in Abu Dhabi, which will give the venture capital firm another substantial pay day, but will also rid the sport of an organisation that has been involved solely to make as much money as possible from the sport, with little or no obvious interest in the sport beyond its value as a cash cow, which they have milked to the full. It is hoped that under the new ownership – if it happens- the sport will be treated with a little more respect. Abu Dhabi does not need the money as oil continues to pour from the ground and such an investment would be a strategic one, to enhance the country’s position as a major player in F1 and to help to generate new businesses in Abu Dhabi, in preparation for the day when oil runs out. It is important that this is done before a new Concorde Agreement is negotiated as the teams and the FIA are all clearly keen to stop the drain of cash from the sport. At the moment 50% of the money generated in Formula 1 disappears into the pockets of the promoters, to pay off vast loans that they took out to fund the purchase.

21 thoughts on “Gribkowsky, CVC and the future of F1

  1. this seems like good news, but surely if F1 was owned by Abu Dhabi we’d see the return of Ferrari International Assistance? Don’t Abu Dhabi and Ferrari have very close ties, financially at least?

  2. The Mubadala Development Company are also interested in the commercial rights, that’s why they divested themselves of their Ferrari shares, so as to avoid a clash of interest.

    Mr. E has already spoken to Sheikh Khalifa bin Zayed Al Nahyan about such a move.

    Although the FIA would prefer the teams to buy the rights with the help of investors such as Mubadala and Abu Dhabi Investment Authority, and as such the FIA have a clause that gives them the right to veto any detrimental change of ownership.

  3. What’s the penalty for bringing the sport into disrepute? $50M sounds about right? Now let’s see who pays the fine.

  4. Karen Terry

    “…the FIA have a clause that gives them the right to veto any detrimental change of ownership.”

    It makes you wonder how the FIA, under Mosley at the time, ever agreed to the sale to CVC.

  5. Martin Collyer

    Exactly my thoughts.

    But I guess as the previous owners the banks (JP Morgan, Lehman Brothers and Bayerische Landesbank), only acquired the commercial rights because EMTV etc had gone the way of the pear, and they themselves were up a certain financial creek without a paddle, CVC which is mostly financed by US pension funds seemed the only option.

    One interesting thing is that the FOA (Formula One Administration) no longer control the commercial rights, it’s now ‘Formula One World Championship Ltd’ that control them.

  6. Joe

    Yes, but do you think the change from FOA to FOWC, coming at the same time as the ‘alleged’ loss of €7,000,000 annually for the FIA is significant.

  7. Hi Joe,
    Off Topic, what do make of Autosports Lotus Lovefest Supplement?
    How does that work? Are Haymarket paid to produce that?

    John

  8. Karen,

    the biggest noise last year, from the Arab world, interested to buy western cultural assets, was coming from Qatar.

    Maybe that was beause they are considered more friendly, being geographically small, and relatively liberal. But the UAE acts in co-ordination quite effectively.

    I am inclined to disagree that any Arab Emirate would be bothered about supposed conflicts of interest, not over a 5% stake anyway, because they are acutely aware how to play high end soft-ball, and not annoy others unnecessarily. That’s as much cultural as it is political. I don’t see how a genuine, western -style conflict would arise.

    But if Mubadala is going to make a bid for the F1 game, Mallaya better watch out, because Mubadala finance the company whose mothers he just insulted!

    Someone, from that fraternity, i’m sure is talking about possibilities. Ever since sea navigation went beyond the coastline, the nations of that region lost a geographic advantage they dearly would like back. So, hmm, i think they’d be good towards F1, to show off their logistic prowess if nothing else.

    Joe, these PE firms really are no more than guys who locked in long deals on so-cheap-your-teeth-hurt loans. Even if they wanted to do something better, they’d have no ability. Not worth assuming they’re clever. I dont know it’s worth bashing them any more, as they’re being tapped out for other reasons than concorde expiry etc.

    Thinking a bit more about Gribkowski, presumably to prove a loss in an equity sale, either an auction was rigged, or the longer term value is proven to be substantially more, or information about better possibilities was knowingly withheld. That last one has a high burden of proof. Right now, how can anyone see any on-going value in what Bayern held? Their board is maybe imagining all the arrangement with the teams, plus a rich deal with a sovereign fund, has all been done. If that were the case, from years ago, well I think Bernie was likely busy for his own account. Either way, you have to drag in others. “Swift, fair and equally availabe to all men” Said Knut, trying to fix Saxon law. I’m afraid that’s rather a load of hopeful twaddle in practise, but i hope the man is afforded a timely defense. The problem arises when you are up against state machinery and think it’s worth playing their time wasting game to keep just a little hidden. If I were him, and clean, i’d shout from the hilltops. If there’s a short delay, say a few months, that might be his attorneys trying to explain to the state prosecutors the error of their ways. But if it drags half the year, he’s playing for keeps on something. Exoneration is not always worth a decade of lost life in your prime.

    The problem is, they got Gribkowski where it hurts, because to make a nonsense of these civil claims, assuming his stash of cash is unrelated, he might risk confessing to tax evasion carrying criminal penalty. Obviously, wrong “climate” to admit that, they’ll hobble him in sentencing. See Mike Milken, who didn’t cause that particular mess, but who talked shyly above the technical minds of his Jury, copped a vast stretch for charges which had never prior been criminal, and had to overturn them, at great expense to his health. (Some view Milken was coerced by Guiliani by the arrest of his brother who was no more than a clerk in the affair. Giuliani had beef pernsoal to make a thing of, the book is called “Payback”, but also see Sobel for good academic study, or Dershowitz’s appeal pleadings)

    If that’s his defense – error elsewhere – against the Bayern allegations, i’m sorry to say he probably needs to do the time now, on remand, rather than later, for his own ultimate benefit. Wait until it cools down. Better to be jailed by political types and released, than fight with them until the public forgets you, your money and help is out, and still have do do a stretch.

    – j

  9. JOS,

    Lovefest, too right, ha ha!

    I think Autosport are clenched in the the cusp of the ample bosom of some very expensive PR.

    I’m sure we’d be amused to know her name, but we don’t want that kind of “disclosure” here 🙂

    Not too sure how to convey the giggling, evil grin I’ve got all over my mug now, but that lot might yet be playing with last laughs in a card game where they don’t have enough chips.

    Thanks John!

    – Alice

  10. Just read Bernies’ throwing his weight about saying he will sue all and sundry if they report any links to him and the $50m.
    His comment is why would he bribe somebody on his side. Too many people are quick to deny their involvement on this one, it stinks.

  11. Bernie has apparently told Germany’s Bild newspaper that he denies having paid Gribkowsky the 50 million.

    That said, if one reads Bernie’s quotes with the same sort of mindset as Joe shows us in his recent “The Truth about Formula One” column, I think there’s still a fair bit of wiggle room in Bernie’s denial. It’s also true that a denial to the press doesn’t have nearly the same level of consequence as would a denial to legal investigators. Plainly put, it’s no crime to tell porkies to the press.

    Bernie goes on to threaten the German newspapers with the potential of suit if they continue to associate him with the 50 million payout to Gribkowsky.

  12. I see that Uncle Bernard has now seen fit to issue denials that he or CVC had anything to do with Gribkowsky’s $50M. I am glad, for the sport’s sake, that this is the case.

    Bernie does give off something of a sense that rules are for the little people, unfortunately. This is a man, after all, who named the vastly expensive watch that was created for him the

    F1™KING POWER

    (Glance at it quickly.) If that doesn’t sum up the man, I don’t know what does.

  13. If a sale to the teams was somehow structured (eg loan from a ME fund), surely the value of back markers (who I assume would get some sort of revenue share) would suddenly increase?

  14. Joe, its easy to be negative on PE firms for excessive balance sheet engineering, but this is not enough to increase the enterprice value and lead to a profitable exit. One still needs to grow the business (especially since another similar investor will follow and they will also need to make a buck. Or two). CVC kept Bernie in charge and let him run the show – like him or not, he keeps growing the business.

    The next investor, however, will have to formulate a business plan without Bernie and that may be an issue. Would you back the teams to run the show (can they ever decide on anything, given that they are there to compete)? I am not sure I want to see F1 in the current state of the NBA in the US… Is there another alternative to Bernie?

  15. Who would buy a property with only 24-mths left on the lease or where the F1 commercial rights can’t be transferred without FIA approval?

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