Everything is for sale…

I do not know how many times I have read today that CVC Capital and Bernie Ecclestone are saying that the sport is not for sale. Let’s look at that… Ecclestone owns a mere 5.3 percent of the business, and the Ecclestone Family’s Bambino Trust (which to all intents and purposes can be regarded as doing what Mr E wants) owns another 8.5 percent. The staff of the business, who may also support their leader (with one notable exception), own 3.6 percent. Add that lot up and it comes to 17.4 percent. Two US banks own more than that and CVC owns nearly four times the number of shares that Ecclestone can muster. Thus it is fair to say that it is not for him to say what is sale and what is not for sale. There may be shareholder agreements that involve Ecclestone having a first option to buy back the business and things like that, but that would require a very substantial payment as well… particularly if there were other bidders involved. The other day Ecclestone said that he reckoned the business was worth six or seven billion dollars (admittedly that was designed to scare away buyers) but it is doubtful that even he would be able to raise even half that amount of cash. Banks are meaner than they used to be.

And CVC? It was interesting to me (but apparently not to anyone else) that CVC’s press statement carefully avoided directly saying that the business was not for sale. It said that James Murdoch had been told that the business was not for sale, but that was in the past tense and the fact that it was thus phrased is unlikely to have been an accident. One thing that I have learned over the years in F1 is that one needs to read the wording very carefully because press statements often give one impression, but say something completely different. The other thing I have learned over the years is that 75 percent of conspiracy theories are wrong, so the concept of this being simple posturing as a lever to extract a better deal for the teams seems more than a little far-fetched. The teams will obviously take advantage of the situation, but orchestrating this sort of thing is beyond their collective powers. From where I am sitting and from what I am hearing this is a News Corporation deal from the start, probably young James Murdoch being keen to show the world that he is just as sharp as his father, following his recent elevation to a bigger international job. Buying F1 is a neat way of showing the world his ambitions for the business, now that his father has turned 80.

And will CVC sell? Is the Pope a Catholic? Is Mount Everest high? Private equity firms exist to make money. It is their only raison d’être and this is why private investors pour money into them. If they are good at what they do – and CVC is clearly very good at it – then there is no emotion involved. Everything is a commodity and you try to buy when the price is low and sell when the price is high. In the case of F1 this was, in effect, a leveraged buyout, where a large amount of debt was incurred to fund the various purchases. The goal since then has been to improve the financial results of the business, allowing it to pay off the debt and create a better prospect for a future sale or an Initial Public Offering. The goal is clear, the only question is the timescale but CVC Capital Partners is not in F1 because Donald Mackenzie and his chums in suits like to watch noisy cars going round and round in circles. The sound they love best is money being counted.

The New Corporation route to buying F1 is interesting. To float the idea in the business world it is clear that all leaks have been going to the serious financial press, not the wannabe financial press in F1. The aim is to attract interested parties who can bring money to the table. The car companies may not want this kind of investment on their books, but there are holding companies (such as Exor) that have the financial clout to play these games. Renault has it own bank called RCI Banque, which currently loans more than € 10 billion. Mercedes’s holding company Daimler is a financial heavyweight with revenues of €97.8 billion and earnings o €7.3 billion last year. Red Bull is a vast empire these days with annual sales heading towards $5 billion, high profit margins and nothing much to spend the money on, so much so that the company funds two F1 teams. Elsewhere the teams may be smaller but they are well-connected. Sauber is heavily in bed with the world’s richest man Carlos Slim, Ferrari is still funded by Philip Morris International, which recently reported a first quarter profit of $1.92 billion and revenues of $16.5 billion. The company is busy spending its money buying out shareholders. Williams is now partially owned by John de Mol, who runs the vast entertainment business Endemol, which has been linked to News Corporation many times as a potential content provider. Force India is backed by the Indian billionaire Vijay Mallya, while the other teams are supported, to a lesser or greater extent, by multimillionaire businesses. This is a decent pool of potential investors and while News Corporation might want to take the lead, to maximise the profits, having others as shareholders would help with raising money and make later negotiation easier.

So let’s face it: the sport is for sale. It is just a question of someone coming up with the right price to send CVC away…

46 thoughts on “Everything is for sale…

  1. F1 may not be for sale but there may be a buyout of CVC itself. Neatly sidesteps most issues in trying to buy F1, including any bernie clauses.

    1. Elephino,

      I do not see that happening. What does a media company want with a private equity firm?

  2. Stating it this way, it looks a bit like that “will the teams buy the sport with Abu Dhabi” thing.

    Just less focussed on a rich government (with risks attached, see Bahrain, Libya, Venezuela).

    Instead having bussinessmen wanting to get more out of the business should be a premium for all involved F1 brands.

    What do the teams want? Earn money to go racing.
    Where do they get that from? From people watching the sport generating ticket sales, sponsorship interest and advertising revenu, partly through TV deals.

    Looks like everyone has the same interests here and is looking for a nice juicy bounty to increase the spill for everyone.
    Sure, its early days, but it might not just be something bad if they actually start using F1s potential.

    Not Pay per view TV, that is a bit of an aging concept. Complete interest group packages through multiple channels, now that sounds nice.

  3. What you have’nt taken into account is that Bernie is going to live forever so there is no need for succession planning

    1. andrewh,

      How silly of me to overlook that fact. Eternal life may be a little tiresome when you have to deal with the “kids these days”

  4. Mildly irrelevant as it relates to BSkyB not newscorp but I’ll still mention it:

    I remember reading somewhere that the head of Sky Sports isn’t a motorsports fan.

    I was reminded of that this Monday when (despite having previously announced that they would show it) Sky couldn’t be bothered to find space for the IndyCar re-run on Sky Sports 4 or the Red Button. (Preferring 4 multiscreen options of the same tennis tournament)

    If nothing else I hope this changes that chap’s attitude to motorsports coverage. After all, we want to be on the same page as the boss.

    1. Chris D,

      It would be dangerous to be head of something and not like motorsports, if the boss had suddenly developed a taste for the sport, wouldn’t it?

      Believe me. If the top brass want motorsports, Sky Sports will deliver…

  5. Joe,

    Am I right in thinking that the current Concorde Agreement expires in December 2012?

    If this is the case, does it mean that News International will have to put up or shut up before a new CA is negotiated containing an extension of the ‘free-to-view’ clause?

    If they do decide to make an acceptable offer to CVC, will the teams then be in a position where they have to fight NI to retain an free-to-view clause to protect their advertising exposure, or accept a huge payment from the new owners to offset the loss of advertising exposure if it moved to PPV?

  6. Hey Joe,
    One thing I can tell you after many years with News Corp is that what Rupert wants……
    You say that it may be James stretching his mogul legs but take it from me, in a deal this big Rupert will be watching from the corner office and giving the go ahead.
    My thinking is that as F1 expands into the Asian market, Murdoch sees it as a perfect vehicle for content on his Asian sat TV networks. And lets not forget that there’s a US GP back on the radar and ole Rupe owns the Fox network.
    Expect pay-per-view to be somewhere in the mix…
    ww

    1. G’day Webster,

      Nice to hear from you. I agree with the Asian thing, but my feeling is that this is really a global thing. It works everywhere for News Corp. Get others involved as shareholders and cut everyone a half-decent deal and the sport can generate more money with everyone working together… There are huge areas that have not been exploited as yet.

      JS

  7. Interesting analysis as ever Joe.

    Two questions you may or may not be able to answer:

    – Firstly, you say “The staff of the business, who may also support their leader (with one notable exception)…”

    Who would that exception be?

    – Secondly, who are the other top staff members of Bernie’s various companies?

    Thanks, looking forward to this week’s GP+ already!

  8. News Corp would not have gone into this without doing deep “pre-due diligence” into the whole F1 scene, using very knowledgeable insiders, probably over many months past. Thus a first “not for sale” shot across their bows from CVC would not faze them for a milli-second. Nor would they have signed up with Exor on a whim. Or allow themselves just to be a stalking horse for some other bid.

    This is arguably much bigger than Bernie and the teams. And the only other significant players, because of their regulatory power, are the FIA and the EU.

  9. “For sale” as used by CVC surely means “out there actively trying to flog it” — in which case it is certainly the case that F1 is not “for sale”. But as Joe said, if someone happened to dangle the requisite number of millions in front of their face, CVC would surely sell up in a heartbeat and crystallise the gains for their investors.

    Let’s not forget pension funds as potential investors as well. The large state and quasi-state funds have lots of cash at their disposal and are always looking for stable medium- to long-term investments.

  10. I personally as a 35 year plus fan of F1 would love for NewsCorp and by default Sky to purchase F1 with one condition, they keep it free to view – Sky already have many free to view channels at the moment.

    Sky have a history of revolutionising the way sports/sports events are broadcast and this could only be better for F1 and the viewing audiences. Imagine F1 coverage in glorious 3D with multiple camera angle choices, second by second information updates from your chosen team, listening in to your chosen teams radio messages to driver and pit wall.

    This could be the best thing ever to happen to the coverage of the sport. BUT it must still be kept free to view, moneys from this kind of investment and coverage upgrade could easily be recovered in advertising.

    Sean Martin

  11. Read my lips ‘F1 not for sale’. lol. The FT was advertising the sale yesterday, could this be the end of Flavio’s grid pass? Interesting times.

  12. “– then there is no emotion involved. Everything is a commodity and you try to buy when the price is low and sell when the price is high.”

    Sounds like someones been reading Benjamin Graham!

  13. Joe:

    Wouldn’t mr. E be conducting all negotiations regarding the new Concorde agreement?

    I mean that does give him great influence on shaping the F1 business as it will be for as many years as the agreement is valid for, and therefore on how attractive it could be to Murdoch.

    Or could CVC just sidestep him an take over the negotiations (actually, now that I write this, it sounds like that would be in the aforementioned 75% of conspiracy theories).

  14. After all the smoke settles, I can only hope the teams see more income and that it is balanced so the smaller teams get a bit more. Maybe they could see the value in screen time as being almost as important as finishing position.

    Wouldn’t it be great for the “backmarker” not to be down a few laps each race? Then we would really see what the new younger drivers can do.

    Imagine Seb in a car as good as Lewis’ McLaren when he started?

  15. Thinking of things for sale, i looked this up on spec: December 2005, a single share in Formula One Administration Ltd, carrying 50% of the voting rights to one Bernie Ecclestone. Cost: £1. and no pennies. Net result, the banks who picked up the Kirsh holdings couldn’t fire him. One of which was BayernLB.

    So, everything has it’s price, and it’s not always a big number.

    The structure has always been in flux, so don’t take as a given any context concerning the companies.

    I spotted an erratum of mine, from the other day, and an awful one too: I mistakenly said that Murdoch Snr was talking up the price, not Bernie. So i was wrong, and illogic. Sorry.

    . . .

    since presumably it does affect any sale, Grib has been awfully quiet.

    I always i’m slow to get hit by the obvious clues, but i don’t – current thinking – attribute that to silence of guilt.

    You see, i can’t think what actual charge he was detained upon at arrest.

    Then, Bernie goes in months later and drops a bombshell.

    I’m interested in this transfer, and where Grib sat or influenced (if he did or could) the Speed – Bambino – SLEC axis.

    A few of Bernie’s companies have before been suggested by reputable media, without challenge, to have paid enormous sums back to the smallest minority holders.

    But let’s assume, as we always do, that BE was pivotal in 05, just as the banks wanted to offload their unwanted assets when Leo Kirsh hit the wall.

    Is it unreasonable to give a precisely equal share to the man, so he feels secure, doesn’t rock the boat, if there’s not to be any income arising from that which is outrageous?

    Coming circuitously back to Bernie’s structures (isn’t it always circuitous in F1, cough cough) he – like many many businessmen in the time – sailed very close to the wind in terms of tax and holding structures. Suddenly this lot is owned by big German banks who are subject to some of the strictest corporate laws in the world. Maybe even internal knowledge of some fudge, otherwise sort of acceptable under other laws, put them at risk. Now the “blackmail” boot is almost on the other foot, if it wasn’t already pointing several ways.

    Just musings and hypotheticals. But a trawl of even the Amadeus database might pick up better answers, or rather suggestions for pure conjecture. Bit more than a weekend project.

    I don’t think Grib has completely clean hands. But if he has to wait for anyone to sort out really what went on or goes on in Bernie’s world, before he is released, that’s going to be a very long punishment indeed. Keep in mind, too, the spectre of potentially false opporobriate wrath from more ruddy* embarassed faces in politically conjoined banking institutions.

    – j

    * I wanted to say Ruddygore, but Bernie is more Poo-Bah . .

  16. “And will CVC sell? Is the Pope a Catholic?”
    Fantastic! Keep up the good work, Joe. I don’t see a Pay Per View situation here. But look how well Rupert Murdock, Sky, Wayne Rooney’s agent & Wayne Rooney’s accountant do out of broadcasting the English Premier League. Concurrent live audio on radio 5live. Highlights at a later time on ‘free’ telly. Go figure. It grows on trees, doesn’t it?

  17. “Over the coming weeks and months, EXOR and News Corporation will approach potential minority partners and key stakeholders in the sport.”

    Potential minority partners and key stakeholders — this means the other teams, and negotiating with CVC is the easy part of this prospective deal. The expression “herding cats” comes to mind.

  18. Two sentences, a few paragraphs apart also connect a lot.

    “Banks are meaner than they used to be.”

    “This is a decent pool of potential investors and while News Corporation might want to take the lead, to maximise the profits, having others as shareholders would help with raising money and make later negotiation easier.”

    No bank, not even those which are un-codified GSE’s with access to free money, would underwrite a LBO of this size with one or two parties involved in the deal. That wouldn’t pass risk management who are under the microscope after a few recent indiscretions.

  19. I am still convinced that the grand plan here is to tie up News Corp (in the US, Fox) with all forms of global motorsport. Fox owns Speed, which broadcasts F1 in the US. There would be incredible synergy in owning the US rights to two major series, one domestic, one global. We have already seen the Tony Stewart/Lewis Hamilton ride swap; although these sports have different markets and audiences, they are more connected than one could imagine. Especially in light of the number of F1 engineers who ply their trade down Charlotte way. It’s a lot easier to own the whole thing than to negotiate to buy the rights every few years.

  20. Would having teams and manufacturers involved in the buyout via holding companies create a management structure more in line with CART/Champ Car had rather than what F1 has had for the past 30 years or what NASCAR and IRL currently have?

  21. Joe Wrote:

    …to the concept of this being simple posturing as a lever to extract a better deal for the teams seems more than a little far-fetched. The teams will obviously take advantage of the situation, but orchestrating this sort of thing is beyond their collective powers.

    ———-

    I have to agree.

    Were this offer solely the work of the Agnelli family (Exor), I could very much believe it was little more than a ruse by the teams to pressure CVC.

    News Corp’s involvement changes all that. Why would a company like News Corp go to all this trouble? In order to help some F1 teams? To stick it to CVC? No, it doesn’t wash.

    Available evidence can only suggest that News Corp is truly interested in purchasing Formula One.

    I certainly understand why Bernie would espouse such a theory, *any* theory other than the apparent truth. It seems quite clear that Bernie is being locked out of these negotiations, something which cannot bring him delight.

    I don’t for a moment believe Bernie will take this lying down. I’ve little doubt that Bernie will fight back, but how will he fight? At a guess, he’ll try to sour the deal.

    Perhaps he’ll throw in with the teams, using his bully pulpit to inform the masses that a purchase by a media company would rob the teams of any ongoing growth in broadcast revenue. How no-bid media contracts and all that will add to News Corp’s coffers at the direct expense of the teams.

    Were Bernie to take such a tact, he’d certainly have the truth on his side. Given that the press take notice of Bernie’s ever utterance, he doubtless has enough power to scrub the deal.

    And what could CVC do? Call his bluff and sack him? Not hardly, their financial investment in F1 would suffer without Bernie to wrangle the teams. If they can’t sell, they’re stuck with Bernie.

  22. It has a grim sense of inevitability about it. The press releases so far have had the air of a business version of kiss-chase.

  23. Joe – many thanks again about great text.

    I´d like to shere few things from media business:

    1. PayTV as we know is going to die in next 3-5years. At the moment all hollywood studios are building own infra to broadcast movies directly to customers – without any TV stations.

    2. Adult content makes first moves then it´s time for Sports. This has been “the format” last 30 years.

    3. FOM doesn´t have any digital strategy / master plan. Internet is changing all the time so Bernie and his layers hasn´t been doing anything on digital side.
    There is just few drivers who has got digital strategy, so teams are online but I cannot see any wow concepts.
    – we have to wait still few months and we will see some realtime interactive with drivers.

    4. This newest sales bid could be also just boosting the real investors to wake up…..like Abu Dhabi guys. And the hole idea could be come from Bernie.

    5. If F1 could take some benchmarks from USA (NFL, NBA) there could be done lot of new money. NBA puts 80% from partner incomes back to marketing the league. Unfortunately I haven´t seen any marketing in Maleysia, China or Istanbul. You cannot wait that local event promoter could handle these things. There is no big world wide marketing concepts for general F1 product.

    6. ok F1 rocks were something new….but the real story behind this concept is that universal music VP´s contract were running for end. So he “created” F1 concept & Nokia music (comes with music by Rihanna)….And now he is CEO of Universal Music.

    F1 is entertainment business and there always Money talks.. ;=)

  24. Everbody, all stand up and applaud the great journo that is Joe Saward.
    A big nail crops up and this bloke wades in with an even bigger hammer of an article.
    Bravo Joe
    (now where’s that bloody fiver!)

  25. Joe. I believe that you are in a unqiue position to comment here.

    At the end of the day, investments decisions are based on the revenues they are predicted to make. F1 has long touted itself as one of the most watched sports in the world, if not most watched TV shows. I’m sure this has been sold to advertisers and sponsors. Yet ticket sales are declining and people on this blog (if we take them as representative of the overall F1 audience) state they would not pay for pay-per-view.

    Given the influence of the internet, and also to some extent the current financial times, people are not prepared to pay for things they used to when they can get it for free. Murdoch is facing this struggle in his newspaper business.

    This brings me back to your opinion Joe. As someone who is trying to make a living from F1 journalism (GP+) where you are competing against other free information sources (including your blog!), do you think that in today’s environment, paying through the nose for the F1 rights is a wise idea?

  26. Joe

    My thinking here is that if there are clauses where Bernie gets first right of refusal that buying CVC avoids this by buying the parent instead of F1 directly.

    I don’t know what else is in CVC’s portfolio but there may be potential other benefits. Still, it will be interesting to see where all of this goes.

  27. Also the wording from CVC about F1 not being for sale suggests to me that it doesn’t rule out CVC being bought out.

    Again, only my thoughts on the matter so we’ll have to wait for more developments before another round of speculation.

  28. Omitted to point this out, about the sale of that single share:

    Grib was on every relevant board at the time.

    The Bambino Holding case was over reducing the number of directors from 5 to 3.

    BE was also director on the relevant boards.

    So, he and Grib would be majority in quorum, able to issue that share.

    I’d want disclosure on that, minutes, corries, riiight away.

    But i guess i’m, oh, years behind the game.

    There’s a lot more to the theory of companies, how outside interests and payments for work happen, outside but of potential conflict, and it’s law that really is only well delineated in England & Wales. The concepts in German law contract to being up for the high jump if there’s any question at all. You get nicked. See Claus Esser, CEO Mannesman, who through D2 were a big F1 sponsor . . I’ll try to come back with thoughts, if i can get the German side of things into sensible comprehension. They like their stories to have earthy endings there, so as i mentioned before, it’s hard to suss what their meaning is, a linguistic advantage which gave us an empire instead of them.

    I still think Grib simply doesn’t have a proper team, and whatever he’s done, he’s hung out. Don’t put it past naiveté
    on his part. e.g. guilty of a genuine mistake. Institutional life mollycoddles.

    Lots of great comments, haven’t caught up.

    – j

  29. Elephino,

    CVC’s F1 interest is spread across several funds. Would require very complex agreements to flip those and strip out the F1 interests. Not impossible, but quite lunatic.

    – j

  30. Elphino, hi again!

    good Q but for different reasons,

    having a first right of refusal holds good only if you can, and it’s simple equity that that is very time limited. They don’t exist on the never never so you can string things out. If you or i held such a right, and dilly dallied, it would take a split second to get a judge to tell us we had no hope, and the right is ceded void by effective default.

    Quite apart from the idea of Bernie buying back what only he managed to sell being akin to smoking your own gear, eh? 🙂

    cheers,

    – j

  31. Adrian Newey Jr.,

    “At the end of the day, investments decisions are based on the revenues they are predicted to make”

    Moot. Loan capital for many years was entirely free, or even paid to you at negative rates.

    Without looking at CVC’s MTM notes, or equivalent, cannot say their cost from which one may gues their hurdle IRR. But inflation has long been far far ahead of loan rates, so the money – if you can borrow it – is free.

    See also the LIBOR fixing investigations.

    – j

  32. kristian,

    “Two sentences, a few paragraphs apart also connect a lot.

    “Banks are meaner than they used to be.” [quoth Joe]””

    this is deleveraging. At 30:1 gearing, every penny less in capital means 30 pennies less they can loan.

    But i don’t see loan rates rising for big stable borrowers. That’s structural. Big borrowers are the treasury (sales remittances) cflow banks live on. Commission means more than interest rates there.

    Call it “us and them” if you like, was it ever thus? Both ways.

    Rates are only low because everyone is seriously scared what happens, at just a tiny hike, when 40% of the UK population is reposessed.

    To balance that, you have to scrap the subsidised social housing programme, wholesale. That has ensured no fair market for decades, delivered as much inflation as the banks lending purely to hike their asset bases.

    Only time i am ever glad my family saw first hand what happened in Germany in the 20s and 30s, and not exactly pleased either, i should add.

    Business is what is possible, not strategies, nor even deal posturing, which is what caught the other media’s attention and suddenly made them so knowledgable, dear me 🙂

    yours,

    – j

    p.s. Joe, back to more F1 after this, just Lord Be, we need to get some financial savvy out there, not Daily Mail reactions, or i fear we’re all gone . . and of course, the deals in F1 happen against this, other thoughts directly about that still.

  33. Elphino
    F1 is a very small part of CVC. Can you think of candidate with the sort of financial wallop to take over CVC and have a genuine interest in the small part of the portfolio that is F1?? Errr……me neither.
    CVC is a big nasty monster with no interest beyond making money. As Joe told us, everthing is a commodity.

  34. Andy, I can think of Murdoch but what I was saying was just an idea. No agrees, and more importantly those with more knowledge than me by a fair way, so I’ll have to come up with a new fanciful idea 🙂

    Next step is still to wait, so we wait. I’d rather find out where the Lotus saga is up to but there appears to be little info until a ruling is made.

  35. Elephino,
    Nice tought tho about CVC.
    I think the Lotus is pretty much sorted by Fernandes and partners now. Best put the black paint away and go back to yellow then.
    As for ideas what about Max and Bernie found in a bath of candy floss with madame Helga in attendance. Dont think CVC would like that one, sell sell sell is my guess. Job done CVC sells and Bernie takes the credit. Well you wanted ideas………………………….

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