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…