The apologists for the Formula One group have been busy this week saying that the F1 teams have enjoyed a significant gain in revenues in the most recent financial returns. This is true, but in the finest traditions of propagandists, it is not the full story. The numbers being used involve only one of the Formula One companies: Delta 2. They fail to include the proceeds that are generated by other arms of the business. Delta 2’s parent is called Alpha Topco and it is also the parent company of a string of businesses which use other letters from the Greek alphabet: Beta, Gamma, Epsilon and Omega. The group’s ultimate holding companies (Alpha Topco and its parent Delta Topco) are headquartered in Jersey and do not have published accounts.
Beta, Gamma, Epsilon and Omega divisions include the revenues from Allsport Management, GP2 and GP3. Allsport Management looks after F1’s trackside signage, VIP hospitality and official supplier programmes and so there are significant revenues from these which the team do not get a share from. In overall terms this means that they do not get more than 50 percent of the money generated by the sport. They still get good money, but it is nothing compared to the piles of cash that CVC has been spiriting out of the sport in recent years. It is reckoned that the investment company has gained more than $2 billion in the last couple of years, reducing its stake from 63 percent to its current 35, and the accounts reveal that CVC recently took $865 million in dividends for the last two years. The firm has also borrowed against future earnings and owes $2.2 billion to banks. As I have said many times: Formula 1 is a cash cow that is being milked on an industrial scale.
When one considers these figures it is clear that the FIA’s decision to lease the commercial rights to the sport for 100 years for $300 millions, back in 2001, was not one that the FIA can be proud of. It was easier to do that than to build its own commercial structures, but the federation did not have much foresight and the goal of the organisation should now be to find a way to bring all this money back into the sport and grow motor racing and mobility around the world.
The recently completed FIA-Formula One deal raises the FIA’s take from around $24 million a year to $39 million, but this is peanuts. The federation has been offered the opportunity to buy one percent of the shares of Delta Topco if there is a flotation. The price of these shares will be a fraction of their market value and the FIA will only be allowed to sell them when CVC Capital Partners sells its shares. This is smart thinking by Bernie Ecclestone as it will mean that the FIA will henceforth support a flotation, although listing the F1 business is really not what is best for the sport. A one percent share in the Formula One group, is worth anything between $30 million and $100 million, depending on the valuation one gives the business.
A comparison with the International Olympic Committee (IOC) is interesting. The IOC runs its own commercial operations and is reckoned to have earned $5 billion in the four years between 2009
and 2012. Ninety percent of this money has been distributed to organisations in the Olympic Movement to support the staging of the Olympic Games and to promote the worldwide development of sport. The IOC keeps less than 10 percent for operational and administrative costs.
Over the term of the deal that has just been agreed with Formula One, the FIA will get around $375
million. If there was no middle man and a structure similar to that of the IOC the FIA would be getting $1.6 billion, based on current earnings – without any growth. It is quite a difference.
The FIA has looked at ways in which it might be possible to terminate the 100-year deal but that would require a breach in the terms of the deal by the Formula One group. The only other option would be for the FIA to create an independent trust-like structure to buy the rights back by borrowing money against future earnings (as CVC Capital Partners has done). This entity would need to have an operational subsidiary to do all the deals. This has to be a better idea than the current situation in which financiers take every penny they can get…