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…
joeblogsf1 
Great piece, Joe. It’s ashame to see all that money leaving the sport.
I’m not really one to nitpick, but the money is not really “leaving” the sport at all, as technically it isn’t going into it in the first place. The money is being paid at one end, going through the sport (i.e. not to the teams), and then out the other end to line the pockets of certain parties. If you compared the sport itself to a patient, then it would have a severe attack of diaorrhea bought on by the medicine it’s being given, resulting in malnutrition and dehydration. Then when the “doctors” do their rounds (I’ll leave you to determine the identities of those pantomime villains) they proclaim: “Excellent. The medicines working. Continue.”
“The money is being paid at one end, going through the sport (i.e. not to the teams), and then out the other end to line the pockets of certain parties.”
I’m thinking “isn’t this the classic definition of a money laundry?”
Joe – a sceptic might suggest that keeping the FIA lean (in terms of revenues and therefore budget) has been a good thing for the FIA. Especially when you compare it to the scandals and rampant rent seeking in the FFA and IOC. Then again, I’m sure the representatives of the Automobile Club of Tonga NEED to visit Paris at least a few times a year!
Great. So it is worth starving world motor sport so that some fat cat bankers can spend all the money?
today’s Fat Cat bankers or tomorrows dodgy FIA delegates?
at least the way it is we know where the money is going, can you imagine the same if the FIA had it all?
(this is not to say I support either situation!)
Sad but true. At least this way the exotic sports car industry has sufficient people able to afford their wares. Perhaps the other F1 teams need to join the likes of Ferrari and McLaren and sell super cars to get some of this cash? 😉
This. Even if a lot was swept away to other places, the teams and grassroots Motorsport would still be getting a better deal than at present. Ticket prices could be lower as tracks make profit etc. and FIA Formula E would really get going with some cutting edge technological racing, adding value to Motorsport as a whole by moving forwards the electric car industry. Some more could still be used to make cars even safer as already has been proven to be effective.
I think Bernie would see the FIA merely as the licensers and himself as what really makes F1 happen. Thus, he gives them a measly 2% of revenues for the position they hold. Amazing to see the amount of billions that have flowed out of the sport. I don’t know how the bankers got involved (as I wasn’t aware back then of the business side as much as the sporting side), but I did see somewhere that Bernie regrets it happening – it’s clear to see why. I truly wonder what his endgame is! Nice to see him say recently that how he runs F1 is more entrepreneurial than corporate, I think it was to Martin Brundle for SkyF1.
After seeing Liverpool crippled, after they should have won the league in 2009, with the leveraged buyout debt by Hicks and Gillette, it’s clear that if the FIA buys back F1’s commercial rights (at an astronomical loss) there would have to be a period where this was paid back, before which all profits can then be split between the interested parties. Liverpool were lucky and the sale was ordered to be done only for the leveraged debt and thus no gains fell to Hicks and Gillette for almost winding up the club, while John W. Henry (owner of iRacing, Fenway Sports Group) got the club at a cut price fee and promised to invest (which they have done, and now their policy of young talent is starting to bear fruit, after a stumble under Dalglish). The same could happen for F1/Motorsport in the long run. But I’m sure Bernie would argue that his way makes the whole operation run more efficiently.
All we need to do is find an angle where what Joe suggests is better for Bernie than the current setup and it would have a chance.
Joe,
The income stream of Formula One was present-valued, capitalized and made unavailable to funding the sport by Bernie Ecclestone. One could rightfully argue that Bernie was instrumental in creating that commercial value in the first place, and thus entitled to it, but the end result is the same: Formula One’s income stream has been pledged to service large financial debts and the lifestyle of Bernie’s family, and is not available to the teams (in sufficient quantity) to properly fund the grid.
CVC, and Waddell & Reed thereafter, purchased shares in the sport, and have no doubt earned a good return on their investments, but the die was cast long before they arrived on the scene.
“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.”
Was it not Max who engineered the 100 years as compensation for Bernie having spent a load on digital tv transmission equipment ? (10 years too early)
Is the FIA capable of handling the money? Or would it need a “trust” to do so?
If it tried to manage the money itself it would really need to hire the equivalent of CVC or an investment bank and we know how solid honest and reliable they are!
If they had someone able to manage such a fund he would not last long at the FIA. He would (like a good engineer in F1) be lured away by a bank or investment house.
In any case the current setup is unsustainable, the sponsors will leave and it will implode as the teams die off one by one. Only a global financial recovery
big enough to create stupid spending by corporate promotions departments will its saviour. I am quite sure that Bernie can see this and this is why three car teams and customer cars keep returning for an airing every couple of years. Bernie has to sell, float and pass the buck before the teams realise.
Of course the other way is for the FIA to take over and pay both the struggling dying tracks and the teams. The German courts could provide the key but the FIA does not strike me as being capable of either organising in time or of growing the money. It could have imposed a budget cap but it still allows one team to veto everything. (even under the new agreement, pathetic!)
Unfortunately short term gain is the nature of F1 so it’s very difficult to see a sizable shift in the culture.
Until Ecclestone and the other dinosaurs are out of the way things wont change. Unless of course CVC manage to force a floatation.
If F1 floats, we can all make money on F1. Then we’ll really see how interested the teams are about owning F1.
Remember it’s only a part that is being floated, with a normal company that would give a reflected value to the privately held shares, but in this case it will be more complicated. Mostly it’s owned by US teachers pension funds now. Beware things that are not what they seem, voting rights are not necessarily in proportion to shares held.
So Bernie built it up, then his old mate max gives him the gift of 100 years and Bernie sells it to CVC to make himself a billionaire. I can’t wait til he pops his clogs. Maybe then the sport will have a chance of reorganising itself.
“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.”
Or…Conspire with the teams and let them start their own rival series as they have repeatedly claimed they would and dump F1. Openly blame the teams, wait several months and launch FOne or EF1 etc.
Not possible.
F1 is in the entertainment business. In the entertainment business, irreplaceable talent gets “first-dollar” gross participation, something the teams do not enjoy.
Why anyone would agree to granting anything for a 100 year term smacks of colonialist predatory incursions. OR shall we consider that the grantor MAY have received a considerable gratuity after the negotiations??
Many have suggested such things but there is no proof of anything like that so one cannot make accusations. It was certainly a pretty inept deal but one would think a man of Mosley’s ability would have better. I have always thought it was part of the Bernie/Max game and that the last act is when the FIA takes the rights back…
“…the last act is when the FIA takes the rights back…” From your keyboard to the racing gods ear!
Maybe BE’s prior experience with the “inept” Mr. Mosley gave him a sense of false security while “negotiating” with Herr Gribkowsky that all would turn out well.
Thanks.
Sir, thank you again for your unique and authentic cultural opinion on these rather opaque financial matters. Brrravo!
please seriously consider that when one uses the word ‘ smart ‘ in this context there is a doubt which creeps in to this dialogue which undermines your integrity as a paid spokes person and agent of one of these corporate entities which is deeply involved in this shell game of a circus of speed branded as Formula One ( F1 ) and is in the process of using the said one hundred year contract to monetize the founding legends of what has ceased to be a racing series in 1982 in my view.
be well sir and take courage.
Who is this guy? I don’t think he likes you, Joe. LOL
And…
Any yet despite all that, if teams cannot survive the next season and Vettel wins another title against a bunch of pay drivers, what value will this cash cow then have??!
Joe do you have any news on Bernie court issues. I believe when he is charged all hell will break loose.
That is possible.
I don’t think Joe reported on this, but Max gave Bernie a ‘get out of jail free’ card a few weeks ago.
Max came up with some quite convincing evidence that looks to destroy the prosecution’s theory of the case.
Unless the prosecution manages to come up with an entirely different strategy, Bernie would seem to have beaten the charges.
Since when was Max Mosley a qualified judge in Bavaria?
As I understand it, qualified judges make their determinations by reviewing the evidence. Perhaps you haven’t read Max’s statements on the matter?
I was wholly incredulous when I first read Max’s explanation. Long time friends can’t be expected to provide the most forthright of testimony. In this case however, Max seems to have come forward with compelling exculpatory evidence.
More importantly, Max’s claims should be easily verifiable by the court. Others within the FIA should have been aware of the events he details. There should also be copious documentation, certainly approved by lawyers, any of which could be asked to testify.
If what Max is saying holds true, it will prove a long time belief of mine. That being, the German prosecution’s theory of the case was fabricated from whole cloth.
I’m still mystified as to why the German prosecutors accused Bernie of something he didn’t do instead of what he actually seems to have done. I thought paying blackmail was a crime in Germany? I’m hardly an expert in German jurisprudence, so I can’t say why they took the route they did.
In any event, the prosecutor didn’t accuse Bernie with what he actually seems to have done, paying blackmail. Instead, they’ve accused him with selling the sport for less than market rate and paying the money to keep his job. Something Max’s revelations would seem to have gone a long way towards disproving.
The bottom line is that Bernie’s odds of beating this look better now than at any time since this started.
As I said before, the German courts are qualified to rule on this matter. Max is very clever and like most lawyers can concoct stories to fit what is wanted. It is the judges who decide because usually they are smarter than the lawyers. That is why they are judges. Time will tell and I think it is best to leave these things to people who are qualified and not waste too much energy arguing.
“It is the judges who decide because usually they are smarter than the lawyers. That is why they are judges.”
You clearly haven’t spent much time inside a U.S. court room…(to your credit).
Whether we put any stock into Max’s claims or not, the prosecution has done a terrible job in defining their theory of the case.
We all know why Bernie paid the money to Gribkowsky, yet for whatever reason, the Germans refuse to accuse him of that. They’ve come up with a ridiculous theory of the case, accusing Bernie of a crime that he would seem to have have had no reason to commit.
Bernie is certainly no choirboy. He has undoubtedly gone well beyond the rules from time to time. He’s a billionaire many times over and has the quality of legal counsel most billionaires can afford.
Most importantly, the specific accusation made against him describes a crime he very likely didn’t commit. As my posting history will show, I’m hardly Bernie’s biggest fan, but it’s hard to see how he doesn’t walk free of this.
And your source of this information is…?
Do you mind me posting links to other sources on your website Joe? The story I mentioned is a plant clearly if you have a look at the name of the reporter, but it is interesting nonetheless.
I have not expressed a policy about links in these comments, but I do have one. Firstly, I am not here to promote others if I do not think they deserve to be promoted, so I generally delete comments from self-publicists, trying to use me to drive traffic to them. Secondly, I do not believe it is right to link to stories that are clearly manipulations and so I do not allow that. This business is complicated enough without giving credence to the views of people who don’t have a clue what they are doing; or who are working (knowingly) on someone else’s agenda. I am trying simplify, rather than to complicate.
exact monsieur Saward. merci beaucoup.
thank you for allowing yours truly to support your wish to be clear and concise about this process which is a difficult and arduous problem for all natural persons who are uniligual ( English only culture of origin ) .
be well and take courage Sir.
Well said. Enough said!
There is a recent interview with Max in Welt which he discusses the matter. In the interview, Max plainly states that the FIA granted the right of veto to Ecclestone at the time of the CVC purchase. If true, it would completely disprove the prosecution’s theory of the crime, which is that Ecclestone paid the money in order to keep his job.
Max’s points out that since Bernie fully controlled a veto over the sale, there would have been no reason for him to pay money to keep his job.
If the court accepts this testimony, the prosecution’s case would seem finished. One supposes such acceptance may hinge on whether others in the FIA back up Max’s testimony. And really, why would Max say these things if there were no other evidence to back his claims?
Max is a lot of things, stupid is not one of them.
This fails to explain why money was paid to Gribkowsky.
If there was a veto there was no need to pay anything…
You’re absolutely right. There was no reason to for him to pay anything, at least not for the reason specified by the German prosecution. That’s the problem. The Germans accused him of something he didn’t do, while ignoring what he did do.
It is the prosecutor’s responsibility to provide a theory of the crime. The prosecutor did this, and Max’s evidence has now seemingly disproved that theory.
As far as I know, even in Germany, it is the responsibility of the prosecution to prove a criminal act. It is not the responsibility of the accused to prove their innocence. At this point, unless the prosecution completely revise their theory of the crime, Bernie’s prosecution would seem to be coming to a close.
As for why Bernie paid the money, clearly it was because Gribkowsky was holding the UK tax business over his head. Bernie has admitted as much.
Why not charge him with what he actually seems to have done, paying blackmail? Good question… I can only surmise that paying a blackmailer isn’t nearly as serious a crime as selling a state asset for less than book rate.
We know why Bernie paid the money. The question few seem to be asking is why the UK tax authorities haven’t prosecuted Bernie for the tax violations revealed in the Gribkowsky prosecution? Billions in tax dollars were alleged to have been underpaid. Over a year and no action whatsoever. That is a mystery that needs solving.
How would you know what the Germans have accused him of? Is it public information? I do not believe this is the case.
There have been a number of stories regarding the German’s accusations against him, including the accusation that Bernie was paid to undervalue the shares. As I see it, the real question is why the UK tax authorities have made no moves to recoup a very significant amount of funds. A shopkeeper failing to report £100,000 would probably see jail time. Yet a man who failed to disclose a few billion in income gets no attention at all.
Wouldn’t it be a fascinating twist if some enterprising researcher (The Mole?) discovered evidence indicating Bernie is a silent stakeholder in CVC, protected from public view by mysterious holding companies owned by mysteriously-named holding companies owned by mysteriously-named holding companies….
Such info would make Max’s little leather-clad spankings seem like, um, child’s play. Surely Bernie isn’t letting those guys pump billions out of F1 just because he’s a nice guy?
Of topic Joe. Tyres, do the teams really not want any tyres for next year? They are relying heavily upon Pirelli getting it right on a brand new spec, with no representative testing.
All this on a size which Pirelli have already told them is not suitable, but the teams insist upon.
Now they have just prevented a test using a two year old car. Paul should make them all sign a disclaimer or Pirelli could be in for another unjustified hammering next year.
Any thoughts on who will fold first through lack of money? The Venezuelan situation has got a lot worse lately according to Moneyweek. GSK have sold off the major brands of Lucozade and Ribena.
We can speculate as much as we like, but I think transparency of the Alpha and Delta Topco accounts would answer any questions. For all we know, Mosley could be receiving a “consultancy fee” for his “services” on an annual basis. You don’t try and hide something if you have nothing to hide.
F1 teams need to get in the mindset of life without Bernie, not life after Bernie.
Just on a side note whilst lost in my thoughts of F1, money and in some degree greed – a very low profile from Vijay this year
Joe,
Sorry to make this unrelated comment on this blog post, but there are “rumors” of Red Bull’s (don’t call it a…) traction control system somehow linking their KERS system to the suspension, and I couldn’t help but remember a post you made sometime last year regarding a new technology for capturing vibrations and harvesting their energy. Do you think this is at all related to what Red Bull is possibly doing?
If your memory needs refreshing, you might have linked to one of these articles (the other links are from further researching I attempted after reading your blog post):
http://commcgi.cc.stonybrook.edu/am2/publish/General_University_News_2/Stony_Brook_Team_Wins_National_Award_for_Technology_that_Harvests_Energy_from_Railroad_Train_Vibrations.shtml
http://phys.org/news/2012-04-mechanical-motion-rectifier-energy-harvesting.html
http://www.gizmag.com/mechanical-motion-rectifier-railroad-energy-harvester/25223/
Thanks!
PS, I REALLY enjoy your blog posts about the travelling life of the grand prix calendar. Really gives us couch experts an appreciation for what the circus goes through for our sport!!
No
Read Racecar engineering the article is online. It is v clever and within the rules.
Excellent article.
So if I understand correctly, Bernie built F1 up, sold it to CVC, and Moseley gifted Bernie the rights to all things F1 for 100 years.
Pure genius. The books for Alpha and Delta Topco would be an interesting read, but since they are privately held, we shall never know.
The cynics among us might wonder whether they dare keep written copies of anything…
I’m sure they have extensive written records, but since they are not public companies, we’ll never see them.
Joe
As ever thank you for your, free, insight into the complexities of F1.
Can I ask for your opinion on a scenario I think may be possible in fact I think we may be seeing the initial steps of it.
Largely due to yourself, we have come to expect Bernie to talk in doublespeak. If he says one thing he invariably means another or have an alternative agenda.. He keeps talking about a float of the commercial rights not withstanding that the labyrinth of companies controlling the rights make carrying out due diligence on behalf of institutional investors extremely difficult. In my mind it would be a safer bet for Bernie to sell them in their entirety to a single organisation. The logical one would be the FIA but so far there appears to be no speculation that they are considering this. The teams could, some would say should, step up and purchase the rights. But this is unlikely due to their self interest and inability to agree on the time of day. A sovereign wealth fund may find it attractive as might a country such as China who appear to buying up debt across the globe.
However I think the most likely purchaser will be a multi national country. One such contender is the Murdoch companies. I seem to remember reading they are currently cash rich, reserves of circa $27 billion apparently. They are currently realigning their print and visual/digital arms. It is probably my mind playing tricks on me but the Times seems to be becoming increasingly but gently critical of the F1, its business model and how the income is divided. Is this the first steps in courting the teams by promising them a fairer (larger) share? For the business it makes sense; at the moment they purchase the TV rights and sell on to TV viewers. If they owned the rights, not withstanding any reduction in F1 income due to increased payment to teams and circuits, their overall income would increase due to selling the coverage to other broadcasters. I would also argue they would increase overall income, not solely by holding a gun to the circuits as is currently the case but by making more of F1 on line etc. An area Bernie appears completely disinterested in.
I am probably barking up the wrong tree, in fact given my record on here it is more than likely not to be a tree but a lamppost.
The Murdochs did do so sniffing around the sport some time ago but nothing came of it. They have been busy ducking missiles since then
Whoever owns F1 will I suppose try and make as much money out of it as possible. That is CVC presently but if Bernie is brought to book by the German authorities and F1 somehow reverts to the FIA then they will do the same but hopefully the profits going to a cause that most of us may support. It is a fact of actuarial tables that Bernie cannot go no for much longer and I am sure that CVC must have a contigency plan for that, if they don’t they must be pretty dumb and I can’t believe that. If I were them then I wold have an exit strategy all mapped out and contained in a buff envelope lodged in a Swiss safe somewhere!! In my experience nothing stays the same and I would be prepared a decent wedge of cash that F1 in 5 years time will look quite different to the way it looks today.
It is funny how things turn out, if Williams or McLaren might have acted differently re Adrian Newey, then Herr Vetell might have never won 4 Championships, Red Bull might have came and went and gosh who knows what else??
I just hope that the new regs for next year bring about a more level playing field and we see some competative racing at the sharp end once again. I see McLaren saying that they have new technical people before years end which may help them for the 2015 season when they get a Honda engine but will be little or no help next year.
Sir, this steam of information so far…,…,…, is a good example of how much of a professional you are in my opinion.
Thanks for laying out the true facts. Even people with rudimentary knowledge of financial matters understand the imbalances created by CVC taking away so much of the revenues at the expense of the teams. This is making a huge impact on the current financial situation of the teams. Why are the teams not fighting back? Was somebody like Adam Parr driven out of the sport because he refused to fall in line?
‘As I have said many times: Formula 1 is a cash cow that is being milked on an industrial scale’………a lovely, if alarming, turn of phrase. A top, top article yet again. Many thanks.
Joe,
Thanks for these words. Unusually there are a few things in this post that I don’t see in the same way as you.
I struggle to see the teams as hard done by. The teams could have brought the business if they had organised but didn’t. There was very little appetite from the teams because – largely – they thought Bernie was doing a pretty good job. If the teams wouldn’t buy then who else – A trade buyer like IMG or Octagon was unlikely because Bernie thinks most of them are useless and a float at the time would have been impossible. At that time that left PE, as sovereign wealth money hadn’t really hit its stride. There was very little knowledge in the business community about how the sport worked financially – the only people around who had some confidence, were CVC who already owned Dorna and understood the potential. They took the risk that the teams didn’t feel comfortable with.
The reason there is very little more money available for the teams now is simple. Because if FOG agree to pay the team more they wouldn’t be able to sell the business for as much. If you give F1 a similar multiple to a luxury business, it already looks expensive and it’s already hard to see how a future owner could pay the debt and earn a return from the investment.
As for the price that Max achieved for the lease. The FIA didn’t control the sport in the same way that FIFA and the IOC do. I think Max probably did the best he could given Bernie could have walked away and run F1 without the FIA.
If the teams to create a better business environment they should have taken the opportunity to control their destiny and brought the sport. I think they still should.