Poor CVC Capital Partners. They seem to be earning very little money from Formula One these days. One source, which is traditionally very positive about the commercial rights holding company, suggests that the private equity group takes only 8.4 percent of the sport’s revenues these days.
Should we weep for these poor hard-working financiers?
Of course, the story has failed to mention quite a few rather important points which should not reasonably be overlooked by any serious observer. CVC acquired the various entities that make up the Formula One group back in 2006. In order to do this the firm borrowed the money and then refinanced and took on $2.92 billion in debt, secured with the future revenues of the sport. CVC immediately pocketed a dividend of $2 billion. Forgetting this payment is something of an oversight.
There was a further dividend in 2012 when CVC paid itself $865m after another refinancing to extend the 2013 maturity of the loans until 2017. Add to this sales of shares in the Formula One group. In May 2012 CVC took $1.6 billion when they sold a 21-percent stake to Waddell & Reed, BlackRock Inc and Norges Bank Investment Management. A month later they added another $500 million to the pot when they sold additional shares to Waddell & Reed.
There may be other dividends but I have not had the time to check. This means that in the six and a half years since the sale took place CVC has taken at least $4.18 billion from the sport, either by loading the sport with debts or by selling off shares to other financiers keen to join the financial gang-bang that Formula 1 has become in recent years. CVC still holds 35 percent of the shares and wants to sell them as well. On paper, these are worth about $3.5 billion more. CVC may have trouble borrowing any more money at the moment, but it would probably like to do so before departing.
The costs of the paying the debts runs at about $100 million a year, which is why the year to year profits are rather smaller than some might think (although this makes them rather tax-effective). The report that I mention also includes the fascinating detail that paying the staff of Formula One costs $39.8 million for the 313 staff members, not including Bernie Ecclestone’s annual salary of $4.2 million. So that means that the employees of the group make an average of $127,156 per person. Given that a large number of these people are riggers and cameramen and do not earn much, someone somewhere must be pocketing an awful lot of money.
The report also suggests that the Formula One group has running costs amounting to $328 million.
The other costs involved are to pay the teams. This amounts to $698.5 million, which is equivalent to 44 percent of F1’s revenues. It is irrelevant that this is a lot more than they used to make, given the fact that the balance between the promoter and the participants was (and remains) wildly out of kilter with normal sporting championships.
Given the vast sums of money paid to banks in interest on the loans, it is fair to say that the sport IS being raped by financiers and would be much better off if there was a way to get rid of them. Sadly, the teams cannot agree on the day to hold a meeting to suggest such a thing, the FIA is way out of its league when it comes to such high finance and there is no-one else with the gumption to come in and make it happen in the best interests of the sport.