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Could the F1 teams take a stake in the sport?

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Could the F1 teams take a stake in the sport?
Mar 9, 2012, 5:26 PM

There are some interesting things going on behind the scenes in F1 at the moment which could have a significant bearing on the ownership of the spo...

There are some interesting things going on behind the scenes in F1 at the moment which could have a significant bearing on the ownership of the sport in the future.

It has been revealed that 15% of the shares in F1's holding company will soon come up for sale. At the same time the media regulator in the UK has said that it is ramping up its probe into whether NewsCorp and James Murdoch pass the "fit and proper person" test for controlling BSKYB, which now has the UK F1 TV rights. Mr Murdoch is still chairman of BSKYB.

According to a report in the Guardian from a source close to Bernie Ecclestone, the company holding the assets of bankrupt US bank Lehman Brothers will sell its 15.3% F1 stake within the next two years.

"Lehman is the second-biggest shareholder in Formula One's Jersey-based holding company, Delta Topco, which is majority-owned by private equity firm CVC. Lehman owns a 15.3% stake and a senior Formula One source says that Topco is worth "more than $10bn", said the report.

This is interesting for a number of reasons, not least who might purchase the stake. One thinks immediately of three groups whom this might interest: the teams, NewsCorp/Exor and the Abu Dhabi investment vehicle Mubadala.

Clearly the best thing for the sport would be for the teams to have a stake. So could it happen?

The teams have often said that it is desirable for the sport if they were to hold a stake. It would also be very attractive to any future buyer of CVC's majority stake, as it would stabilise the sport for the long term. Investors hate uncertainty. F1 is a unique global business with huge potential for growth, but uncertainty over the behaviour of the teams over breakaways, as they threatened in 2009, or demanding too much money, undermines confidence.

In an interview for the Financial Times last November, FOTA chairman Martin Whitmarsh told me,

"The teams’ equity involvement is a stabilising force. I'm not saying that the teams have got to own it. But if you are trying to create partnership in most businesses then a bit of cross equity is useful. At the moment the teams contract for a finite period to a Concorde Agreement and you then get lots of speculation about how you replace that. If teams were equity holders then it encourages all stakeholders and potential investing partners that you have some continuity, going from one Concorde negotiation to the next with standoffs doesn’t.

"If I was private equity and I had the teams committed with a percentage owned by the teams, then the value that I hold if I’m trying to exit has got to be enhanced if you have the teams tied into the sport. That’s a win/win."

It is obvious and entirely logical. But these are not always qualities one sees in F1's business dealings.

As regards whether this is possible or even likely to happen, it's a major blow to the concept that FOTA has now split as an organisation, with Ferrari leading a walk-out of Red Bull, Sauber and Toro Rosso, leaving a rump of seven teams. Mercedes boss Ross Brawn describes this as a "tragedy"; the teams in question putting self interest in front of the opportunity to make a better future for the whole sport and themselves. I think he'll be proved right.

Now divided and squabbling, it could be tough for Whitmarsh to cajole the others into looking at buying the Lehman stake, especially at a time when several teams are short of the money needed to race, let alone buy a share in the sport. Valuation is clearly going to be tricky; $10 billion looks a high figure, but relative to turnover and its potential as a business, clearly it's going to be a somewhere between there and CVC's outlay six years ago when buying it, of $2.8bn.

“It depends how much teams want to be burdened with debt," said Whitmarsh. "But at the moment in expressing too frankly my opinions, it could be considered that I’m opening up negotiations in public and I don’t think that’s useful. At the moment there is an owner and it’s not us. CVC have invested in our sport, it’s been a good investment and they have profited well. “

They have indeed and this latest piece of news is another step towards the plan of exiting at some point with maximum value. The negotiations for the new Concorde Agreement have now started and although it could be a messy year while deals are agreed, CVC urgently needs to see all the teams signed up to participate for five years.

In all other respects the business is very well set up now; with many long term TV and media rights contracts in place, along with long term deals with circuits and Tata Communications's new network for fixed-line connectivity at all races, the sport is pretty future proofed and ripe for selling once the teams are all on board. CVC have said that they don't plan to sell, but if they don't sell it then, it could be another five to seven years before the timing would be so perfect again.

Another potential buyer of the Lehman stake is NewsCorp, which is still working on its dossier announced last year with Agnelli family investment vehicle Exor to consider a bid for the sport.

Today's Financial Times has a story about the UK media regulator Ofcom, setting up a project team called Project Apple to investigate whether the phone hacking allegations in the newspaper side of the business cause the organisation fail the "fit and proper person" test for an organisation to control a broadcaster like BSKYB. NewsCorp owns 39% of BSKYB and effectively controls it.

If Ofcom satisfy themselves that it does, then they have the power to require NewsCorp to sell off part of its stake down to the level where it no longer controls the broadcaster.

Last summer, under pressure from the UK government, NewsCorp had to give up on its planned £7.8 billion takeover of the rest of the BSKYB shares it does not own, over the phone hacking allegations.

Its next move after that announcement was to buy the F1 TV rights. With a large cash pot and a desire to control a major global sport, it could be the time for them to move on F1 again.

* Meanwhile in another business story this week, Bernie Ecclestone has confirmed that the two Spanish Grand Prix venues Barcelona and Valencia will alternate from 2013 onwards. And the French Grand Prix is looking to come back in a shared deal with Belgium.
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