04/05/2011
NEWS STORY
More details are coming to light about what may be the motivation behind Sky News exclusively revealing that its part-owner, the News Corporation media empire, and the world's richest man Carlos Slim might (or might not) make a bid to take over Formula One.
As Pitpass has already reported, there is next to no chance of this happening and, neither F1's majority owner, the finance firm CVC, nor the sport's boss Bernie Ecclestone, has been approached by Slim or News Corp. Perhaps unsurprisingly, the original report was heavily caveated with its author, Sky News' business editor Mark Kleinman saying that "it may be many months before the media group and any prospective partners are ready to table anything formal, if indeed they do at all." It was clear that if News Corp really was planning to make a bid for F1 it wouldn't have let one of its subsidiaries leak it to the world before it even spoke to Ecclestone about it. So who would want news about a possible takeover in the public domain and why? Things have become much clearer.
Yesterday EXOR, one of Europe's largest listed investment companies, released a statement saying that it and News Corp "confirm that they are in the early stages of exploring the possibility of creating a consortium with a view to formulating a long-term plan for the development of Formula One in the interests of the participants and the fans. Over the coming weeks and months, EXOR and News Corporation will approach potential minority partners and key stakeholders in the sport. There can be no certainty that this will lead to an approach to Formula One's current owners."
Some of this statement sounded mighty familiar. No wonder that Kleinman's reports were so heavily caveated when the company which claims it is considering bidding for F1 itself states that "there can be no certainty that this will lead to an approach to Formula One's current owners." It makes you wonder if we are ever going to see a statement about this with some actual hard news in it such as saying that a bid has been made regardless of whether it will be accepted. At the moment all we have is a statement which cannot even confirm that there will be a bid. But this isn't what sounds most familiar.
The line in the statement which really got the attention of Pitpass' business editor Chris Sylt is the one saying that EXOR and News Corp want to formulate "a long-term plan for the development of Formula One in the interests of the participants and the fans." It reminded Sylt of the infamous 18 June 2009 Formula One Teams Association (FOTA) press release which trumpeted that "these teams therefore have no alternative other than to commence the preparation for a new Championship which reflects the values of its participants and partners. This series will have transparent governance, one set of regulations, encourage more entrants and listen to the wishes of the fans, including offering lower prices for spectators worldwide, partners and other important stakeholders."
The FOTA rival series threat was, of course, driven by Ferrari's chairman Luca di Montezemolo who was unhappy at the budget cap being imposed on the teams by FIA president Max Mosley. Di Montezemolo got his way when the cap was scrapped which led Ferrari to sign the Concorde Agreement committing it to F1 and putting an end to the threat of a rival series. However, di Montezemolo didn't stay quiet for long.
At the end of last year he said there will be a rival series if the teams do not receive more than their current 50% share of F1's profits. Recently he added that Ferrari will stay in F1 "so long as the sport gives us back something for the development of technology of our production cars. Otherwise not." So what reignited his sudden interest in a rival series? The reason is very simple - the Concorde Agreement expires at the end of next year so negotiations are now under-way about signing a new version. However, di Montezemolo is effectively gagged from saying much more than he has already about the threat of a rival series.
As Pitpass has previously reported, clause 4.5 (a) of the Concorde Agreement states that "each of the Teams agrees in favour of Formula One Administration and Formula One World Championship that it shall not, and agrees to procure that no member of its Group nor any person authorised by it shall, either directly or indirectly until 1 January 2012, promote or make any preparations whatsoever to promote, or solicit any broadcasters or circuits for, an equivalent championship or series to the FIA F1 Championship, being a high end (in terms of engine performance and car dimensions) open wheel single seater series, which is not a single make series."
Likewise, clause 4.5 (b) states that "until after completion of the last Event in the 2012 Season" the teams, or anyone authorised by them, are prevented from directly or indirectly making "any public statement or statements in any medium, whether orally or in writing, or in any jurisdiction, which relates to or is connected with any of the matters listed in paragraph (a)."
The Concorde Agreement is very clear about who these clauses apply to: the teams and anyone authorised by them. It wouldn't apply to companies related to their owners and this just happens to describe EXOR. The Agnelli family, which founded Fiat, owns 59% of EXOR and in turn EXOR owns 36% of Fiat which owns 90% of Ferrari. So, Ferrari's ultimate owner is now claiming that it may buy F1 and that it is allegedly seeking wealthy investors to do it.
That could be powerful leverage over Ecclestone when it comes to the Concorde negotiations because it would put Ferrari in a strong position if its ultimate owner bought the sport. At least it would do if the leverage was even vaguely serious.
It's little wonder it looks like Ferrari has had to think laterally when it comes to leverage over Ecclestone. The F1 boss has repeatedly rubbished the teams' efforts to establish a rival series and quite right too. Despite numerous threats over nearly a decade, the closest the teams have got to running their own series was in 2009 and this attempt lasted a grand total of six days. And that was when the series was backed by powerhouse car manufacturers Renault, BMW, Mercedes as well as Ferrari. Theoretically, they could have bankrolled a rival series though they never would because, when push came to shove, they decided that their purpose in F1 was purely marketing rather than series ownership.
Perhaps unsurprisingly, Kleinman's report states that "the expiry of the current Concorde Agreement (which dictates the distribution of F1's commercial revenues between the teams and the sport's owners) at the end of next year will sharpen the minds of CVC and the participating manufacturers as the latter attempt to extract a larger slice of the F1 commercial pie." It kind of sums up the point above and there is of course good reason for Ferrari's ultimate owner to be behind this leverage.
Ferrari was paid $100m in 2005 to drop its support of the Grand Prix World Championship rival series. Then, in 2009, after a bitter battle with the FIA, Ferrari got the governing body to drop its budget cap proposal. In short, it has got its way by using the threat of a rival series (the equivalent now being ownership of F1) though every time the threat is never fulfilled and Ecclestone, for one, is well aware of this.
Strangely, Kleinman suggests that EXOR's statement, which may not even lead to a bid for F1, is proof that CVC may sell F1. He states that "it's also worth making the point that public confirmation of the partnership between Exor and News Corp puts paid to the erroneous suggestion that it's inconceivable that CVC Capital Partners will sell F1 in the near future."
In fact, the opposite may be true. Yesterday CVC told the FT that it recognises the "quality of Exor and News Corp as potential investors, but any investment in Formula 1 will require CVC's agreement." It added that "Formula 1 is privately owned by CVC and not currently for sale."
As Sylt revealed in the Independent last week, Ecclestone says that the European Commission, which would have to give clearance to any F1 takeover since the sport is based in the UK, would block a sale to News Corp. Pitpass will cover this in detail over the coming days but, in summary, it doesn't take a genius to imagine the EC blocking a News Corp takeover given that it blocked the company's subsidiary from buying one football team (Manchester United) let alone an entire series.
As if that wasn't enough of a hurdle, there is the not so small matter that EXOR's ownership of F1 would also raise competition issues (due to its stake in Fiat). More to the point, what is the real chance (let's be serious about this) of the other 11 teams agreeing to race in a series which is part owned by Ferrari. However, no doubt the teams would be happy to say they would go along with it (just as they did with the phantom FOTA series) if it helps them extract more money in the negotiations.
In fact, it might be harder for News Corp and EXOR to find financial partners willing to go along with what can only be described now as a phantom bid. Kleinman has suggested Slim may provide funding for EXOR and News Corp but, as Pitpass will reveal in detail in a forthcoming article, one of Slim's close friends has confirmed that he has declined to do this.
Likewise, Kleinman also proposes that Abu Dhabi wealth fund Mubadala could invest yet, as Sylt revealed last week, CVC has rebuffed its offer to buy F1 so it would certainly be an aggressive move if it funded a rival bid. It isn't likely that Abu Dhabi would want to upset the powers that be in F1 in case it adversely affects future negotiations over its race.
But what is BSkyB's role in all this? Interestingly, one F1 sports reporter has suggested that CVC itself has leaked details to Kleinman. However, this is unlikely given that several of Kleinman's reports have not been complimentary to F1 (for one he predicted that the sport faced turmoil which has yet to happen) or Ecclestone himself.
However, Ecclestone believes that the source could be someone close to F1's management who has been outspoken about him in the past and who has a link to BSkyB. Now that would be a real story.