10/06/2011
NEWS STORY
Former FIA president Max Mosley has been speaking out a lot recently and it makes a nice contrast to the silence from within the governing body itself. In addition to telling the world that the Bahrain Grand Prix could not return to the calendar without the agreement of F1's teams, Mosley has indicated to Pitpass' business editor Chris Sylt that he would use the power he still has within the FIA to block a takeover of F1 by Rupert Murdoch's News Corporation media empire. If anyone connected to the FIA has first-hand experience of how News Corp really operates it is Mosley.
Mosley was the FIA president until 2009 - one year after one of News Corp's newspapers printed a lurid exposé about him. Last month he failed in a bid to tighten privacy laws across Europe but it is likely that he would have greater success stopping a News Corp bid for F1.
News Corp has been linked with many other firms in its dream of acquiring F1. These include the world's richest man, Carlos Slim, and the Exor investment fund which ultimately owns a stake in Ferrari. Testimony to the uncertainty of News Corp's plan, it released a statement with Exor last month confirming that "there can be no certainty that this will lead to an approach to Formula One's current owners." Indeed, News Corp hasn't even made a bid and it has been told by F1's majority owner, private equity firm CVC, that the sport isn't for sale. Nevertheless, News Corp's own media outlet Sky News has fiercely promoted the phantom bid.
Current FIA president Jean Todt said last month that "CVC has not the intention to sell." However, he added that "if one day CVC is deciding that they want to sell the rights... I need to speak with my people in the FIA to give an agreement about whether they are happy with the people who take over or whether we are not happy." This is where Mosley would come in.
Any takeover of F1 has to be approved by the FIA and its senate has the power to veto the deal. Mosley still holds one of the 10 seats on the senate and is believed to carry considerable sway within the body as a result of having been the FIA's longest-serving president.
In a report in the Express written by Sylt, Mosley says he "would only be involved in the decision if it went to the FIA Senate (of which Carlos Slim's son is also a member). My personal view is that News Corp would not satisfy a 'fit and proper person' test. There might also be competition law questions. However I am very out of touch and have not attended a Senate meeting since 2009."
F1's boss Bernie Ecclestone has said that CVC may never sell F1 but Sky News was quick to ridicule this idea saying that "the idea of it holding onto F1 in perpetuity is not credible." Whilst it is obviously tough to imagine CVC retaining F1 literally forever that isn't the important point to draw from Ecclestone's comment.
The key question is whether CVC is likely to sell F1 any time in the near future because if it isn't then News Corp's hopes of buying F1 any time soon are laughable regardless of whether it musters the courage to actually make a bid. If CVC doesn't sell F1 to News Corp then Sky News' coverage of the phantom bid will have been much more than a little bit pointless.
As Pitpass has reported CVC held on to its previous motorsport investment, MotoGP's rights-holder Dorna, for eight years before selling up. It didn't even offload Dorna because it wanted to sell up, instead, the European Commission forced CVC to sell Dorna when it bought F1.
F1 was one of CVC's biggest ever deals requiring an equity investment of €798m. In contrast, CVC invested just €17.9m to buy Dorna. With much more at stake, it is likely that CVC would wait at least as long (if not longer) than it did with Dorna before selling F1 and maximising its return.
If News Corp ever were to try and buy F1 it would face huge regulatory hurdles as Pitpass has reported. However if we were writing this in three years time Sky News' reports about a takeover wouldn't look so much like premature wishful thinking because at least CVC's window is more likely to be open. There is another good reason why talk of CVC selling F1 would not be so silly in several years time.
It was no accident that CVC bought F1 in 2006. The business was coming close to paying off its previous loan - a £855m ($1.4bn) bond taken out in 1999 - and this was the catalyst for CVC's acquisition. The reason why CVC bought F1 when the bond was nearly paid off is that until this debt was clear no further loans could be secured against the key assets of the business - the commercial rights to the sport.
As soon as the bond was paid off CVC took out a £1.8bn ($2.9bn) loan secured on F1's commercial rights and used it to buy the sport. If F1's holding company Delta Topco fails to repay the loan the lenders, RBS and Lehman Brothers, could take over the rights to the sport but there isn't much chance of this happening.
As Pitpass recently reported, even after making the repayments and interest on the loan, CVC has made an £470 ($800m) profit on F1 since buying it. This makes an attractive model for future owners to follow.
There is little point in a new owner paying for F1 with cash upfront if it can use a loan and still be paid a huge annual profit after the instalments have been paid. This plan would certainly appeal to a private equity firm and, perhaps not coincidentally, this is exactly who Ecclestone thinks F1's next owner will be. However, as of the end of last year there was still £1.2bn ($2bn) outstanding on the current loan and since a new one can't be taken out until this is paid off it shows how misinformed it is to talk about F1 being taken over imminently. Earlier this year Ecclestone told Sylt that the debt will be clear by the end of 2014 which certainly isn't just around the corner.
As if this wasn't enough evidence to show that it is likely to be several years before F1 changes hands, consider today's news that the year after the current loan is due to be cleared F1 will be making an estimated £1.8bn ($2.9bn) in revenue - 81% more than last year. This will give the sport even more money to pay off a future loan and will give its owner even more profit. In short, that is the time that CVC will be able to make most money from selling F1 so it is no wonder it told News Corp the sport isn't for sale now.
Suggesting that CVC won't own F1 forever and therefore it will sell it imminently is a bit like saying that Ecclestone can't remain F1's boss forever so we should expect him to be replaced soon. In a nutshell, it is nonsense.
There has been no promotion of the phantom deal by Sky News for several weeks but it may well be irrelevant whether or not there is more to come as the reports could have already served their purpose.
The most recent article about this by Sky News was published last month and gave a nice little plug to little known bank Raine which was allegedly planning to join News Corp's bid (even though its total fund reportedly only comes to £305m ($500m) - around 5% of what F1 is worth). The article also contained the intriguing comment that "the potential bid partners are working on a blueprint to exploit F1's global commercial and media potential." If true, this comment would appear to be quite telling indeed.
Obviously, there is no point at all in News Corp spending money on creating a blueprint for future development of an asset which it has been told is not for sale. If News Corp really did do this with every asset which is not for sale it would soon run short of money. So why would News Corp and Exor be happy with Sky News telling viewers that it is doing it? There seems to be one very good reason.
As one of Ferrari's ultimate owners, Exor has a vested interest in the team increasing its take from F1 and right now it is in negotiations with Ecclestone about this very thing. The Concorde Agreement, the contract which governs the division of F1's profits, expires at the end of next year and the teams want to increase their share from 50% to around 70%.
When the Concorde has come up for expiry in previous years the teams, usually steered by Ferrari, have accompanied their demands with threats to set up a rival to F1. They can't do that this time around because, as Pitpass has already reported, clause 4.5 (b) of the current Concorde prevents teams from publicly threatening a rival series until the end of 2012.
Clause 4.5 (a) of the Concorde also prevents the teams from making "any preparations whatsoever to... solicit any broadcasters or circuits for an equivalent championship or series to the FIA F1 Championship" until 1 January 2012. Technically, this makes it as good as impossible for a rival series to start when the Concorde expires since the teams would not have had enough time to plan it and set it up. Accordingly, this clause in particular is significant since it severely weakens the teams' hands when negotiating with Ecclestone.
However, it is perfectly allowable for Exor to prepare a "blueprint" for the future of F1 which could of course be used as the structure of a rival series if CVC continues to refuse to sell F1 to it. Ferrari may think that this could keep alive the idea that there may be a rival series in 2013 and it doesn't even need to make this threat, thereby breaking the Concorde, since Sky News has done a nice job in promoting it.
That doesn't mean to say that this is a foolproof strategy. In fact it is far from it since Ecclestone knows too well that any threat of any rival series is utterly ridiculous given the number of times that the teams have passed up on the opportunity to break away from F1. Nevertheless, any type of leverage no matter how weak it is, is better than nothing which is what the teams are left with now that the Concorde clauses prevent most of their usual tactics. Likewise, being associated with a bid for a glitzy asset such as F1 does no harm to News Corp's standing in financial circles. Handily, it comes at an important time since, as Pitpass has reported, News Corp is trying to buy the 61% of Sky News' immediate parent BSkyB which it doesn't already own.
Whilst it is not possible to confirm whether Ferrari was in on Exor's plans before they came to light, there is some interesting evidence connected to this. Presumably Exor would not have released the statement connecting it with an F1 bid if this could have led to Ferrari being accused of breaching the Concorde in any way.
Exor is distant enough from Ferrari to ensure it doesn't breach for example clause 4.5 (b) of the Concorde but how did it know this before releasing the statement? One would imagine that before releasing its statement Exor's lawyers would have wanted to see the Concorde to ensure that none of its clauses would be breached. Exor is not a signatory to the Concorde so it would have needed to get a copy from one of the teams and since it ultimately owns a stake in Ferrari it isn't hard to imagine which one it may have approached. However, the team would of course have wanted to know why Exor wanted to see the Concorde and, if so, it would have got early knowledge about its plans.
The very involvement of Exor in any bid to buy F1 pretty much guarantees that it won't happen for the simple reason that the teams would not agree to Ferrari's ultimate owner having so much control over the sport. Whilst the teams don't have a veto over the sale of the sport as such they could of course leave and this is just the kind of thing which really could bring that about. Bearing this in mind Sylt smiled to say the least when he was recently told by an associate of an investment bank which works with News Corp that the media firm thought the involvement of Exor would bring complete credibility to its bid. Say no more.