11/05/2014
NEWS STORY
Formula One has handed thousands of free hospitality passes, worth an equivalent of £3.2m ($5.4m), to the private equity fund which controls the sport according to an article in the Sunday Telegraph by Christian Sylt.
It is known as Fund IV and it is managed by CVC Capital which bought F1 in a leveraged buyout in 2005. It used £573m ($965.6m) from Fund IV and £650m ($1.1bn) of debt from the Royal Bank of Scotland. In March the following year F1 paid an estimated £238m ($400m) for Swiss company Allsport which operates the corporate hospitality at all but three of the 19 races.
F1's hospitality area is a tented structure which is known as The Paddock Club and is adorned with fresh flowers and turf flown in from England. It attracts some of the world's wealthiest high rollers with previous guests including Michael Douglas, Brad Pitt, film-maker George Lucas and Mexican billionaire Carlos Slim.
Tickets cost up to £3,740 each but CVC's funds get a free table and meals for 10 people at each of the 16 races where Allsport arranges the hospitality. The deal was arranged when Allsport was acquired and it is still in place even though CVC has since sold around half of its F1 shares giving it around 35% of the business.
The details of the deal are buried in the 498-page prospectus for the stalled flotation of F1 which was planned to take place in 2012. It states that "in 2006, in connection with the acquisition of Allsport Management S.A by our Group, Allsport agreed to provide certain arrangements at each Event at which Allsport operates the Paddock Club to the CVC Funds, who were the majority controlling shareholders of the Group at that time... Under the current Paddock Club Arrangements, Allsport shall provide to the CVC Funds (i) a table and meals for ten people (at no cost to the CVC Funds) and (ii) a table and meals for up to an additional ten people at cost price plus 5%."
The Paddock Club provides around 5% of F1's £950m ($1.6bn) revenue and generates significant profits which came to £17.6m ($27.2m) in 2011, the most recent year for which consolidated accounts are available.
Allsport has arranged the hospitality at 121 races since the start of the deal taking the tally of free tickets to 1,210. As the average ticket price has come to around £2,670 ($4,500) it brings the total to £3.2m. However, the prospectus stresses that "there is no incremental cost to the Group as Allsport sets aside, in the ordinary course of operating the Paddock Club, a certain number of complimentary tables and meals at each Event in any case, and the table provided to the CVC Funds is one of these pre-allocated complimentary tables."
It adds that "these tables are in a specific area of the venue and none of these tables is ever sold to the public. Accordingly the Group is unable to ascertain a value to ascribe to these tables."
It is nevertheless a nice bonus and the prospectus confirms that it is specifically open to Fund IV. F1 is one of its glitziest investments which also include luggage company Samsonite, German gas meter company Elster and AA owner Acromas. F1 is also one of the best performers.
According to CVC's website the investors in its funds comprise 300 institutional, governmental and private individuals. Their identities are generally confidential but one of the few which has admitted to investing in Fund IV is the California Public Employees' Retirement System (CalPERS) which is the largest pension fund in the United States.
Data from CalPERS shows that it invested £207.8m ($350.1m) in Fund IV and has made a 180% return on its money. F1 alone accounted for a great deal of this as CVC has got £2.4bn ($4bn) of cash out of the business giving it a return of 316.3%.
The prospectus states that "the Paddock Club Arrangements shall terminate automatically in the event the CVC Funds, in aggregate, hold less than 10% of the total issued share capital of the Company. While the Paddock Club Arrangements are not on an arm's length basis nor on normal commercial terms, our Directors (including our independent nonexecutive Directors) are of the view that the entering into of the Paddock Club Arrangements at the time of the acquisition of Allsport was appropriate taking into account the nature of and relationship between the relevant parties."