DIETER RENCKEN

ON PADDY LOWE’S WIL­LIAMS RETURN LIB­ERTY’S UNAFFORDABLE OF­FER

F1 Racing - - CONTENTS - DIETER RENCKEN

The deal is done: fol­low­ing FIA World Mo­tor Sport Coun­cil sanc­tion and share­holder ap­proval, NASDAQ-listed Lib­erty Me­dia Cor­po­ra­tion have ac­quired con­trol of Delta Topco, For­mula 1’s com­mer­cial rights-hold­ing en­tity (and par­ent of F1’s op­er­at­ing com­pa­nies). They have re­named their Lib­erty Me­dia Group sub­sidiary as For­mula One Group (FOG) and as­sumed the right to ap­point the FOG board.

The deal, tar­geted for com­ple­tion by the end of March, means out­go­ing F1 com­mer­cial man­agers, CVC Cap­i­tal Part­ners, re­tain ap­prox­i­mately 65 per cent of stock on be­half of ex­ist­ing share­hold­ers, and a sin­gle seat on the board. The struc­ture of vot­ing pa­pers, though, means Lib­erty’s mi­nor­ity share pro­vides them with man­age­ment con­trol.

Thus the global me­dia gi­ant will for­mu­late F1’s fu­ture strat­egy and di­rec­tion. No longer will it be dic­tated to by a vul­ture fund with beady eye­balls fo­cused firmly on rev­enue ex­trac­tion. A gi­ant ‘hip, hip, hooray’ to that!

With­out ex­cep­tion, F1’s heavy-hit­ters are wel­com­ing this long-over­due re­struc­ture, hope­ful that the sport could at last join the 21st cen­tury. It is pre­ma­ture to pre­dict spec­i­fies, al­though F1’s new MD, Ross Brawn, has of­fered en­cour­ag­ing hints about “sim­pli­fy­ing” the sport to en­hance its ap­peal. Yet few in the pad­dock doubt that For­mula 1 faces a root-and-branch re­view – a process al­ready be­gun with the lop­ping of the tree­top.

As part of their strat­egy to woo the teams, Lib­erty planned to of­fer them a ‘good­will ges­ture’: the chance to ac­quire a $400m tranche of shares in F1 (ve per cent of F1’s en­ter­prise value of $8bn) at the dis­counted price of a lit­tle over $21 per share ($8 down on the stock price, and $4 less than Lib­erty’s in­sti­tu­tional in­vestor price).

The top two sub­scribers would each hold ob­server sta­tus on FOG’s man­age­ment board, with the rest jointly rep­re­sented by a third seat. Another catch was a freeze of ten years be­fore the shares could be openly traded. Not sur­pris­ingly, the of­fer, which ex­pired at the end of Jan­uary, went down like a lead bal­loon.

“The of­fer as it stood was unattrac­tive to our team un­less we had in­put into F1’s fu­ture,” said a source who had stud­ied the ini­tial pro­posal, “and I be­lieve they are go­ing to tweak the terms and con­di­tions.” Another asked: “How can Lib­erty ex­pect us to com­mit for ten years when we don’t even know what com­mer­cial terms will be of­fered af­ter 2020, or what shape the sport will be in there­after?” A third team boss was more suc­cinct: “The money should be ow­ing in the other di­rec­tion…”

The crux of the of­fer lies, though, not in the ne print, but in its in­equal­ity: Manor have gone into ad­min­is­tra­tion as this col­umn is writ­ten, and at least two fur­ther teams are barely sol­vent, so they are clearly in no po­si­tion to con­sider tak­ing up what, on the sur­face at least, ap­pears to be a mag­nan­i­mous of­fer. And of the re­main­ing eight teams, it is doubt­ful whether the cash re­serves of two ex­tend to mak­ing such in­vest­ments.

That leaves six, or ve groups (if both Red Bullers are lumped to­gether, which could cause com­pli­ca­tions given that pur­chase ceil­ings ap­ply to in­di­vid­ual teams ): Red Bull, Toro Rosso, Mercedes, Ferrari, Haas and Re­nault. Haas, as a new­comer, based, like Lib­erty, in the USA, is dif­fi­cult to call, while McLaren and Re­nault have other pri­or­i­ties – Re­nault hav­ing the ad­di­tional com­pli­ca­tion of a vo­cal French state share­hold­ing.

Thus three are left stand­ing: Mercedes, the Red Bulls com­bined, and Ferrari. Dur­ing his 2015 engine war with Re­nault, Red Bull boss Di­et­rich Mates­chitz made noises about quit­ting the sport, so can he be re­lied on to keep his brand in F1 for the next ve years, let alone a decade? In the mean­time, the Scud­e­ria’s pres­i­dent, Ser­gio Mar­chionne, has re­peat­edly threat­ened to with­draw Ferrari af­ter 2020.

Still, as­sum­ing any of this trio and/or McLaren take up Lib­erty’s of­fer, such fund­ing could be said to come di­rectly from FOG’s cof­fers, for, not co­in­ci­den­tally, they make up F1’s Con­struc­tors’ Cham­pi­onship Bonus teams, who are guar­an­teed up to $100m an­nu­ally in pre­mi­ums over and above F1’s per­for­mancelinked pay­outs, even if they don’t nish a race through to 2020. In the mean­time, div­i­dends, plus ap­pre­ci­a­tion on shares, should FOG per­form as well as Lib­erty hope, will keep their bud­gets topped up for years to come. Hence af­ford­abil­ity is not an is­sue; still less so if bud­get caps are in­tro­duced.

Those at the top ta­ble will also be party to in­side in­for­ma­tion un­likely to be shared with F1’s com­mon­ers – thus pro­vid­ing them with a head start on reg­u­la­tion or for­mat changes. All well and good for those who have reached this priv­i­leged po­si­tion with the as­sis­tance of F1’s in­equitable rev­enue struc­ture, but less than great for the min­nows, who seem des­tined to wait in­ter­minably for bet­ter days ahead.

“The crux of Lib­erty’s of­fer lies, though, not in the fine print, but in its in­equal­ity”

The sport’s new own­ers, led by Chase Carey, have of­fered the teams a chance to buy shares in F1

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