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