Ecclestone comments - Why do we have to put up with this!?
Discussion
FourWheelDrift said:
Lots of interesting stuff.
which took a while to assimulate.The figures are stunning as is the quote that the debts are there for tax avoidance.
It also shows that FOTA is considerably more powerful that I first thought.
If the teams threaten to pull out of control by CVC then the company will be in severe financial difficulty. Or broke, one of the two. And at the moment it is not an empty threat. This might explain why Bernie is criticising max and occasionally supporting FOTA's point of view. With this level of debt thee must be a lot of options for exerting pressure.
The 80% of races in Europe dropping to 20% is the clue of course. And probably explains America as well.
But Eccs is vulnerable and his options limited.
I feel really sorry for him.
Or perhaps i don't.
jellison said:
KERs is the last thing the Manufactures need at the moment with trying to stay afloat and get cost under control. F1 KERS has nothing in common with the way it would be used in a road car anyway.
If I hear this one more time I'm going to lose the plot. This is a bit of a "PH fact". Take the Flybrid system, for instance. You can bolt it into an F1 car, or you can bolt it into a road car. A change of software delivers the different benefits for the different applications.That's it. Same kit, different applications. Direct crossover of technology. In fact, it is one of the very, very few things which you could fit to a car and then say "look, we have F1 technology in this car".
It is, for all the gnashing of teeth, a good thing IMHO.
skwdenyer said:
Take the Flybrid system, for instance. You can bolt it into an F1 car, or you can bolt it into a road car. A change of software delivers the different benefits for the different applications.
Ah, but the F1 input is zero in the Flybird system. Indeed, Mosley is pushing for buying-in a KERS system in the future so maintaining the level of F1 engineering input. However, if F1 manufacturers build their own one specific to their vehicles there is every chance that it might be, so to speak, specific to their vehicles.So it would appear that there is every chance that any F1 designed KERS system would have 'nothing in common with . . . a road car'. Indeed, the more specific it is to their car, the better it is for the team.
Derek Smith said:
FourWheelDrift said:
Lots of interesting stuff.
which took a while to assimulate.The figures are stunning as is the quote that the debts are there for tax avoidance.
It also shows that FOTA is considerably more powerful that I first thought.
If the teams threaten to pull out of control by CVC then the company will be in severe financial difficulty. Or broke, one of the two. And at the moment it is not an empty threat. This might explain why Bernie is criticising max and occasionally supporting FOTA's point of view. With this level of debt thee must be a lot of options for exerting pressure.
The 80% of races in Europe dropping to 20% is the clue of course. And probably explains America as well.
But Eccs is vulnerable and his options limited.
I feel really sorry for him.
Or perhaps i don't.
Here's another crazy thing Bernie is saying. It's the last paragraph.
http://en.f1-live.com/f1/en/headlines/news/detail/...
"Ecclestone is quoted as advising Sir Frank Williams to ask his sponsors for additional payments, since they will benefit the most from the exhibit in Dubai."
That guy is a tough SOB.
http://en.f1-live.com/f1/en/headlines/news/detail/...
"Ecclestone is quoted as advising Sir Frank Williams to ask his sponsors for additional payments, since they will benefit the most from the exhibit in Dubai."
That guy is a tough SOB.
35secToNuvolari said:
I'm not exactly sure if you were talking about the "F1 business" or CVC, themselves, being in trouble if teams pull out, but CVC won't be much bothered by the teams pulling out. The reason that F1 is leveraged is because CVC used the proceeds to pay themselves a 'dividend' right after the deal closed. The questionable reliability of F1's revenue will only blow the multiple they'll get when they exit. Not a big deal if one investment has an underperforming roi, and makes only a drop of difference in their overall porfolio. It is more likely that they have bigger worries elsewhere. On top of that, PE company's have still been able to raise money for new funds. Why that is, I don't know.
Thank you for confusing me entirely. I obviously don't know much about high finance. It's pointless trying to explain it to me as I have a very logical mind.35secToNuvolari said:
Derek Smith said:
FourWheelDrift said:
Lots of interesting stuff.
which took a while to assimulate.The figures are stunning as is the quote that the debts are there for tax avoidance.
It also shows that FOTA is considerably more powerful that I first thought.
If the teams threaten to pull out of control by CVC then the company will be in severe financial difficulty. Or broke, one of the two. And at the moment it is not an empty threat. This might explain why Bernie is criticising max and occasionally supporting FOTA's point of view. With this level of debt thee must be a lot of options for exerting pressure.
The 80% of races in Europe dropping to 20% is the clue of course. And probably explains America as well.
But Eccs is vulnerable and his options limited.
I feel really sorry for him.
Or perhaps i don't.
If the basic principle is that CVC originally borrowed the funds directly (that is, against their own credit), but then they refinanced against the credit of the F1 business itself, it is roughly the same thing insofar as we punters are concerned.
There is a lot of debt that has to be serviced and, ultimately, repaid. The CVC guy recently claimed that they won't need to refinance until 2013. That may be so, but in the meantime they still have to pay interest, and some day they will in fact have to repay the principle.
It appears (again, I emphasise that the facts are very unclear) that they (F1 or CVC) have debts on the business of $2.3B. They will not be able to refinance that for the foreseeable future.
It is also reported that their interest payments are $260M/yr. On the surface, that's 11%, which would have been a heck of a high rate when the loan was structured in Nov '06. One wonders what the reality is.
I'm too dumb to recall the timing of Ferrari signing with Bernie/CVC buying F1 from the banks/FOA agreeing to raise the teams' share of revenue from 50% of broadcast to 50% of everything, and too lazy to search for it. I have the notion that, for 2008, FOA paid the teams something on the order of $400M. I believe that FOA's revenue was something like $950M. Goodness only knows what their expenses are, but they do do things in a very upmarket way. If they really did pay around $2.5B for the business, it couldn't have been producing profits at the time of more than $250M/yr.
That set of disconnected numbers suggests to me that, like pretty much every private equity purchase in the world in 2006, the CVC acquisition of F1 was a very bull market move. If so, they had better hope that it doesn't all come down on top of them.
For a related example of how these things often work out, please see:
http://thearticlewriter.com/autowriter/cerberus-de...
From what I have come to understand, CVC did not pay anywhere near $2.5B, or even the figure that the press quote which is something like $1.7B. I believe that earnings were slightly higher than $250M and paid in a neighborhood closer to 5X earnings than 10X. Their first financing deals were reasonable, but in '06 took out an additional $1B. Some of it went to acquire the trackside rights, which boosted earnings significantly, but I don't know how true the explanations are for how they used the rest.
I don't know how much CVC would be on the hook for if F1 goes down, but AIUI, CVC already got paid and anything it would be on the hook for would only hurt the returns on the particular fund the F1 investment is apart of (fund #3 or 4 or summat). I don't know if CVC has any other problems, but those other problems will more worrisome than this. And, inexplicably, the industry is still able to raise money for future funds. Anways, my original point is that, as far as I can figure, the debt load is more worrisome for F1, the sport, the business, than CVC.
I don't know how much CVC would be on the hook for if F1 goes down, but AIUI, CVC already got paid and anything it would be on the hook for would only hurt the returns on the particular fund the F1 investment is apart of (fund #3 or 4 or summat). I don't know if CVC has any other problems, but those other problems will more worrisome than this. And, inexplicably, the industry is still able to raise money for future funds. Anways, my original point is that, as far as I can figure, the debt load is more worrisome for F1, the sport, the business, than CVC.
Edited by 35secToNuvolari on Wednesday 28th January 17:10
So if the teams upsticked and went their own way with not so much a rival to F1 as its replacement, then would CVC suffer? Are the teams under any contractural agreement with CVC beyond one season?
The old argument from the original threat of a breakaway that Bernie has the circuits all sewn up would tend to be negated now that he has no use for them. Indeed I have wondered, don't laugh, that the sudden availability of abandoned circuits in Europe and north America might have a sinister cause. I know it's a bit like a conspiracy theory but no French GP seems so unusual that there has to be underlying cause. And all the others of course. And even Silverstone looking for something to do in the summer of 2010.
With these sorts of figures being mentioned, these sorts of debts having to be serviced, it must be very tempting to think that things could only get better.
Are you going to tell me I've got it all wrong again?
The old argument from the original threat of a breakaway that Bernie has the circuits all sewn up would tend to be negated now that he has no use for them. Indeed I have wondered, don't laugh, that the sudden availability of abandoned circuits in Europe and north America might have a sinister cause. I know it's a bit like a conspiracy theory but no French GP seems so unusual that there has to be underlying cause. And all the others of course. And even Silverstone looking for something to do in the summer of 2010.
With these sorts of figures being mentioned, these sorts of debts having to be serviced, it must be very tempting to think that things could only get better.
Are you going to tell me I've got it all wrong again?
AIUI, what these companies do is raise a buncha cash from charities, university endowments, and high-high net worth people, call it "Round 1" fuding, spend a handful of years investing/managing, let ten years go by and then exit. Then they raise more money and call it "Round 2." The F1 investmet is part of one of those rounds, so if F1 dissolves and the CVC is on the hook for half of the $2.3B, then depending on how well the other investments are doing in the fund, could cause CVC "Fund 4" to only return 20% instead of 25% (or 0% instead of 8%). Company's have had poor performing rounds and gone on to raise more money and be fine. If things don't get too bad worldwide, I would expect CVC to be one of the companies to be able to pick up and move on.
35secToNuvolari said:
From what I have come to understand, CVC did not pay anywhere near $2.5B, or even the figure that the press quote which is something like $1.7B. I believe that earnings were slightly hire than $250M and paid in a neighborhood closer to 5X earnings than 10X. Their first financing deals were reasonable, but in '06 took out an additional $1B. Some of it went to acquire the trackside rights, which boosted earnings significantly, but I don't know how true the explanations are for how they used the rest.
I don't know how much CVC would be on the hook for if F1 goes down, but AIUI, CVC already got paid and anything it would be on the hook for would only hurt the returns on the particular fund the F1 investment is apart of (fund #3 or 4 or summat). I don't know if CVC has any other problems, but those other problems will more worrisome than this. And, inexplicably, the industry is still able to raise money for future funds. Anways, my original point is that, as far as I can figure, the debt load is more worrisome for F1, the sport, the business, than CVC.
As I said, I don't know the facts; in fact, I can make only the most general of surmises.I don't know how much CVC would be on the hook for if F1 goes down, but AIUI, CVC already got paid and anything it would be on the hook for would only hurt the returns on the particular fund the F1 investment is apart of (fund #3 or 4 or summat). I don't know if CVC has any other problems, but those other problems will more worrisome than this. And, inexplicably, the industry is still able to raise money for future funds. Anways, my original point is that, as far as I can figure, the debt load is more worrisome for F1, the sport, the business, than CVC.
This might well be wrong: http://www.pitpass.com/fes_php/pitpass_news_item.p...
but it indicates that, for the original purchase, CVC used $2B in borrowed money. Even at 4-1 leverage, that would mean a purchase price of 2.5ish.
They bought this at a P/E of 5, at the time when there was the most overabundance of investible capital since Tulipomania? Seems mighty cheap to me. And how to explain the supposed $260M/yr in debt service? If the purchase price was meaningfully less than 2.5, that would make the interest rate even more exceptionally high than it appears to be agaisnt 2.5.
Further, if the Allsport acquisition boosted earnings significantly, and it may have done, then that would be net of debt service. How would the Allsport profit margin after debt service have been much better than what they were already getting on the rest of the business, expecially if they had bought the core business so cheaply?
Maybe they were able to buy the core business cheaply because the world was expecting the available cash flows to decline substantially in the next few years. That is possible, although this transaction happened after Ferrari, FOA and the FIA had signed their proposed new CA, which blew the GPMA out of the water.
Wrt whether CVC have anything to lose, I doubt that they're carrying F1 on their books at zero value. Even if they've already taken out as much or more than what they put in, they're obviously expecting a future return of substantial magnitude - hence their projection that they'll be able to repay at least $1B in principal in the next 5 years. CVC may suffer less than the other interested parties will do if F1 goes down, but they surely have a lot to lose themselves.
I'm not saying that any of this is right, and I'm certainly not having a go, Taz. I do think, however, that the numbers do not stand up on their own.
Cheers.
Parts of the CVC deal was decided '05 and they got a discount to fmv. No one knows why they were chosen. There was one other PE company competing and no one knows why they pulled out. There were several risks that scared people away. One was the concorde agreement uncertainty, which was still on investors' minds in '05, the unpredictability of Bernie, and the fact that even when people tried to get close to the deal, things were as clear as mud.
35secToNuvolari said:
Parts of the CVC deal was decided '05 and they got a discount to fmv. No one knows why they were chosen. There was one other PE company competing and no one knows why they pulled out. There were several risks that scared people away. One was the concorde agreement uncertainty, which was still on investors' minds in '05, the unpredictability of Bernie, and the fact that even when people tried to get close to the deal, things were as clear as mud.
I'm happy to take your word for those things.It does seem odd, however, that CVC's MD would have spoken on the record about details of their cash flow:
Nick Clarry said:
We expect to pay off $1B in debt over the next five years. We have no need to refinance until 2013 at the earliest.
and yet the writer would not have confirmed with him other critical facts (such as total debt, current lenders, purchase price) which he the writer then published.Ferrari signed their new deal with the FIA and FOA in January, '05. As you say, the CVC purchase may have been negotiated in '05 (it was completed in March '06), but fourteen months is a long time for that news to have been public.
There may have been two finalists in the bake-off, but this property was on offer for a couple of years. The whole world knew that the banks were looking to get out, so the small number of finalists does not imply that the buyers got a below-market price because nobody else was aware. Again, this was during a period in which PE was awash with capital seeking a home.
This article has a bunch of interesting details:
http://www.independent.co.uk/news/business/news/f1...
It was written by the same guy who wrote the Pitpass article.
It says that CVC paid the banks $1.35B - in line with what you're saying - of which 85% was borrowed, but it also says that, six months later, the deal was refinanced with $2.95M of debt.
That suggests to me that, when CVC bought the co from the banks, although they paid out 1.35, they had also to take on a big slug of existing debt with it. This would fit, would it not, with the seemingly low nominal purchase price, the substantial refinancing, and the substantial annual interest expense? Official acquisition price - 1.35; Effective acquisition price - twice that.
Ergo, we're both right. A rare event on PH.
Cheers.
Derek Smith said:
skwdenyer said:
Take the Flybrid system, for instance. You can bolt it into an F1 car, or you can bolt it into a road car. A change of software delivers the different benefits for the different applications.
Ah, but the F1 input is zero in the Flybird system.Derek Smith said:
Indeed, Mosley is pushing for buying-in a KERS system in the future so maintaining the level of F1 engineering input.
I'm unsure what you mean by that. If Mosley wants a bought-in system, and a non-electrical one at that (which would be good IMHO), then that reinforces the link between the technology on the F1 car and the technology on the road car. The F1 teams will push for lower weight and greater efficiency, which will in turn benefit road car applications of the same kit.Derek Smith said:
However, if F1 manufacturers build their own one specific to their vehicles there is every chance that it might be, so to speak, specific to their vehicles.
Of course that's the car, in the saem way that a BBS F1 wheel doesn't bolt easily onto a Mini Cooper. But I'm happy to accept that what BBS have learned from F1 in terms of optimising weight and performance has directly impacted their ability to create a better road car wheel.It is overly-simplistic to say that, just because an F1 team designs a component / system for their needs, that this has no impact on the wider use of that technology. Science advances in stages; a development over there is observed by an scientist / engineer over here, who then uses the idea to develop something better. It doesn't matter that the actual people and equipment are different - it is the fact that all of these developments feed off each other, if only in the minds of the developers.
Furthermore, the engineering community is surprisingly fluid in terms of people movements. The F1 move increases the pool of available talent who have experience of KERS-type systems, which makes them more employable, and in turn helps to dissemintate that knowledge.
The very fact that Williams are running a flywheel KERS system in F1 will cause others who had not considered the technology to look at it, will help to make it acceptable to a wider range of potential vehicle purchasers, and so on.
Think about it this way: last year, your average performance car buyer wouldn't have dreamed of buying a Prius. If next year they can buy, say, a Flybrid-equipped performance-oriented "hybrid" which, in turn, helps to improve efficiency in the vehicle population, then that is a positive benefit.
Derek Smith said:
So it would appear that there is every chance that any F1 designed KERS system would have 'nothing in common with . . . a road car'. Indeed, the more specific it is to their car, the better it is for the team.
Perhaps, but I don't think that matters one iota to the greater cause.skwdenyer said:
commented on my posting
I think we're arguing at cross purposes. What I meant was that the suggestion put forwrd by Mosley was that the development of KERS in F1 would benefit road cars. I disagree with this in principle as that's not the premise of F1. But if he's doing it to placate the green lobby, then he won't for two reasons: firstly, it's a bit like (indeed, probably the same people) the USAF trying to placate the Greenham common demonstrators by painting a rainbow on the cruise missiles. Just not on. The green lobby/greenham common had one desiere, the elimination of their foe. But the second bit is even more ridiculous.
If the KERS system is bought in and bolted on then what has F1 done for road cars? If they design their own devices or modify an existing one, then where's the transferance. Nothing from F1 has ever been of use to road cars. The fundamental premise of each is so different.
Another fundamental of F1 is secrecy. If Merc designs something revolutionary then the last thing they are going to do is spread the word. But they are unlikely to do that. The history of F1 is designing something specific to the sport or getting something from the automotive world and changing it radically.
Also, Mosley's intent is to get every car the same with a fixed formula staying the same over a number of years. That is the death of engineering.
So I'm not disagreeing with you, I'm saying that F1 will spend millions changing KERS to F1's needs for no reason. I too think that the development of KERS doesn't matter 'one iota to the greater cause' of the motor industry. If Mosley wants to pose as the saviour of the world and the ozone layer without justification - as he's said he was the leader in safety of F1 - then there are lots of cheaper ways of doing it than KERS.
But my fundamental point is this: it is an expensive frippery at a time when we should be cutting the costs to teams.
I actually like the idea of a way of boosting power to overtake along straights, as in the old days of turbo-charged fuel-efficient F1, but I don't think KERS is a cost-effective way of doing it at a time when sponsors are renogtiating.
http://www.planetf1.com/story/0,18954,3213_4864753...
Now he's throwing a paddy because the teams don't want medal system
Now he's throwing a paddy because the teams don't want medal system
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