£5 Billion Formula One debt!! Teams not happy...
Discussion
Anyone else seen this?
Guardian Sports pages said:
Formula one teams are set to demand a bigger share of the sport's revenues after growing alarmed at the amount of interest being paid by its owners to service $5bn (£3.2bn) in debts.
Teams are resisting efforts by the FIA, motorsport's governing body, to force them into a series of controversial cost-cutting measures. The first steps in the FIA's plan came last week when tenders closed for the standard-engine contract, the cornerstone of the thrift programme.
Analysis of accounts for the 12 months to last December of formula one's holding company, Delta3 (UK), shows that CVC Capital, which bought the sport from a consortium of banks two years ago, loaded more than $2.4bn of bank loans on to it during the leveraged buyout. In addition to these were almost $2.6bn of loans from CVC, although the private equity firm insists it will not enforce repayment of this debt since it acts only as a standard tax-reduction mechanism.
Paying the loans cost Delta3 $229.6m in interest last year - equivalent to almost half the central distribution to the constructors - a fact that has dismayed teams, who five years ago threatened to break away from the sport. "There is anger felt from many teams," said one insider at the Formula One Teams Association (Fota).
"We have had banks, oil companies, financial institutions and pharmaceutical companies with us as sponsors. We have raised this money. Why do we have to keep cutting costs? The sport earns a lot of money so let's look at our share."
Last year the paper losses were huge. With loans "rolling up" interest - nearly $500m had accrued in the 13 months since November 2006 - Delta3 made a loss after tax of $458m on turnover of $938m. This prompted the accountants to acknowledge that Delta3 will only be a "going concern" if CVC continues to support it "to meet its liabilities". CVC, which has recently raised $20bn in funds that are committed for 10 years, insists it is a long-term investor.
CVC also points out that the constructors already receive a larger take than ever from central funds under the terms of the 2008-2012 commercial agreement. The prize fund has doubled from $250m a year.
That has added significantly to Delta 3's costs since the last available accounts. The CVC director Nick Clarry said that despite the financial downturn the sport's revenues this year have grown almost 40% to $1.3bn, providing a comfortable margin for bank obligations to be met. "There is a lot of headroom," said Clarry. "Our revenues need to go down $400m before we have any pressure from the banks."
CVC must repay the majority of the $2.4bn loans on expiry in 2014 but says they are being paid off ahead of schedule from "excess profits" formula one generates. It currently has no available estimates of what Delta3's 2008 profits will be.
Now the teams want to go back to the negotiating table with the sport's commercial operators at Delta3, led by formula one's commercial rights holder, Bernie Ecclestone. "What's changed since [2006] is the teams have seen how much debt CVC has put on the sport," said another Fota insider. "We thought CVC's interest was to get income from running the business but not to such an extent that the sport has to perform to its maximum ability for five or six years just to recover the debt. This is why there is interest in new negotiations."
Despite the increased revenues from the 2008 commercial memorandum, no formal contract has been concluded with the teams. CVC is confident a new agreement will soon be reached, considering the obstacle to be the engineering minutiae of regulations. Yet tensions remain. "The logistical costs are so high now," added one source. "[The championship] used to be 12 races, then a maximum of 17. There used to be 80% of the races in Europe and now 80% are across Asia: the costs to the teams are much higher now."
Ecclestone has sought more dates in more exotic locations due to the higher race fees received in places such as Bahrain and Singapore. These have been pivotal in raising 2008 revenues. But an equally controversial development is the FIA's thrift programme. Teams suspect that the ruling by Max Mosley's FIA to introduce the cost cuts has been directed by Ecclestone and Delta3. Clarry said no pressure had been applied.
Teams are resisting efforts by the FIA, motorsport's governing body, to force them into a series of controversial cost-cutting measures. The first steps in the FIA's plan came last week when tenders closed for the standard-engine contract, the cornerstone of the thrift programme.
Analysis of accounts for the 12 months to last December of formula one's holding company, Delta3 (UK), shows that CVC Capital, which bought the sport from a consortium of banks two years ago, loaded more than $2.4bn of bank loans on to it during the leveraged buyout. In addition to these were almost $2.6bn of loans from CVC, although the private equity firm insists it will not enforce repayment of this debt since it acts only as a standard tax-reduction mechanism.
Paying the loans cost Delta3 $229.6m in interest last year - equivalent to almost half the central distribution to the constructors - a fact that has dismayed teams, who five years ago threatened to break away from the sport. "There is anger felt from many teams," said one insider at the Formula One Teams Association (Fota).
"We have had banks, oil companies, financial institutions and pharmaceutical companies with us as sponsors. We have raised this money. Why do we have to keep cutting costs? The sport earns a lot of money so let's look at our share."
Last year the paper losses were huge. With loans "rolling up" interest - nearly $500m had accrued in the 13 months since November 2006 - Delta3 made a loss after tax of $458m on turnover of $938m. This prompted the accountants to acknowledge that Delta3 will only be a "going concern" if CVC continues to support it "to meet its liabilities". CVC, which has recently raised $20bn in funds that are committed for 10 years, insists it is a long-term investor.
CVC also points out that the constructors already receive a larger take than ever from central funds under the terms of the 2008-2012 commercial agreement. The prize fund has doubled from $250m a year.
That has added significantly to Delta 3's costs since the last available accounts. The CVC director Nick Clarry said that despite the financial downturn the sport's revenues this year have grown almost 40% to $1.3bn, providing a comfortable margin for bank obligations to be met. "There is a lot of headroom," said Clarry. "Our revenues need to go down $400m before we have any pressure from the banks."
CVC must repay the majority of the $2.4bn loans on expiry in 2014 but says they are being paid off ahead of schedule from "excess profits" formula one generates. It currently has no available estimates of what Delta3's 2008 profits will be.
Now the teams want to go back to the negotiating table with the sport's commercial operators at Delta3, led by formula one's commercial rights holder, Bernie Ecclestone. "What's changed since [2006] is the teams have seen how much debt CVC has put on the sport," said another Fota insider. "We thought CVC's interest was to get income from running the business but not to such an extent that the sport has to perform to its maximum ability for five or six years just to recover the debt. This is why there is interest in new negotiations."
Despite the increased revenues from the 2008 commercial memorandum, no formal contract has been concluded with the teams. CVC is confident a new agreement will soon be reached, considering the obstacle to be the engineering minutiae of regulations. Yet tensions remain. "The logistical costs are so high now," added one source. "[The championship] used to be 12 races, then a maximum of 17. There used to be 80% of the races in Europe and now 80% are across Asia: the costs to the teams are much higher now."
Ecclestone has sought more dates in more exotic locations due to the higher race fees received in places such as Bahrain and Singapore. These have been pivotal in raising 2008 revenues. But an equally controversial development is the FIA's thrift programme. Teams suspect that the ruling by Max Mosley's FIA to introduce the cost cuts has been directed by Ecclestone and Delta3. Clarry said no pressure had been applied.
The service Delta3 offers to the teams is small and could easily be done by another organisation if, for example there is a break-away formula, which gives the teams massive power to influence the way the sport goes.
This may explain why Ferrari seem to have so much power in the sport, providing 2 cars and the power for another 4 would mean that the sport would have been untenable without them. Effectively they were the sport.
I can't see what is to stop the teams forming a break-away group, running their own F1 championship on their own terms, getting ALL the income and not losing out by servicing the debt of Delta3.
This may explain why Ferrari seem to have so much power in the sport, providing 2 cars and the power for another 4 would mean that the sport would have been untenable without them. Effectively they were the sport.
I can't see what is to stop the teams forming a break-away group, running their own F1 championship on their own terms, getting ALL the income and not losing out by servicing the debt of Delta3.
tmk2 said:
it is from the guardian so its more than likely not true
Dunno how you figure that... don't forget, Alan Henry is their F1 reporter.I still don't know why the teams haven't just said "sod it" and left Formula 1, it seems that they'd be far better off on their own.
That said, who knows who's got 'what' 'on' whom that would prevent the teams from doing so?
garycat said:
It makes me wonder what happened to the $100m that McLaren paid the FIA. Yes I know the FIA and Delta3 are different organisations but it just shows how money can be lost in debt payments and spanky max's brothel fees.
IIRC the $50m that they paid was distributed to FIA grassroots initiatives, but I don't know any precise details of how the money was split up.Edited by MrKipling43 on Tuesday 11th November 10:14
The report blithely skips over the @$1/2b that Bambi?(Ecclestone co) received as well the bankers in the fire sale. Is it just co-incidence that controversies have affected the 3 banks involved in the sale I wonder, seems odd that they all had problems, when in that deal they netted nearly double the expected value.
More relevant to the conspiracy theorists might be the relationship between CVC and bookmakers! Would be a bit of a nice earner if you could make the book, take the money and then influence the result
This latest squabble does Smack
of a little petty pay back from Mosley towards Ecclestone IMO, since he seems to be stirring it up with his teams should have 75 not 50% one-liner?
All in all it makes me wonder if the 'amateurish' BRDC have their heads screwed on far better than the FOA folks?
More relevant to the conspiracy theorists might be the relationship between CVC and bookmakers! Would be a bit of a nice earner if you could make the book, take the money and then influence the result
This latest squabble does Smack
of a little petty pay back from Mosley towards Ecclestone IMO, since he seems to be stirring it up with his teams should have 75 not 50% one-liner?All in all it makes me wonder if the 'amateurish' BRDC have their heads screwed on far better than the FOA folks?
This seems an odd, futile article.
All it should be saying is that the amount of money that CVC would be willing to pay out to the teams will be influenced by the fact that CVC has a lot of debt to service. We have known this all along.
The numbers that the author throws around are meaningless unless we know all of them, the ownership and lending structure, the terms of the loans, the tax position, and so on.
As it is, this is little more than column-filler material. One has the sense that the author is far from being a numbers man. He got some numbers and mistakenly presumed that, on their own, they provided some insight, which they do not do.
crossle said:
dpbird90 said:
tmk2 said:
it is from the guardian so its more than likely not true
+1. Also it will be full of people complaining about Hamilton even though they have never watched a Grand PrixSo it works this way then.
1. F1 owners use a tax efficiency to keep the profits down & thus not have to pay the teams so much & this pisses the teams off.
So far so good, I can see their point.
2. If the teams then go on a cost reduction programme they don't need so much cash so then Bernie can argue that he can give them less which saves the owners even more.
That would annoy me too if I owned an F1 team.
The only real question is why are they still doing business with these people?
1. F1 owners use a tax efficiency to keep the profits down & thus not have to pay the teams so much & this pisses the teams off.
So far so good, I can see their point.
2. If the teams then go on a cost reduction programme they don't need so much cash so then Bernie can argue that he can give them less which saves the owners even more.
That would annoy me too if I owned an F1 team.
The only real question is why are they still doing business with these people?
The reason the teams dont walk away is that everybody is contracted into F1, the teams, the circuits, the promotors the sponsors, the TV rights holders and many others.
For the teams to break away I would imagine that they would have to get countless others organisations to leave with them and make new contracts. As the teams cant seem to agree even the simplest things between themselves it would be impossible for them and all the others to agree on mass to a different arrangement.
For the teams to break away I would imagine that they would have to get countless others organisations to leave with them and make new contracts. As the teams cant seem to agree even the simplest things between themselves it would be impossible for them and all the others to agree on mass to a different arrangement.
Holst said:
The reason the teams dont walk away is that everybody is contracted into F1, the teams, the circuits, the promotors the sponsors, the TV rights holders and many others.
For the teams to break away I would imagine that they would have to get countless others organisations to leave with them and make new contracts. As the teams cant seem to agree even the simplest things between themselves it would be impossible for them and all the others to agree on mass to a different arrangement.
All it takes is lawyers.For the teams to break away I would imagine that they would have to get countless others organisations to leave with them and make new contracts. As the teams cant seem to agree even the simplest things between themselves it would be impossible for them and all the others to agree on mass to a different arrangement.
Whilst the teams historically disagreed about most things, that was mainly for enlightened self interest. Once it is in most teams' interests - ie cheaper for the same return - then they'll cooperate.
The most significant change in teams' attitudes has been the nomination of the Ferrari team leader to be the FOCA representative, albeit with a Toyota chap to ride shotgun. This pressure grouping is as a direct result of Mosley's method of management by decree.
Mosley would seem at the moment to be on the retreat from the confrontation over single engines but he doesn't know the MO too well, never having done so before. He doens't take to defeat too easily. You only have to cast you mind back to his response to losing the vote on a minor matter of karting.
This is a real test of Mosley I think. Can he accept that for the moment he has to control by concession? He'll have to read a book or two on how to go about it.
This new structure in the FiA, of Mosley's man, the one who organised his simple majority on a vote of confidence, being pushed into a position of some power will not endear the teams to him nor make them more inclined to stay withing the confines of the FiA. It seems not so much the status qho and more power to Mosley.
Mosley also seems to be taking on the big manufacturers. That this at a time of recession may be good or bad for Mosley. However, if they leave F1 then they may well want to take up some other form of motor racing which they could call Grand Prix motor racing and if the money goes with them, then so does the TV coverage, the best drivers and, eventually, the fans as well.
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