F1 conflicts of interest, Chapter 142
Discussion
From Autosport.com:
The talk of a sale has prompted renewed speculation that Ecclestone may get involved, with the sport's commercial boss linked with a possible buy-in last year.
Ecclestone told Gazzetta dello Sport today that he would definitely consider buying into Ferrari - but made it clear that the price had to be right.
"Yes, the thing interests me," he said. "I have always loved Ferrari, its history and Enzo Ferrari.
"Today it is a great industry and it would appeal to me to own a piece of it. So I am interested but it depends, as always, on how much they want."
I generally respect Bernie, but this would be too much. Whatever one may think of the history of integrity in Formula One (
), for the guy who (along with his bitch Mini) runs the show to have a significant investment in one of the main protagonists would set a new low-water mark. Which means that it probably will happen. You think that there's favouritism now? Stay tuned...
F1 does not seem to concern itself too much with such matters. For instance, at the moment we have two teams on the grid owned by one man (Red Bull and Torro Rosso). In the past, Bernie was head of FOCA and also owned of Brabham.
Whether the FIA should ensure such "conflicts" don't occur is a relevant point - but up to now it hasn't been overly concerned.
Whether the FIA should ensure such "conflicts" don't occur is a relevant point - but up to now it hasn't been overly concerned.
flemke said:
From Autosport.com:
The talk of a sale has prompted renewed speculation that Ecclestone may get involved, with the sport's commercial boss linked with a possible buy-in last year.
Ecclestone told Gazzetta dello Sport today that he would definitely consider buying into Ferrari - but made it clear that the price had to be right.
"Yes, the thing interests me," he said. "I have always loved Ferrari, its history and Enzo Ferrari.
"Today it is a great industry and it would appeal to me to own a piece of it. So I am interested but it depends, as always, on how much they want."
I generally respect Bernie, but this would be too much. Whatever one may think of the history of integrity in Formula One (
You think that there's favouritism now? Stay tuned...
Is FIAT a quoted company? Surely he could just buy shares in Ferrari/FIAT/Maserati/Alfa as and when it suited him???
I don't think we'll ever see him get involved so heavily in a team again, as he once was with Brabham - - he quickly realised that the serious money was in owning the rights and promoting F1. That's why he's a Billionaire and the likes of Ron Dennis, Frank Williams, etc are 'only' Millionaires (albeit multi-millionaires!)
Finally, and I don't know why more people don't do this, but take everything he says with a very large pinch of salt, the guy's a promoter, his job is to get column inches, something he is very good at.
If he buys into Ferrari it will be because his options as 'owner' of F1 have run out, such as if/when the manufacturers tell him that they will run the sport themselves, and that's when we'll have true conflicts of interest...
I thought that he had again sold (or been forced to offload) a large chunk of the F1 cash cow already.
At his age a 'retirement' that meant having huge influence over Ferrari might be attractive.
As for buyng FIAT shares - bad move really, especially since the Ferrari sghare option seems to be as a result of FIAT needing to offload anything that will raise cash to help them stay afloat.
As Ferrari (Montezuma) pointed out to the world recently, they are NOT really part of a car MANUFACTURER with a global market so they desrve the same sort of favourable, politically correct, treatment that the other independents attract. So they would welcome Bernie on board as he would surely make sure they were so favoured
At his age a 'retirement' that meant having huge influence over Ferrari might be attractive.
As for buyng FIAT shares - bad move really, especially since the Ferrari sghare option seems to be as a result of FIAT needing to offload anything that will raise cash to help them stay afloat.
As Ferrari (Montezuma) pointed out to the world recently, they are NOT really part of a car MANUFACTURER with a global market so they desrve the same sort of favourable, politically correct, treatment that the other independents attract. So they would welcome Bernie on board as he would surely make sure they were so favoured
I am not sure that his owning a chunk of Ferrari would make any difference to his perceived bias, most people think Ferrari are favoured without him owning any of it. I think Ferrari will find it increasingly dificult to compete with the manufacturer teams as they don't have the same money to invest(?), although Toyota haven't got any return at all on their investment. So maybe a bit of help for them would be a good thing...
Eric Mc said:Two teams owned by the same guy definitely is an issue. I suppose that the fact that one team is bringing up the rear and the other looks like being a mid-fielder for the forseeable future tends to mute the concerns.
F1 does not seem to concern itself too much with such matters. For instance, at the moment we have two teams on the grid owned by one man (Red Bull and Torro Rosso). In the past, Bernie was head of FOCA and also owned of Brabham.
Whether the FIA should ensure such "conflicts" don't occur is a relevant point - but up to now it hasn't been overly concerned.
We've had one team supplying another many times before. Bruce McLaren ran BRM engines for a few races in '67, although BRM and Bruce McLaren practised a level of ethics that would be unrecognisable to most if not all of today's practitioners. There have been many other examples as well.
That brings us to this very season, when Red Bull cast the deciding vote to repeal the single tyre rule. It seemed at the time an odd thing to do, insofar as the rule had helped Michelin greatly, and RBR were running on Michelins. Then people remembered that this year RBR would be using Ferrari engines, and RBR's apparent lack of self-interest suddenly made sense.
Yes, Bernie used to own Brabham, but there were two crucial differences then:
- He had started out as a team owner, and only got involved in what eventually grew into Formula One Mgmt through organising for the teams their airfreight shipping to flyaway races. At that time he was doing them all a favour; there wasn't this huge pot of gold up for grabs.
- Those were the days of J. M. Balestre's presidency of the FIA. Bernie was regularly on the side of some (often all) of the teams and against the FIA. The opportunities for mischief were fewer and farther between.
Now it's the Min and Bernie show. I don't know how Mosley supports himself; perhaps it's from an inheritance that he recieved from his parents, founders of the British Union of Fascists. Maybe his income has a different source, but it's not the FIA presidency, which is - officially, at least - an unpaid position.
Regardless of the source of Mosley's income, many people have formed the opinion that the FIA bosses and Bernie's organisation often work in league. If the two have another reason to climb into bed together to plot whatever they plot, it doesn't sound like a good thing.
GarrettMacD said:That would be different.
Is FIAT a quoted company? Surely he could just buy shares in Ferrari/FIAT/Maserati/Alfa as and when it suited him???
Fiat own most of the shares in Ferrari, along with owning a whole bunch of other stuff. If you bought Fiat shares you would be getting your proportionate share of all the crap.
If you bought some of the Ferrari shares, either from Fiat, from Ferrari Jr or from Mediobanca (Italian merchant bank/broker that has its hands in many a pizza), you would have the pure, undiluted play.
LongQ said:He sold off 75% of his holding a few years ago. Most of it ended up being owned by three banks that didn't really want it.
I thought that he had again sold (or been forced to offload) a large chunk of the F1 cash cow already.
At his age a 'retirement' that meant having huge influence over Ferrari might be attractive.
As Ferrari (Montezuma) pointed out to the world recently, they are NOT really part of a car MANUFACTURER with a global market so they desrve the same sort of favourable, politically correct, treatment that the other independents attract. So they would welcome Bernie on board as he would surely make sure they were so favoured
A deal is in process by which an investment partnership called, IIRC, CVC would buy the banks' shares plus most but not all of Bernie's. Part of the deal, at least what's been suggested in the press, is that Bernie would continue to be the guy running the business - CVC want a smart guy looking after their investment!
It has also been suggested that another part of the deal would have Bernie buying part of CVC, so that in effect he was back where he began, but at a better price. So far as I know, this has not been confirmed anywhere in the public domain.
That claim the Ferrari are really an independent is risible.
First, after being a founding member of the GPWC, they stab the other members of the GPWC in the back and get a $100M payoff from Bernie for doing so. I don't recall their saying, "Oh no, we can't join the GPWC, because we're not really a manufacturer."
Second, they secure the biggest, richest long-term sponsorship in this history of the sport - perhaps in the history of any sport.
Third, it is a fundamental part of Fiat's business model to expand sales and markets wherever they can around the globe. Maybe they'll succeed, maybe they won't. They are one of the biggest industrial combines in Italy. They want to be treated the same as a Paul Stoddart, Frank Williams, David Richards or Direxiv? Give me a break!
Forgive me if I'm wrong. I thought that Ferrari shares were non-publicly traded shares held by the Fiat board. You would have to buy a controlling interest in FIAT before you could get control of Ferrari using that method. Much better to buy them direct from the board. Which is what hes talking about.
As for Bernie buying into CVC. Can he do that? its not exactly one of the smaller PE firms out there. Wouldn't it be easier for him to be main contributor to a new fund. Lets for the sake of argument call it "the sport media fund". F1 management is then transfered into that fund as it fits the criteria. He continues to manage the company and in effect own it at the same time. When he/they want to, CVC sells on its Equity in the theoretically more valuable company. And Lo Bernie makes yet more money out of his company having sold it twice and yet never losing control of it.
Its what I'd do.
As for Bernie buying into CVC. Can he do that? its not exactly one of the smaller PE firms out there. Wouldn't it be easier for him to be main contributor to a new fund. Lets for the sake of argument call it "the sport media fund". F1 management is then transfered into that fund as it fits the criteria. He continues to manage the company and in effect own it at the same time. When he/they want to, CVC sells on its Equity in the theoretically more valuable company. And Lo Bernie makes yet more money out of his company having sold it twice and yet never losing control of it.
Its what I'd do.
I don't think Bernie would buy into Ferrari while he's running FOM, but if he did there would be a conflict of interest.
But lets just supose he made an approach. Then would not Mr Matchstick want to have a punt.
That could end up as a very expensive bidding war. Could be the Laughing Cavalier all over again.
A couple of questions for you City types:
1) What's the market capitalisation of Ferrari?
2) How much are The Bolt and Mr Matchstick worth?
Cheers
But lets just supose he made an approach. Then would not Mr Matchstick want to have a punt.
That could end up as a very expensive bidding war. Could be the Laughing Cavalier all over again.
A couple of questions for you City types:
1) What's the market capitalisation of Ferrari?
2) How much are The Bolt and Mr Matchstick worth?
Cheers
RobbieMeister said:
I don't think Bernie would buy into Ferrari while he's running FOM, but if he did there would be a conflict of interest.
I'm not so sure, why do you think he wouldn't after the statement flemke quoted?
RobbieMeister said:Do you mean Mosley? I'm not up to speed on nick names?
But lets just supose he made an approach. Then would not Mr Matchstick want to have a punt.
That could end up as a very expensive bidding war. Could be the Laughing Cavalier all over again.
RobbieMeister said:
A couple of questions for you City types:
1) What's the market capitalisation of Ferrari?
2) How much are The Bolt and Mr Matchstick worth?
Cheers
1)don't know. I guess also it would depend on how you would calculate it. By the earnings it makes or by the perceived value of the brand. (eg. Google doesn't make much money proportionate to say Nokia but it valued higher because of its name)
2)Bernie is lots... easily more than the market cap of Ferrari
Max is on the poverty line in comparison
mikeyboy said:I could well be wrong in the detail, but the basic ownership in the last couple of years has been:
Forgive me if I'm wrong. I thought that Ferrari shares were non-publicly traded shares held by the Fiat board. You would have to buy a controlling interest in FIAT before you could get control of Ferrari using that method. Much better to buy them direct from the board. Which is what hes talking about.
As for Bernie buying into CVC. Can he do that? its not exactly one of the smaller PE firms out there. Wouldn't it be easier for him to be main contributor to a new fund. Lets for the sake of argument call it "the sport media fund". F1 management is then transfered into that fund as it fits the criteria. He continues to manage the company and in effect own it at the same time. When he/they want to, CVC sells on its Equity in the theoretically more valuable company. And Lo Bernie makes yet more money out of his company having sold it twice and yet never losing control of it.
Its what I'd do.
10% - the Ferrari boy (grandson or nephew?)
65ish - Fiat
25ish - Mediobanca, who bought their block from Fiat 3-4 years ago.
Think that is it.
Fiat has for several years been looking to float Ferrari. They came closest in 2000, but the equities markets sold off, then 9/11 happened. In the wake of that downturn Fiat sold the piece to Med.
Bernie couldn't buy all the assets of CVC, which at last report were in the $7-8B range and are, effectively, the individual property of all its investors. I suppose that he could buy the CVC partnership itself, which wouldn't be all the assets, just the operating company and the sorts of contol that might come with it.
As I tried to indicate, the Bernie/CVC speculation was something that I read but never saw confirmed since.
The Brussels Louts are in the process of reviewing the sale of the banks' 75% to CVC. Presumably there will be no further moves until their review is complete. I think that it is expected to be finished and made public in the next month.
RobbieMeister said:
I don't think Bernie would buy into Ferrari while he's running FOM, but if he did there would be a conflict of interest.
I'm not so sure, why do you think he wouldn't after the statement flemke quoted?
RobbieMeister said:Do you mean Mosley? I'm not up to speed on nick names?
But lets just supose he made an approach. Then would not Mr Matchstick want to have a punt.
That could end up as a very expensive bidding war. Could be the Laughing Cavalier all over again.
RobbieMeister said:
A couple of questions for you City types:
1) What's the market capitalisation of Ferrari?
2) How much are The Bolt and Mr Matchstick worth?
Cheers
1)don't know. I guess also it would depend on how you would calculate it. By the earnings it makes or by the perceived value of the brand. (eg. Google doesn't make much money proportionate to say Nokia but it valued higher because of its name)
2)Bernie is lots... easily more than the market cap of Ferrari
Max is on the poverty line in comparison
RobbieMeister said:
I don't think Bernie would buy into Ferrari while he's running FOM, but if he did there would be a conflict of interest.
But lets just supose he made an approach. Then would not Mr Matchstick want to have a punt.
That could end up as a very expensive bidding war. Could be the Laughing Cavalier all over again.
A couple of questions for you City types:
1) What's the market capitalisation of Ferrari?
2) How much are The Bolt and Mr Matchstick worth?
Cheers
1) For a guess, Ferrari would be worth £3-4B if floated.
Let's assume that the F1 team breaks even (pays for its own engines, which it funds through global merchandise sales/royalties).
F. sold something like 5700 road cars last year. If the average retail price per car was £130k, my guess is that 110 of that goes to the factory. That £740M income. (Parts income can't be a meaningful % of the whole, and most of the dealerships are independently owned).
I think that Porsche after-tax margins are around 15%. If we give F. the benefit of the doubt and say that they get 20%, that implies that F. are netting £148M/year. This is obviously a wild-ass guess, but the number isn't going to be twice that big.
If you put a multiple of 25 on that, which would be huge for peak earnings for a car company, but perhaps realistic in light of the Ferrari bullshit factor, that gets you to £3.7B.
Bernie is supposedly worth £3 or so. I presume that he wouldn't buy the thing for cash; maybe 25% equity and the rest debt. So it wouldn't be a problem for him.
I suspect that the situation is different for Mateschitz. I think I read that in '04 they sold maybe 1.2B cans or Red Bull. I have no idea what that goat piss costs retail, but he can't sell it to the market for more than £1.00. That's revenue of £1.2B, maybe.
It costs little to make the stuff, but the marketing expense is obviously huge, plus the distribution. Maybe at this point he can generate gross margins of 35% pre-tax, which would be fantastic. That's £420M pre-, maybe £300M after.
He's been really coining it for, what?, 5-6 years? So maybe he's worth £1.5B (that does seem high), and that's assuming that he owns the whole company.
Complete guesses, but I suspect they're in the ballpark.
flemke said:
Fiat has for several years been looking to float Ferrari. They came closest in 2000, but the equities markets sold off, then 9/11 happened. In the wake of that downturn Fiat sold the piece to Med.
I believe from some people I spoke to last year when the GM deal collapsed that the bundling of Maser/Ferrari had only ever happened because Fiat believed that if the deal had come to fruition then GM would want the flagships for the GM brand(they don't own a Sports car maunfacturer and wanted to mirror Ford with Aston/Jag.)But it collapsed so they unbundled the economically unviable Maser' to save costs they thought would be someone else's
don't know if I've put that very well but I hope you know what I mean.
flemke said:
Bernie couldn't buy all the assets of CVC, which at last report were in the $7-8B range and are, effectively, the individual property of all its investors.
Did I give the impression he would buy the Funds? If so I was misleading. I simply meant that a new fund is announced and instead of looking for many investors they simply have one. Bernie
didn't know about the Euro look at the deal.
Must admit I thought it was odd the banks sold it so easily after the fight they put up.
mikeyboy said:
Fiat has for several years been looking to float Ferrari. They came closest in 2000, but the equities markets sold off, then 9/11 happened. In the wake of that downturn Fiat sold the piece to Med.
I believe from some people I spoke to last year when the GM deal collapsed that the bundling of Maser/Ferrari had only ever happened because Fiat believed that if the deal had come to fruition then GM would want the flagships for the GM brand(they don't own a Sports car maunfacturer and wanted to mirror Ford with Aston/Jag.)But it collapsed so they unbundled the economically unviable Maser' to save costs they thought would be someone else's
don't know if I've put that very well but I hope you know what I mean.
flemke said:
Bernie couldn't buy all the assets of CVC, which at last report were in the $7-8B range and are, effectively, the individual property of all its investors.
Did I give the impression he would buy the Funds? If so I was misleading. I simply meant that a new fund is announced and instead of looking for many investors they simply have one. Bernie
didn't know about the Euro look at the deal.
Must admit I thought it was odd the banks sold it so easily after the fight they put up.
Mikey,
You could be right about the GM thing. I thought that they were hoping to leverage the Maserati racing heritage, link it to the Ferrari dealer network, and sell twice as many units as they did.
Yes, CVC could do such a deal with Bernie. It would be a bit awkward, however, if you've run a PE or hedge fund for many years and have cultivated many long-term clients, and then when you have shot to buy a very high-profile jewel you let Bernie step in as your new partner and leave everyone else on the sidelines.
The banks were always dying to get out. After all, it's not like it was their idea to buy the stake in the first place; the stake was forfeited to them when that German media charade went under. They just needed to establish their position first.
Their fight was because unless they got (a semblance of) operating control over the thing of which they owned 75%, they would never be able to sell it to anyone else except to Bernie, for a knock-down price.
>> Edited by flemke on Tuesday 14th March 21:45
flemke said:
You could be right about the GM thing. I thought that they were hoping to leverage the Maserati racing heritage, link it to the Ferrari dealer network, and sell twice as many units as they did.
the flaw with that is that you would have to have a racing heritage that most of your market i.e. the US appreciated and I would say they probably didn't. That being said the MC12 was an attempt to revive that I would assume, and fits with the timeline for your argument.
flemke said:
Yes, CVC could do such a deal with Bernie. It would be a bit awkward, however, if you've run a PE or hedge fund for many years and have cultivated many long-term clients, and then when you have shot to buy a very high-profile jewel you let Bernie step in as your new partner and leave everyone else on the sidelines.
I deal with people that in their turn deal with CVC and judging from their feedback I would find it very hard to believe that they would do what I suggested especially when you consider that in comparison to some of their US investors Bernie ain't worth enough to risk it.
It was meant as a counterpoint to someone else's argument.
I hadn't thought about the bank issue from that point of view, the reason I found it odd was that the Principal units they held their 75% in was surely looking for a greater ROI than they could have achieved out of selling it to CVC.
mikeyboy said:
I hadn't thought about the bank issue from that point of view, the reason I found it odd was that the Principal units they held their 75% in was surely looking for a greater ROI than they could have achieved out of selling it to CVC.
The banks were forced owners, having been lenders to Kirch.
Most of the Byzantine story follows, courtesy of a friendly site:
The saga began six years ago, in late 1999, when Mr Ecclestone agreed to sell 12.5% of his holding company, SLEC -- which had by then gaine commercial control of Formula One -- to Morgan Grenfell Private Equity, a subsidiary of Deutsche Bank, for $325 million.
MGPE had an option to buy an additional 37.5% but was unable to exercise it, so in early 2000 Mr Ecclestone sold that 37.5% share to a venture capital firm called Hellman and Friedman for $975 million. A mere month later, Hellman & Friedman joined forces with MGPE to form Speed Investments, and then sold the SLEC holding through a sale of Speed Investment shares to EM.TV, a leading German media firm for $1.6 billion, or a profit of $300M.
Later that year, EM.TV went through a financial crisis, with its share price plunging from $88 to $3, and EM.TV was forced to look for help from Leo Kirch, the head of another German media empire. Mr Kirch drove a hard bargain, and was able to take a 78% stake in Speed Investments (and thus 39% of in Formula One) for $550M. Kirch also had Speed Investment exercise an existing option held to purchase an additional 25% SLEC for a round number of $1 billion.
At this point, then, Kirch owned 58%, EM.TV 17%, and Mr Ecclestone and his wife Slavica 25%. Mr Ecclestone was $2.3 billion up on the deal, MGPE and Hellman and Friedman had made $300 million -- and EM.TV had lost $700 million.
Acrimony on track and in the boardroom
By this time, though, the manufacturers -- companies like Mercedes, BMW and Honda -- had realized that they were bearing the risks and costs of participating in Formula One, but the SLEC paychecks had several more zeroes to them. With their hands tied by the Concorde Agreement, the manufacturers started planning a breakway series that would provide them with they viewed as a fair share of the revenues and of the control of the series.
This initiative eventually grew into the Grand Prix Manufacturers' Association, and the plan to launch a rival series in 2008 -- but, naturally, at the cost of depriving Formula One of many of its star attractions, such as McLaren-Mercedes, Williams-BMW, Honda and Toyota.
Meanwhile, in the world of finance, there was no shortage of intrigue. Kirch's media empire had begun uraveling in 2002, and in June 2002, the arm that held the Speed Investment shares -- it had meanwhile acquired the remaining shares from EM.TV -- became insolvent, and ownership of Speed Investments, and thus 75% of SLEC, passed to a group of banks: Bayerische Landesbank, JP Morgan Chase and Lehman Brothers.
However, Mr Ecclestone was not about to cede control of Formula One to a group bankers. In spite of owning mere quarter of the shares, Bambino Trust, the Mr Ecclestone family's Liechtenstein-based trust which held 25% of the shares, used rather unconventional techniques that took advantage of a multi-layered corporate structure to elect SLEC's board of directors and exercise effective control of F1.
The banks did not take this sitting down, though, and sued Mr Ecclestone to gain control of the associated companies, winning an initial judgement against Mr Ecclestone and Bambino in late 2004.
The legal issues are now cleared up with the CVC acquisition -- and Mr Ecclestone has now made an impressive $3.3 billion from the four separate sales of SLEC shares, surely moving him up several notches on the list of the world's richest individuals.
Flemke,
thanks for that article. Nice to see it so succinctly put.
I did know some of that but not all and it also explains why they would divest of SLEC from the portfolio so quickly. could have been about the only worthy asset in it.
Still back to the original point I can't help thinking Bernie should at least give the appearance of being more equitable in his dealings with the teams.
Buying into Ferrari not so great an idea for the foreseeable future in other words.
thanks for that article. Nice to see it so succinctly put.
I did know some of that but not all and it also explains why they would divest of SLEC from the portfolio so quickly. could have been about the only worthy asset in it.
Still back to the original point I can't help thinking Bernie should at least give the appearance of being more equitable in his dealings with the teams.
Buying into Ferrari not so great an idea for the foreseeable future in other words.
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