THE MOLE

Financial fireworks

"I don't think Max Mosley should go into real estate," said Penelope (Roedean), looking up from her new copy of Guns & Ammo.

The Mole was reading Good Housekeeping and crunching on pork scratchings.

They were in the pub, having one of their relaxed lunches where they make conversation while reading their favourite magazines.

"You cannot lose in property," The Mole grunted. "It just keeps on going up."

"Buy land," said Penelope, putting on a silly voice. "They don't make it any more."

"Ah," said The Mole, reaching for his drink. "You have obviously not been to Holland recently."

Penelope looked up, threw her boss a sweet, sweet smile and and mumbled something unpleasant about dykes.

"Fine constructions!" said The Mole.

The Mole scratched his ear with one hand and reached for another pork scratching with the other.

"What was all that waffle about Mosley and property?" he said.

"Just imagine you buy a house for 100,000 pounds," said Penelope.

"That takes some imagination these days," interjected The Mole.

"You knock out a couple of internal walls," Penelope went on. "Give it a lick of paint and then you find someone for buy it for 1.2m. How do you explain that!"

The Mole took a sip of his drink.

"Well," he replied, "either the buyer is a fool or the seller is a fool."

They were, of course, talking about the news that the Formula One group has taken out a loan of $2.9bn, secured by the future revenues of the sport.

"It is not a good thing," said The Mole.

"On the contrary," said Penelope. "I think it's admirable. Buy a business and make it much more profitable. I wish I had the loot to do it. I guess I will have to wait until Daddio pops his clogs."

The Mole raised an eyebrow.

"You could always murder him," he said, with just a hint of dryness.

Penelope ignored the remark.

"No," she went on. "If Mr E and his suit-wearing friends can produce such financial fireworks, then good for them."

"It is bad for the sport," said The Mole. "We exist to make sure that the British motorsport industry flourishes and this is not going to help. The sport is going to spend the next 10 years paying off this debt. Sure, the teams now get half the money, which is better than before, but what happens when they see all this other money disappearing off to trust funds in Jersey? It builds up resentment and that will come out when they all start negotiating a commercial deal for 2012 and beyond. Those talks will start in only a couple of years. And, believe me, it will get messy again because the manufacturers will want more of the money. They know very well that it is the teams that create the interest, and they will once again be threatening to start their own series in order to get more of the cash. That will destabilise the sport."

Penelope nodded.

"I agree entirely," she said, "but what can you do? Every time a negotiation is coming Bernie squares away Ferrari first with a huge financial incentive and everyone else is gradually made to realise that without Ferrari F1 is not quite the same. After that they are divided and, ultimately, they are conquered."

"I am sure these bright sparks in the automobile company types can work out the best strategy of stopping this perpetual refinancing," said The Mole.

"You think so?" said Penelope.

"The thing that I will never understand," she went on, "is what was in Max Mosley's head when he sold the rights for $360m in 2001. They used to argue that this was a realistic figure at the time but in the five years since then Bernie and his chums have raised $4.3bn on the back of those rights. There was the $1.4bn with the Eurobond. Now they are taking out another $2.9bn. And that is not including all the interest. It just does not make any sense to have sold the rights for 100 years for the profits made in 18 months."

"Perhaps Max was worried that Bernie would go off with the teams and make an independent series that the FIA would have to sanction because of the European Union, but without getting any money at all," said Penelope.

"Perhaps," said The Mole.

There was a pause.

"I did the numbers and the sport can probably afford this new loan," said Penelope. "It is about $300m a year in repayments which means that the company needs income of about $600m. The most recent figures show that Formula One made $435m profit in 2005 and Allsport, which is now part of the group, is going to add about $150m a year, so they are pretty much there. There isn't much money left for investing in new ideas or anything like that and there is always a danger that if there is a downturn in the business the company will not be able to meet its commitments but I guess the bank is convinced that Bernie and his people can go on doing it.

"Bernie will find the money," said The Mole. "He's good at that, isn't he? But it will probably take a few more Asian governments and a few less Silverstones. That is what we have to worry about. I guess we should encourage people to enccourage him to look at proper merchandising. Did you see that NASCAR made $2.2bn in merchandise last year. F1 is still struggling to get all the teams to work together. If they were more logical there would be F1 shops in airports and hotels by now."

"Judging by the F1 merchandising last year they don't like the profit margins on most of the stuff," said Penelope. "But they don't seem to realise that people don't buy keyrings that cost $40 but they will buy reasonable produce at reasonable prices."

"And there is always pay-per-view TV," said The Mole. "And that thing called the Internet is still out there not being used at all."

Penelope smiled.

"I see more Koreas, more Singapores, India and so on," she said. "Oh, did I mention that Bernie was in Moscow at the weekend?"

January 16 2007

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