FEBRUARY 18, 2009
A powerful voice speaks
Red Bull boss Dietrich Mateschitz does not say much about his Formula 1 involvement. He runs two of the 10 teams and thus has considerable power as his defection would do the sport considerable damage. His investment in the sport has been considerable in the course of the last 13 years, beginning as a Sauber sponsor but then buying control of the team until 2002 when they were sold to Credit Suisse. Red Bull remained a Sauber sponsor until Mateschitz bought the troubled Jaguar Racing team at the end of 2004 and then added Minardi, which he renamed Scuderia Toro Rosso, at the end of 2005. At the time the plan was for both teams to use the same cars, produced by Red Bull Technology, thus giving the Austrian company four cars for the price of considerably less than two teams. This was challenged by the Spyker team but Red Bull agreed a financial settlement to stop the legal actions. Last year Toro Rosso outshone Red Bull Racing by winning the Italian Grand Prix and finishing sixth in the Constructors championship ahead of Red Bull Racing.
Mateschitz has benefited enormously from F1 with sales growth around the world and although that has slowed in the recession the company recently reported 2008 sales of $4.28bn, an increaed of eight percent over the previous year, although this was less than half the 16.6% rise in 2007. Growth in F1's markets was dramatic with an increase of 79% in the Middle East, 31% in Asia and 26% in South America. US growth has slipped in comparison and with sales forecasts for 2009 pointing at less than five percent, the company has been making cost reductions and has cut the budgets of its two F1 teams.
Now Mateschitz is making public his belief that the teams should own the sport, or at least a part of it. He told the Deutsche Presse-Agentur news agency that it is the team that take all the financial risk but also have the competence and the passion for the sport.
"There is just one logical and ethically justifiable owner of Formula One," he said. "That is the teams. It is the only way that the survival of motorsport is guaranteed on a long-term basis. They need to maximise their marketing value, but they also need to own the assets."
The Formula 1 World Championship is owned by the FIA. The federation has, however, leased the commercial rights of the sport to the Formula One group of companies, established by Bernie Ecclestone, but in recent times controlled by the private equity company CVC Capital Partners. Other shareholdings belong to the executives, to the Ecclestone Family trust, known as Bambino Holdings and a sizeable share of around 15% is in the hands of the administrators of the Lehman Brothers, although CVC is believed to have an option to acquire these shares.
Mateschitz says that the involvement of the financial men is solely geared towards making as much money as possible and adds to the instability of the sport.
The CVC European Equity Partners IV Fund was established in 2005 and is believed to have a 10-year lifespan. It has been a remarkable success thus far, mainly because of the F1 investment which has produced huge profits. The sport has been left burdened with debt, secured on the future profits of the business. CVC's goal is to spend the next five years paying as much of the loans as possible before refinancing, which result in another pay day and then selling the business to a new investor. This could net the fund as much as $7.5bn on an investment of $1bn. The major problem is that while the fund will close in 2015, there needs to be a new deal with the teams agreed for 2013 and beyond. The teams are demanding a bigger share of the cash and now, it seems, equity as well.
The teams do have the option of starting their own championship under a different brand but the World Championship status would remain with the current series, although it is not clear what cars could be used if the F1 teams walked away. It is obviously in no-one's interest to split into two camps, but it is clear that there will be a fight if the Formula One group continues to say that it wants to retain the current profit margins.
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