AUGUST 13, 2001
The dangers of Formula 1
PLAYING with Formula 1 can be a dangerous game, as the investment company Morgan Grenfell Private Equity has found out in the course of the last three years. The company bought into Formula 1 in the autumn of 1998 when one of MGPE's directors Scott Lanphere decided to support a little-known Nigerian Prince called Malik ado Ibrahim to buy a slice of Tom Walkinshaw's ailing Arrows team. The deal is believed to have cost MGPE about $87m. At the time Lanphere had been to just one Grand Prix in his life and assumed that the sport was like any other business in which he had previously worked. A year later Lanphere went a step further and spent $312m to buy a small percentage of Bernie Ecclestone's Formula One group of companies. Lanphere saw himself as a trendsettter exploiting the investment value of Grand Prix racing.
"Formula 1 is not a sport," he said. "Aspects of it are sports-related - the actual competitions - but the entertainment and media broadcasting side of the business is really extraordinary. It is the most amazing and important sports business in the world. That may not necessarily come through from the financial figures. If you look at NASCAR in the United States it pulls in more money but Formula 1 has not yet penetrated the US market. I think that F1 has enormous potential for growth. There is merchandising, hospitality and the Internet. I think we might be able to use cash-flow to leverage other similar industries or sub-sectors of the sporting industry."
But Lanphere's ideas went wrong. He was unable to raise the money needed to take up an option to buy half of Ecclestone's business and was then convinced to sell his shares to the German media company EM.TV for a mixture of cash and shares. And then EM.TV's share value went through the floor and MGPE now finds itself holding a considerable chunk of worthless stock. The Arrows investment has been nothing but trouble. No-one wants to buy the shares and now the Arrows team is suing MGPE subsidiary Eurobet for $15m, claiming that sponsorship money promised was not paid.
It is a mess. Lanphere and his immediate superior Graham Hutton have both been kicked out of the business and new management has been put in place but it looks like the F1 interlude will help to push the Morgan Grenfell name into obscurity. The company is now expected to be folded into DB Capital Partners, another investment bank owned by MGPE's parent company Deutsche Bank and the name will disappear.
That will bring an end to the history of an investment house which dates back to the 1930s when Harry Morgan, one of the heirs to JP Morgan's banking empire set up his own company.
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