FEBRUARY 21, 2002
Ecclestone says no bid from him
BERNIE ECCLESTONE says that his family has not made any offer to buy back the shares of SLEC which are owned by Kirch Media. Ecclestone did not say that he would not bid to regain control of the business but said that he had not been offered the shares - the implication in this is that Ecclestone has first refusal on the shares. This is not unlikely and it is not in Ecclestone's interest to move too quickly as the longer it takes to sell the stake, the more pressure Kirch will be under.
The problem facing Kirch is that the company is not worth much to anyone else as the commercial rights of F1 only have a value if a deal can be done with the Formula 1 teams (a group dominated by the automobile manufacturers). The teams do not see the need to pay for the company as they are planning to start their own championship in 2008. The man who might be able to break that deadlock is Ecclestone although attitudes amongst the teams towards him have hardened in recent years and it will not be an easy task.
The incentive he has is that he could buy the shares back cheaply and then sell them again in a few years from now. Money is really not the issue. It is a challenge which Ecclestone must relish.
If he is not the buyer it is hard to see who else might be. The problems associated with the company have been widely publicized and so big media companies such as Rupert Murdoch's News Corporation are unlikely to pay out large sums without any guarantees.
Kirch has tried to suggest that it would like to sell off parts of the equity to the car manufacturers themselves but there is no obvious reason why they need to spend the money when it would be cheaper to set up a rival series. The only way this might work is if one or two manufacturers decided to move independently from the rest. This would not be a good idea as it would create a split within the sport and so devalue the company as a whole.
The other problem which has not previously come to light is that Formula 1 revenues are expected to dip in the next few years. When Formula One Finance BV issued its 100-page prospectus for the Eurobond issue in 1998 the company estimated earnings peaking at $424m in 2001 but then dropping back to $245m in 2003 as existing TV contracts ran out. In 1998 $227m came from 62 different TV contracts but the company reckoned that in 2003 $181m would be coming from just six deals. This may have changed but there is no doubt that the company is heavily dependent on a small number of big TV contracts as many TV stations cannot afford to pay more than they do. All the current pay-TV contracts expire by 2006 and the failure of pay-TV to make big profits means that media companies are less willing to invest big sums in TV rights. Murdoch recently remarked that he felt that his company had paid too much for some of its TV rights deals in the United States.
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