An agreement for the future of Formula 1?

In September Bernie Ecclestone remarked that he did not care what the GPWC and the banks who are shareholders of SLEC, were discussing at a meeting during the Italian Grand Prix weekend. He felt that he held all the cards in the long-running dispute over the future of the sport and that eventually all the other parties would come round to his way of thinking.

The dispute between Ecclestone and the car manufacturers dates back to late November 2001 when the car makers got together in Geneva and announced that they were going to establish a Dutch holding company for an organisation called the GPWC, under chairman Paolo Cantarella. The organization's first warning was to Leo Kirch, who at the time owned 75% of SLEC, the Formula One group holding company. The GPWC said that unless there was a deal the organization would start its own World Championship in 2008. The argument was over money because the Formula 1 teams get only 47% of the money raised in F1 from the sale of the TV rights. According to the GPWC, however, this is only around 23% of the money generated by the sport. Ecclestone, for example, keeps almost all of the money that is raised from the negotiation of fees from the race organizers. This varies tremendously with some races paying as little as $8m and others paying as much as $40m per year. No-one is entirely sure how much money is raised from this but it is in the region of $200m. In addition to that Ecclestone receives an annual fee of something like $50m from Patrick McNally's Allsport Management in Geneva, which negotiates all the trackside signage deals, all official supplier programmes and runs the VIP hospitality operation, known as the Paddock Club. These combine to produce an annual income of around $130m: SLEC gets $50m of this and McNally keeps the rest. Things are complicated by the fact Allpsort does deals with the race organizers rather than through Ecclestone so that unstitching the arrangement will be very difficult.

Things are further complicated by the fact that SLEC is still paying off a $1.4bn Eurobond which began in 1999 and which eats away at the available money being generated.

After Kirch went into a spectacular $11bn bankruptcy, it became clear that the shares in SLEC would fall into the hands of three creditor banks: Bayerische Landesbank, JP Morgan and Lehman Brothers and that they had not really looked very closely at the deals which Kirch had been doing. They found themselves saddled with a shareholding which they did not want and which, in theory at least, will be worth nothing if there is a new series in 2008. The bad news was that the bankers could not write off the loans because it would affect the liquidity of the banks involved. They initially offered the car manufacturers 30% of SLEC for $2.4bn. The car manufacturers declined the offer and in recent months have made it clear that they have no inetntion to pay for the shares. Bernie Ecclestone made the banks a rival offer but this was apparently so low that they dared not complete the deal because of the losses it would involve. With the clock ticking, Ecclestone felt that the banks would eventually reach a sensible deal.

The meeting in Geneva on Thursday apparently marks a breakthrough in negotiations between the parties involved although at the moment no details are clear. In all probability there will be a merger of the interests with Ecclestone giving more money to the teams and the banks accepting a loss but in the hope that a long-term holding in the business will one day generate the money to allow them to make a profit on the investment, porbably from a stock market flotation.

It is hard to see how McNally will be involved in the settlement except that his licence fee may be increased when it is next time to negotiate a deal with SLEC. He may, of course, choose to sell the business before that happens.

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