NOVEMBER 26, 2005

The next step

As the Formula 1 community tries to work out the structure of the new deal between Bernie Ecclestone, the Ecclestone Family trust company and CVC Capital Partners, and what it will mean for the sport, the action moves on. CVC Capital has money to spend and is currently negotiating to buy the remaining shares owned by JP Morgan and Lehman Brothers. These constitute somewhere between 25% and 28% of the shares in SLEC but have no power as the voting rights were recently acquired by the Bayerische Landesbank before the latest deal was announced. They are thus not hugely relevant in terms of decision-making. Both banks have written off their investment in SLEC and so will probably be willing to sell.

The next obvious step is to streamline the business still further. Formula One Management sub-contracts corporate hospitality, merchandising, trackside signage and its official supplier programme to Patrick McNally's Allsport Management SA company in Geneva. McNally pays FOM a fee each year. The direct payment each year to FOM is believed to be around $50m a year. The company pulls in revenues of probably $300m a year but has high costs, notably with the VIP Paddock Club service it provides. As a result of this the value of Allsport Management is very difficult to estimate as there are a complex series of deals, often joint-ventures, between the company and the racing promoters and sponsors. Acquiring McNally's operation would increase the revenues of FOM and add to the value of the sport. McNally is willing to sell if the price is right and with CVC having plenty of money to spend, a deal is thought likely.