Features - Financial

DECEMBER 13, 1999

Formula One and Morgan Grenfell


Twelve months ago Formula 1 folk thought Morgan Grenfell was a NASCAR driver and Scott Lanphere, director of Morgan Grenfell Private Equity Ltd, had been to one single Grand Prix in his life.

Twelve months ago Formula 1 folk thought Morgan Grenfell was a NASCAR driver and Scott Lanphere, director of Morgan Grenfell Private Equity Ltd, had been to one single Grand Prix in his life. By the end of December - if everything goes to plan - Morgan Grenfell will control 50% of Bernie Ecclestone's Formula One Holdings - and probably half of the Arrows team.

Obviously the City of London has woken up to the investment potential of Grand Prix racing - but the question being asked in motor racing circles is how will it affect the sport and what plans are there now that Bernie Ecclestone has taken a partner in his business.

Ecclestone - recently named Britain's richest man with a net worth of £2.4bn - says that the deal will have no effect on the way that the business of Grand Prix racing operates and that it is still his intention to float the company on the stock exchange in a few years.

"That is what is going to happen," he says. "We are waiting until we get everything sorted out with the European Commission. I don't know when that will be. The Commission is anxious as we are to get it out of the way because it has been going on for too long. I am quite confident and hopeful that we can sort it all out to everyone's satisfaction."

But how long is that going to take? A year, a couple of years?

"It could be much closer than that," says Ecclestone. "We are ready today but it depends on the markets. We will see what happens. This float thing was not driven by me. The teams said: "What is going to happen when you disappear?" and in the end I said: "Well, let's float the company". They will get a share and probably I would like to see somebody from the teams on the board of directors so they can see what is happening rather than people who have just put up finance and are worried about the return on their shares."

So when is 69-year-old Ecclestone going to stand down and let someone else run the company?

"I suppose in reality about 15 years from now," he replies.

You can never tell if Bernie is being serious. His eyes never give anything away.

"I am serious," he says. "I think my heart operation has speeded me up rather than slowing me down. I always thought I was the sort of guy who gave other people heart attacks. I never had a heart attack but I just had a notion that something was not quite right and that was why I got them to do it. Nowadays heart surgery is a bit like going to a dentist. They do these things a lot. I was out of the office for two weeks. That was long enough.

"I am a hand-on guy. It may look from the outside that I do everything. That is good for me because I take the credit for things but the truth of the matter is that we have some very good people here who do take control of lots of different things. I let them do it. If I find someone is capable and competent then I give them the reins. I don't sit in the same cart, I just let them get on with it. At the same time it is not fair to let people have to make decisions that could have funny effects on the business so why should you put them in that position. I am not even a shareholder now. I haven't been for three or four years. I gave all the shares to my wife and put them in trust for the kids. She could have fired me a long time ago. I make decisions on behalf of the shareholders. Morgan Grenfell has purchased 12.5% and they have an option to purchase another 37.5%. They have time to run on the option but I am sure they won't do anything until the last moment as banks and lawyers never do anything until midnight on the last day. I have learned that. They don't like making decisions so they leave it to the end when they have to make a decision."

The amounts of money involved in Formula 1 have become mind-boggling in recent years and a lot of people in the paddock feel that the "bubble" will eventually burst. Ecclestone is not one of them. He sees the growth continuing.

"I said that the bubble would burst 20 years ago but it is still going strong," he says, "and I think it will continue to grow because there are many things which I have neglected and should not have neglected. I did it because I enjoy doing what I do and probably would not enjoy doing the other things. The other thing is that the projects which could be done would really need completely new divisions within the company. For the last two and half years I have been mucking around with these banks. If you're dealing with normal people you would have done the deal and got on with it, but these people seem to like to take a long time and use as many law firms as possible..."

An obvious area for growth is merchandising. Up to now the Formula 1 teams have not worked together - each of them aiming for different markets., The result is that only Ferrari has made a lot of money.

"I think we have to let the teams go through all this and let them realise that they need to work together," Ecclestone says. "Right now Ron Dennis has a different strategy to Eddie Jordan. Ron wouldn't like to see his things marketed in the way Eddie markets his. Ferrari doesn't seem to have a strategy other than saying that they would like to see their stuff marketed at the very top end level. On the other side they want to look after their fans with cheap teeshirts. There is a bit of a contradiction in that because how can someone pay $2000 for a jacket - and they would pay that much - and then see someone else wandering around in a Ferrari teeshirt which cost $10. They have to make up their mind but I see it as a phase they have to go through to decide which segment of the market they should be in. Ron will not change his idea of how his company should be seen and I completely agree with him. I think Ferrari will basically follow that idea. Eddie would rather see the rock and roll market, Sauber don't seem to care. They would like to do it but they don't really care. Williams is Williams and would like to do things - but I think they have to pursue what they are doing now and see if they are doing the right thing.

"In the end, however, I am quite sure that we will centrally-market our merchandise and I think it could happen within the next year."

That presumably means that everyone will have to follow McLaren and Ferrari.

"Half of the merchandise sold at the circuits is Ferrari gear so they are an important factor," Ecclestone says. "But we have never merchandised with the "Formula 1" brand. We just didn't do it and that helped everyone else. It needs to be done and I want to make sure that we do it properly and I think that means that we have to do it in-house. It is the sort of thing where it would be good to have someone onboard to do it."

Team bosses have often complained that Ecclestone takes too much money out of the sport. How does he feel about that accusation?

"All I take is what has been agreed for the last 25 years," he says. "The problem is the amount of money involved. The percentages have always been the same. It is only the amount which has changed. Obviously the more the company makes the more everyone is making. Some of the teams have some funny ideas and would rather have 90% of 10 rather than 50% of 100. It is not what they get that they are objecting to it is that they do not like what others are getting. In the end, however, these are all straightforward normal business people or they have grown into that role. They realise when you explain to them exactly what is going on and then they are delighted. They tend to read things that have been written by people who have not bothered to find out."

One day someone is going to have to take over from Bernie. Does he think one of the current team bosses could do it?

"I don't know," he says. "I really don't know. They don't know what I do. People inside the company know more about that than any team would ever need to know. They don't need to know because they have enough problems looking after their own businesses. I suppose that there are one or two of them who if they sold their businesses and got out completely could probably succeed me. They might do it in a very different way to how I do it but you never really know. You see big companies take on chief executives who have been magic in other businesses and they turn out to be a walking disaster."

Ecclestone says that he wants small investors to be able to buy shares, in addition to big institutions.

Is that because they are easier to control?

"I won't have any problem controlling anyone," he snaps back. "When you are delivering results you are in a position to say: "This is how it is. If you don't like it, throw me out!" It is only when things are not going well that there are problems. I hope that I would have enough vision to know that I was not getting the job done and I would say: "I am going. I am not delivering any longer".

"I hope I would know when to quit."

Scott Lanphere

Director, Morgan Grenfell Private Equity Ltd

It is only a year since Morgan Grenfell bought a shareholding in the Arrows team. There were no plans for further investment in F1 but as the potential of the business became more obvious, Morgan Grenfell thought again.

"Formula 1 is not a sport," says Lanphere. "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. We don't back businesses we back people. We are backing Bernie and his team at Formula 1 because what they have done is extraordinary. He is a guy who has an amazing capacity to get things done. We are backing success."

Where is the 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."

Development in the United States is another area where Lanphere sees potential.

"The American mind-set is to go to big sporting venues. You can have American football games where they will have 100,000 people in the stands. It is a country that really gets into its sports events. They go for the event and for all the things around it. There is no better venue than Indianapolis to help people get a sense of the sport. And I am sure that the American audience will respond in a huge way. What we are really trying to do is to develop an audience that gets excited about the fact that F1 comes once a year - maybe twice, who knows? - and then they will start watching on a global basis. That has some limitations because there are not that many races in the Americas which means that there are not that many races being run at times when Americans are awake but that is a small problem. Viewership in Europe falls off a little bit when the racing is taking place in Asia but are people less interested? F1 is a TV sport. The perfect TV sport."