NOVEMBER 27, 2000

Coral and the dangers of F1 investment

THE Coral bookmaking company, owner of Arrows sponsor Eurobet, has cancelled its plans for a $1.5bn flotation and is now looking for a buyer for the company.

THE Coral bookmaking company, owner of Arrows sponsor Eurobet, has cancelled its plans for a $1.5bn flotation and is now looking for a buyer for the company. Coral is owned by investment house Morgan Grenfell Private Equity which is also a big shareholder in the Arrows team. The sale of Coral will obviously bring into question the Eurobet sponsorship of Arrows, which was agreed at the end of last year soon after Coral acquired the Eurobet company. Eurobet's chief executive Trevor Beaumont had envisaged being the title sponsor of the team and admitted last summer that he was "a little taken aback" when Orange and Chello appeared. However the sponsorship arrangement was sorted out with Eurobet being given title sponsorship of the European Racing Formula 3000 team as a bonus.

MGPE, which bought Coral in 1998 from Hilton for $600m, is hoping to make a tidy profit on the sale, based on increased revenues generated by online gambling. Morgan Grenfell, a Deutsche Bank subsidiary, was hoping to make similar profits when it invested $325m in Bernie Ecclestone's Formula One group of companies in the autumn of 1999 then sold this stake in the Spring for $178m plus 2.5m shares in Thomas Haffa's EM.TV. At the time these shares were worth $220m so it looked like MGPE had made a profit of $75m. The drop in the value of EM.TV in recent months has meant that the MGPE stake would now be worth only $60m. That would mean that MGPE had made a loss of around $80m. However, we did hear that the company sold some of the EM.TV shares when the price began to plunge in September so it may have reduced the losses.

The MGPE involvement with Arrows has yet to pay off. The company bought 45% of the team at the end of 1998 in a deal which the team announced was worth $175m. If this figure is true, MGPE's investment was $78m. It may have been higher as it is not clear what happened to the 10% of the team which was to have been acquired by Prince Malik ado Ibrahim as MGPE now appears to own half the team. This is useful as the company can use the F1 sponsorship to help raise the profile of other businesses in which it has invested (such as Eurobet) while also raising the value of Arrows as well.

There may be need for some more MGPE connections this winter as there remains a big question mark over the team's title sponsor Orange as the new French management of the firm has yet to make it clear whether or not it wants to continue to promote the mobile phone brand. The team is looking at new sponsorships and is in negotiation with Internet company Vivao, which is planning a major European sales drive for its integrated e-mail, voicemail, fax and SMS messaging services. The team is expected to retain Repsol YPF backing and may land a deal with former Minardi sponsor PSN. If it happens Argentina's Gaston Mazzacane will be partnering Pedro de la Rosa next year. This will be a good deal for Repsol as YPF is an Argentine company. PSN is also linked to Chello in that they are both involved in broadband TV and are owned by the same company which is in the process of consolidating its South American operations and so the two sponsorships could be combined or expanded upon.