NOVEMBER 12, 2007

How to make a driver float - and why you would want to

There is talk that Lewis Hamilton may be floated. This may sound a little bizarre but there is much logic in the idea. From Hamilton's point of view it would provide an instant payment of perhaps $100m with which he would be able to fund anything that he wishes to do. He would then earn his investors the money back and create profits for them in the course of his F1 career. There is, of course, a risk that he will injure himself and not be able to race but all investment is, to some extent, a gamble and investors would know this going into the deal. In many respects it transfers the risk from the driver to the investor as he gets his money up front and they get the chance to increase the value of their money.

In some respects its is similar to the idea that CVC Capital Partners has had with the Formula One group. They borrowed the money from a bank but the sport is now paying off CVC's debt, which were secured on the future earnings of F1. At a later date CVC may decide to float the company or simply find another lender to pay out more.

Justin Wilson was the first F1 driver to undertake such an idea back in 2003 when he needed to raise $2m to pay for a Formula 1 drive with Minardi. He offered shares in a company called Justin Wilson plc, which owned all the rights to the future income from Justin's career (his racing, sponsorship and promotional earnings) for a period of 10 years. It was structured so that investors would first double their money and after that be entitled to share 10% of the company's earnings until the end of the 10 year period. Around 900 investors took the plunge, 70% of them taking the minimum investment of $800. A further 20% bought $1600 worth of shares while the remaining 90 investors spent more. As part of the incentive at the time there was the opportunity to get 20% of the contribution offset against tax under an the enterprise investment scheme in the UK at the time.

In Hamilton's case the numbers are obviously going to be higher but the suggestion is that a company be established which would collect all of his earnings. Then 10% of the shares in this firm could be sold off to the public, either on a stock exchange or by means of a private placement.

Treating sportsmen like commodities has been going on for some years now amongst teams and some of the driver managers, the idea that the driver can benefit from this in the short term is not one that has been seriously looked at up to now, but giving Hamilton the lifestyle of the rich and famous at this early stage of his career is something that would be probably be attractive to him.