CVC and Formula One

prisonermonkeys

prisonermonkeys

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Hey guys, I'm in need of a little clarification here.

As some of you know, I've been hanging around the Autosport forums, trying to pick up some new information here and there so I can post it on GT Planet. So far, it's worked pretty well, aside from the fact that they're all idiots who think they know best despite only knowing half the story, most of which has been proven wrong.

But this isn't the place for me to rant against idiocy in general. There was a discussion that came up a few days ago about commercial rights holder CVC and their relationship with Formula One. It started out interesting, but once FOTA rejoined Formula One, everyone started posting that CVC are evil incarnate because FOTA don't have the opportunity to acquire the rights to the sport.

Anyway, I found it an interesting and intelligent conversation up until that point, and I'd like to see it continued in that manner by starting one here because I know you guys don't apply to Jonathan Gabriel's Theory of Internet Asshattery (opinion + anonymity + audience = asshattery).

What I'm really curious abou is the following:
a) What CVC's relationship is to Formula One
b) How Bernie Ecclestone figures into the equation
c) Whether CVC had the power to lean on him to find a resolution to the breakaway
d) If the above is true, whether or not CVC siding with FOTA is a good thing
e) How this might affect the future of Formula One
f) Whether CVC is a force for good, evil or awesome
g) And whether or not a commercial enterprise like venture capitalists should have so much sway over the FIA and FOTA
 
One of my mates summed up Bernie the other day...

"Imagine being so rich that you own your own sport"

C.
 
PUBLIC VERSION
MERGER PROCEDURE
ARTICLE 6(1)(b) DECISION
In the published version of this decision, some
information has been omitted pursuant to Article
17(2) of Council Regulation (EC) No 139/2004
concerning non-disclosure of business secrets and
other confidential information. The omissions are
shown thus (...). Where possible the information
omitted has been replaced by ranges of figures or a
general description.


I. THE PARTIES

2. The CVC group consists of privately owned entities whose activity is to provide investment advice to, and/or to manage investments on behalf of, investment funds.
The CVC Funds hold controlling interests in a number of companies in various industries including chemicals, automotive, motor sport promotion, utilities, manufacturing, retailing and distribution, primarily in Europe and the Asia-Pacific region.

3. Speed is a pure holding company which holds 75% of the shares in SLEC. SLEC is the holding company of the Formula One Group. The Formula One Group is responsible for the promotion of the FIA Formula One World Championship and for the exploitation of the commercial rights related to the Championship.

II. THE OPERATION

4. CVC Fund IV, advised and managed by CVC (hereafter jointly referred to as CVC) will purchase 100% of the shares in Speed. These 100% consists of 62,2% held by Bayerische Landesbank, 18,9% held by JP Morgan and the remaining 18,9% held by Lehman Commercial Papers Inc (Lehman).

5. Speed owns 75% of the shares of SLEC. The remaining shares in SLEC are held by Bambino. Bambino is the family trust of (...). CVC will simultaneously purchase the remaining shares in SLEC held by Bambino.

6. CVC will implement both transactions via two newly created companies, i.e. Alpha Prema UK Limited, a 100% subsidiary of Alpha Topco Limited (Topco). CVC owns (...) of the shares of Topco, whereas the remainder is held by Bambino and the management of the Formula One Group.

III. CONCENTRATION

7. CVCís purchase of the shares in the holding company Speed combined with the purchase of the remaining shares in SLEC held by Bambino - both via its ownership of (...) of the shares in Topco - provides it with sole control over SLEC within the meaning of Article 3(1)(b) of Council Regulation (EC) No 139/2004.

8. It follows from the investment and shareholders agreement of 9 January 2006, that the remaining shareholders in Topco, i.e. Bambino and the management of the Formula One Group do not obtain any veto rights which might provide them with joint control over Topco and/or SLEC.

IV. COMMUNITY DIMENSION

9. The combined aggregate worldwide turnover of the undertakings concerned is more than €5 billion (CVC (...), SLEC (...)). The aggregate Community-wide turnover of each of the undertakings concerned is more than €250 million (CVC (...), SLEC (...)).
Neither CVC nor SLEC achieved more than two-thirds of its Community-wide
turnover in one and the same Member State. The operation has therefore a Community dimension.
Click to expand...

From here

This thread belongs to Special Agent Dale Cooper!
 
a) What CVC's relationship is to Formula One
CVC holds the commercial rights to Formula One. Consider F1 not as a sport, but as a business. It is an entertainment service provider (ahem). It creates manages and breaks up contracts with partners (such as Allsport), manages the provision of venues for the entertainment (circuits) and also manages the worldwide media rights. All of these things have commercial value, because circuits, partners and TV companies will pay to be connected with F1. CVC owns (to a percentage anyway) these commercial considerations.

Let's not get into who owns CVC!

b) How Bernie Ecclestone figures into the equation
Bernie manages FOM (Formula One Management), which is one of the legal entities of Formula 1 that are owned by CVC. Hence Bernie is CVC's henchman.

c) Whether CVC had the power to lean on him to find a resolution to the breakaway
Because Bernie manages FOM, which is owned by CVC, then yes, CVC have the power. They are like a Board of Directors to the Management in a company. Of course they would do this because a breakup of F1 would annhiliate the value of their asset.

d) If the above is true, whether or not CVC siding with FOTA is a good thing
Since it's true, then it's something worth investigating. At the very least it's a tacit admission that the inherent value of F1 is in the competitors, not in the sporting and technical frameworks that shape the sport.

e) How this might affect the future of Formula One
Not very much, I wouldn't think, but I'll comment more on this in later answers

f) Whether CVC is a force for good, evil or awesome
CVC incurred massive debts in purchasing F1, and they're very much struggling to meet their debt obligations. They are therefore taking a significant slice (near enough to 50%) of the money received by F1 (through the aforementioned rights managements) and using that money to service their debts. They're effectively taking the money out of the sport and giving it to bankers. I consider this to be a bad thing, although CVC have to service their debts. I just think that for them to be that heavily geared to make the purchase should have ruled them out as a purchaser. However, (as the Wiki article details) the circumstances surrounding the purchase really meant that Bernie was struggling to find a better buyer.

g) And whether or not a commercial enterprise like venture capitalists should have so much sway over the FIA and FOTA

They're just trying to protect the value of their asset. In that way, one could assume that they're akin to a benevolent dictator, were it not for the fact that they're taking their 50%. I think that the teams are right to raise their eyebrows at Max when Max talks about hte affordability of the sport given that the sport would be more affordable to the teams if they received a greater slice of the revenue that the sport generates.
 
My two cents about questions f) and g):

I'll start with a quote, taken from here:

http://en.f1-live.com/f1/en/headlines/news/detail/090624160141.shtml

Lawyers for F1's commercial equity owners CVC, meanwhile, had travelled to Silverstone last weekend and apparently pushed the warring sides very hard - particularly Mosley as the regulator - to broker a solution.
Click to expand...

Clearly, all this struggle came down to a "money" issue. IF the split had happened, CVC would go bankrupt, and Ecclestone would share their fate. So, I don't know what power they have over Max, but I think it was CVC that ended the crisis.

Is that good, evil or awesome?

It depends on the wayyou look at it. To survive, CVC needs a lot of money. And that's what made the F1 championship what it is now, not very fan-friendly because of the HUGE amounts of money being asked to track owners/GP promoters to host a round of the series, effectively making them ask for governmental funds. European and North American governments are accountable, and spending tax-payers money can't be done "at will".

So, F1 venues tend to move to other countries, with different kinds of government and ... no fans.

Such absolute need for money also has other consequences. The teams don't get what they consider a fair share of the revenues (apart from Ferrari, as we know); The tickets to a GP are ridiculously expensive.


In the end, however, CVC has to give in to the power of the teams, if they remain united. And that's what was different in this crisis. Both Bernie and Max always got away with whatever they wanted using a "divide & conquer" policy. They used Ferrari for that, because who has Ferrari has F1 (or so they thought). So, Ferrari was given a lot more money from FOM/CVC, Ferrari was given a veto power from the FIA.

I don't know what REALLY happened that made everything change. I can only guess that Ferrari threw it all away after Max and Bernie suddenly thought they had FErrari in their pocket.

So, you remember Bernie saying that he had bought Ferrari with money? You remember Max saying F1 could exist without Ferrari, it didn't matter to him if they left?

They messed with their greatest ally up to that point.

And Ferrari did an "italian job" on both of them.
 

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