Formula One Group

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Bernie Ecclestone, CEO of FOM and FOA

The Formula One Group is a group of companies responsible for the promotion of the FIA Formula One World Championship and exploitation of the sport's commercial rights.[1] Bernie Ecclestone, a former Formula One team boss, has run the company since gaining control of the commercial rights. The Group is owned ultimately by Delta Topco, a Jersey–based company owned primarily by investment companies CVC Capital Partners, Waddell & Reed, and LBI Group, with the remaining ownership split between Bernie Ecclestone, other investment companies and company directors.

History[edit]

In 1974 the Formula One Constructors Association, or FOCA, was founded in order to increase commercial organisation of Formula One for the benefit of the racing teams. In 1978 Bernie Ecclestone became the executive of FOCA and fought the Fédération Internationale du Sport Automobile (FISA) for control of F1 commercial rights. Disputes were settled by March 1981 when the Concorde Agreement gave FOCA the right to negotiate TV contracts. Under previous arrangements, TV contracts were not very lucrative and were risky. When the Concorde Agreement ended in 1987, Bernie Ecclestone ceased being a team owner and established the Formula One Promotions and Administration (FOPA), to manage TV rights for the teams. FOPA would later become known as Formula One Management (FOM). FOPA received 49% of TV revenues, 1% went to the teams, and 50% to the FIA. FOPA, however, received all the fees paid by promoters. In exchange for this FOPA paid prize money to the teams.

In 1995 the FIA decided to grant the commercial rights to F1 to Formula One Administration (managed by FOM) for a 14-year period. In exchange, Ecclestone would provide an annual payment. With FOM having exclusive rights to popular team names like Team McLaren, WilliamsF1, and Tyrrell Formula One, the aforementioned teams protested by rejecting the following Concorde Agreement in 1997. Team McLaren, WilliamsF1, Scuderia Ferrari and Renault F1 formed GPWC Holdings and threatened to form a rival racing franchise in 2008 when their contracts ended in 2007.

Ecclestone sells shares of F1[edit]

SLEC Holdings was created as the holding company of the Formula One companies in 1996 when Bernie Ecclestone transferred his ownership of Formula One businesses to his wife, Slavica Ecclestone, in preparation for a 1997 flotation of the group.[2] In October 1999 Morgan Grenfell Private Equity (MGPE) acquired 12.5% of SLEC for £234 million.[3] In February 2000 Hellman and Friedman purchased a 37.5% share of SLEC for £625 million and combined its share with that of MGPE to form Speed Investments which thus had a combined holding of 50% of SLEC.[3][4] On 22 March 2000 German media company EM.TV & Merchandising purchased Speed Investments for £1.1 billion.[5]

EM.TV's acquisitions caused it financial difficulties; following its announcement that its 2000 earnings would be below expectations and it was struggling with its debts, the share price dropped 90%.[6] In February the Kirch Group agreed to rescue EM.TV in return for a stake in the company and control of Speed Investments.[4] The two companies also agreed to exercise EM.TV's option to purchase another 25% of SLEC for approximately £600 million in late-March 2001.[7] To raise Speed Investments' share of SLEC to 75% Kirch borrowed €1.6 billion, €1 billion from Bayerische Landesbank and the rest from Lehman Brothers and JPMorgan Chase.[8] Kirch's involvement raised concerns among the major motor manufacturers who participate in Formula One; BMW, DaimlerChrysler, Fiat, Ford, and Renault formed GPWC Holding BV to secure better representation of the manufacturers in F1, improved financial conditions for the teams, stability for the championship, and maintenance of free-to-air television coverage.[8]

Due to the agreement associated with their shareholding SLEC was controlled by Kirch, who hence controlled the board of Formula One Holdings (FOH). Due to huge losses and massive expenditure, Kirch's creditors put the company into receivership in 2002. These banks dismantled the group. Kirch's share of SLEC was retained by Bayerische Landesbank, JPMorgan Chase and Lehman Brothers (through Speed Investments).

Before they could exercise their rights as shareholders they had to seek clearance from the European Commission. In the intervening period Ecclestone instituted changes in the boards of SLEC, FOH, Formula One Administration (FOA) and Formula One Management (FOM) which in effect put Bambino Holdings in control of those companies.

In mid-November 2004, the three banks sued Ecclestone for more control over the sport, prompting speculation that Ecclestone might altogether lose the control he has maintained for more than thirty years. A two-day hearing began on 23 November, but after the proceedings had ended the following day, Justice Andrew Park announced his intention to reserve ruling for several weeks. On 6 December 2004, Park read his verdict, stating that "In [his] judgment it is clear that Speed's contentions are correct and [he] should therefore make the declarations which it requests".[9] However, Ecclestone insisted that the verdict - seen almost universally as a legal blow to his control of Formula One - would mean "nothing at all". He stated his intention to appeal the decision.[10]

The following day, at a meeting of team bosses at Heathrow Airport in London, Ecclestone offered the teams a total of £260,000,000 over three years in return for unanimous renewal of the Concorde Agreement, which was due to expire in 2008.[11] Weeks later, Gerhard Gibkowsky, a board member of Bayerische Landesbank and the chairman of SLEC, stated that the banks had no intention to remove Ecclestone from his position of control.[12]

CVC acquisition[edit]

In November 2005, CVC Capital Partners announced it was to acquire the 25% and 48% shares of Bambino and Bayerische Landesbank in SLEC and acquired the shares of JPMorgan Chase in December 2005. This deal was given approval by the European Commission on 21 March 2006 and finalised on 28 March. Ecclestone used the proceeds of the sale of Bambino Holdings' share to reinvest in the company to give the Ecclestone family a 13.8% stake in the holding company Alpha Prema.[13][14] On 30 March 2006, CVC purchased the 14.1% share of SLEC held by Lehman Brothers to give CVC a majority ownership in the Formula One group with 63.4%,[14] with other shareholdings owned by LBI Group, JP Morgan and company directors.[15]

The Formula One Group planned an initial public offering on the Singapore Stock Exchange in June 2012, valuing the company at $10 billion.[16] Up to 30% of the company would be listed, with most of the stocks coming from the shareholding owned by the creditors of the bankrupt Lehman Brothers.[16] However, the flotation was delayed until October, with Ecclestone citing volatile markets and problems in the Eurozone.[17] CVC sold part of its stake in the company to three investment companies, Waddell & Reed, BlackRock and Norges Bank, reducing its holding to 35.5% and making Waddell & Reed the second-biggest shareholder.[18] The planned flotation was kept on hold throughout 2012,[18] until it was revived in April 2013 when Ecclestone announced it would take place within the year.[19]

Group companies[edit]

The Formula One Group is controlled by its shareholders through the Delta Topco holding company,[20][21] which through a number of holding companies registered in the United Kingdom, Jersey and Luxembourg controls the SLEC Holdings company, the Formula One Group's immediate owner.[22] The Formula One Group comprises several subsidiary companies which control the various rights, management, and licensing operations of the Formula One World Championship.[23]

The commercial rights of Formula One are controlled by Formula One World Championship Ltd, which received the rights to Formula One for a period of 100 years from the FIA.[22][24] Formula One World Championship's control of the rights began from the beginning of 2011,[22] where it took over from sister company Formula One Administration, which controlled the rights for a 14-year period beginning in 1996.[23] FOWC, as the commercial rights holder, negotiates the contracts for holding Grands Prix, organising television contracts with broadcasters and receiving licensing fees for use of Formula One material. The company also has a seat on the FIA World Motor Sport Council, the body responsible for regulating international motorsport.[25] Formula One Licensing BV is a related Dutch registered company of the Formula One Group which claims ownership of the trademarks of Formula One; the F1 logo, "Formula 1", "Formula One", "F1" and the "Sweeping Curves device" shown before Grands Prix.[26]

Formula One Management (FOM) is the main operating company of the group,[27] and controls the broadcasting, organisation and promotional rights of Formula One.[28] The company makes the televised feeds of all Grand Prix sessions, which are then supplied through the Eurovision satellites network (EBU) to broadcasters who provide commentary and distribute the feed in the broadcasters region. The production arm of FOM is based at Biggin Hill Airport, Kent, for easy travel of the equipment needed to broadcast the race.[29] Financially, FOM provides partial investment for new tracks and teams, to allow them to establish themselves in the sport and grow Formula One's presence in new markets.[27][30] The season calendar for the championship is structured by FOM, with the WMSC having oversight. Payments to the teams are determined by the Concorde Agreement, which gives the teams 50% of the television money in constructors championship order, and awards a prize fund to teams based upon their results, which is drawn from the fees Grand Prix promoters pay for staging the race.[27][28] The logistics of moving equipment and personnel from each race is also handled by FOM, which provides the teams with a set amount of transport for the races outside of Europe.[28]

Related companies[edit]

The Formula One Group is used to refer to several related companies, which although not part of the Group are controlled by the Delta Topco holding company and have business related to Formula One. GP2 Motorsport Ltd was acquired by CVC in 2007, with its ownership controlled by Formula One's holding companies.[21][31] The GP2 series is Formula One's main feeder series, and runs races at the European rounds of the F1 championship, in order to give drivers experience and exposure to Formula One teams. The GP3 series, the next single-seater level down from GP2, is also controlled by GP2 Motorsport. The Formula One Group also owns Istanbul Park AS, which runs the Istanbul Park racing circuit, the host to the Turkish Grand Prix.[32]

Allsport Management SA is a Swiss registered company which manages the sale of almost all Formula One trackside advertising and the Formula One Paddock Club. Allsport Management was founded by Paddy McNally who had begun to work with Bernie Ecclestone in the late 1970s. McNally, who was a former Marlboro sponsorship consultant, came up with a solution to "tidy up" trackside advertising; This solution was called "themed advertising" where one advertiser is given total exposure at one part of the track.[33] This is in contrast to the Monaco Grand Prix, the only grand prix where Allsport is not involved, where space is sold such that multiple advertisers are visible in every picture, which is a less effective marketing strategy.[33] The Paddock Club is Formula One's corporate hospitality organisation, which provides a luxury area for VIP's and sponsors for the Grand Prix weekend, and also gives access to teams and drivers and tours of the pits.[33] In 2006 Allsport Management (and the related Allsopp Parker & Marsh companies) were acquired by CVC through Delta Topco,[34] meaning that the sport's complete revenues are controlled by the Formula One Group.[21][35]

References[edit]

  1. ^ "Merger Procedure Article 6(1)(b) Decision" (PDF). European Commission. 20 March 2006. Retrieved 2011-02-20. 
  2. ^ Griffiths, John; Clay Harris, Clay; Harverson, Patrick (7 June 1997). "Ecclestone juggles ahead of flotation; Complex asset deals leave wife with control of up to 40 per cent of motor racing empire". Financial Times. 
  3. ^ a b Steiner, Rupert (20 February 2000). "Ecclestone sells £625m F1 stake". Sunday Times (Times Newspapers). 
  4. ^ a b "The end of Kirch...". Grandprix.com. 13 June 2002. Retrieved 2010-10-20. 
  5. ^ "Muppet owners buy Formula One". BBC. 22 March 2000. Retrieved 2011-02-20. 
  6. ^ "EM.TC Rescue Package Agreed". The Scotsman. 16 February 2001. 
  7. ^ Henry, Alan (5 April 2001). "Formula One faces rebellion from car makers". The Guardian. 
  8. ^ a b Hientzsch, Heike (28 September 2002). "What do Formula One's owners want?; The banks who are stakeholders must reach a pact with the teams for good of the sport, says Heike Hientzsch". The Business Times Singapore (Singapore Press Holdings). 
  9. ^ "Legal blow for Ecclestone". ITV-F1.com. ITV plc. 6 December 2004. Archived from the original on 7 December 2004. Retrieved 2011-02-20. 
  10. ^ "Bernie Defiant". ITV-F1.com. ITV plc. 6 December 2004. Archived from the original on 7 December 2004. Retrieved 2011-02-20. 
  11. ^ "Bernie offers £260m payday". ITV-F1.com. ITV plc. 7 December 2004. Archived from the original on 12 December 2004. Retrieved 2011-02-19. 
  12. ^ "Ecclestone to remain in charge". ITV-F1.com. ITV plc. 24 December 2004. Archived from the original on 24 December 2005. Retrieved 2011-02-20. 
  13. ^ "CVC confirms F1 buy-out". ITV-F1.com. ITV plc. 29 March 2006. Archived from the original on 27 September 2007. Retrieved 2001-02-20. 
  14. ^ a b Sylt, Christain; Reid, Caroline (31 October 2010). "Ecclestone backtracks over F1 flotation". Financial Times. Retrieved 29 April 2013. 
  15. ^ Saward, Joe (24 May 2012). "The reality… as was". Joe Saward's Grand Prix blog. Retrieved 29 April 2013. 
  16. ^ a b "F1 flotation boosted by £4.4bn ‘guarantee’". Daily Telegraph. 28 April 2012. Retrieved 29 April 2013. 
  17. ^ Neville, Simon (31 May 2012). "Bernie Ecclestone signals delay to F1 flotation as another Asian IPO fails". The Guardian. Retrieved 29 April 2013. 
  18. ^ a b Blitz, Roger (20 July 2012). "Formula One left floating as IPO on hold". Financial Times. Retrieved 29 April 2013. 
  19. ^ Sylt, Christian (28 April 2013). "F1 shakes up prize money and prepares for £6.5bn float". Daily Telegraph. Retrieved 29 April 2013. 
  20. ^ Sylt, Christian; Reid, Caroline (5 August 2007). "F1 debt is $3bn but returns are so good, hedge funds want in". The Independent. Independent Print. Retrieved 2011-06-11. 
  21. ^ a b c Saward, Joe (6 April 2011). "News Corporation and Exor bid for F1". Joe Saward's Grand Prix Blog. Retrieved 2011-06-11. 
  22. ^ a b c Saward, Joe (3 May 2011). "Some numbers from the F1 world". Joe Sawards Grand Prix Blog. Retrieved 2011-06-11. 
  23. ^ a b "Bernie restructures". Grandprix.com. 17 March 1997. Retrieved 2011-05-11. 
  24. ^ "F1 commits to terrestrial TV". BBC Sport. BBC. 25 April 2001. Retrieved 2011-06-12. 
  25. ^ "World Motor Sport Council". Fédération Internationale de l'Automobile. Retrieved 2011-06-11. 
  26. ^ "Legal Notices". Formula1.com. Formula One World Championship. Retrieved 29 April 2013. 
  27. ^ a b c "Bernie's company reshuffle". Grandprix.com. Retrieved 2011-06-11. 
  28. ^ a b c "Grand prix, grand prizes". The Economist. 13 July 2000. Retrieved 2011-06-12. 
  29. ^ "Companies at Biggin Hill". Biggin Hill Airport. Retrieved 2011-06-11. 
  30. ^ Straw, Edd (30 April 2009). "New teams to get financial support". Autosport (Haymarket Publications). Retrieved 2011-06-10. 
  31. ^ Reid, Caroline; Sylt, Christian (19 October 2007). "CVC takes wheel with GP2". The Daily Telegraph. Retrieved 2007-10-29. 
  32. ^ "It is not just a dog's life". Grandprix.com. 13 May 2008. Retrieved 2011-06-12. 
  33. ^ a b c Saward, Joe (4 January 2000). "The Paddock Club". GrandPrix.com. Retrieved 2006-10-18. 
  34. ^ "Formula One acquires APM and Allsport Management" (PDF) (Press release). CVC Capital Partners. 31 March 2006. Retrieved 2006-10-18. 
  35. ^ "CVC buys Allsport". GrandPrix.com. 1 April 2006. Retrieved 2006-10-18.