Who holds the reins in F1 (Part 3)

Following the agreements between Max Mosley in his position as president of the FIA and Bernie Ecclestone, the future of Formula One was definitely evolving from a pure sport into an era of huge investment from organizations that have no interest in anything other than the bottom line of a balance sheet.

In 1996 Ecclestone was preparing for a flotation of his group in the following year and created SLEC Holdings as the holding company for his Formula One companies. At the same time he was to transfer ownership of his F1 businesses to Slavica, his wife at the time.

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• Part 1
• Part 2

Over the next few years SLEC Holdings was to attract multiple investors and this is where it gets complicated. Morgan Grenfell Private Equity purchased 12.5% of SLEC for £234 million and just a few months later Hellman and Friedman bought a 37% share in SLEC for £625 million. The two then combined and formed Speed Investments which held a 50% share of SLEC.

Speed Investments was subsequently sold to EM.TV & Merchandising, a German media company, for £1.1 billion, the acquisition created serious financial problems for the company. Rescue arrived in the shape of the Kirch Group who took a stake in the beleaguered media concern and control of Speed Investments. A mutual agreement between the two companies led to another 25% of SLEC being purchased for approximately €600 million.

Kirch financed its new venture by borrowing €1 billion from Bayerische Landesbank and the balance from JP Morgan Chase and Lehman Brothers. This meant that Kirch now controlled SLEC and the board of Formula One Holdings.

It was not long before Kirch hit financial problems, massive expenditure and losses meant that the company was placed into receivership, the creditors, being the banks, dismantled the group. Interestingly Bayerische Landesbank, Lehman Brothers and JP Morgan Chase, through Speed Investments, retained the share of SLEC.

To complete the deal the banks had to apply for clearance from the European Commission, but at this point Ecclestone moved faster and made changes in the boards of Formula One Holdings, Formula One Management, Formula One Administration and SLEC Holdings. This gave control of all these companies to Bambino Holdings, a trust that apparently was at the time, registered to Ecclestone’s ex wife Slavica.

Bernie Ecclestone | Picture: Getty

Ecclestone then faced a legal action brought by the three banks, suing for more control over the sport. The case was only a two day affair but it was two weeks before the presiding judge, Justice Andrew Park delivered his verdict in favour of the banks. Ecclestone responded that the verdict would mean “nothing at all” and he intended to appeal.

Just 24 hours later the Englishman offered the team chiefs £260 million over the next three years if they would unanimously agree to renew the Concorde Agreement which was to expire in 2008.

It was November 2005 when CVC Capital Partners informed the world that it was to purchase the SLEC shares held by Bayerische Landesbank and Bambino Holdings, one month later the company also acquired JP Morgan Chase’s SLEC shares.

The sale of Bambino’s share was reinvested into the company by Ecclestone giving his family 13.8% share of the holding company Alpha Prema a division of Delta Topco. CVC went on to buy Lehman Brothers shares in SLEC becoming the majority shareholder of the Formula One group with 63.4% the balance owned by company directors, JP Morgan Chase and the LBI Group.

Once again it was planned to float the company, this time on the Singapore Stock Exchange but global economic conditions were not conducive to such a move. CVC went on to divest itself of a number of its shares to Waddell & Reed, Black Rock and Norges Bank investment companies. This reduced the company’s shareholding to 35.5% with Waddell & Reed having the second largest share.

According to Forbes in 2014 Formula One has proved to be one of CVC Capital’s must lucrative investments. Bought in 2006 for $2 billion the estimated value of F1 in 2014 was $12 billion with CVC having already received $8.2 billion in cash and still having the remaining value. Forbes states that this reflects a return of 751.3% one of the highest in the company’s 35 year history.

So with F1 now truly commercial with CVC and Ecclestone pulling the strings what of the future? Fees have risen for circuit owners and spectators alike, television coverage is almost totally on a pay to view basis worldwide. Ecclestone continues to increase costs and yet still believes that the main reason for the sports decline in popularity is the new generation power plants. The fact that many can no longer afford to watch, either at the track or on television does not seem to worry the F1 Supremo.

The FIA has now empowered Ecclestone to sort out the “problems” within the sport, but he faces very strong opposition from the manufacturers and we are liable to witness a titanic struggle.