A little over 10 years have passed since private equity fund manager CVC Capital Partners acquired majority control of Formula One Management with the intention of utilising F1's commercial rights in order to maximise its return on investment through funds made available by a variety of institutional investors - such as the Teacher Retirement System of Texas, or Calpers, California's civil service equivalent.
CVC's planned modus operandi was to list its latest sports property on Singapore's stock exchange in 2013. The business was restructured, with Strategy Group status and premium payments being offered to five big teams in exchange for commitments to remain in F1 from 2013 through to the end of 2020. That, figured CVC, would guarantee top dollar for the IPO.
However, a raft of factors, including the global economic crisis and F1 tsar Bernie Ecclestone's Munich fraud trial - the $100million settlement of which failed to soothe markets - conspired against the plan. CVC, which sold off half its share to retain 35.5% of FOM, found itself saddled with the rights-holding entity for well beyond the typical period for such investments, i.e. seven years.
Worse, the contracts keep bouncing back to haunt CVC, for not only is the EU investigating the matter following filed complaints by Sauber and Force India, the inequitable revenue structure imposed by CVC on a take-it-or-leave-it basis for the minnows is predominantly responsible for the embattled situations the independent teams currently find themselves in.
On that note: Brexit is unlikely to duly influence the issue, for the primary argument is that European fans are jeopardised by F1's inequitable revenue/governance structures through contracts that stifle competition while excluding half the grid from crucial decisions at Strategy Group level, and CVC - used as a broad term given the fund's full control - cannot expect respite in this regard.
For proof look no further than Microsoft or Apple: Both came under the EU's microscope despite being domiciled in non-EU territories, with the former being fined particularly heavily after failing to heed the EU's rulings. Then consider that one of the complainants in the F1 saga is Sauber - the complaint was filed and accepted despite the team being in Switzerland, a non-EU country.
Still, sources close to CVC and FOM regularly allude to potential purchasers for F1's rights, yet a deal seems no closer than before the planned IPO. Little wonder: As things stand now, the contracts (termed 'bilaterals') have 50% of their duration remaining. Who would shell out gazillions for a business with four years of shelf life; invest in an entity headed up by an 86-year-old with an apparent aversion to succession planning?
In the words of one very shrewd F1 numbers man: "CVC must start offering post-2020 contracts post-haste, simply because they need a very long runway to make any sale fly. As things stand right now they no longer have anything long-term to offer."
The word is that Ecclestone will soon commence negotiations with the teams. When Renault acquired Lotus the company was allegedly offered a deal to 2024, but this extension was more a function of CVC's need to back-load the contract due to cashflow issues created by billion-dollar debt piles incurred by CVC during the original purchase process and subsequent dividend payments.
As things stand now, F1's income after direct costs amounts to approximately $1.35billion (Sterling currently fluctuates too wildly to provide a meaningful equivalent), broadly split on a 65/35 basis between teams collectively and CVC subsidiaries/other shareholders. Of their share ($470m), CVC funds and other shareholders shell out an estimated $300m in debt servicing, retaining just a fraction of the original billion-dollar pile.
The commercial rights holder sits in a ratchet: contracts expiring in four years, and a substantial debt pile. Where previous negotiations were skewed in favour of CVC, and further slanted in that direction by sweeteners on offer to the likes of Ferrari, Red Bull and Mercedes, this time around the table is slanted away from the private equity fund: time, duration, debt and EU all present hurdles.
These obstacles were not foreseen by CVC at the time of framing the original contracts - or, if they were, they were myopically dismissed - for the hoped-for listing would dump these issues fairly and squarely in the laps of F1's post-IPO shareholders. Now, though, CVC and allied funds sit with the problems.
However, Renault's timeframe sets a precedent by providing an eight-year 'runway' by adding four years to current contracts, while, crucially, offering simultaneous commercial stability to prospective entrants - particularly if F1 manages to lock in its technical and sporting regulations for the same period. If F1 does not stick to that timeframe, then its commercial deals and regulations will again be out of kilter.
The main sticking points during negotiations are, though, unlikely to be the duration of contracts, but their terms and conditions - the fine print. Here CVC will surely face considerable challenges in keeping teams sweet, for Ferrari will surely insist on its heritage bonus and regulatory veto, while Red Bull Racing and others will likely demand a continuation of their multiple championship bonuses.
In short, any future revenue packages offered to teams need to eliminate the payment inequalities created by the current contracts, while keeping the top teams sufficiently committed in order to attract a purchaser for the rights at a price acceptable to CVC's fund holders. No easy balancing act that, and a situation further complicated by the fact that Sauber and Force India have filed EU complaints against the present structure.
During the Canadian Grand Prix weekend this writer quizzed six team bosses about their preferred revenue structures. As anticipated, each suggested a different solution - ranging from retention of the present (inequitable) system, through Premier League-type tables (see below) to splitting the 'pot' 11 ways. One proposed a return to the 2010-12 structure, which rewarded the top 10 teams on a sliding scale.
Add another five team bosses plus Ecclestone, his masters at CVC and the voice of the FIA, and anything up to 14 different proposals could potentially be on the negotiating table. All the while CVC's fund holders fret as the EU clock ticks on, and buyers seem further away than ever.
Already Ecclestone has come out in favour of a Premier League structure - previously analysed here - which has a differential between top and bottom earners of 30% rather thanF1's 80% gap, where Ferrari earns almost $200m and Manor under $50m despite both facing similar costs of putting two cars on the grid and going racing.
With the current regulations largely controlling engine/transmission costs, tyre usage, headcounts and windtunnel/CFD operations, the difference in budgets between frontrunners and backmarkers is largely down to hospitality and development costs.
The task faced by Ecclestone is, though, easier said than done, for he knows only too well that Ferrari, Red Bull and Mercedes - and McLaren under Ron Dennis, a vastly different proposition from the entity that last negotiated - are unlikely to roll over and allow themselves to be tickled simply because he expediently wishes to level the playing field for others. These are ruthless teams that, after all, thrive on unfair advantages.
Does Ecclestone really believe that Ferrari president Sergio Marchionne, will readily return to the New York Stock Exchange, scene of Ferrari's recent listing, to inform shareholders that he voluntarily sacrificed $90m per annum for six to eight years for the good of F1? Does Bernie believe the Daimler board will continue to bless Mercedes's F1 engagement despite $70m annually going south?
Can one imagine Red Bull honcho Dietrich Mateschitz willingly dipping further into his own pockets to cover the annual $50m shortfall that would then head towards Force India, Sauber or Manor; imagine McLaren's investors, which include the Bahraini royal family - already sore at the team's lamentable performance, which in turn manifests itself fiscally - agreeing to such drastic measures?
Ditto discussions about F1's governance process, which Ecclestone recently suggested operated as a cartel: somewhat predictably the sextet of team bosses respondents proposed as many variations: ranging from retention of the current Strategy Group structure, through FIA and commercial rights holder jointly devising regulations and imposing them, to all teams having equal input into the regulatory process.
During last week's FIA Sport Conference the governing body's president Jean Todt alluded to the power struggle coming up. Asked what he thought created the biggest sporting (not only F1) challenge for the FIA in the years ahead, he stated: "Clearly it will be the renegotiation of the Concorde Agreement, with the strong issue of the governance.
"The governing body has not enough power, [not enough] influence to have the final say on the rules."
He does not, though, favour a football-type structure: "Governance is a complex issue, whatever the championship, and I can sympathise with that. Very often I hear that in football, the decisions the federation is making, but it is different.
"Here, if you want to have the participation of teams, of manufacturers, they must support what you are doing. Very often, manufacturers are involved because they feel it is a strong marketing tool, a strong laboratory for them. So for me, it's essential you listen to them."
Clearly, then, the governing body won't simply roll over, either.
The bottom line is that CVC desperately needs to negotiate extensions to existing contracts if it is to sell out of F1 any time soon, or stay in for the long haul with revenue and governance structures it devised for an easy sell on a stock exchange.
Offer too little, and F1 could face a Ferrari backlash and/or a drastic scaling down of Red Bull's F1 activities - as their respective presidents have often threatened - offer too much, and it invites fund holder revolt while making F1 unattractive to prospective purchasers; offer nothing, and the EU could intensify its investigation while simultaneously leaving CVC and Ecclestone with too short a 'runway' to strike a sale.
That, in a nutshell, summarises the immediate challenges faced by CVC and Ecclestone, and, by extension, F1 and its teams. It is, though, a dilemma created by CVC and, by the nature of it, cannot be easily solved simply because the majority owners devised an unworkable structure in the belief that they would exit F1 sooner rather than later.
Little did they realise that matters could conspire against them - which points to exceptionally poor foresight - and therein lies the tragedy for F1 and millions of fans: CVC may prove unable to find a buyer at any price any time soon, and F1 may be saddled with these owners for years to come.
A little over 10 years have passed since private equity fund manager CVC Capital Partners acquired majority control of Formula One Management with the intention of utilising F1's commercial rights in order to maximise its return on investment through funds made available by a variety of institutional investors - such as the Teacher Retirement System of Texas, or Calpers, California's civil service equivalent.
CVC's planned modus operandi was to list its latest sports property on Singapore's stock exchange in 2013. The business was restructured, with Strategy Group status and premium payments being offered to five big teams in exchange for commitments to remain in F1 from 2013 through to the end of 2020. That, figured CVC, would guarantee top dollar for the IPO.
However, a raft of factors, including the global economic crisis and F1 tsar Bernie Ecclestone's Munich fraud trial - the $100million settlement of which failed to soothe markets - conspired against the plan. CVC, which sold off half its share to retain 35.5% of FOM, found itself saddled with the rights-holding entity for well beyond the typical period for such investments, i.e. seven years.
Worse, the contracts keep bouncing back to haunt CVC, for not only is the EU investigating the matter following filed complaints by Sauber and Force India, the inequitable revenue structure imposed by CVC on a take-it-or-leave-it basis for the minnows is predominantly responsible for the embattled situations the independent teams currently find themselves in.
On that note: Brexit is unlikely to duly influence the issue, for the primary argument is that European fans are jeopardised by F1's inequitable revenue/governance structures through contracts that stifle competition while excluding half the grid from crucial decisions at Strategy Group level, and CVC - used as a broad term given the fund's full control - cannot expect respite in this regard.
For proof look no further than Microsoft or Apple: Both came under the EU's microscope despite being domiciled in non-EU territories, with the former being fined particularly heavily after failing to heed the EU's rulings. Then consider that one of the complainants in the F1 saga is Sauber - the complaint was filed and accepted despite the team being in Switzerland, a non-EU country.
Still, sources close to CVC and FOM regularly allude to potential purchasers for F1's rights, yet a deal seems no closer than before the planned IPO. Little wonder: As things stand now, the contracts (termed 'bilaterals') have 50% of their duration remaining. Who would shell out gazillions for a business with four years of shelf life; invest in an entity headed up by an 86-year-old with an apparent aversion to succession planning?
In the words of one very shrewd F1 numbers man: "CVC must start offering post-2020 contracts post-haste, simply because they need a very long runway to make any sale fly. As things stand right now they no longer have anything long-term to offer."
The word is that Ecclestone will soon commence negotiations with the teams. When Renault acquired Lotus the company was allegedly offered a deal to 2024, but this extension was more a function of CVC's need to back-load the contract due to cashflow issues created by billion-dollar debt piles incurred by CVC during the original purchase process and subsequent dividend payments.
As things stand now, F1's income after direct costs amounts to approximately $1.35billion (Sterling currently fluctuates too wildly to provide a meaningful equivalent), broadly split on a 65/35 basis between teams collectively and CVC subsidiaries/other shareholders. Of their share ($470m), CVC funds and other shareholders shell out an estimated $300m in debt servicing, retaining just a fraction of the original billion-dollar pile.
The commercial rights holder sits in a ratchet: contracts expiring in four years, and a substantial debt pile. Where previous negotiations were skewed in favour of CVC, and further slanted in that direction by sweeteners on offer to the likes of Ferrari, Red Bull and Mercedes, this time around the table is slanted away from the private equity fund: time, duration, debt and EU all present hurdles.
These obstacles were not foreseen by CVC at the time of framing the original contracts - or, if they were, they were myopically dismissed - for the hoped-for listing would dump these issues fairly and squarely in the laps of F1's post-IPO shareholders. Now, though, CVC and allied funds sit with the problems.
However, Renault's timeframe sets a precedent by providing an eight-year 'runway' by adding four years to current contracts, while, crucially, offering simultaneous commercial stability to prospective entrants - particularly if F1 manages to lock in its technical and sporting regulations for the same period. If F1 does not stick to that timeframe, then its commercial deals and regulations will again be out of kilter.
The main sticking points during negotiations are, though, unlikely to be the duration of contracts, but their terms and conditions - the fine print. Here CVC will surely face considerable challenges in keeping teams sweet, for Ferrari will surely insist on its heritage bonus and regulatory veto, while Red Bull Racing and others will likely demand a continuation of their multiple championship bonuses.
In short, any future revenue packages offered to teams need to eliminate the payment inequalities created by the current contracts, while keeping the top teams sufficiently committed in order to attract a purchaser for the rights at a price acceptable to CVC's fund holders. No easy balancing act that, and a situation further complicated by the fact that Sauber and Force India have filed EU complaints against the present structure.
During the Canadian Grand Prix weekend this writer quizzed six team bosses about their preferred revenue structures. As anticipated, each suggested a different solution - ranging from retention of the present (inequitable) system, through Premier League-type tables (see below) to splitting the 'pot' 11 ways. One proposed a return to the 2010-12 structure, which rewarded the top 10 teams on a sliding scale.
Add another five team bosses plus Ecclestone, his masters at CVC and the voice of the FIA, and anything up to 14 different proposals could potentially be on the negotiating table. All the while CVC's fund holders fret as the EU clock ticks on, and buyers seem further away than ever.
Already Ecclestone has come out in favour of a Premier League structure - previously analysed here - which has a differential between top and bottom earners of 30% rather thanF1's 80% gap, where Ferrari earns almost $200m and Manor under $50m despite both facing similar costs of putting two cars on the grid and going racing.
With the current regulations largely controlling engine/transmission costs, tyre usage, headcounts and windtunnel/CFD operations, the difference in budgets between frontrunners and backmarkers is largely down to hospitality and development costs.
The task faced by Ecclestone is, though, easier said than done, for he knows only too well that Ferrari, Red Bull and Mercedes - and McLaren under Ron Dennis, a vastly different proposition from the entity that last negotiated - are unlikely to roll over and allow themselves to be tickled simply because he expediently wishes to level the playing field for others. These are ruthless teams that, after all, thrive on unfair advantages.
Does Ecclestone really believe that Ferrari president Sergio Marchionne, will readily return to the New York Stock Exchange, scene of Ferrari's recent listing, to inform shareholders that he voluntarily sacrificed $90m per annum for six to eight years for the good of F1? Does Bernie believe the Daimler board will continue to bless Mercedes's F1 engagement despite $70m annually going south?
Can one imagine Red Bull honcho Dietrich Mateschitz willingly dipping further into his own pockets to cover the annual $50m shortfall that would then head towards Force India, Sauber or Manor; imagine McLaren's investors, which include the Bahraini royal family - already sore at the team's lamentable performance, which in turn manifests itself fiscally - agreeing to such drastic measures?
Ditto discussions about F1's governance process, which Ecclestone recently suggested operated as a cartel: somewhat predictably the sextet of team bosses respondents proposed as many variations: ranging from retention of the current Strategy Group structure, through FIA and commercial rights holder jointly devising regulations and imposing them, to all teams having equal input into the regulatory process.
During last week's FIA Sport Conference the governing body's president Jean Todt alluded to the power struggle coming up. Asked what he thought created the biggest sporting (not only F1) challenge for the FIA in the years ahead, he stated: "Clearly it will be the renegotiation of the Concorde Agreement, with the strong issue of the governance.
"The governing body has not enough power, [not enough] influence to have the final say on the rules."
He does not, though, favour a football-type structure: "Governance is a complex issue, whatever the championship, and I can sympathise with that. Very often I hear that in football, the decisions the federation is making, but it is different.
"Here, if you want to have the participation of teams, of manufacturers, they must support what you are doing. Very often, manufacturers are involved because they feel it is a strong marketing tool, a strong laboratory for them. So for me, it's essential you listen to them."
Clearly, then, the governing body won't simply roll over, either.
The bottom line is that CVC desperately needs to negotiate extensions to existing contracts if it is to sell out of F1 any time soon, or stay in for the long haul with revenue and governance structures it devised for an easy sell on a stock exchange.
Offer too little, and F1 could face a Ferrari backlash and/or a drastic scaling down of Red Bull's F1 activities - as their respective presidents have often threatened - offer too much, and it invites fund holder revolt while making F1 unattractive to prospective purchasers; offer nothing, and the EU could intensify its investigation while simultaneously leaving CVC and Ecclestone with too short a 'runway' to strike a sale.
That, in a nutshell, summarises the immediate challenges faced by CVC and Ecclestone, and, by extension, F1 and its teams. It is, though, a dilemma created by CVC and, by the nature of it, cannot be easily solved simply because the majority owners devised an unworkable structure in the belief that they would exit F1 sooner rather than later.
Little did they realise that matters could conspire against them - which points to exceptionally poor foresight - and therein lies the tragedy for F1 and millions of fans: CVC may prove unable to find a buyer at any price any time soon, and F1 may be saddled with these owners for years to come.