COTA Austin - construction and infrastructure

[xpensive]

You have your moments WB, I give you that. However, the immediate problem I can see from this commercial arrangement is that Formula One becomes dependent on tax-payers money, which pushes the races to corporatistic nations in Asia.

[donskar]

This has been ventilated before obviously, but I fear that the original problem is CVC's greed, which comes from MrM's giving away of F1's commercial rights to MrE for a plate of beans, who rather promptly sold said rights for tenfold the money.

What is driving F1 to bizarre government subsidies and out of the civilized world, is the quest for money to finance the interest on the loan, which was taken to pay MrE for the rights given to him by MrM. Utterly perverted if you ask me.

Agree. For F1 in general and Bernie in particular, money is the only goal. All else is bent to serve the creation of more profit.

[xpensive]

Thing is Don, that I doubt if we know for certain as to what was included in the contract between MrE and SLEC/Kirsch/CVC and whatnot, why he might be in some way obliged to bring in a certain amount of greenbacks to earn his gargantuan one-time pay-off from the loot generated by MrM's sudden generosity?

Perhaps WB could enlighten us on the details, as he in all honesty seems to be more up to date on the subject?

[WhiteBlue]

I honestly think that the ownership of the commercial rights has nothing at all to do with the business ethics and methods applied over the last 30 years. Through all permutations of ownership the management simply has been done by the same one person, Bernie.

The difference simply was the destination for the immense amount of money that F1 generated particularly in the last 15 years. Initially the shares all belonged to the FiA and the teams. They should have divided the profits between them, but that never happened. Bernie immediately started his handouts with fixed amounts of money that were not defined as percentages of his sales. They were $ figures. He tried to keep his profits hidden by a network of holding companies and even went as far as separating the race fee and TV business from the catering and advertising business which was run by a straw man.

Naturally the teams learned over the time that they had been taken for a ride and improved their pay out schedule considerably. Unfortunately they never got their heads out of their asses about keeping the ownership of the commercial rights. In 1981 they had the ownership de facto and they gave it up because Bernie convinced them that only a unified marketing approach would deliver high returns in the negotiations with the circuits and TV stations. In the nineties they completely abandoned the idea of owning shares or parts of the commercial rights for percent pay outs of the profit.

At the same time the FiA got into trouble with the EU for their double role in motor racing. They were the governing body with the exclusive right to the FiA sanctioned racing series and they always had the last word in F1 rule making by ways of the WMSC veto right. At the same time they were still getting a constant revenue stream from the ongoing commercial rights share. This was regarded as a clash of interest. Race promoters intervened at the EU and claimed that they had been pushed out of business by the FiA sanctioned series by unfair business practise. The EU demanded that the FiA abandoned all commercial rights of racing if they wanted to retain the role of governing body.

In 2002 or 2003 the FiA had to rid themselves of the ongoing income and sell the remaining 15% of the business to one of the two parties that were involved. At that time you had Bernie's FOM standing against the auto manufacturer dominated race teams. Only those two parties effectively had the inside knowledge and the power to acquire total control of the commercial rights.

Many people argue that the FiA share of the commercial rights should have been auctioned publicly, but that is blue eyed nonsense. The way the Concord agreement had been set up it was a closed oligopoly with total secrecy of the commercial affairs. The FiA could never simply break the concord and make Bernie divulge all his business secrets to the general public without his consent and the consent of the teams. Of course that would never happen from Bernie's side.

As it turned out the teams had no interest whatsoever to invest into the business and buy the FiA shares. This generated the leverage that enabled Bernie to grab those shares at such a nice price of $300m for 15% of the business. It valued the total TV and race fee business of F1 at $2bn. The sale was for 100 years and at the time the business was probably making $250m a year. So Bernie payed close to one year's profit to get control from 2010 for 100 years.

Once Bernie had total control of the business he went on to load it up with debt at the tune of one billion dollars. This kind of leverage had never existed before and it immediately doubled or tripled the total cash that he personally had extracted from F1.

Very soon after leveraging the business he did another deal on the equity side. He sold about half the business to the German media group EMTV under the condition that he would still be the only managing equity partner. EMTV's shares were basically non voting shares when it came to management decisions. The majority of the remaining equity was bunked in the bambino off shore trust owned by his wife and children for tax evasion purposes. Naturally Bernie kept control over that part of the business.

EMTV itself was over leveraged and went bust within a year of the acquisition. Their equity was snapped up by another German media group controlled by Leo Kirch. Kirch had excellent political connections to the ruling conservative party in Germany and Bavaria. The Bavarian state bank (Bayrische Landesbank) financed the biggest part of the deal with very "friendly" conditions on securities. Kirch had the biggest stock of movie and TV rights in Germany and ran the only digital TV subscription business in Germany now known as Sky Deutschland. At that time it was called Premiere. That business and the film stock provided the securities. Some other banks like Lehmann brothers were also involved.

Kirch would probably still own the majority of the F1 business had he not been targeted by Rupert Murdoch with a perfect industrial espionage and sabotage gig. The European TV subscription businesses in Germany, Italy, Spain and France were all using an encryption system that was based on technology developed by a small encryption firm in Israel. It was later shown in a law court in California that Murdoch helped a group of hackers to publish the core algorithm of his European rivals. The bulk of the intended damage was done to the French who were competing with him in the USA. But the biggest hit in terms of business destruction was done to Kirch. That might have even been more or less unintended collateral damage because Murdoch did not own significant European shares in digital TV subscription firms. He had shares in BSkyB in the UK but little else on the continent. In 2000 to 2006 between 20 and 85% of the Kirch subscription viewers were not paying. It started with small numbers but at the hight of the crisis the business was eating up cash in billions and the revenues almost completely went into the hackers pockets. You could buy a programmable smart card and a programmer for the price of one monthly subscription and watch the service foc for years.

Kirch was unfortunate in another way as well. Somehow he had antagonized the head of the Deutsche Bank, Hilmar Kopper. Deutsche was by far the biggest bank in Germany and this was probably a political issue as well but I do not know the back ground. Kopper talked down Kirch's creditworthiness in a public interview. That was another attack of unprecedented magnitude on Kirch. Within two or three months Kirch went bust as well when his stock value fell through the roof. Bayrische Landesbank as his biggest creditor took control of the biggest chunk of the F1 equity. Stage entry Gerhard Gribkowsky.

From there it was a relatively simple process to the current ownership situation. Bernie negotiated a deal with CVC to acquire the total equity of F1 and name him as the CEO for life time. Naturally Gribkowski and Bayrische would have been the deal brokers considering they owned the biggest equity share of the TV and race fee business at the time, but Bernie had two negotiating levers Gribkowsky could not beat. He had the inside knowledge of marketing F1 for 25 years and he still owned the catering and track advertising business completely. He offered both to CVC in return for the job of CEO. Gribkowsky was paid $44m in bribes by Bambino and Ecclestone to make sure that Bayrische would not grenade the deal.

At this point Ecclestone and Bambino probably made more than another billion by selling the residual equity of the TV and race fee business and the 96% of the catering and advertising business to CVC. CVC heavily leveraged the deal and from 2006 most of the F1 revenues went into debt service and debt reduction. It proved to be a very profitable business for CVC.

Bernie's and Bambino's total pay outs from F1 between 1981 and 2006 when he gave up significant equity holding were estimated at $6bn by some financial sources. I don't think that is over estimated. This is in a nutshell how a business owned by the FiA and the teams morphed into a a money maker for a private equity firm. Most figures in this post come from memory and I may be off a little bit here and there but the story is as close as you can get to the published facts.

[xpensive]

Thank you WB, as a comprehenive xplanation as one could xpext or desire.

Now, how could a track owner such a COTA possibily get out of such a stranglehold?

[WhiteBlue]

how could a track owner such a COTA possibily get out of such a stranglehold?

They have no chance unless someone breaks the monopoly that was created in 1981. Only Bernie can sell the product and that hasn't changed for 30 years. He dictates the conditions as he pointed out when Epstein send him a counter proposal in November. As it stands promoters or circuit owners can petition him to change contracts if they show that the contract conditions will bust them. Bernie will then decide if the are worthy to live or die. Unless someone decides to acquire the commercial rights from CVC or gets the teams to break away nothing will change. This is the reason why I think that CotA pissed their own feet by trying to cut out Hellmund over the peanuts of $200k finance cost.

[strad]

. I remain convinced that Indy as an F1 venue did not fail due to the Michelin disaster but due to the reluctance to look at alternative or new sponsorship schemes

Well the way Bernie has all the income streams tied up, I don't know what alternative schemes you think are available. Scheme...that's a lot like scam.
I'd be interested...Just what kind of scheme/scam do you envision? Just where do you think they could squeeze out several millions of dollars from.
The contract gives everything to Bernie,,,the only source of income for the promoter/track owner is admission...Bernie even gets most of the food concession money.

[hairy_scotsman]

Here's another story about the Argentina project that Hellmund first mentioned a few weeks ago, along with South Africa and Mexico.

http://en.espnf1.com/f1/motorsport/story/66697.html

I've heard rumors of a couple more as well.

[ElleMarie]

Here's another story about the Argentina project that Hellmund first mentioned a few weeks ago, along with South Africa and Mexico.

http://en.espnf1.com/f1/motorsport/story/66697.html

I've heard rumors of a couple more as well.

well...really hope that F1 is coming back to my country..but this is kind of a bluff. I been talking to the Press director of the project some days ago in the inauguration of the first works at the Zarate field (very small one) and i'm still not convinced at all about the seriousness of this project...even though the snack bar was quite good :S (thats a joke)

[xpensive]

Conclusive WB, thanks.

If this had been a perfect world, Carlos Reutemann's Hollywood-looks would have made it through the the day.

Rumour has it that Sergio Leone tried him for "Once upon a time in the west", but I don't really believe that?

Give me another of those images Strad, just for old times sake if nothing else?

Btw, I wonder how things are in Santa Fe this days?

[WhiteBlue]

Well the way Bernie has all the income streams tied up, I don't know what alternative schemes you think are available. Scheme...that's a lot like scam.
I'd be interested...Just what kind of scheme/scam do you envision? Just where do you think they could squeeze out several millions of dollars from.
The contract gives everything to Bernie,,,the only source of income for the promoter/track owner is admission...Bernie even gets most of the food concession money

I have mentioned a few things. Large property owners or developers like the Indian GP and New Jersey GP owners can substantially increase the value of the surrounding properties. If the property is big enough that can contribute double and triple digit millions.

AFAIK the promoters can also sell the naming rights to the GP to a sponsor. And schemes like the METF can contribute a lot of money. Some public subsidies are justified IMO.

Personally I don't like the market economy with a monopoly vendor but as things stand there is no immediate remedy in sight.

[hairy_scotsman]

Well the way Bernie has all the income streams tied up, I don't know what alternative schemes you think are available. Scheme...that's a lot like scam.
I'd be interested...Just what kind of scheme/scam do you envision? Just where do you think they could squeeze out several millions of dollars from.
The contract gives everything to Bernie,,,the only source of income for the promoter/track owner is admission...Bernie even gets most of the food concession money

I have mentioned a few things. Large property owners or developers like the Indian GP and New Jersey GP owners can substantially increase the value of the surrounding properties. If the property is big enough that can contribute double and triple digit millions.

AFAIK the promoters can also sell the naming rights to the GP to a sponsor. And schemes like the METF can contribute a lot of money. Some public subsidies are justified IMO.

Personally I don't like the market economy with a monopoly vendor but as things stand there is no immediate remedy in sight.

There are going to be 14 Executive Meeting Suites at COTA. I've heard these can rent for several hundred thousand $$ each per F1 event. That's one "scheme". No, not scam.

[xpensive]

...
Personally I don't like the market economy with a monopoly vendor but as things stand there is no immediate remedy in sight.

Hence my dislike for the "state and das grosse kapital" solutions we see wihtin F1 today, when there government money goes hand in hand with sheer profiteering.

[bhall]

Any public money spent in NJ for the NAGP would, in my mind, be a crime in light of Gov. Tubbie slashing education and healthcare funding across the board. A grand prix brings with it no knock-on value in that arena.

And it's highly unlikely any property in North Jersey is going to find its value increased because of F1. If anything, the reverse could be true simply because of the disruption to commerce caused by the race and its build-up and tear-down; the NAGP will likely be the most disruptive race of the year to its host's residents.

[xpensive]

To my humble mind, any event, be that F1 or NBA, should pay their own bils.