No dividend from Formula One Administration

Hi guys, thought this might be of interest. I’ve printed below a story I wrote last weekend after discovering that F1’s cash cow Formula One Administration hasn’t paid a dividend to its shareholders over the past five years. So Kirch, EM.TV and the banks weren’t paid one from it and the reason for this is that there was a restriction on declaring dividends in the terms of the $1.4 billion bond which FOA took out in 1999. A refinancing of the bond to allow dividend payment was expected but never took place. The banks only this year took control of FOA’s board so a refinancing is now in their hands.

The upshot is that over the past five years, a whopping $612 million has been stacked up in the profit & loss account of FOA. It’s doing a bit better than the teams who are lucky if they make a few million dollars profit!! Anyway, I have also printed below some figures from the past three years of the company so you can see how the money has been racked up.

For example, the last accounts show that its after-tax profit of $158,065,000 was retained and added to the $428,137,000 already in the reserve from the previous year. In addition to $25,907,000 (not shown on the figures), which the company made from exchange differences on retranslating net assets of a subsidiary, this gives a total of $612 million in FOA’s reserve. Since the last accounts were filed at the end of 2003, there could well be much more in there now. And that’s on top of the $248 million cash in the bank! It doesn't surprise me that the teams want more money!

Independent on Sunday

October 23, 2005

ECCLESTONE YIELDS TO BANKS OVER F1 PAYOUT

By Christian Sylt and Caroline Reid

The banks that have been at daggers drawn with the Formula One impresario Bernie Ecclestone for three years have finally secured the power to get some money back from their investment. The latest accounts show $ 460m (£260m) available to them, with $ 150m due to Bambino, Mr Ecclestone's family trust.

Bambino owns 25 per cent of SLEC, F1's ultimate holding company, with the remaining 75 per cent in the hands of three banks. One of these, Germany's Bayerische Landesbank, has in effect taken control of Formula One Administration (FOA), the company that runs the high-powered sport.

The bank was given clearance by the European Commission earlier this month to acquire control of Speed Investments, the vehicle holding its SLEC share, from the US banks Lehman Brothers and JPMorgan. And Gerhard Mann, previously head of Bayern's London office, has been installed as chief executive of Formula One Holdings (FOH), the parent company of FOA.

The banks have $ 1.6bn secured on the F1 business and now hope to get some of this back. Company documents show that FOA has not paid a dividend since it was incorporated in 1999. Since then, 75 per cent of its ultimate parent, SLEC Holdings, has been sold raising $ 2bn for Bambino.

Before Bambino began selling off stakes in SLEC, it had already lined its pockets in 1999 with a $ 1.4bn bond secured on the next decade of revenues from F1. The terms of the deal restricted FOA, which makes the bond repayments, from declaring dividends, and hence its profits began accumulating in the company's reserves.

However, a source close to FOA said it was always intended that the bond would be refinanced and the board would have had to vote on this. He added: 'One [of several] aspect[s] of the intended refinancing of the F1 bond was to allow for dividends to be paid out.'

This didn't happen during the brief period that two German media companies, EM.TV and Kirch, held majority stakes. But when Kirch went bust in 2002, its creditor banks " Bayern, Lehman and JPMorgan " seized its shares as security for the $ 1.6bn they had lent the company to buy into F1.

The banks won a High Court case against Bambino for control of FOH last year and then they sued it again in January for control of FOA. Bambino settled out of court. The banks said that, as a result, they had regained influence commensurate with their ownership and that 'the negative consequences caused by the breach of contract on the part of ... Bambino ... have been rectified'.

The banks obtained a court order to enforce this at the end of August and the decision to refinance the bond and declare a dividend is now in Bayern's hands. This could see Bambino receive some $ 150m, adding to the wealth of one of Europe's wealthiest families.

Formula One Administration
PROFIT AND LOSS ACCOUNT:

Date of Accounts 31/12/2003 31/12/2002 31/12/2001

Total sales 562,147,000 642,717,000 593,535,000
Cost of Sales 213,326,000 288,235,000 276,422,000
Gross Profit 348,821,000 354,482,000 317,113,000
Operating Profit 291,286,000 274,741,000 270,641,000
NonTrading Income 3,546,000 5,573,000 19,458,000
Interest Payable 79,884,000 99,049,000 109,607,000
Pretax Profit 214,948,000 181,265,000 180,492,000
Taxation 56,883,000 54,719,000 62,839,000
Profit After Tax 158,065,000 126,546,000 117,653,000
Retained Profits 158,065,000 126,546,000 117,653,000
Emp. Remuneration 17,613,000 21,275,000 18,024,000
Dir. Remuneration 4,089,000 1,294,000 1,272,000
Employee number 221 469 448

BALANCE SHEET

ASSETS:
Tangible Assets 28,127,000 33,410,000 45,802,000
Intangible Assets 3,144,407,000 3,144,965,000 3,135,907,000
Tot. Fixed Assets 3,172,534,000 3,178,375,000 3,181,709,000
Stocks 53,000 0 16,000
Debtors 114,090,000 80,612,000 28,478,000
Cash 248,065,000 249,963,000 244,844,000
Misc. Current Assets 6,360,000 17,775,000 67,730,000
Other Cur. Assets 254,425,000 267,738,000 312,574,000
Total Cur. Assets 368,568,000 348,350,000 341,068,000
Fixed Assets 28,127,000 31,358,000 45,802,000
TOTAL ASSETS 3,541,102,000 3,526,725,000 3,522,777,000

LIABILITIES:
Creditors 9,480,000 9,859,000 18,836,000
Misc. Current Liab. 317,721,000 239,550,000 249,277,000
Other Short Term Finance 85,000,000 73,547,000 67,978,000
Due to directors Current 0 327,000 78,000
Other Current Liabilities 232,721,000 166,003,000 181,299,000
Short Term Loans 85,000,000 73,547,000 67,978,000
Long Term Loans 631,132,000 874,732,000 1,008,972,000
Total Current Liabilities 327,201,000 249,409,000 268,113,000
Total Long Term Liab. 631,792,000 879,179,000 1,008,972,000
TOTAL LIABILITIES 958,993,000 1,128,588,000 1,277,085,000

Called Up Share Capital
& Sundry Reserves 1,970,000,000 1,970,000,000 1,970,002,000
Profit & Loss
Account Reserve 612,109,000 428,137,000 275,690,000
Shareholder Funds 2,582,109,000 2,398,137,000 2,245,692,000
Called Up Share Capital 1,970,000,000 1,970,000,000 1,970,002,000

NET ASSETS 3,213,901,000 3,277,316,000 3,254,664,000

Dir. Remuneration 4,089,000 1,294,000 1,272,000
Employee number 221 469 448

I like these 2 lines - workforce halved in a year, directors pay trebled! Why did headcount reduce so much in one year? Is it tied to the collapse of F1 Digital Service?

The workforce was indeed cut due to the F1 Digital collapse. The best thing about the director's pay is that it all went to Bernie!! no joke - the other two guys received no emoluments from FOA according to the acounts.

Seems like Bernie HAS NOT been lining his own pockets, but building the asset base of the company.. the banks nust be delighted with him!

Shaun

There's no doubt that there's a huge stash of cash in FOA, you're absolutely right about that. The thing is that without being able to declare a dividend, the banks didn't have the power to access it until the bond was paid off. Now that the banks have control of FOA, they can refinance the bond and declare a dividend. They may be better off waiting till it is paid off though as sources suggest that it will be done and dusted by the end of next year. Mind you, I wouldn't say that Bernie has not been lining his own pockets - FOA (which let's not forget, the banks were NOT in control of) allowed him to quadruple his salary!

So you think the banks will just leech the reserves of the company? then what? sell on the shell?

Seems like Bernie HAS NOT been lining his own pockets, but building the asset base of the company.. the banks nust be delighted with him!

Heh. It´s all relative. May I quote csylt:

The workforce was indeed cut due to the F1 Digital collapse. The best thing about the director's pay is that it all went to Bernie!! no joke - the other two guys received no emoluments from FOA according to the acounts.

Without having got any money from FOA for three years and with $1.6 billion invested in it since 2001 who knows? But, make no mistake, SLEC's value is derived from a multiple of its earnings rather than cash in the bank/reserves. Its most valuable assets are the rights and these bring in the cash. Of course if key teams don't sign a new Concorde, this earning power will diminsh. That's their big worry irrespective of cash in the bank/reserves.

Spunout raises another intersting issue. Bernie's expenditure on F1 Digital was at very least $70 million. This is money down the drain and the workforce was cut in half - not good asset base growth. Another related issue is that one of the reasons that Bernie was handed the F1 rights directly was to build a pay TV structure and not be challenged as the legal owner of the rights it sold. This was a deal which expires at the end of 2010 (to be replaced by the 100 year deal) and currently involves SLEc paying the FIA just €7 million per year. THAT is extraordinary given that the rights bring FOA over $500 million per year. Don't hear about the €7 million fee mentioned in the media much though....

Werent the FIA basiaclly told to stay out of the financial side? By the EU?

Shaun

Spot on. But only on expiry of the deal in force which is end of 2010. Then the equally lovely 100-year deal begins. SLEC paid $313.7 million for 100 years - $3.1 million per year. In 2111 that'll be about the price of a newspaper!

Bernie has managed to fool his business partners for years - "look, I´ll give you this huge pile of money...all I need in return is the rights and the revenue"

Without having got any money from FOA for three years and with $1.6 billion invested in it since 2001 who knows? But, make no mistake, SLEC's value is derived from a multiple of its earnings rather than cash in the bank/reserves. Its most valuable assets are the rights and these bring in the cash. Of course if key teams don't sign a new Concorde, this earning power will diminsh. That's their big worry irrespective of cash in the bank/reserves.

Yep. In case some folks find the financial statements somewhat difficult to interpret, it´s good to remember bank and reserves are two different things. Bank shows how much money - physically speaking, if you will - there is. Whereas anything on the Liabilities side of balance sheet shows how the Assets side of the balance sheet has been funded. The relationship between annual profit/reserves and cash reflects this; as we can see, profit after taxes goes to boost up the reserves, but the amount of cash has remained about the same for 3 years. So, where has the money gone, then? It has been invested (Assets) and used for paying back loans (Liabilities). That´s one of the differences between healthy vs unhealthy balance sheet - to which one of these two the revenue is used?

As you correctly point out in this case indeed the rights are the most valuable asset, since these are the main source of future revenue. The structure of Assets side clearly reflects this (intangible assets). It may be tangible assets have more value than the balance sheet shows, but with this kind of numbers it hardly makes much difference. Just imagine what happened if the rights suddenly lost their value

If we take the bond out of the equation, since it should be fully repaid soon and had a $400 million reserve covering default, that leaves $327 million of current liabilities and cash in the bank of $248 million. If FOA's $3.14 billion of intangible assets from the rights were reduced to very little as a result of a breakaway, the shareholders' funds would be heavily hit. What is also interesting is that Bayern has written off a large portion of its shareholding (in 2002 the German Financial Services Authority demanded that it correct the shares' balance sheet value which was restated from $1bn to £650m) so it could still actually make a profit on paper if it manages to sell the shares for a decent sum...

If we take the bond out of the equation, since it should be fully repaid soon and had a $400 million reserve covering default, that leaves $327 million of current liabilities and cash in the bank of $248 million.

Not to forget, the bond must be payed with something from the Assets side ;)

What is also interesting is that Bayern has written off a large portion of its shareholding (in 2002 the German Financial Services Authority demanded that it correct the shares' balance sheet value which was restated from $1bn to £650m) so it could still actually make a profit on paper if it manages to sell the shares for a decent sum...

That´s a big correction I have to say. It isn´t uncommon the value shown by balance sheet is smaller than the "real" value (eg tangible assets/depreciation), but laws indeed make it clear one should not overvalue assets.

Thanks for providing this information!

No problem. It’s from an article in the German FT from 25 July 2002. To be precise (I used £ where it should have been €), the German FSA stated that the $1.6 billion loan only had a worth of €650 million. It also recommended the need for a further precaution of €429. Bayern’s CEO Werner Schmidt later said, when asked about the threat of GPWC, that no development could affect the bank’s investment – suggesting that it had pretty much completely written it off. It’s not surprising if the further €429 million has come off its books – that would leave around $266 million on its books. Sadly Bayern’s latest public accounts don’t seem to break down the risk on its books by category.

Originally posted by csylt
Spot on. But only on expiry of the deal in force which is end of 2010. Then the equally lovely 100-year deal begins. SLEC paid $313.7 million for 100 years - $3.1 million per year. In 2111 that'll be about the price of a newspaper!

Thanks for that, Christian.

No problem scousepenguin. Bringing this thread and another together is the point that in 1994 the FIA was investigated by the French tax authorities. At the time it owned a 30% share of the F1 TV rights which it surrendered to Allsopp, Parker & Marsh, a company whose owners were unknown due to being beneficiaries of a Guernsey trust. APM paid the FIA a fee of between $5.6 m and $9m per year but during that time 30% of the rights was estimated to have brought in $102m for APM.

The French tax authorities wondered why a French organisation would willingly give away its income, particularly when the company it was going to had unknown ownership. In other words the French taxman was missing out on tax on the $102m. Who owned APM? The French tax authorities may well know. The trustee of Bambino was a director, as was Paddy McNally who is still listed as president of another APM company.

The following fixed fee deal was done with Bernie for the F1 rights in their entirety which upset the teams and ultimately led them to sign the Concorde on condition of getting stakes in an F1 float or sale (which they didn't get and two are going to trial in January with their lawyers over this). This is an abridged tale but wraps a few things up.

Apparently the company Allsopp, Parker & Marsh is listed in the fine print on the reverse of some of this year's race tickets alongside Allsport, FOA etc. Does anyone know what the company actually does now?!

I found this article.

http://www.thecarcon...S175.A1866.html

It's a great article. The only thing is that the APM referred to in it has stopped trading and a new company has been set up. APM received the cash from the FIA's share of the media rights and also handled the trackside advertising but I understood that Allsport was dealing with this now. The following link shows that the new APM was involved with the race sponsorship deal with China but it isn't the promoter as far as I know. http://english.sinop...ulture/24.shtml
I wonder who owns the new APM? It'd be interesting enough to find out exactly what it does! In the meantime thanks again Spunout. C

this is how the big boys play....

i think this is allright considering the teams probably make decent profits as well. what was that Williams figure being bandied bout some time ago?

Hi Skinnylizard. The teams are making decent profits and their bosses are worth tens of millions. The only problem I have with this is that we don't even know who owns APM or what it does! Could be anyone and it could do anything yet it is listed on the back of tickets along with FOA, the FIA and Allsport!!