Through selling just 28.3% of F1 CVC has already made $2.1bn which is far more
than it paid to buy the business. It bought F1 in 2006 with $1.1bn of debt
from the Royal Bank of Scotland and a loan of around $965m from its
investment Fund IV. It was 13.3pc of the total amount committed to Fund IV
and was a big gamble as F1’s teams were threatening to set up their own
series due to a dispute over the amount of prize money their received.
Private equity firms are not renowned for building up businesses but this is
exactly what has happened since CVC took over F1. To ease the gridlock with
the teams, Mr Ecclestone brought all of F1’s key companies under one roof.
CVC bought F1’s trackside advertising and corporate hospitality divisions
then acquired the sport’s feeder GP2 and set up GP3, a grass roots entry
level series where annual team budgets come to around $2m compared to $180m
in F1.
Mr Ecclestone was subsequently able to give the racing teams a cut of
everything for the first time. He handed them 47.5% of the sport’s earnings
before interest, taxes, depreciation and amortisation and this tempted them
to stay in F1. It immediately doubled their F1 income and last year this
came to $686m.
The payment to the teams is F1’s biggest single cost and it gives the business
a profit margin of around 30pc. It has fully paid back the loan to CVC’s
fund thanks to a $2.9bn debt refinancing in 2006 and last year F1 had
underlying profits of $474m on turnover of $1.5bn.
The terms of F1’s debt have prevented it from paying a dividend since CVC took
over. That is set to change this year due another debt refinancing. To put
its returns from F1 in context, CVC had made 314pc on its €184m investment
in bookmaker William Hill by the time it exited through share sales and an
IPO in 2002.
Although CVC is set to get a higher than average return from F1 it is still
some way off its top performers. They include IDC, one of the leading
independent private hospital operators in Spain, which gave CVC an 831pc
return when it was sold in 2005.