|by Roger Horton, England|
The recent buy out of the Arrows Formula One team by a consortium which includes the Nigerian Prince Malik Ado Ibrahim and the financial company Morgan Grenfell Private Equity, for approximately US$125 million, is the latest transaction that shows a trend of escalating capital values of Formula One companies. The deal values Arrows at around US$180 million which is serious money in any language.
The Arrows' deal follows on from the "stability" deal announced late last year by the Jordan team when Warburg Pincus took a reported 40% stake in the team which valued it at around US$110 million. This makes the US$40 million paid by BAT for the Tyrrell team look positively bargain basement by comparison.
Naturally, it is impossible to make any real judgement as to the relative value these figures put on the worth of these individual F1 teams, unless the deal is examined in detail to determine just how much of the purchase price was backed by tangible assets, like buildings and land. Much of the equipment would only be of value if the purchaser is intending to use it to run another Formula One team. Even the latest and best 50% wind tunnel, which may have cost US$20 million to construct, is worthless for anything other than the specialized purpose for which it was designed.
Undoubtedly, a factor creeping into these rising values is the fact that an F1 team owner is now a franchise holder and the supply of franchises is limited. One of the conditions agreed in the last Concorde agreement, which is the agreement that governs the commercial terms under which the teams compete, was to limit the grid to twelve teams of two cars each. There are currently eleven teams planning to contest the 1999 season and a place has been reserved for Honda's entry for next season. So the only mode of entry for a new team from now on would be to merge with or buy an existing outfit.
There has been much speculation surrounding the Formula One intentions of the Japanese giant Toyota and an announcement is expected soon. It does not take a genius to work out that a likely target for Toyota is the weakest team currently on the grid, Minardi. They are perennial F1 battlers and although I admire their perseverance in continuing their unequal struggle at the back of the F1 grid, I shed no tears for their plight. They, like Jackie Oliver - who reportedly walked away from the Arrows team with around US$88 million for his 49% stake - will not have been made destitute by the F1 business.
Indeed, if these figures are being paid for teams which have between them just one F1 win (Jordan, Spa '98), just imagine how much a team like Williams or McLaren would fetch. It is little wonder that in the latest London Sunday Times Rich list Sir Frank Williams net worth was estimated at US$80 million and "poor" Ron Dennis at around US$73 million. There is no question that the next published figures will be considerably higher.
There has been a trend in Formula One for more strength in depth on the grid in recent years, in commercial terms especially. The recent entry of Stewart Grand Prix and the purchase of Tyrrell by BAT have added two very serious players to F1. Though winning remains as hard as always and a team's place in the pecking order is not always in direct proportion to the budget available, the financial means are available for most to improve if the management talent is in place.
This was not always the case and is in stark contrast to the way the grid looked as little as ten years ago. The 1988 season was contested by no less than 18 teams and with the best will in the world, it was unlikely that teams like AGS-Coloni-Euro Brun-Rial-Osella were ever going to make the progression to race-winning status. By 1989 the number of teams had grown to 20 and the battle to pre-qualify was as intense as the battle for pole but altogether on another level.
It is a testament to the global attraction of F1 we have witnessed a growing involvement of the major motor manufacturers that effectively spreads the means to compete further down the grid, mainly by supplying works engine deals but increasingly in the future by taking equity stakes in the teams as well. Again, this will have the effect of pushing up the market value of the franchise holders.
The BAT decision to own rather than just sponsor their F1 team is another landmark decision that will have far reaching consequences. A normal sponsorship deal involves the payment of money for exposure in various forms from the sponsored team as it takes part in the 16-18 races that make up the season. The equity route, although more expensive initially, would allow BAT to sell its stake at a potential profit at some future time and then if you deduct the profit from sponsorship outlay, the exposure could turn out to be extremely cost effective indeed.
|Roger Horton||© 1999 Atlas Formula One Journal.|
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