Could FIA’s $100m stake hobble sale of F1?

In my recent editorial, I mentioned some concerns I have with the idea of an American organization acquiring controlling interest in Formula 1. I have absolutely no issue with Liberty Media and as a media outlet, I think it would be an interesting tie-up for them for sure and a way to try to engage Americans on F1.

My concerns were with the over-the-top concepts that we’ve seen recently in American sports from NFL, NASCAR, Indycar and other series which, everyone will tell you, are big sporting events in the US but they have started down a path of, in my opinion, silliness with social media efforts and gimmicks to retain viewers. Liberty Media mogul, John Malone, may avoid such nonsense and approach F1 with the acumen and sensibility it deserves and he has a tremendous machine in which to promote it. Let’s hope that is the case should the deal actually go through.

As I mentioned in that article, there was another issue that surfaces when considering the sale. It’s the 1% stake that the FIA holds as a financial investment in which they paid $458,197.00 for and is now worth $91 million based on the latest valuation of F1’s holding company, Delta Topco.

As Christian points out in this article at Forbes:

This means that the 1% stake can only be sold when CVC sells its shares and to do this the FIA either has to exercise a Tag Along notice or be served with a Drag Along notice by CVC. As the following investment definition shows, Tag Along rights oblige majority shareholders to include stakes held by minority shareholders in their negotiations when they are in talks with buyers.

The minority shareholder has to exercise the Tag Along right whereas the Drag Along right can be served on it by the majority shareholder. As the following investment definition shows, Drag Along rights enable majority shareholders to force minority shareholders to join in on the sale of its shares.

Now the issue at hand is that the FIA sold its interest in F! back in 2001 due to a perceived conflict of interest and perceived bias that the European Commission wasn’t too keen on. Now it seems they are fine with the FIA owning interest but as Christian points out, that may be a bigger issue if it comes time to collect $100M.

Also, the FIA has the right to approve/disapprove of the sale of F1 and that could be viewed very suspiciously by the EC as well. Also, it’s complicated as the teams are signatory to F1 for a determined period of time and if you’ll recall, there was a letter sent in 2014 by Anneliese Dodd pointing to the FIA’s interest and explaining to the EC that this seems contrary to the agreement in 2001. At the time, I argued that if the EC were to deem the contracts void, this would effectively tear up the contracts F1 has with the individual teams and that would impact the value of the assets from any potential buyer—at the time I believe we were discussing the flotation of F1 that never happened.

The point is, it could be complicated and messy and I would assume Liberty Media is doing some serious due diligence on the matter. This is all for naught if the reports turn out to be false regarding the sale of CVC Capital’s stake in F1 of course.

Regardless, I tend to think that between the rumored potential buyers, Liberty Media is the better of the three with more capacity and muscle to grow F1 beyond its current state with the right media channels and efficacy that F1 pundits are looking for. My fears of turning F1 into some American-style silly sideshow with goofy gimmicks may be completely unfounded as Liberty Media will take the investment of $8bn very seriously and I would assume they would be very careful with the brand and series so as not to tank their investment.

It’s interesting that CVC were willing to go along with the radical changes in 2014, though, as that had an impact but after ten years and a $6bn return, they were probably not too worried about it.

You can read the full article here at Forbes.

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Alianora La Canta

I do not believe the FIA veto is a problem from a legal standpoint, as it has already passed the Nice Agreement test for validity. The problem is that the FIA is specifically *not* allowed to own shares in F1 (one of the principles is that the regulator of F1 can have no commercial interests, and at this point does. That’s the sort of legal error that could scupper a sale to any reputable buyer. Other problems include that FOM has some power to decide regulations, which is strictly forbidden in the Nice Agreement as well. Either that power must… Read more »