An interesting article over at the Guardian has an outline of just how much debt was assigned to Delta3, the venture capital group that helped CVC acquire Formula 1, and how much interest the team are sating each year. While this interest is assumed to be manageable until its maturity in 2014, the teams are asked to cut costs by Max Mosley’s FIA at a time when their share of the revenue is reduced by the debt load and repayment of that debt.
It is also suggested that Bernie Ecclestone himself has directed Max in these cost-cutting measures to force teams to reduce their overhead and perhaps allow more revenue to pay down the debt load of CVC. CVC has stated all along that they are a long-term partner and it is in Bernie’s best interest to help Delta3 and CVC remain solvent and on a path to debt elimination. It appears the revenues have been up in F1 as of late and this helps. the new circuits in Asia and the Middle East have been extorted for as much sanctioning dollars as possible and the Canadian Grand Prix as well as many European races have been canceled in favor of high-paying exotic locations. If you are looking to sate the debt load you buyer incurred during the buyout of your interest, then extrapolating as much money out of the system makes sense. It also may make sense to cram down on minority holders, read teams, in order to get their earn-outs as low as possible, maximize profit and pay off debt.
To those ends, it seems understandable that the teams would be perplexed at having to fund the entire acquisition of F1 by CVC with their share of profits. The teams would not be favorable to paying someone else’s debt and a cost reduction in the sport is really only understandable if the teams can’t raise the cash to support their operations. Something most of them have been able to do over the years. Multi-level buyouts, long-term debt structure at who knows what interest and cramming down on teams to take part in the process with their dollars seems to me like a recipe for a train wreck. If the teams find that Bernie is behind the curtain at Max’s cost-cutting castle in Oz they may just feel that they may have a better idea on just how to run a series. I can’t help but think that Max, Bernie and CVC may be playing all entities for everything they have in order to sate debt, produce a show and get mega-rich in the process. The teams through FOTA may have a different opinion of that plan.
