Outlook: Formula One off the starting grid

IF AT first you don't succeed... Having failed to float his company on the stock market last year, Bernie Ecclestone, chief executive of Formula One, is trying a different tack - securitising it. This appears such a neat way of allowing Mr Ecclestone to realise a large slug of his investment, without having to go through the disciplines of a stock market float, that it's a wonder noone thought of it before.

Yet this time last year Formula One and its adviser, then Salomon Smith Barney, were doggedly sticking to the line that the company could and would be floated in a matter of months - this despite the fact that the constructors that make Formula One work were disputing both Mr Ecclestone's rights of ownership and his claim to the lucrative TV rights that support the sport. It was plain to everyone other than Salomon and Mr Ecclestone that the bird could not be made to fly.

Now everything is sweetness and light once more. A new adviser has been brought in, Morgan Stanley Dean Witter; the teams have agreed a new concord dividing up TV revenue for the next 10 years, and Mr Ecclestone has ceded limited ownership rights to the constructors on terms they seem happy with. So what's to stop Formula One trying for a second time at flotation, apart from the turbulent stock market that is?

The answer seems to be the "Max factor" - broadly defined as City investors' strong mistrust of and aversion to maverick entrepreneurs. Morgan Stanley has concluded that while these investors might not take equity, they will take more highly-securitised debt. Once they have got used to that, and in the process familiarised themselves with the company, they might eventually take the equity as well. The $2bn securitised bond issue is deliberately structured to lead to a float, in that there is a step up in the coupon after five years if the bond hasn't been repaid by then.

So everyone's happy, aren't they? Formula One finds a way of introducing itself to the City and gaining its confidence, Mr Ecclestone's family gets its $2bn with the promise of more to come once the company is floated a couple of years hence, the teams get a slice of the action, and Morgan Stanley gets its fee. What possible problem could there be?

One is that the coupon demanded by investors for such securitisations has risen markedly over the past couple of months. Formula One's revenues from TV and merchandising are as predictable and secure as any, but in these markets only Group of Seven governments are regarded as entirely dependable. Put another way, financial engineering of this type may be very much in the interests of the Ecclestone family, but City support will come at a high price.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower