Some thoughts on Formula One and Eddie George
`Until we see the elusive prospectus it is impossible to make any kind of investment judgement on this float. But you have to wonder about a company whose rights of ownership and worth are as fluid as they appear to be'
Saturday 24 May 1997
I'm being flippant, of course, but actually there's only been one business story this week entirely divorced from the goings on at numbers 10 and 11 Downing Street deserving of more than passing interest - the flotation, or perhaps non-flotation, of Bernie Ecclestone's Formula One.
On the face of it, this is a share issue to kill for - fast cars, glamour, exotic locations, a monopoly hold on the sport, the prospect of huge pay- per-view TV revenues, merchandising, famous names, powerful egos. It is hard to imagine a stock market flotation more guaranteed to capture the City's imagination, and like BSkyB before it, it should be roaring away from the starting grid with the acceleration of a Williams or McLaren.
Unfortunately for Salomon, the sponsoring investment bank, this is also a flotation not without its problems. The most obvious of these is the question of who actually owns Formula One. Is it Mr Ecclestone, the mercurial facilitator of this extraordinary sport, the FIA, the sport's governing body, or the teams, without which there would be no sport at all.
As far as Mr Ecclestone is concerned, there is no room for doubt; he owns it lock stock and barrel and to the extent that the teams are cut in on the float, it is in his gift. Our story earlier this week that the teams were threatening to scupper the float unless given a bigger share of the action was dismissed by Mr Ecclestone as, "irrelevant", and then rather less eloquently as "crap". Well maybe, but that is not what Williams and McLaren think and until they sign the Concorde agreement on how the TV rights are carved up, it is hard to see how Salomon can issue a prospectus.
In other words, it is they, not Mr Ecclestone, who hold the whip hand in all this.
Until we see that elusive prospectus it is impossible to make any kind of investment judgement on this float. But you have to wonder about a company whose rights of ownership and worth are as fluid as they appear to be. Take merchandising. In theory it's worth a packet, but it is not going to be up to much without the teams and their drivers, most of whom are taking their own independent advice on how best to exploit these rights in their own interests.
Furthermore, the prospective ban on tobacco advertising and sponsorship in Britain and elsewhere poses a very real threat to the economics of the sport. The gap in revenue for the teams is going to have to be plugged in some way or other.
All these difficulties can no doubt be overcome. Certainly that is what Mr Ecclestone will be telling the massed ranks of City media analysts and underwriters flown out to Barcelona at Formula One's expense to watch the Spanish Grand Prix this weekend. But he'll probably have to cede a rather greater share of the cake to Williams and others to get the float away. Ultimately, it may not be possible.
Back to public policy, I'm afraid. Wake up Mr Mandelson. Your troops are out of control - witness the whispering campaign to destabilise and undermine poor old Eddie George, Governor of the Bank of England. Lamentably, I have not been on the receiving end of this foolish and ill considered attempt at spin doctory. However, this does at least allow me to speculate on the source of it all.
Just to recap, Eddie hit the roof, as he is sometimes prone to, on hearing that the new Chancellor, Gordon Brown, was stripping the Bank of England of its supervisory powers. On this occasion he was more than usually justified, for the announcement was sprung on him without warning after the Chancellor had pointedly said that reform of City regulation could wait for another time. Was this a deliberate attempt to push Eddie into resignation, so the Government could install its own man, Gavyn Davies of Goldman Sachs, without having to wait until July next year, when Eddie's five-year term of office comes to an end?
Probably not, is the answer, for even a Government as filled with crusading zeal as this one couldn't have been so stupidly arrogant. As we have already observed in these columns, the new Government needs the resignation of the Governor of the Bank of England in its first month of office like a hole in the head. It would both undermine the credibility of the reforms and provide a focus for City opposition. So who was the Government "source" who told the FT, as near as damn it, that this was the purpose, that they wanted Eddie out, and that he had "played into our hands" by cutting up rough about it all?
Gordon Brown? Surely not. And certainly not the Treasury press office, says an indignant Jill Rutter, press secretary. How about Alistair Darling, Financial Secretary, then? Just about possible, but then again why should he want to ruffle feathers when the task of selling all this to the City is his. Or Charlie Wheelan, the Chancellor's personal press secretary? Absolutely not. I'm furious about it all, he says. Er, Ed Balls then, special adviser to Gordon Brown and the man credited with dreaming up the supervision policy? Possible but unlikely. What about Sue Nye, wife to Gavyn Davies, who just happens to work for Mr Brown? Come, come. But then all sorts of things go through your mind at times like these, as Eddie George might remark.
Whoever the source, whether one of these or another part of the Government entirely, it was a silly thing to have done. Far from playing into the hands of Eddie George's enemies, the affair has rather had the opposite effect, strengthening his resolve to stay and cementing his many supporters. Eddie has been despicably treated, was the general view in the City. He's a terrific fellow and should be given a second term, Mr Brown's new friend, Martin Taylor, chief executive of Barclays Bank, will be telling the Chancellor. Others are saying, you can't appoint Gavyn now. He'll be seen as your stooge. Only Eddie will do as a truly independent Governor. And so on and so forth.
Well actually they can, and probably still will appoint Mr Davies, initially as deputy Governor, then eventually as Governor. Provided the other appointments to the Bank's new monetary committee, expected to be announced any day now, are sensible ones, there should still be no credibility problems with the markets, notwithstanding this week's fracas.
But whichever way you look at it, the Government came perilously close to stepping on a nasty banana skin there. Mr Mandelson will be hoping everyone has learnt from the experience.
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