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TURBO-CHARGED RETURNS

Article taken from 360° magazine

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Fast cars, exotic locations and rubbing shoulders with celebrities – there’s a lot to love about Formula 1. But splashing the cash in this free-wheeling environment is another thing.
Anthony Rowlinson, Group Editor of F1 Racing, gives a rare insight into investing in one of the world’s most exhilarating sports

Sparks can fly when intelligent, wealthy, driven people are thrown together in an inherently competitive environment. There is constant bickering over who gets what in Formula 1 (F1), especially as it broadens its horizons across 21 venues around the world. Just as there is always the next race, there is always the next deal, meaning there is a myriad of investment opportunities for those wealthy and bold enough to take them.

Since British billionaire Bernie Ecclestone took the driving seat of F1 in the 1970s, he has made a lot of people very rich. His cutthroat zeal lives on, and to the benefit of F1’s energy. While these days it’s a largely respectable environment – one slick enough to attract the likes of global premium brands such as Rolex, Mercedes, Hugo Boss and Bose – F1 remains the domain of the hustler, where some of the world’s wealthiest rub shoulders with CEOs, celebrities and supermodels. If you have the desire and the courage, there is smart money to be made. And here’s how.

A MONEY SPINNER

There is undoubtedly a mighty cash-generating engine under F1’s bonnet. Research published last year shows that it has made more than US$14bn (€12.6bn) for its various owners – driven by the saleof shares, dividends and a US$1.4bn (€1.2bn) bond issue in 1999 – since the first stake in the sport’s parent company was sold in 1999 to investment bank Morgan Grenfell. In 2014, F1’s operating profits hit US$519.8m (€470.1m).

“At the top of the list of investors is the private equity firm CVC, which is F1’s single largest shareholder and has made a 351.8% return on the US$965.6m (€872.1m) it invested in 2007 to buy the sport,” says Christian Sylt, co-author of F1’s trade guide Formula Money.

CVC intended to list F1 on the Singapore stock exchange in 2012 but stalled in the wake of the economic crisis. Instead, it has raised US$4.4bn (€3.9bn) from dividends and selling stakes in F1, leaving it with a 35% shareholding. Although F1’s shares aren’t publicly traded, it is still possible to invest in the business.

The most lucrative route is to buy CVC’s stake outright for around US$3.5bn (€3.1bn). “That is the price tag the firm is understood to have put on its stake with bidders believed to include RSE Ventures, owner of the Miami Dolphins NFL team, and investment firm China Media Capital,” adds Sylt. “CVC’s representatives on the board of F1 are known as ‘I Directors’ and they have the power to outvote their counterparts. It means that CVC controls the company that puts a premium on its stake.” After CVC, the biggest shareholder is the estate of bankrupt investment bank Lehman Brothers with a 12.3% stake, which it will eventually have to sell to pay off creditors, creating another potential way in.

Together, fees from race hosts and broadcasters comprised more than US$1.2bn (€1.08bn) of F1’s total revenue in 2014 with a further US$161m (€145.6bn) coming from TV production as well as travel and freight services to the sport’s teams. Advertising and sponsorship – the latter of which provides 37% of teams’ budgets on average – from brands such as Rolex and the Emirates airline came to US$254.4m (€230.7m). “As the world’s mostwatched annual sports series, with 425 million viewers in 2014, its sponsorship values are some of the highest in sport, ranging from US$1m (€907.4m) for a small logo on the side of a top car, to US$25m (€22.6m) for a big one on the rear wing,” says Sylt. “When the economy is in top gear, blue chip brands sponsor F1 to differentiate themselves from their competitors. However, in a declining economy, it is easy to save money by pulling out of the deals.”

GOLDEN TICKET

In 2014, revenue from the sale of tickets to F1’s corporate hospitality outfit, the Paddock Club, grew 4.9% to US$110.9m (€100.4m). Tickets for the club cost around US$4,800 (€4,347) each, making it the more cost-effective way of putting money into F1 itself, if not exactly a long-term investment. Benefits include an open champagne bar, unlimited buffet and race viewing spots above F1’s nerve centre, the paddock. It attracts high rollers such as Michael Douglas, filmmaker George Lucas and Mexican billionaire Carlos Slim.

It’s also becoming a popular choice for superyacht owners the world over. They can be seen cruising into the classic hotspot of Monaco or the contemporary, stylish option of Yas Marina in Abu Dhabi to get their quick fix of petrol-fuelled fun. Equally, the F1 drivers, owners and celebrities find the freedom of travelling by yachts to track venues liberating. And, of course, owners of superyachts frequently charter their yachts out at VIP events or use them to host important VIP events, all for a good return.

“Superyachts add an extra layer of freedom that they wouldn’t otherwise enjoy – and well away from the eyes of the paparazzi if they want to be,” says former F1 Team Boss and current BBC Presenter Eddie Jordan (see below).

F1 racing

JOIN THE TEAM

F1’s teams are amongst the biggest beneficiaries of the sport’s success, as their prize money – their second-biggest revenue stream at 35% – comprises 63% of its underlying profits. F1’s total costs increased by just 5.2% in 2014, fuelling an increase in underlying profits and therefore prize money, which rose 8.2% to US$863.1m (€783.06m).

It makes F1 teams valuable vehicles. Last year Stephen Fitzpatrick, Director and Co-Founder of energy firm Ovo, rescued the Manor Marussia F1 team, which had US$52.2m (€47.3bn) coming in from prize money for finishing ninth in 2014. Its rival Force India’s prize money in 2015 was around US$63.5m (€57.6bn), and a stake in it is up for grabs as 42.5% of the team is owned by businessman Subrata Roy – in prison in India since 2014.

“Roy has requested permission to sell his stake in

Force India to repay investors who the Indian courts say were duped by him,” says Sylt. “Roy owes a total of US$5.3bn [€4.8bn] and Force India is one of his most valuable assets. A cheaper alternative is buying shares in Williams, F1’s only floated team, which is listed on the Frankfurt junior exchange with a share price of €14.94 [US$16.45, at the time of writing].”

One notable wealthy individual who’s so far had success is Red Bull magnate Dietrick Mateschitz, who bought the Jaguar F1 team at the end of 2004, renamed it Red Bull Racing, and has since funded the team at car manufacturer levels, winning four title doubles along the way. Red Bull also owns a junior team, Scuderia Toro Rosso, bringing the company’s annual F1 outlay to around $0.5bn (€453.6m) between 2004 and 2011. It’s worth it, though, reckons Mateschitz, so great has been the marketing bang for his buck.

Opportunities – and pitfalls – are very much a part of F1’s fabric. Over the 2015-16 off season, the imperilled Lotus team was bought from a consortium of venture capitalists by one-time former owner Renault. That’s an investment costing approximately US$250m (€226.8m) for every season Renault choose to remain involved. Should they win, or even dominate (as Mercedes have) then every dollar can be justified as high-value marketing spend. Should they fail, then Renault have bought little more than an expensive trinket.

“The directors of F1 teams run them to break even, which involves spending whatever is available to them,” says Sylt. “They do this on the premise that it is better to win and make no profit rather than make money and do badly on track. Victory on track increases the value of the team, which gives the owners a payout when they come to sell. It also increases the team’s ability to bring in more money from sponsorship.”

“There are so many financial issues throughout the sport that it is hard to see where things will go,” adds Lotus Deputy Team Principal Federico Gastaldi. “I know that both Mr Ecclestone and the FIA have been trying to change things and I also know that teams aren’t always the easiest to work with when we have to join forces. Our agendas and situations differ too much and are almost always proceeded with self-preservation.”

With this instability, it is easy to see why investing in F1 is not for the faint-hearted, but those that take the plunge will have a lot of fun along the way, and maybe make some money.

THE JOYS OF YACHTING

Eddie Jordan

EDDIE JORDAN,
F1 TV Presenter, Ex-F1 Team Owner and Owner of the yacht BLUSH

  • “The appeal of a boat, particularly for the likes of Kimi Raikkonen, Mika Hakkinen, Gerhard Berger, Niki Lauda, Keke Rosberg – all these drivers and exdrivers – is that they offer sanctuary. They just give you the chance to get away completely. If they turn off the phone on a boat, no one can get to them – not their team, not their manager, not their sponsors."


 

“A boat needn’t cost lots and lots of money – it just depends how you look after it”

“So if a driver has had a bad race weekend, he can get away without having to talk to anyone and have a complete recharge of the batteries. Then he comes back, fit, happy and ready to go, completely refreshed."

“That in itself is one of the main attractions of having a boat – it’s great because it’s totally secluded and you can get to places that you can’t otherwise get to. Corsica, for example: you can just drop anchor, swim ashore if you like and go on a totally private walk, seeing not another soul if you don’t want to."

“It’s why boating is becoming more and more popular – and by my own observation, there are more and more people buying boats all the time.

“I’ve had Sunseekers since 1986 – I like the brand and they’ve always been good to me. And I’ve found that if you keep a boat and sell it on after a couple of years, it has usually gone up in value by the time you come to sell, so you’re not losing money as long as you’re smart about how you run it. A boat needn’t cost lots and lots of money – it just depends how you look after it.”

For more information about how to charter a yacht during the F1 season or for yacht owners wanting to find out more about how to get their yacht involved in F1 hospitality, contact YPI Charter or YPI Management
 

This article was first published in the issue 2 of YPI printed magazine "360° Magazine"