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Debts put brakes on F1
23/09/07 -
Christian Sylt and
Caroline Reid, telegraph.co.uk
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Profits at the group
that runs Formula One motor racing have crashed from $312.7m (£154m)
to just $6m since the sport's commercial rights holder was acquired
by CVC, the private equity company, in 2005.
The fall has been
driven by debt payments totalling $220m to service the $2.5bn
secured by CVC to finance its acquisition.
The huge burden on
the balance sheet of Alpha D2, the UK company in which CVC has
a majority stake, has had a material impact on the sport of motor
racing.
In
order to maximise revenues, F1 is holding fewer races in Europe
and more than ever before in Asia, where governments are prepared
to fund the sky-high race hosting fees.
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The profit
figures are revealed in Alpha D2's latest accounts. Its repayments
are so high because the company was lent the lion's share of the
debt that was used to acquire Slec, the Jersey-based ultimate
parent of F1's commercial rights holding company, Formula One
Administration (FOA).
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The first big casualty
of F1's new drive eastwards has been the US Grand Prix, which
will not take place as of next year because the organisers were
not prepared to pay the fees demanded by FOA.
The company needs
to keep up the big-bucks signings since there is a hefty rate
of interest behind Alpha D2's loans. Countries such as China and
Bahrain are paying well over $25m annually for their races.
Over the next four
years new F1 races are scheduled to take place in South Korea,
India, Abu Dhabi and Singapore.
These races will bring
in a total of $140m to FOA annually and are likely to further
reduce the number of races in Europe, which has already dropped
from 12 to eight in the past 10 years. It is feared this reduction
is having a knock-on effect on teams: the majority of their revenues
come from sponsorship so presence in key countries is seen as
crucial.
Alpha D2's accounts
cover only a nine-month period from late March until the end of
last year, which included 16 of the 18 F1 races held in 2006.
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F1's
commercial rights generate revenue from media companies and circuits
paying to hold races. These revenues increased by 6 per cent to
$725.2m. This performance still lags behind recent years, which
have seen the company's sales rise by over 10 per cent year-on-year.
This kind of growth is normally expected since the value of many
key FOA contracts, such as those for holding races, is believed
to rise by 10 per cent annually. |
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Alpha
D2's profit margins were squeezed over the period by huge overheads,
which total $484.6m. Payments to the 11 F1 teams comprises one of
the biggest chunks of this sum: 47 per cent of the revenue from
F1 television rights deals as annual prize money, believed to be
around $380m. This gave Alpha D2 an operating profit, before debt
repayments, of $240.4m |
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