An open letter to CVC chief Mackenzie

Open letter to Donald Mackenzie, CVC co-founder and co-chairman

Dear Donald,

A hectic few weeks it's been for you recently, what with attending the Bahrain/Spanish Grands Prix, then adding weight to last Thursday's Strategy Group. How, I wonder, did you take to six hours being dedicated to NOT deciding to increase engine quotas, or a possible return to refuelling (if not too costly)?

ANALYSIS: The Strategy Group's proposals unravelled

I hear you'll be in Monaco this weekend - making it six days devoted to this Formula 1 lark this year if your presence at January's Strategy Group/F1 Commission summit is included. Given CVC's annual revenues of £100billion and (active) portfolio of 60 companies, this is well beyond what the average 24/7/365 executive expends on a single investment - even when working 24/7/365 - and we're not quite a third into the 19-race season.

That indicates that you, in common with 500million F1 fans, 200 broadcasters, at least 50 sponsors, 20 promoters and 10 team bosses, are worried about the state of F1, which CVC assumed control of in 2006.

SURVEY: Have your say on Formula 1

As you pointed out in Bahrain, CVC holds "a third of shares, but exercises 100 per cent control", but it cannot take kudos (as you did in a London court) for F1's restructure without shouldering blame for its real dilemma.

The F1 line-up has changed a lot since CVC took charge in 2006 © LAT

However, it was a real pleasure to meet you in Bahrain, even if it was a too-brief encounter. I must say I was rather chuffed when you stated "I read all your stuff", but my euphoria was rather tempered by your comment: "You write a lot of bullshit."

I rather hoped you'd elaborate during the 20 minutes you promised, but, as you know, the opportunity did not materialise despite you having my details.


However, in Bahrain I hoped to discuss F1's fiscal and executive imbalances by drawing parallels between independent teams and CVC when you first assumed control from Citibank in 1993. I must compliment you on the outstanding fist you made of things - but hazard you were aided materially by operating in an equitable environment.

Imagine, though, a climate in which majors in the industry bandied together to freeze out upstarts - as CVC was then - by rejecting all fresh ideas on the basis that they're not "venture capital".

Yet precisely this scenario has been imposed on half the grid by Formula One Management - under CVC's direct control - through offering inequitable reward for equal results, then compounding the issue by excluding the smaller teams at the primary governance stage until 2020.

Note: I am NOT proposing equal shares and say for all - that would be socialism, a form of government I abhor - but equal reward for equal results for all via a democratic system.


The Economist last week published the results of an OECD survey that found "countries where income inequality is decreasing grow faster than those with rising inequality" - substitute 'F1' for 'countries', given its recent commercial decline, and you get my drift.

Last week I outlined the (flawed) rationale behind the present financial structure, and I firmly believe that this, more than any other factor, lies at the root of F1's current chaos. It would be interesting to hear your take: any chance of those (belated) 20 minutes, please?

If FOM wishes to pay Ferrari $165million for finishing fourth, so be it - as long as Sauber/Lotus/Force India are treated equally. That said, I understand why Ferrari (or McLaren/Red Bull) is not prepared to settle for reduced revenues - why should they? - but as CVC imposed this situation on F1 for reasons no longer valid, it is only fair that it redresses the situation.

Ferrari and Lotus are in very different positions with F1 revenue payouts © LAT

By my reckoning the problem is that, despite turnover of $1.6billion and underlying revenues of a billion bucks, FOM can't increase disbursements without jeopardising its ratings, so high is its gearing after making upfront dividend payments through borrowings. Plus, interest rates are likely to increase going forward.

Worse, I believe the agreement eventually struck with Mercedes is predicated upon an "equivalent" bonus - or similar words - being paid should it achieve back-to-back championship status, as seems likely. Looking at payments made to CCB teams, "equivalent" means upwards of $50million per annum to 2020, further impacting on CVC's income.

There seems to be a historic pattern, one CVC is understandably eager to avoid: EM-TV borrowed to acquire its first (50 per cent) tranche of shares (and further 25 per cent option), and, when it faced default, off-loaded these to Kirch Media, which, too, ran foul of banking covenants - and thus a trio of banks inherited not only the shares, but F1's heartaches, too. Then CVC arrived.

At what cost? Ticket prices are now well-nigh unaffordable, and back then F1 feted seven manufacturers; today there are four - one of which (Renault) is considering its options - with Audi, the company most believe "has to be in F1" this week rejecting such suggestions, adding "Formula 1 needs to solve its problems on its own".

Strong words, these, particularly as Audi, amongst the industry's most profitable auto brands, contests other FIA championships - including the burgeoning World Endurance Championship - at considerable cost. I am told Audi's WEC budget exceeds Mercedes' spend on F1, and there must be good reason for that.

I reckon that to stabilise the sport would require major investment across the board at FOM level - in a to-be-published interview Zak Brown, arguably motorsport's premier marketeer, told me that annual budgets of at least $100million are required merely to get marketing on-track. But that entails further borrowing: a classic Catch-22 situation.

F1 turned 65 last week © LAT

Ironically, on the eve of last week's Strategy Group meet, F1 celebrated exactly 65 years since its 1950 inauguration. Was there a single press release issued in celebration of this momentous milestone, one most folk greet with a glass of champers? No, not a single word - despite last year's formation of F1's Promotional Working Group, and FOM's recent appointment of a senior marketing figure.

Any birthday wish gave way to six acrimonious hours dedicated to fifth engines and discussions about third - or customer - cars, led mainly, I'm told, by a man whose team has not won a single constructors' title this century! Allegedly co-constructor (or 'core') cars were given short shrift for "not being F1", while customer cars were voted as being in keeping with the world's premier formula.

A recent report on Formula 1's finances by consultancy firm McKinsey and Company, which I read and discarded without sharing with readers after realising how out-of-tune the 35-pager actually is despite considerable costs and efforts expended in compiling it, details the minimal savings that may be realised via this route, yet it seems set to be adopted.

In closing, is there good reason why CVC has shied away from imposing some form of succession planning at FOM? Are all 60 companies in CVC's portfolio devoid of succession, or is FOM an exception, and, if so, is FOM not deserving of corporate equality?

Thank you, Donald, for taking the time to read my "BS" despite your demanding schedule. As you can see, I am extremely concerned about the state of Formula 1.

Ultimately, F1 is not a cakewalk. But there is one man eminently equipped to return F1 to its former, pre-corporate glory provided he is granted the autonomy to do so. Here's a hint:

May I suggest you give him a call - failing which I fear CVC risks going down in history as the entity that ultimately killed off a 65-year-old institution. And nobody wants to see that.

Hope to see you in Monaco
Yours in Formula Half

Dieter RENCKEN