Why F1's new owner's next move is critical

If the outcome of Wednesday's special meeting in Geneva of the FIA's World Motor Sport Council, called to consider a request for a change of control of Formula 1's commercial rights from current managers CVC (parent of Delta Topco) to Liberty Media Group, was predictable - the sale was unanimously approved - the choice of wording of the subsequent media release was hugely telling on at least three points.

While the current FIA administration prides itself on unity - little wonder given its recent history under one of the most decisive presidencies since its formation in 1904 - the fact that the word 'unanimous' described the decision suggests that all 26 WMSC members felt underwhelmed by the sport's outgoing commercial rights manager CVC Capital Partners, which controlled the Delta Topco entity.

And with good reason: at every turn the venture fund sucked every loose penny out of F1 as it sought to saddle it with Singapore Stock Exchange shareholders. Mercifully, this did not come to pass, but only through the intervention of the global economic crisis, and the Munich bribery trial of Bernie Ecclestone, CEO of the Formula One Group, the operating subsidiary of Delta Topco.

Still, under CVC's 11-year reign the sport's TV ratings have plummeted over 30%, half of the circuits to have joined the calendar since 2006 have given notice (or intend doing so), with half the grid surviving on a hand-to-mouth basis due to the inequitable structures forced upon the independents in the wake of CVC's listing plans.

The ineffective Strategy Group and downright daft revenue structure, both imposed by CVC, stand as glum beacons to CVC's myopia. True, its principals can boast about the billions they extracted from F1 on behalf of shareholders, but, frankly, it should hang its head in shame at the state the sport is in. Any wonder the vote was 'unanimous'?

Indeed, this paragraph from the FIA release provides hope after a decade of doom and gloom:

"Liberty, Formula One Group and the FIA intend to collaborate to create a constructive relationship that will ensure the continued success and the development of the FIA Formula One World Championship in the long term."

Equally telling was the final paragraph, in which the FIA attacked the contentious question of its 1% shareholding in Delta Topco, granted in July 2013 as part of the body's Concorde Implementation Agreement negotiations with FOG. Foes of the FIA, and the body's immediate past president, Max Mosley, vociferously criticised this shareholding on the basis that the FIA has a commercial interest in F1.

So what? Folk point to the EU Commission's 2001 decree that, in hiving off F1's commercial rights, indeed the rights to all its championships, the FIA is required to limit its role to that of regulator, "with no commercial conflict of interest" - and argue that motorsport's governing body could thus be incentivised into taking decisions prejudicial to the best interests of motorsport.

Indeed, The Economist last week quoted Mosley as saying that the stake was "arguably contrary" to the EU decree, and "problematic", before pointing out that the stake (for which the FIA paid $450k, but is now valued at $75m after the takeover of Delta Topco by Liberty) was worth the "equivalent to a year's [FIA] turnover when [he] ran the FIA".

If anything, such arguments from the former barrister, now campaigning for draconian press standards as part of his fight for privacy, confirm this author's long-held belief that Mosley's administration did the governing body they were elected to oversee a massive disservice by selling F1's 113-year commercial rights for 3% of intrinsic value to Ecclestone, his close friend of 30 years.

The FIA, for reasons known to itself, consistently remained schtum on the question of its shareholding - stating only that it saw no conflict given its insignificant size, hardly large enough to influence CVC's control over the sport.

Whatever, the FIA seems wholly unperturbed by The Economist report, with an insider dismissing it with, "It was much ado about nothing".

In addition, as the governing body pointed out in its WMSC media release, "the FIA will be dragged along in the sale process under the same conditions as CVC and all the other shareholders" - meaning Liberty has the right to force other shareholders to exit, should Liberty exit, usually under the same conditions. There are also certain, unspecified "market coordination and lock-up clauses".

Clearly, though, the EU is aware (or soon will be) of the 1%; equally, other sporting bodies hold stakes in championships - although their commercial structures are not directly comparable, think FIFA or the IOC - and chose not to act. Indeed, by all accounts, the EU will bless Liberty's takeover of Delta Topco, despite simultaneously investigating anti-trust complaints filed by Force India and Sauber.

The day in Geneva, during which appointed chairman of Liberty's F1 investment Chase Carey presented their strategy to WMSC members, followed a Tuesday shareholders' meeting in Englewood, Colorado, during which the 100% takeover, attribution and renaming of Delta Topco to Formula One Group by Liberty Media Group, a subsidiary of Liberty Media Corporation (LMCK), was approved.

A cautionary paragraph in the announcement stated:

The completion of the acquisition is subject to certain conditions, including the receipt of: (i) certain clearances and approvals by antitrust and competition law authorities in various countries, (ii) certain third-party consents and approvals, including that of the [FIA], and (iii) the approval of Liberty Media [Group]'s stockholders of the issuance of LMCK shares in connection with the acquisition and the name change of the Liberty Media Group to the Formula One Group, and is expected to close by the first quarter of 2017.

As an aside, the announcement tellingly referred to "$4.1billion of existing Formula 1 debt, and $0.7billion in Formula 1 cash". Why would a business turning over $1.8bn a year (netting $450m) incur debts of 250% of revenues or 10 times earnings? To pay fundholder dividends, that's why.

There is plenty of material to refer to for a breakdown of primary discussion points (as prepared by Liberty), and this writer's letter to Chase Carey outlining the numerous challenges facing the takeover.

However, what does the takeover mean for F1, and what is in it for fans?

First off, (most unfortunately, to many) F1 is not fully rid of CVC, only its direct control. The company maintains a 65% holding presence - Liberty holds approximately 35%, but, crucially, has full control - through representation of other stakeholders, and will have a seat on the reconstituted board.

Second, Carey is very much a Liberty entertainment man, albeit one focused on the bottom line. Refer a line in the FIA's release: "The [WMSC] decision confirms the FIA's belief that Liberty, as a renowned media organisation with expertise in both sport and entertainment, is clearly well positioned to ensure the continued development of its pinnacle Championship."

That could not be said about CVC.

There is, though, absolutely no doubt that change will come to F1, but there are three questions: 'How?', 'What?' and 'When?'.

The last question is easiest to answer - given the (legal and valid) contracts entered into between FOG and various stakeholders, some of which run for a further eight years, there can be no quick solutions unless incentives are offered. These will undoubtedly incur costs at a time when Liberty Media needs to keep its shareholders sweet. So no quick fixes given that the team contracts alone run to 2020.

That Manor fell into administration just as Liberty was completing its Delta contracts points to another issue that needs to be resolved with or without EU intervention - namely the question of (independent) team profitability. Again, that could cost FOG dearly.

Then, Liberty needs to address the question of venues: in the past six months three circuits (Silverstone, Singapore and Sepang) annually contributing an estimated $100m to FOG's coffers have suggested their intentions of dropping F1, while Germany remains a perennial problem. All these are simply microcosms of a macro picture.

Liberty, as a media company, will obviously look at maximising (and monetising) F1's media content, but, again, this is easier said than done given the long-term contracts with broadcasters already in place. Again, change will cost... and opposition broadcasters are unlikely to go easy on a competitor.

However, as has become clear over the past 10 years, the biggest impediment to change was not CVC, but a well-controlled lack of enthusiasm for change itself, with Ecclestone leading that charge by sticking doggedly to an antiquated business model that included the same two-hour race format staged at the same time (1400) on alternate Sundays.

Unless that alters there can be no fundamental change. FOG's biggest challenge will be changing that mindset, and by implication that of Ecclestone. Will he - by most accounts a 'my way or no way' operator, particularly when it comes to his own turf - knuckle down and implement change, or dig in as many predict?

Compare the contrasting messages in statements made by Carey and Ecclestone in the wake of the takeover, and draw your own conclusions:

Carey: "I am thrilled to take up the role of chairman of Formula 1 and have the opportunity to work alongside Bernie Ecclestone, CVC, and the Liberty Media team. I greatly admire Formula 1 as a unique global sports entertainment franchise attracting hundreds of millions of fans each season from all around the world. I see great opportunity to help Formula 1 continue to develop and prosper for the benefit of the sport, fans, teams and investors alike."

Ecclestone: "I would like to welcome Liberty Media and Chase Carey to Formula 1, and I look forward to working with them."

The next two months, ie by the season opener in Australia, will prove decisive for the immediate future of F1. How Carey, who, incidentally, attended more grands prix and F1 meetings in five months than his predecessor did in as many years, handles the situation will determine the rate and pace of change, and thus what is in it for fans.