The ten Formula 1 teams are rumoured to be seeking new meetings with the sport's commercial rights-holders after it emerged that a vast proposition of income is being used to service interest payments on debts.
According to the UK's Guardian
newspaper, team principals have been angered by the revelation that the sport's owners – private equity firm CVC Capital – are carrying a $5bn (£3.2bn) burden that accrues around $230m in interest a year. That figure is roughly equivalent to half of the total annual 'payout' received by the teams and, with the FIA attempting to force through cost-cutting measures such as the highly controversial standardised engine, has raised more than a few hackles in the paddock.
reports that CVC – which bought F1 from a consortium of banks in 2006, before setting up Delta3 to run it – loaded more than $2.4bn of bank loans onto it during the leveraged buyout, with an additional $2.6bn in loans which it states it will not enforce to be paid back since it acts merely as a standard tax-reduction mechanism.
“There is anger felt from many teams,” revealed one insider from the Formula One Teams' Association (FOTA). “We have had banks, oil companies, financial institutions and pharmaceutical companies with us as sponsors. We have raised this money. Why do we have to keep cutting costs? The sport earns a lot of money, so let's look at our share.”
With nearly $500m in interest between November 2006 and the end of 2007, last year Delta3 registered a loss after tax of $458m on a turnover of $938m, leading to accountants arguing that the company will only be a 'going concern' if CVC – which, having recently invested $20bn in funds that are committed for ten years, insists it is a long-term investor – continues to support it 'to meet its liabilities'.
With teams again starting to display itchy feet only five years on from F1's famous if ultimately unsuccessful 'breakaway' threat, CVC has underlined that the constructors receive a greater share than ever before of the sport's profits under the terms of the current commercial agreement, with the prize fund having doubled from $250m a year.
Whilst that benefits the teams, though, it conversely means Delta3 has racked up further debt, but CVC director Nick Clarry contends that despite the credit crunch currently sweeping the globe, F1's revenues in 2008 have risen by almost 40 per cent to $1.3bn.
“There is a lot of headroom,” Clarry reasoned. “Our revenues need to go down $400m before we have any pressure from the banks.”
adds that 'CVC must repay the majority of the $2.4bn loans on expiry in 2014', but the company says it is ahead of schedule on this count thanks to the 'excess profits' F1 generates.