For the past month Formula One's paddock has been abuzz with rumours that Rupert Murdoch's News Corp media company would take over F1. Would it involve the sport switching to his pay-per-view television channels? Would F1's boss Bernie Ecclestone be sidelined? Would the teams and F1's governing body the Fédération Internationale de l'Automobile (FIA) agree to the deal? These are just a few of the questions which have been swirling around the sport but one particularly big one still remains unanswered: will News Corp ever actually make a bid?
Given the amount which has been written about News Corp's interest in F1 it wouldn't be unreasonable to think that the private equity firm CVC, the current owner of the sport, had already sold it to the media company. In fact, this couldn't be much further from the truth and all the signs suggest that News Corp will never make a bid.
The origin of the news about News Corp's interest in F1 is itself somewhat of a give-away that the media company's aim is not to make a bid. In April Sky News reported that News Corp has been in early stage talks with "people connected to at least one of F1's big car manufacturers" about collaborating on a prospective takeover of F1. However, it added that "there is a good chance that News Corp's deliberations and talks with outside partners will not ultimately lead to a bid."
News Corp owns 39% of Sky News' parent BSkyB so the broadcaster is certainly not independent with regards to this report. This immediately raised the possibility that News Corp leaked the story to Sky News and clearly it would not have done this if it ever planned to make a serious bid.
Companies typically go to extraordinary lengths to keep quiet the details about acquisitions they would like to make. The simple reason for this is that if word gets out that a company is an acquisition target then it could attract bids from others which in turn raises its price. It also lets the current owners know that their asset is in demand which increases the likelihood that they will raise the price.
Indeed, Ecclestone responded to the Sky News report by saying that F1 is "not for sale," but he added that "if someone was to come along with an enormous offer,a lot more than it were worth, then [CVC] have to look at it." Clearly it wouldn't be in News Corp's interest to pay more than F1 is worth if it wants to buy the sport. So for this reason alone it is hard to believe that News Corp would have condoned Sky News broadcasting to the world genuine details of its business plans.
To assess whether News Corp's competitors would lose out if the company bought the rights to an entire sports series (indeed the most watched annual series worldwide), the EC would require it to affirm whether it will broadcast F1 on its own channels or offer them to its rivals. Either way News Corp would be put in a no-win situation.
If News Corp were to move F1 to its own channels it would obviously give it a position of dominance over its rivals. Likewise, if it were to offer the rights to broadcast F1 to its rivals it would put it in a position of power over them. For example, it could increase the price of the F1 rights so that its rivals would not have enough money to bid for other sports which could then be broadcast by News Corp. These concerns are far from hypothetical.
In 1998 the UK's competition commission blocked BSkyB from buying Manchester United football club due to the power it would give the firm in negotiating broadcast contracts. Amongst the reasons for its objection were the fact that owning the team would give it influence over its competitors and a financial benefit which would not be available to other broadcasters.
BSkyB pays a huge sum to broadcast Premier League football but if it owned Manchester United some of this money would come back to it through the team's prize winnings which are paid by the League. Likewise, if News Corp owned F1 and its channels broadcast it, the fee they paid to do so would come straight back to their owner since it would own the sport.
Bearing in mind that the competition commission prevented BSkyB from buying one team for all these reasons it is hard to believe that it would let News Corp buy an entire sports series.
So why would News Corp want the world to believe that it may buy F1? In a nutshell, it reminds the financial industry that News Corp is a company which is on the lookout for acquisitions and is apparently putting together a team of wealthy backers to fund its shopping spree. This certainly doesn't do any harm to News Corp's standing in the City. According to Ecclestone, it may have an even more specific purpose.
News Corp is currently trying to buy the 61% of BSkyB which it doesn't already own. This is likely to cost it over £7.5bn but media reports say that News Corp is prepared to walk away from the deal if the price keeps rising. It may not have to.
If News Corp is looking for other backers to support its bid for BSkyB it would not be a surprise that it wants to keep it quiet as it would give BSkyB even more reason to increase the price of the 61%. Claiming that it is looking at buying F1 would give News Corp a perfect reason to approach other investors and vice versa. It would also explain why News Corp was happy for Sky News to promote the rumour that it is allegedly considering buying F1 which, if it was serious, would be something that the company would want to have kept quiet.
News Corp isn't the only beneficiary of the takeover rumours. Two weeks after the original Sky News report News Corp released a statement with the Italian investment fund Exor saying that they want to formulate "a long-term plan for the development of Formula One in the interests of the participants and the fans." The statement was just as non-committal as Sky News' original report and added that "there can be no certainty that this will lead to an approach to Formula One's current owners." So how could Exor benefit from being involved with a group which looks like it won't bid for F1 and will be met with huge hurdles if it does?
The Agnelli family, which founded the car manufacturer Fiat, owns 59% of Exor and in turn Exor owns 30% of Fiat which owns 90% of Ferrari. So, Ferrari's ultimate owner is claiming that it may buy F1. This could come in handy as leverage for Ferrari just at the time when it needs it most.
F1's teams are currently negotiating with Ecclestone over the terms of a new draft of the Concorde Agreement - the contract which commits them to race in F1. Their current contract expires at the end of next year and entitles them to 50% of F1's profits. The teams reportedly want around 70% and there is good reason why. The usual duration of the Concorde Agreement is five years and, according to F1's trade guide Formula Money, the sport's revenues are set to explode between now and 2017. Last year F1 made $1.6bn in revenue and the teams' 50% profit share came to $658m. However, Formula Money's forecasts show that by 2015 F1's revenues should reach $2.9bn with the teams' 50% share making them $1.4bn. By 2017 F1's revenues are estimated to be $3.7bn with $1.8bn going to the teams. If they manage to increase their share of the profits this sum would become even higher. In previous years the teams have repeatedly threatened to leave F1 if their demands were not met. It isn't something they can repeat this time around.
Likewise, clause 4.5 (b) states that "until after completion of the last Event in the 2012 Season" the teams, or anyone authorised by them, are prevented from directly or indirectly making "any public statement or statements in any medium, whether orally or in writing, or in any jurisdiction, which relates to or is connected with any of the matters listed in paragraph (a)."
The Concorde Agreement is very clear about who these clauses apply to: the teams and anyone authorised by them. They wouldn't apply to companies related to their owners and this of course describes Exor. It certainly makes sense why the ultimate owner of Ferrari in particular would want the world to believe it may take over F1.
Ferrari was paid $100m in 2005 to drop its support of a proposed rival series to F1. Then, in 2009, after a bitter battle with the FIA, Ferrari got the governing body to drop its proposal to cap team budgets. In short, it has got its way by using the threat of a rival series but it is now prevented from doing this. However, if Ecclestone doesn't give in to Ferrari's demands for 70% now then it its ultimate owner could take over the sport and the team would be in the driving seat of the negotiations. It may sound like serious leverage but it has an equally serious flaw.
CVC majority owns F1 so it most certainly isn't in its interest for Ferrari (or any team) to get paid more from the sport. Any additional payment to Ferrari means less profit for CVC and it can't afford to pay another $100m to the Italian team since the Concorde also states that all teams must be made the same offer.
So, there is a simple solution if Ecclestone were to be faced with Ferrari threatening that Exor will take over F1 if it isn't paid more. All CVC has to do is refuse to sell to News Corp and Exor since this would reduce their threat to zero. So it is perhaps no coincidence that CVC has done just this by releasing a statement saying News Corp acknowledges F1 is "not currently for sale." It has allowed Ecclestone to play hard ball in the negotiations with a stronger arm than ever before.
Once the Concorde Agreement expires, Ecclestone could introduce the racing fees without needing consent from the teams and he is pretty blunt about his intentions. He says the benefit of charging the teams is simply that "it would put more money in our bank. If I want to enter a horse in the Derby I pay a whacking great entry fee."
The current Concorde Agreement was signed in August 2009, nearly two years after the previous draft expired, and Ecclestone says that, as is the case in other sports, it could cost the teams if they delay signing up. "If you are late with an entry in the Derby you have to pay a chunk of money to enter the horse." With less than two years to go before the deadline for the teams to sign, the race is on.