In the pit lane – F1 seeing Dollar Signs
McLaren Racing announced at last weekend’s Abu Dhabi race that they had agreed to sell a third of the company to a group of United States-based investors. MSP Sports Capital will inject £185m by the end of 2022 giving them a 15% stake rising to 33%.
McLaren were delighted with the news
McLaren Racing chief Zak Brown stated:
McLaren has taken a long-term strategic decision to separate the funding for the race team from the automotive and engineering divisions effectively ring-fencing the F1 team.
McLaren Group executive chairman Paul Walsh hit the nail on the head when he explained, “We stopped making cars because our factory was locked down. If you don’t make cars, you don’t sell them – and if you don’t sell them, you don’t get the cash flow.
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“But we had the racing team that was continuing to spend money, as they should. That tension made everyone acutely aware that the fundamental model needed adjustment.”
MSP’s arrival increases North American interest in F1, as demonstrated by the purchase earlier this year of the Williams team by U.S.- based Dorilton capital.
But who are MSP?
MSP Sports capital was established in 2019 by Jeff Moorad, who began his career as a sports agent before becoming involved with Major League Baseball with firstly the Arizona Diamondbacks and then the San Diego Padres.
So, no doubt Moorad and Liberty Media (who own the MLB team the Atlantic Braves) have had dealings in the past. Moorad has motor racing experience through his previous ownership of NASCAR team Hall of Fame Racing.
Moorad’s partners in MSP include Arne Rees who was previously a senior executive at sports broadcasting network ESPN, a subsidiary of the Disney Corporation, and Jahm Najafi.
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Najafi runs Najafi Companies, a Phoenix-based private-equity firm in which he only invests his own money and is part owner of the Phoenix Suns NBA team.
MSP has put together a consortium that includes Najafi companies and UBS O’Connor, a hedge fund subsidiary of Swiss investment banking firm UBS. UBS are no strangers to F1 as they were previously global partners and are currently sponsors of the Mercedes team.
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UBS is also no stranger to the courtroom either, with numerous tax-evasion and avoidance investigations undertaken by U.S., French, German, Israeli, and Belgian tax authorities. This was a consequence of their strict banking secrecy practices and resulting in numerous large fines amounting to billions of dollars.
Najafi who has two fingers in the pie through MSP and Najafi companies will become vice-chairman of McLaren Racing under the deal, whilst Jeff Moorad of MSP and Rodrigo Trelles Zabala of UBS O’Connor will join the McLaren Racing board as non-executive directors.
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It is fair to point out that both Moorad and Najafi have a track record in philanthropy with Najafi being the founding partner of Social Venture Partners, a philanthropic venture capital fund that invests in emerging non-profit organisations.
But why now?
Why have the recent investors of Lawrence Stroll, Dorliton Capital, and MSP decided owning a F1 team is a sound investment?
It would appear that Liberty Media’s strategy of maximising revenue with an expanded calendar to circuits/countries that will pay top dollar along with the promised land that the likes of Disney (ESPN) and in the not-too-distant future Amazon offer in terms of TV contracts seems to have hit the mark.
Investor confidence is further raised with the new Concorde agreement establishing a budget cap and a more equitable sharing of the revenues.
The proposed ‘dilution’ fund has also increased the value of a team as it is a significant barrier to entry resulting in the supply/demand balance in favour of the teams.
Stroll, of course, has ambitions for the Aston Martin road car project but upon his purchase of Force India, he told the New York Times, “I looked at it as a business opportunity the value of an asset like this, treated properly, cherished over time significantly appreciates.
“I never really anticipated owning a team, wanting a team. But, put simply, this was a phenomenal business opportunity that presented itself.”
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Dorliton capital is interested according to their PR in ‘partnering with incumbent management to create value over the long term’.
MSP seems to have reached the same conclusion as Stroll, with Moorad commenting, “We believe that Liberty’s business plan of creating more franchise-like values on the teams are going to flow in part from the cost cap.
“All of these pieces of a thoughtful business plan will ultimately create franchise values for each of the teams in the sport.
“That’s our bet, to be frank. We’re betting on the long-term future of Formula One.”
Gene Haas must be looking on with considerable interest at recent developments!
So, time will tell if the private equity investors will see a return on their investment but in the short term when teams recently faced financial meltdown due to the pandemic it is probably overall a positive development.
On a footnote: Moorad appeared in and served as technical consultant for the film Jerry Maguire. Moorad was the inspiration behind the Jerry Maguire character played by Tom Cruise with a catchphrase suitable for F1,
“Show me the money.”
Garry Sloan is the author of “In the pit lane – F1 exposed” details at inthepitlane.com
Copyright ©2020 Garry Sloan
[Note: The opinions expressed on this website are those of the author’s and do not necessarily reflect the opinions of the editors and/or publishers.]