WILMETTE, Ill. — Sports continues to see increased activity on the financial front, as ownership of professional teams and leagues makes the headlines on a consistent basis. In this month’s column, we explore the status of the motorsports industry’s involvement in these types of transactions.
Over the past several years, sports as an investable asset class has gained acceptance; primarily due to limited supply, available of capital and the rising values that led to increased demand.
Historically, private ownership has been the preferred type of ownership structure. Family stewardship, long-term holding periods and conservative operating strategy have been the typical playbook.
New entrants from private equity and hedge funds have entered the space. Initially, there was market suspicion, but deep pockets and the ability to get deals done at lofty heights led to acceptance. Leagues and teams have revised guidelines to allow this type of ownership along with leverage ratios.
Public markets and private ownership can be a two-way street. Some go public and others go private — depends on each entity’s specifics.
Track operators International Speedway Corp and Speedway Motorsports were private, then public and eventually returned to private.
Formula 1 has been on both sides of this equation. For many years, it was associated with Bernie Ecclestone through various holding companies. Additional partners were brought in as they held ownership stakes.
In 2017, Liberty Media purchased Formula 1 and took it public. Technically, a tracking stock, Formula 1 became listed on the NASDAQ stock exchange.
Management made various changes — schedule expansion, media rights deals, branding — resulting in favorable market acceptance and a rising stock price.
Last month, Liberty Media announced an agreement to purchase Dorna Sports, the commercial rights holder of MotoGP.
Liberty Media will acquire 86 percent of MotoGP shares (amount owned by Bridgepoint Capital and Canadian Pension Plan Investment Board). MotoGP management will retain 14 percent of the equity in the business.
The transaction reflects an enterprise value for MotoGP of $4.5 billion and an equity value of $3.75 billion. Existing MotoGP debt will remain in place. Deal structure will be a combination of cash – 65 percent and stock – 35 percent.
The acquisition is expected to close by year’s end. Liberty Media was advised by Goldman Sachs and O’Meveny & Meyers. Dorna Sports used Moelis & Company and Latham & Watkins.
The deal is subject to the receipt of clearances and approvals by competition and foreign investment law authorities in various jurisdictions.
These entities are no strangers to the scrutiny of governmental review.
In 2006, private equity group CVC Capital Partners, owners of Dorna, reached an agreement to buy the majority Formula 1 Group.
The transaction was blocked by the European Commission, which expressed constraints over what it defined as a potential concentration. They evaluate deals based on several factors including market dominance, lack of competition and others.
They will make recommendations on how a deal may move forward if they meet certain conditions (divest assets/divisions, scale back size, etc.).
Dorna was divested by CVC Group and ultimately acquired by its current owners.
Time will tell whether the Formula 1/MotoGP transaction will move forward. If successful, both leading two- and four-wheel racing series will be under one roof with the goal to make motorsports truly global.
THIS ARTICLE IS REPOSTED FROM THE MAY 8 EDITION OF SPEED SPORT INSIDER
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