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Analysis: F1’s ‘Don King Clause’ could block sale of F1’s rights

Rumours surfaced last week that Saudi’s PIF fund had offered $20bn to purchase F1’s commercial rights, but as RacingNews365 Editorial Director Dieter Rencken points out it is not as simple as making an offer.

FIA President Mohammed Ben Sulayem has cautioned prospective purchasers of Formula 1’s commercial rights from current holder Liberty Media to exercise due diligence before committing a reported bid of $20bn (£18bn) on acquiring the remaining 88 years of what was originally a 113-year lease expiring on 31 December 2110. The Emirati’s warning comes after financial media agency Bloomberg on Thursday reported that Saudi Arabia’s Public Investment Fund had been in talks to acquire the lease, claiming these faltered last year. The report stated an offer of $20bn including debt had been made, adding that the talks had not been verified by either party. However, any sale other than a distressed transaction – and the sport is far from distressed, as rising metrics in all key areas prove – depends upon two willing parties, namely buyer and seller, and regardless of how much the Saudi’s (or any other potential purchaser) may offer, Liberty cannot be forced to sell against its will. Not even to the host country of a grand prix and owners of its largest sponsor, Aramco. Indeed, speaking on an investor call in 2021 Liberty CEO Greg Maffei indicated that extricating F1 from Liberty would be a complex matter, as after five years of ownership it was so entrenched in the overall group that any buyer would need to acquire the entire listed company – which, of course, would also require willing buyers and sellers and compliance with NASDAQ protocols. Questioned during a Financial Times event last June, Maffei made clear that Liberty has no plans to exit F1: “We want to sustain the growth of that (rising) interest (in F1) more broadly,” the American said. “Doing things like going to [South] Africa and doing things about sustainability is all thinking about how we grow this 72-year-old franchise for the next five years and five years beyond that. “There's a huge amount of momentum now we'd like to capitalize on that. Not just financially, but for the breadth of the sport.” Clearly, selling out to a buyer who would be perceived by the wider world as engaging in ‘global sportwashing’ would not serve the “breadth of the sport”, and, if anything, would severely damage the image of F1 and, by extension, world motoring’s global body, which ultimately owns the sport and leases it out. In addition, Liberty has made clear that F1 is a ‘halo product’ for the entire group.

One race per annum in Saudi may be palpable for diehard fans, but having the entire series owned by the regime would attract heavy criticism – particularly after Liberty stabilised F1. Fans rightfully fear that F1 could go the way of the controversial LIV 24 golf series, which was founded by the Saudis in competition to the PGA, but is viewed by golfers as an attempt by the kingdom to purchase goodwill in that arena. Where F1 differs vastly from a golf start-up championship is that the FIA needs to approve any change of lessee and may veto any potential buyer who is not considered “a fit and proper owner”, bringing into play a third party beyond buyer/seller: the FIA, who as owners of the sport hold a veto right over transactions. A clause in the overarching 113-year commercial rights deal contains what ex-FIA President Max Mosley referred to as “the Don King clause”, telling reporters including this one in 2002, “Up to a point, we have a right of veto, we still have the 'Don King clause' in there,” he said referencing a legal instrument named after the infamous boxing promoter. “It's not that simple, [the CRH] can't just go off and sell [the rights].”

What is known, however, is that the FIA blessed both previous sales, in 2005 to CVC Capital Partners and CVC’s 2016 transaction in favour of Liberty. Hence Ben Sulayem’s cautionary words are significant. “You have to be wary of overpricing,” he told media in Monte Carlo during last week’s WRC season opener. “Twenty billion is a lot of money. It's an exaggeration I think. Is it value for money? Is the number inflated? If you apply common sense, is it really worth that much? Up to now its rumours. In any case, the FIA would play an advisory role in this situation.” Note his last sentence. The bottom line is that neither F1 nor PIF have responded to Bloomberg’s rumours, nor did Ben Sulayem reference the Saudis in his latest set of tweets - as one would expect an Arab to do about fellow Arabs rumoured to having planned such a massive transaction. Indeed, his tweet thread concluded with: “It is our duty to consider what the future impact will be for [F1] promoters in terms of increased hosting fees and other commercial costs, and any adverse impact that it could have on fans.” Most telling, though, was the effect of the Bloomberg report on the FWONK (F1) share price: It increased by around eight percent in the wake of the report, then immediately dropped four points. F1 did not respond to a request for comment about the report.