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Formula One Motor Racing

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Formula One Motor Racing

In 1997/1998 Formula One’s popularity was at an all time high and two years prior the Federation Internationale de l’Automobile (FIA) had granted Bernie Ecclestone F1’s commercial rights. Ecclestone had sought these rights in order to safeguard his own investments in the digital TV infrastructure technology that was being developed. He was so confident in the technology; he had invested over $100 million through family-owned companies towards R&D. Ecclestone believed that multichannel broadcasting with interactive technology would create a new revenue stream, improve F1’s global appeal, and support his planned initial public offering (IPO). Formula One’s IPO never took place.
During this same time period the European Union began an antitrust investigation, claiming the FIA had exercised monopoly power by giving one company exclusive broadcasting rights. Considering so much of F1’s profits come from TV revenue, Ecclestone had to cancel the IPO due to the pending legal case and instead opted for a bond issuance that raised $1.4 billion for his family trust. Taking a company public through the IPO process or financing through a bond issuance, have many advantages and disadvantages for a business.
IPO’s provide companies the opportunity to raise capital to grow the business by offering investors an ownership stake in the company without impacting its debt-to-equity ratio. The Juner case is a perfect example of a company decided to go public because it needed to raise capital to expand production and increase its R&D but did not have enough cash flow to support it. The bond issuance Ecclestone opted for also provided immediate capital but directly impacted F1’s debt. Bondholders would be paid out of the revenues received from race promoters and broadcasters. Another benefit of an IPO is that they can provide current

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