Motorcycle racing is a profitable business, it turns out. The leading UK financial paper Financial Times reported yesterday that Bridgepoint Capital, the private equity firm that owns Dorna, among many other assets, has hit upon a relatively novel way of paying out investors, by transferring the roughly 40% of Dorna that it owns between one Bridgepoint fund and another.
The proposed sale is a result of a review carried out by merchant bankers Lazard at the end of last year, with the aim of fixing a value and finding potential buyers. According to the FT, several private equity firms expressed an interesting in buying Bridgepoint’s stake, including former owners CVC.
That sale is now off the table, it appears. Instead of selling Dorna to an outside party, Bridgepoint is now investigating setting up a separate internal fund, and moving it from one fund to another, paying its investors from the transfer between the two funds.
The sale allows Bridgepoint to pay out Dorna’s increased value to investors who put their money into the fund Bridgepoint set up to hold Dorna in 2008, after it had performed a similar maneuver between 2006 and 2008.
Though the sale will have little practical effect on Dorna’s operations and running of MotoGP and WorldSBK, the report does allow a glimpse into the finances of a privately-held company. Dorna’s earnings are said to be growing by double digits in recent years, with a margin of 44%, according to reports via Bikesportnews.com.
However, what remains unclear is why Bridgepoint decided against selling Dorna, angering some potential buyers. The appearance is now that Bridgepoint used the review process solely to set a market price to reimburse its investors, rather than actually try to sell Dorna.
But, with strong growth in earnings and a solid margin, the private equity firm may regard the Spanish company as a solid long-term investment.
The advantage Dorna, along with other sports rights management companies, has, as the FT article points out, is that a large part of its revenue stream is largely based on medium-term contracts.
One third of Dorna’s income comes from the sanctioning fees paid by circuits for the right to organize a race, while at least another third comes from TV broadcasting rights. Both TV broadcasters and circuits sign multi-year contracts, guaranteeing a steady income base largely unaffected by volatility in the global economy.
Another factor may be the current health of MotoGP. The sport continues to grow in popularity, and the changes to the rules made since the global financial crisis in 2008 has ensured close and exciting racing, with young talent entering the series, and plenty more waiting in the wings.
That excitement, Dorna hopes, will help diminish the inevitable blow to the series’ global popularity once Valentino Rossi retires. Back in 2008, Rossi’s retirement would have been a near-fatal blow. In 2019, the series is easily strong enough to sustain itself after Rossi stops racing. Moreover, the Italian shows neither the desire nor the necessity to stop.
As a result, Dorna looks like a solid investment for the foreseeable future. That, as much as anything, may be why Bridgepoint decided not to sell. They may be hoping that the company will continue to increase in value as it has over the past 13 years.
Below is a table of how Dorna’s value has increased in the years since Bridgepoint first purchases it. For comparison, the value of FTSE 100 grew by 25% over the same period, the Dow Jones Industrial Average grew by 126%, and the NASDAQ grew 336%.
|CVC sells its 71% stake to Bridgepoint, after being forced to divest because of purchase of F1.||2006||71%||€550,000,000||€774,647,887|
|Bridgepoint sells 39% stake to Canadian pension board CPPIB||2012||39%||€400,000,000||€1,025,641,026||32%|
|Bridgepoint transfers its stake internally from one fund to another||2019||€2,500,000,000||223%|
EDITOR’S NOTE: If I had to guess at the situation, I would suspect that some of Bridgepoint’s investors (Limited Partners, or LPs) wanted to take money off the table and collect their profits for investing in Dorna, while others did not.
This would explain the bi-polar move of wanting to sell Dorna externally, but then keeping the sale internal for a new fund. This also has the happy coincidence of setting the rate at which new investors would be buying into Dorna’s business.
It is sort of a complicated and roundabout way of Bridgepoint finding new investors who want to take MotoGP and WorldSBK to the next level, while giving past investors the ability to divest from the fund and collect their profits. Very interesting from a finance perspective, but I would caution readers against looking too deeply into this news. -JB
Source: Financial Times