A1GP spinning its wheels, losing $200m+ a year
Philip Richards is the darling of the London hedge-fund circuit in large part because of the stratospheric financial returns realized from high-risk investments in nickel, copper and other natural-resource companies selling to Asia.
But in December, the RAB Capital PLC chief executive strayed into another unpredictable investment: auto racing. The RAB Special Situations fund paid $200 million to purchase an 80% stake in the A1GP racing series from one of its founding investors, Sheikh Maktoum Hasher Maktoum Al Maktoum, the 30-year-old scion of Dubai's royal family.
A1GP -- in which largely unknown young drivers compete under their nation's flags in a series of 11 international events -- seemed like an ideal platform from which multinational advertisers could put their products and logos in front of the developing world's millions of budding consumers. High-profile global sponsors were all that were needed to turn the series into what RAB envisioned as "the World Cup of Motorsport." An initial public offering of shares in A1 Holdings Ltd. was slated for this month.
"You can grow businesses from small beginnings, and I think this does have global appeal," Mr. Richards says.
But the series has hit some serious speed bumps. It hasn't signed an international sponsor, the cost of holding its races is spiraling upward, some events have been canceled or are in danger of not being run again, and the IPO has been delayed.
"I don't know that RAB fully understood what they were buying, the hill that they have to climb or the competition in the marketplace for entertainment," says Mark Coughlin, executive vice president of Octagon Racing Group, a Norwalk, Conn., sports-marketing firm that negotiates auto-racing sponsorships. "Simply put, there is no value. ... No one knows the drivers, the cars are uninteresting and the xenophobic concept of my-country-racing-against-yours doesn't hold water because America's best drivers aren't competing, or [the best] drivers from other countries."
Without a single global advertising partner on board for the series, it calls into question whether A1GP can establish itself as a viable open-wheel racing series alongside those governed by the Fédération Internationale de l'Automobile -- including Formula One, which is considered the sport's highest level of drivers and technology, is lavishly sponsored and is avidly followed in hundreds of countries world-wide. In the U.S., where Formula One has a modest fan base, A1GP must contend with sponsorship juggernaut Nascar, which governs several immensely popular stock-car racing series in North America.
A1GP -- which Mr. Richards says currently makes up 5.5% of the RAB Special Situations fund -- lost $240 million in the 2005-2006 season, according to Pete da Silva, the former CEO of Siemens South Africa who was named A1GP's chief executive in a February restructuring. But Mr. Richards, the Oxford University educated fund manager, says it is too soon to judge A1GP a success or failure. "Never overestimate what you can achieve in one year," he says, "and underestimate what you can achieve in five years. We say it over and over again."
RAB has banked on the concept of fielding 23 national teams -- including such countries as Pakistan, Malaysia, China, Brazil and India -- as a way to attract advertisers hungry to reach consumers in rapidly developing countries.
A1GP had hoped to sign Coca-Cola Co., but Coke declined. Both the U.S. and the China team approached computer maker Lenovo Group Ltd., but the computer maker said no and signed instead with Formula One for 2007. "Formula One is a great place to build the Lenovo brand because it reinforces what our company stands for. It's highly international, it's based on the best engineering in the world, and it's completely driven by innovation and performance," says Lenovo spokesman Bob Page.
Adrian Sussmann, a vice president at CSS Stellar Management, a sports management company that works on both Nascar and FIA events, says, "From what I can see, it is going to be a struggle [for A1GP] to get sponsorship. ... Any business taking that kind of loss in 2005 -- you have to wonder how long they can do it for?" More at Wall Street Journal