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Bernie payment keeps Williams on track

NEWS STORY
25/01/2009

Much has been said in recent months about the financial health of the Williams F1 team. After car giant Honda pulled out of the sport many wondered how the only team not owned by a billionaire or a car company could survive.

Williams' chief executive Adam Parr gave some reassurance when he said last month that "we're among the best equipped to handle the economic crisis." It was a bold boast given that only a short while before McLaren boss Ron Dennis had said that he expects his team to lose a third of its revenue due to the downturn. That's a team which is World Champion and is owned by a sovereign wealth fund, a billionaire and a car company. So how might Williams manage to stay on track? Well, part of the answer is revealed in an article in the Financial Times by Pitpass' Christian Sylt and it has nothing to do with Williams' ability to raise sponsorship.

If anyone ever thought that F1's commercial supremo Bernie Ecclestone favours the top teams then they should read the piece in the FT. Not only does it reveal how he has helped to keep Williams on track but it also gives insight into the behind the scenes bargaining going on over the future of F1.

According to the FT, Ecclestone has advanced the Williams team a share of a 14.5m ($20m) prize pot after it committed to stay in the sport until 2012. Williams made a loss of 50m over the past two years and trebled its net debt in 2007 but with the boost from Ecclestone the team has been able to get its budget in place until the end of 2010.

A total of 130m ($182m) has been set aside as an incentive for F1's nine teams to sign a new Concorde Agreement, the contract which binds them to race in F1. The last Concorde expired at the end of 2007 and the lack of a guarantee over the teams' participation makes it extremely difficult for finance firm CVC, which majority owns F1's commercial rights holder, to sell up.

The teams are currently racing in F1 under a Memorandum of Understanding (MOU) agreed with CVC in 2006 but this is not legally binding. The MOU increased the teams' annual prize money from 25% to 50% of the sport's profits and these payments began last year when the previous Concorde expired. However, although they are getting paid at the increased rate, they have not signed a new Concorde.

As a last ditch effort CVC offered the teams a signing bonus comprising the difference between the old and the increased prize money backdated from 2004-2007. According to the 2007 accounts for Delta 3, F1's UK holding company, "the increases in prize fund in respect of 2004-7 are estimated at $182m...these additional prize monies will only be paid out... subject to each team having satisfied criteria in the Concorde Agreement."

However, although a Concorde Agreement has yet to be signed, Williams' chief executive Parr admitted to Sylt that the team has received its share of the money from 2006 and 2007. "It's a prepayment," added Ecclestone explaining "they are entitled to some back-payments only due for payment when they sign the Concorde... we said to them we will pay you now."

Although he lacks a Concorde Agreement, Ecclestone has some security since Williams has signed a legally binding agreement to remain in F1 until 2012. Parr says that the bargain was struck in 2005. It was well timed.

In 2005 Williams lost a supply deal with BMW which was providing engines believed to be worth around 75 million per year. Since then it has suffered financially and this year it has lost an estimated 33m ($45m) in sponsorship from Baugur, Lenovo and Petrobras.

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