Donington crashes into insolvency (technically)

25/10/2009
NEWS STORY

It was hardly a surprise when on Friday Donington Ventures Leisure limited (DVLL), the promoter of the Donington race track, announced that it had failed to secure finance to fund its hopes of hosting the British GP from next year. Many analysts in F1 predicted this very outcome soon after Donington got the contract to host the British GP over a year ago. Some even predicted that without any high net-worth backer to bear the potentially crippling costs associated with F1, DVLL could end up losing Donington. Today, courtesy of a report in the Express by Pitpass' business editor Chris Sylt, we find out that this too may not be far off.

DVLL's grand plan was to get a 135m bond (effectively a loan) which would be used to fund the entire overhaul needed to bring it up to F1 standards. However, on Friday DVLL announced that there hasn't been enough interest in lending it the amount and so it seems certain to miss Bernie Ecclestone's Monday deadline of securing funding. Worse still, the bond prospectus reveals that DVLL seems in no state to continue.

It states that DVLL is "technically insolvent (although not subject to formal insolvency proceedings)" and has been so since the end of 2008. It made an after-tax loss of 5.9m last year and at the 30th June 2009 it had total debt of 72.8m. The prospectus adds that "a number of creditors of DVLL or its subsidiaries have taken, or have threatened to take, legal action for the payment of outstanding claims." At the top of the list of those owed money is a well-known name.

Regular followers of the Donington debacle will remember that earlier this year its plans were nearly derailed when it came to light that the circuit's ultimate owner, the Wheatcroft family, was suing DVLL for unpaid rent. The claim was eventually settled but the prospectus reveals that DVLL still owes 3.8m to the Wheatcroft family. It says that the rent payment was due by 13th October but adds that DVLL has "been in discussions with the Landlord and our creditors to obtain forbearance until Closing [of the bond issue] in respect of payments that are past due."

With the bond issue in the pits it seems unlikely that DVLL will be able to pay. It could lead to the company losing its prize asset since one of the terms of its settlement with the Wheatcrofts was that if DVLL "default on the terms of the payback plan, the Landlord will be entitled to seek a judgment for possession of the premises." That said, DVLL would hardly be handing back a gift-wrapped present. Upgrade work has been started but not finished and, as a result, according to the prospectus, DVLL has "had to cease hosting events on the Donington Park track for all or a portion of the time that work is being done to enhance the race track to Formula One standards." The circuit has also lost its biggest event, MotoGP's British GP which had been held there since 1987.

Another party which may be coming after DVLL for money is Ecclestone's Formula One Administration (FOA). On Saturday The Times reported that Donington may face a 15m bill for failing to host the British GP but, in fact, the newspaper was being kind - the actual bill could be a lot more. The prospectus states that "if we default, FOA is entitled to liquidated damages, which could equal 18.0 million in the first year, increasing by approximately 7% per annum thereafter."

However, in contrast to these overdue payments, the prospectus reveals that DVLL's chief executive Simon Gillett has a salary of 253,041.

DVLL's plan also seems to have some shocking holes in it. The prospectus states that it is based on DVLL entering into circuit naming rights agreements whilst adding that FOA has not yet given it the right to do so. "We face the additional risk that we may not obtain the necessary approval from FOA... and that, even if we do obtain the approval, such approval may be subject to certain conditions that we cannot currently predict." It adds that "failure to secure such sponsorship agreements or loss of any sponsorship agreements secured in the future could have a material adverse effect on our revenues, financial condition and profitability." However, this is just the tip of the iceberg.

The prospectus also reveals that DVLL would "need to hire, integrate and retain experienced management (including a Chief Financial Officer or a Finance Director)." You might have thought it would have done this already and, perhaps erring on the side of caution, the prospectus states "we may be unable to put the appropriate financial management and reporting structure in place in a timely manner or at all."

Remarkably, when discussing the risks to the bond from F1 itself, the prospectus also states that "the only addition to the 2009 Concorde Agreement compared to the prior Concorde agreement is the provision pertaining to the need to reduce costs associated with participating in the Formula One World Championship to the levels of the early 1990s." Presumably no one told the author of the prospectus about the team payments which double under the new Concorde. Quite a relevant point it is too since the higher the team payments, the harder it is for F1 to pay back its own debt and the higher the likelihood it could default which could put the sport in the hands of new owners who may not want a British GP at all.

But it is the core of the plan which sounds most fanciful. The prospectus states "we expect that approximately 40% of our turnover will be derived from corporate hospitality facilities." It also projects that the revenue from hospitality would be 24.4m in 2010 dipping to 19.9m in 2011 since joining fees would be paid next year. Given that the Paddock Club, F1's own corporate hospitality outfit, only makes 8.4m per race on average it would seem incredible if DVLL was able to meet these projections, particularly in the current climate.

Perhaps the most telling detail is that the prospectus reveals that construction costs to get the circuit in a state to host the British GP would be 91.4m yet DVLL had "redevelopment related costs of 0.5 million in Financial Year 2008." Even if DVLL had raised the money it clearly had a long way to go.

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Published: 25/10/2009
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