Behind the glamour, passion and engineering excellence that is MotoGP lies a world which receives a lot less attention, but is at least as important: the world of finance. For running a motorcycle road racing world championship costs money, and though the goal of any enterprise - including running a world championship - is to make a profit, in a world of declining motorcycle sales and economic uncertainty, making money in motorcycle racing is no easy feat.
That task is especially difficult for Bridgepoint Capital, the venture capital firm that took a controlling stake in Dorna back in 2006. Bridgepoint reportedly paid CVC some EUR 550 million for the stake in Dorna, an amount that was widely regarded even at the time as a very generous valuation, especially as CVC had acquired Dorna for around GBP 45 million just 8 years earlier in 1998. The purchase was funded in part by loans taken out by Bridgepoint from a range of banks.
Those loans are now coming up for repayment, and according to reports from Bloomberg, Bridgepoint is renegotiating the conditions on those loans. The loans are being extended, and the interest offered on the loans cut by 75 basis points, or three quarters of a percent, for seven-year loans and 25 basis points on the six-year loans and line of revolving credit Bridgepoint requires.
Translating from finance-speak, what this means is that Bridgepoint has done a new deal with the banks providing loans to the company to cut the amount of interest they are paying on the loans. A quick back-of-the-envelope calculation shows that Bridgepoint will save a total of around EUR 6 million over 7 years on the loans, though the exact details of the loans are not known and so these calculations cannot be regarded as completely accurate.
The reason for renegotiating loans right now is simple: interest rates are at a historic low - so low, indeed, that even a cash-rich company like Google is borrowing money to finance future developments - and are expected to start rising in the medium term. Refinancing now is the sensible option, saving money against future loans. Given the relatively small size of MotoGP's profits - as we wrote some time ago, Dorna makes around EUR 5-8 million on a turnover of EUR 210 million - cutting interest rates on current loans can be a significant boost to the business' bottom line.
But the entire situation does make CVC appear to be the big winner out of the entire situation. Apart from selling Dorna at over 10 times the price it acquired the company at, CVC's decision to move into Formula One has been a real money maker. In contrast to MotoGP's EUR 8 million a year, reports from the BBC and Formula Money state that CVC earned some USD 137 million from Formula One just in 2010 alone. Those kinds of sums are so far beyond what is earned by Dorna it raises questions over just where MotoGP is failing to capitalize on its popular appeal. With MotoGP's TV audience numbers - some of the most unreliable statistics known to man, as witnessed by the 2 billion people alleged to have seen the recent Royal Wedding - around half of those for Formula One, it seems surprising that MotoGP's turnover would be a fifth of Formula One's, and its profits fifteen times smaller than the rival four-wheeled series. Surely it must be possible to make more money from the series than that?