Outlook: Formula One off the starting grid

IF AT first you don't succeed... Having failed to float his company on the stock market last year, Bernie Ecclestone, chief executive of Formula One, is trying a different tack - securitising it. This appears such a neat way of allowing Mr Ecclestone to realise a large slug of his investment, without having to go through the disciplines of a stock market float, that it's a wonder noone thought of it before.

Yet this time last year Formula One and its adviser, then Salomon Smith Barney, were doggedly sticking to the line that the company could and would be floated in a matter of months - this despite the fact that the constructors that make Formula One work were disputing both Mr Ecclestone's rights of ownership and his claim to the lucrative TV rights that support the sport. It was plain to everyone other than Salomon and Mr Ecclestone that the bird could not be made to fly.

Now everything is sweetness and light once more. A new adviser has been brought in, Morgan Stanley Dean Witter; the teams have agreed a new concord dividing up TV revenue for the next 10 years, and Mr Ecclestone has ceded limited ownership rights to the constructors on terms they seem happy with. So what's to stop Formula One trying for a second time at flotation, apart from the turbulent stock market that is?

The answer seems to be the "Max factor" - broadly defined as City investors' strong mistrust of and aversion to maverick entrepreneurs. Morgan Stanley has concluded that while these investors might not take equity, they will take more highly-securitised debt. Once they have got used to that, and in the process familiarised themselves with the company, they might eventually take the equity as well. The $2bn securitised bond issue is deliberately structured to lead to a float, in that there is a step up in the coupon after five years if the bond hasn't been repaid by then.

So everyone's happy, aren't they? Formula One finds a way of introducing itself to the City and gaining its confidence, Mr Ecclestone's family gets its $2bn with the promise of more to come once the company is floated a couple of years hence, the teams get a slice of the action, and Morgan Stanley gets its fee. What possible problem could there be?

One is that the coupon demanded by investors for such securitisations has risen markedly over the past couple of months. Formula One's revenues from TV and merchandising are as predictable and secure as any, but in these markets only Group of Seven governments are regarded as entirely dependable. Put another way, financial engineering of this type may be very much in the interests of the Ecclestone family, but City support will come at a high price.