Published: July 18, 2008
By Julian Evans
Racing driver and entrepreneur David Richards has been working in motor-sports for 30 years, winning world rallies as a driver, running rally and Formula One teams as a manager, and setting up and managing companies as an entrepreneur. He is a pioneer in bringing motor-sports to the Middle East, having set up the first ever rally series in the Middle East when he was just 25.
Last year, Richards leveraged his contacts in the Middle East to put together a consortium, including two Kuwaiti investors, to buy Aston Martin from Ford, in one of the first ever Islamic finance LBOs. He says he plans to put together another such consortium to buy a Formula One team in the near future.
emeafinance editor Julian Evans journeyed down to Banbury, a town in Oxfordshire that is arguably the global centre for motor-sports. Richards' company, ProDrive, is based there, as are the headquarters of several Formula One teams - Williams, Renault, Force India and Red Bull.
The air around ProDrive's offices are thick with the smell of chocolate, from a Belgian chocolate factory next door. And, as Richards tells us, the future for motor-sports in the Middle East is smelling just as sweet.
emeafinance: David, you're probably one of the top experts on motor-sports in the Middle East. Tell us a bit about its emergence.
David Richards: When you look at motor-sports, you have to draw a line between those activities that require significant infrastructure, and those that don't. In the latter category are typically rallies, where you race on open roads or even on dirt tracks. What usually happens with the emergence of motor-sports in a region is that you start off with rallies or the occasional hill-climb. These activities tend to be exported into a region by the expat community 30 or 40 years ago.
That's what we saw in the Middle East - I organized the first ever rally there in the 1970s, together with Rothmans, in Kuwait in 1975. It was the first ever motor-sports event in the Gulf, except for a go-kart race in Bahrain. Gradually we established rallies in other countries throughout the Middle East, and these events have carried on to this day. And we've seen the emergence of some drivers from the region who are world class.
Then, about six or seven years ago, the Dubai autodrome was built by Union Properties, as the starting point to Motor City. It's a competent facility, but not up to the standard of later tracks like Bahrain or Abu Dhabi. You couldn't hold a Formula One race there.
The next big step was when Bahrain said it would build a Formula One track, in 2002. The first F1 race there was in 2005. That's a superb track.
emeafinance: We're now seeing other F1 tracks built in Abu Dhabi, and possibly in Dubai and Qatar as well. Why has the Middle East suddenly got so into Formula One?
DR: Everyone assumes that these tracks are built on the passing whim of rich individuals. It's not the case at all. They were built with strategic purposes. For example, Union Properties built the Dubai autodrome to develop Motor City, and attract motor companies to the project. In Bahrain, the Bahrain Mumtalakat Holding Company, whose CEO by the way [Talal Al-Zain] is not a big motor-racing fan, built the racetrack in order to raise the international awareness of Bahrain. And it worked. If you did a test of foreigners' awareness of Bahrain five years ago, it would be very different today, thanks to the Grand Prix.
And the next stage is to develop the motor businesses around the Grand Prix. Bahrain wants to attract automotive technology companies to the country. It has several advantages - cheap electricity and plenty of bauxite nearby.
emeafinance: So Formula One has a strategic importance for the region?
DR: Yes. It's about raising international awareness of the region, and building a future for when the oil runs out.
emeafinance: How popular is Formula One in the Gulf?
DR: The sport is still quite new, so local participation is modest. But local attendance at race tracks is quite high. In general, they love motor-cars in the Middle East.
emeafinance Would you say it is also a strategic priority of Bernie Ecclestone and Formula One to develop the sport in the Middle East?
DR: Bernie is motivated primarily by the appearance money of the teams rather than any great conscience about developing the sport. Each country has to pay Bernie for the right to host a race, and the participation of places like Bahrain raised the threshold to a new level. With new countries coming in, prices to bring the circus over are going up, up, up. I'm not talking 5 or 10%, but by significant margins. Now, it costs around US$30m to hold a race, which is far more than say five years ago.
emeafinance: Ecclestone has talked about raising the number of races to include more new countries like say Qatar or Russia.
DR: There's a lot of logic to it - more income and more visibility. You just have to be careful not to give too much to spectators, so they get bored of it.
emeafinance: As new countries join F1, some are saying that UK motor-sports are in trouble, and should be more supported by the UK government. Do you agree?
DR: The argument that government should support motor-sports is quite difficult to sustain. Silverstone is owned by 350 private members, including me, who pay several million dollars to one individual [Bernie Ecclestone] who doesn't pay tax in the UK and who is mainly financed by cigarette companies. So to say tax-payers' money should support him.
emeafinance: It's a tough sell.
DR: It's an impossible sell.
emeafinance: It's remarkable that one person should control and profit from the sport to such an extent. It's a unique situation in world sports.
DR: Bernie's done a hell of a good job at it. Without Bernie, Formula One would be nothing to what it is today.
emeafinance: What do you think of the trend we've seen of Middle Eastern investors buying stakes in Formula One teams?
DR: It's not that developed a trend. We've seen the Mubadala fund from Abu Dhabi buy 5% of Ferrari, and Bahrain Mumtalakat buy 30% of McLaren. Of course, Mansour Ojjeh [a Saudi-born Frenchman] has owned 15% of McLaren for years. I guess it's a long-term view of the business. The idea must be that it will help attract business into the region. Given the excess of liquidity in the Middle East, it's quite likely we'll see more investments in Formula One, football, and other sporting events.
emeafinance: Tell us about the buy-out of Aston Martin last year, and how you used Islamic finance for that deal.
DR: I'd been involved with Aston Martin in the past. When Ford decided to sell it, I at that time had no view that it would be possible to acquire it. But the opportunity came along to head up the consortium to buy it. The consortium primarily included two Kuwaiti companies [Investment Dar and Adeem] I was introduced to them by a third party [investment banker and racing enthusiast John Sinders], so it wasn't a pre-existent relationship, though being well-known in the Middle East certainly helped.
emeafinance: How involved in the day-to-day running of the company are Investment Dar and Adeem?
DR: They're active in the sense that they have very good investment experience. They're a very intelligent body of investors.
emeafinance: And will they help introduce Aston Martin into the Middle East?
DR: The Middle East is an under-developed market for us, we don't sell much there, so there is potential there.
emeafinance: And it was a Shariah-compliant deal?
DR: Yes, all investment had to be Islamic compliant. There were some complexities to it at the start. But there are many specialists who can advise on it now. And there was no difficulty in pricing it at all. To the outside world, Islamic finance looks very complex. We've had a number of inquiries from people and companies looking at receiving Islamic funds, who are concerned about the complexity or constraints on their business. The reality is it's not complex at all.
emeafinance: So you are a Shariah-compliant business?
DR: Aston Martin is, yes. We don't undertake activities that involve alcohol or alcohol sponsorship, for example.
emeafinance: Even at the office Christmas drinks?
DR: I'm not sure about that. But we've had no problems at all with being Shariah-compliant.
emeafinance: Are you likely to raise more funds through the Islamic finance market?
DR: At the moment we don't require additional finance, we can finance ourselves from our cash reserves. But as we develop the business, we may well raise more finance. We've been seriously looking at establishing a Gulf base for the business, which could be in Kuwait, Qatar or Bahrain.
emeafinance And are you interested in returning to Formula One?
DR: I have looked at returning to Formula One, though the timing isn't right just now because there's no agreement between Ecclestone and the teams. But we are interested in returning. We could acquire a team, and it could well be via a consortium. Some Middle Eastern investors have already approached us. It would have to be Shariah-compliant. We'll wait and see how serious people are about it.
emeafinance: So finally, in all your 30 years of business in the Middle East, how has the region changed?
DR: It's become far more sophisticated. It now has all the infrastructure that you see in the West - banking, finance, communications. It's a very sophisticated market-place. People tend to stereotype Arabs. By doing so, they commit a grave injustice. They're actually very intelligent, very business-minded. They have large pools of liquidity from the oil, but they're investing it very wisely. They're using the opportunity when the rest of the world has got problems to acquire assets that are cheaply-valued, but which have a good future. The best example of that is Aston Martin.