Sometimes timing really is everything in life. In April, Liberty Media confirmed its willingness to acquire 86 percent of Dorna's shares, effectively becoming the owner of the two top motor sports, namely Formula 1 and MotoGP. We then often forget that these properties extend far beyond these categories, since in the case of two-wheel sports, for example, Moto2, Moto3, MotoE as well as SBK and all the categories of the paddock dedicated to production-based racing are also included in the agreement. But that is another story, and the EU is thinking deeply about the issue related to monopoly.
The point about timing mentioned above concerns other players, and in particular KTM. The situation of the Austrian giant, which at this point it is fair to call a giant with feet of clay, was not at all known to most in April. Just two months later, i.e., in June, the MotoGP rider lineup was finalized, with Acosta promoted to the Factory team and Bastianini and Vinales settling into Tech3. This is also where the investigation being carried out by the FMA, or the Austrian Financial Markets Authority, comes into play. The subject of the investigation is precisely Pierer Mobility's modus operandi from June to November, the period in which it went from having to revise its forecasts for the end of the financial year downward, to a real hurricane with a crisis and a financial hole of 3 billion euros.
During this period, the Austrian company allegedly failed to comply with the disclosure requirement dictated by its presence on the stock exchange. To explain it simply, when a company is listed on the stock exchange, it has an obligation to immediately publish all insider and sensitive information, to put all market participants on an equal footing. In the absence of this clarity of information, it seems obvious that we are faced with pure insider trading, but in reverse. Hiding the nature of the problems, serves to prevent the stock market from panicking by generating massive selling of shares that then leads to the collapse of the stock value itself. Which, however, happened anyway during 2024 as Pierer Mobility's value plummeted on the stock market.
This silence on the part of KTM then, risks significantly affecting Dorna as well, and we are not only referring to the risk of losing four bikes on the grid for 2025. We need to think about the MotoGP 'package' and what it would become if KTM were really forced not to race. First, when Liberty Media finalized the deal worth 4.2 billion, it was planned that there would be 5 Manufacturers and 20 bikes on the grid. Out of these five constructors KTM represents a 20 percent share and from a sporting point of view it was also the manufacturer that finished second behind Ducati in the last two seasons, in addition to having under contract a certain Pedro Acosta, a potential MotoGP superstar.
Today there will be the first meeting of KTM creditors, and it will be a first step toward the eventual confirmation of a possible plan to rehabilitate the company, or it will be the first step toward the abyss if the presented program should not be accepted by the creditors. It should be emphasized that KTM at least does not owe too large a debt to its employees, because it missed December pay, but it does not have heavy arrears to deal with. This is a very important aspect of the negotiation, because the employees are priority creditors and on their own could have depleted any resources available to those who are handling the deal by insolvency, which in Italy would result in an estimated agreement.
A small digression... if a company reaches an arrangement with creditors, the path is this: the creditors agree to freeze part of the claim and in the case of KTM we are talking about 75 percent of 3 billion euros, so a figure of over 2 billion. But why would creditors agree not to bankrupt a company by losing this share of the claim? Because the continuation of the business would be guaranteed. Let's take a practical example: a battery supplier of KTM is part of the group of creditors. He has been selling KTM batteries for 10 years, has always been paid, has grown with the company, and has 'sized up' to be able to follow a customer like KTM.
Now he is at a crossroads: he can either agree to lose the credit for 2024 almost in its entirety, but at the same time have the option of continuing to sell batteries to KTM for the future on terms set in the arrangement, or he can decide not to accept the arrangement, bankrupting KTM completely and also risk losing that portion of the credit offered in the arrangement. I don't know how clear this reasoning is, but this is exactly how it works in such cases. Small side note, do you know who are the absolute last creditors when things go wrong in a company like KTM? The shareholders, who maybe entitled to dividends, bonds, consulting fees, and a thousand other possible exercises. In the event that the agreement is or is not reached, in any case the shareholders' claims go straight to the back of the line and are unlikely to be collected in bankruptcy.
But let us return to the initial reasoning about timing being everything in life and reason about dates. April: Liberty Media announces the deal. June: KTM signs rider contracts for 2025. July: KTM informs at the end of the second quarter that estimates have to be revised downward for 2024, but that it is only a drop in growth and that there are no major problems. October: after 6 months, the antitrust comes to the deal between Dorna and Liberty Media, so much so that the MotoGP logo is rethought, the brand identity changes, and everything suggests that it is a deal that should have gone through at the same time as MotoGP moves from Dorna's hands to Liberty Media's officially. November: there begins to be some nervousness in the paddock as the 2024 world championship ends and there is still no confirmation of the deal. December: just two days ago it was confirmed that the investigation enters Phase II.
So on the one hand there is an acquisition approval process that is taking longer than expected, while on the other hand there is an asset that is in danger of evaporating, inevitably going to affect the overall value of the deal. Imagine that you sign an agreement in which you commit to buying a nice apartment with 5 rooms, a terrace and a garage. You're happy, you even sell an old family heirloom to hold up the deal (Liberty Media sold $825 million worth of F1 shares) and then the moment you finalize the deal you open the door and find a different apartment, with one less room, the terrace devastated and the car garage in which there is seepage and major renovation work needs to be done. You will not exactly be happy, right?
What will happen now? Dorna has every interest in KTM staying on track for 2025 and even 2026, and all in all this financial crisis has come at a transitional sporting moment. In 2027 the regulations will change, in 2026 the bikes will be frozen for development. Ducati has lost two bikes on the grid to Yamaha, which is growing, and all in all the current RC16s seem competitive enough to perform well in 2025 even without receiving the same developments they have received in the past. But will KTM actually be able to race? From an economic point of view, it seems to be okay also because the Racing team is a collateral entity, it has its own budget and its own revenues. But from a moral point of view? Is it right to race knowing how many people will have to stay at home because of the faults of those who mismanaged the situation? Yesterday Lucio Cecchinello was a guest on one of our GPOne to One and he was very clear about it:
"The KTM team has very clear revenue items, and they are first and foremost the sponsors, then there are the TV rights turned over by IRTA and then everything that comes from the parent company. Almost certainly nothing will come from the parent company, but what comes from the other two sources, combined perhaps with a review of overheads, certainly can allow all the RC16s to be on track."
This, however, is a vision relative to the short-term future, because it is one thing to run with the bikes without developing them, and another to have to develop the bikes for the new regulations starting in 2027. There the matter gets quite complicated and Dorna will undoubtedly have to look for another partner, unless KTM's situation improves exponentially in a few months thanks perhaps to the arrival of a new partner, or thanks to the investment of Bajaj, an Indian partner who has shares of 49 percent and certainly cannot risk losing this asset.
A few months ago there was talk that BMW, in its idea of re-entering MotoGP, may have asked Suzuki to basically 'sell' to it the know-how accumulated in MotoGP from 2015 to 2022. This offer has never been confirmed, but neither has it been clearly denied. Now there could be a similar situation with KTM, with the German giant finding a privileged gateway to the paddock by exploiting (bad to use this term, but it is so) the Austrian company's difficulties.
Today will be an important date, because it will either begin to write the future of KTM or tell its last days as a company as we know it.