Atlas F1 Senior Writer
In just a few weeks, if nothing spectacular changes, the European Commission's settlement with the FIA and the FOA will finally become official. It's a complicated affair but a hugely important one to all participants in the sport. Thomas O'Keefe, Atlas F1's senior writer and an American Lawyer who has followed the EC's case against Formula One from its inception, explains what it's all about
To be sure, the legendary and largely secret Concorde Agreement between and among the Federation Internationale de L'Automobile (FIA), all the Formula One teams and Formula One Administration Limited (FOA), Bernie Ecclestone's company, will remain nominally in place until it expires by its terms on December 31, 2007, but under the terms of a settlement published on June 13th 2001 in the Official Journal of the European Communities, a new day is coming in the business and legal structure of Formula One.
How, when, and why is this happening?
Back in 1998, just when Bernie Ecclestone was considering taking Formula One public through an initial public offering of his company's shares (the "IPO"), the long arm of the law stepped in to upset the apple cart. In December 1997, the European Commission's Competition Directorate sent a so-called warning letter to the FIA and FOA notifying them that, in response to complaints filed by disgruntled impresarios and producers of various motorsports series, an investigation had been commenced as to whether the FIA and FOA were engaging in anticompetitive practices in running the sport and business of Formula One.
On June 29th 1999, a formal 188-page Statement of Objections was filed by the staff of the European Commission, which was at that time was headed by the flamboyant Belgian Commissioner Karel Van Miert, who characterized the antitrust violations his staff found in the most purplish of prose, telling the Wall Street Journal that "I have never had a case with so many infringements."
The FIA fought back vigorously with its own 107-page Response to the Statement of Objections, filed in February 2000, detailing why antitrust principles did not apply to the sport of Formula One and ridiculing the Commission's staff for its failure to appreciate the unique nature of Grand Prix racing as well as detailing the staff's misadministration of the case.
Indeed, among the more curious occurrences spawned by this ferocious litigation was an episode where that FIA proved that Commission officials had leaked confidential documents to the press in violation of the Commission's own rules, leading to the FIA receiving an apology from the Commission and reimbursement to the FIA of 40,000 Euros in attorneys' fees!
Once the legal pleadings had been filed with the Commission, the parties carried their battle out into the open, on websites and by means of bitter exchanges of letters between the FIA and the European Commission. Bernie Ecclestone stayed very much in the background during these skirmishes, leaving the battle to Max Mosley, himself both a former barrister and the Legal Advisor to the Formula One Constructors Association (FOCA) back in the days when Bernie and Max were both the insurgents in the sport, on the outside looking in. (For the record, Max was never actually Bernie's personal lawyer as is commonly believed; the device of having Max serve as counsel to FOCA was developed after Max sold his interest in the March team so that he and Bernie could continue to act as FOCA's two representatives at the FIA.)
Although Mosley had long ago given up actually practicing law, he seemed to relish the tug of war with the Commission and in his letters to the Commission mercilessly needled the Commission for its cupidity and stupidity. In a February 1st 2000 letter, Mosley claimed that the Commission's staff "have made a hopeless muddle of the facts and are completely confused about the regulation and general functioning of motor sport." Worse than that, Mosley challenged the integrity of the Commission officials who had Formula One under the microscope: "This case started in 1994 when the FIA voluntarily notified [the Commission of] its rules. For three years nothing happened. Since 1997 I am sorry to say the services for which you are now responsible have been shown to have lied and acted illegally. More recently they have condoned a senior Commission official using the authority of his position to lobby for an outside business interest."
In a further letter dated March 31st 2000, Mosley drove home the point that the Commission staff had failed to be objective towards Formula One: "Forgive me for saying so, but elements of your services are clearly out of control . . . I realize it is very difficult for a Commissioner to overrule entrenched officials. But if you do not, any resulting decision will not only be unjust (and hence vulnerable in the [Court of First Instance]), but will cause significant and wholly unnecessary damage to European Comminity Interests. The FIA can adapt, even if your services have their way and current arrangements for international motor sport in the EU cease. It is the communities affected by the inevitable (and irreversible) migration of important world championship events which will be the true victims."
Having challenged in a blistering way the objectivity and competence of the Commission's staff, Mosley nevertheless had a rose in the fisted glove and called for serious settlement talks: "We have repeatedly said that an open and rational dialogue could resolve the outstanding issues in an afternoon. All we need is neutral interlocutors with no agenda save to seek a solution consistent with EC competition law. This remains our position and our offer."
The case dragged on for years in this state of ever-increasing acrimony, until finally a hearing was scheduled to begin in Brussels in mid-May 2000. Miraculously, on the eve of a scheduled three-day hearing, the Commission issued a statement: "Max Mosley . . .[has] made concrete proposals . . . in order to bring the Commission's competition case against his federation to a satisfactory conclusion." The Commission's spokesperson said the Commission needed time to study these "constructive" new proposals. The hearing was put off with no new date given.
What had occasioned this sudden change of heart was a change of personnel at the top of the Commission's Competition Directorate. Replacing Van Miert was Mario Monti, a Professor who had been President of Bocconi University and had also served on the board of Fiat, the parent company of Ferrari. Judging from subsequent events, Monti apparently concluded when he took office that the best course to follow on his watch was to cut his losses, settle the case on the best terms he could negotiate with Mosley and Ecclestone and move on to the plethora of conventional antitrust issues that present themselves in the European Community.
Mosley and Monti seemed to hit it off right from the beginning, conducting themselves like European Statesmen, and the evidence mounted that the bitter and extravagantly expensive litigation was about to be settled amicably rather than going to a hearing. The websites run by the complainants fell silent and disappeared from the Internet. Indeed, the complainants settled their cases and withdrew their complaints, leaving the Commission without a constituency to protect. The FIA's website deleted the hundreds of pages of pleadings and the vitriolic exchange of correspondence between the parties. Finally, Mosley and Monti took their show on the road, appearing together at a seminar in Brussels called "The Rules of the Game, Europe's first conference on the Governance in Sport."
Meanwhile, Ecclestone - the other target of the European Commission proceeding - was putting his house in order, accommodating the settlement terms of the Commission where possible but doggedly pursuing his principal goal, which was to cash out of his holdings as Commercial Rights Holder of the broadcast TV and other commercial rights to Formula One as a means of estate planning for himself and the sport.
By January 26th 2001, most of the pieces in this complicated puzzle were in place and an announcement of an outline of the settlement terms was released by Professor Monti:
"The changes already adopted, together with those agreed in principle, will benefit all citizens interested in motor sport, as well as the sport's participants. The continued role of FIA as the regulatory authority will ensure that the existing high safety standards for participants and spectators will be maintained. At the same time, the changes allowed the introduction of new and competing forms of motor sport and creating new possibilities for circuits and broadcasters, will bring more choice to consumers both as spectators and as television viewers. Accordingly, I intend to ask my services to prepare [a] Notice which will be published in a few weeks' time and which will invite third parties to submit their comments to the Commission."
For reasons now familiar to all, as Ecclestone sparred with Mosley over the 100-year transaction and with his potential co-shareholders as to who would control whom, the "few weeks" turned into six months and it was not until June 13th 2001 that the European Commission finally released for public exposure the details of the settlement, having given all and sundry six months to implement the remedial measures that made the settlement possible from the standpoint of the Commission.
Who Won, Who Lost, Who Finished in the Points
As always, Bernie Ecclestone landed on his feet. The Commission's settlement terms required Ecclestone to relinquish his seat on the FIA Senate and to give up an FIA title he had called Vice-President for Promotional Affairs, and he had to divest himself of the rights to the FIA World Rally Championship (which he sold to ex-Benetton team manager David Richards), but the main prize was his.
Prior to the June 13th announcement of the settlement, Ecclestone put into place the Deal of the Century, when his company was awarded the commercial rights, including broadcast TV rights, to Formula One, for a period of 100 years beginning in 2001, having agreed to pay the FIA some $313.6 million for that privilege.
By the way, no one seems to have told the Commission about the 100-year deal; the settlement terms published by the Commission, which have clearly been overtaken by events, state as follows: "Upon expiry of the abovementioned agreement with FOA, FIA proposes to enter into a 100-year agreement with a commercial rights holder for the marketing of FIA rights in relation to the Formula One championship. All rights to organize and receive revenues from the championship will be transferred to this company for a fixed fee. FOA will not be automatically named as successor to the existing agreement."
Once the 100-year deal was in place, Bernie disposed of a further 25% of the stock in his company to the Kirch/EM.TV groups at a handsome price rumored to be near a billion dollars that took into account payment of a "control premium" the Buyers were buying. As matters now stand, Bernie has been paid billions for 75% of his stock but has retained both day-to-day operational control as well as the remaining 25% block of the stock. With these kinds of private placements of his shares, who needs an IPO!
Max Mosley is also a winner, because he can now get out of the business of Formula One completely and concentrate on the sport itself, since the settlement provides "for the separation of commercial and regulatory functions in relation to Formula One." He probably will not be bringing back slicks and turbos in his next four-year term as the FIA's President (which would end in 2005) but he will be free to focus on making racing and racetracks better and drivers safer as well as fostering the FIA's broader safety agenda for the motoring public generally.
In addition to Ecclestone, Formula One fans within the 15 European Union countries are also winners when it comes to the issue of continuing to make Formula One TV programming available through over-the-air terrestrial signals. As the Commission noted approvingly, the Concorde Agreement "guarantees that free to air will be the principal way of transmission to viewers."
Ecclestone has also said that over-the-air signals will be available "forever" and the European Commission has included provisions in the settlement that it hopes will create an environment where broadcasters will compete for the over-the-air broadcast rights:
Ron Dennis of McLaren-Mercedes - whose team has suffered at the hands of FIA scrutineers from time to time - can claim a victory of sorts. Dennis sought a provision in the settlement that would require the FIA to reach "reasoned" decisions in all matters and provide for appeals beyond the FIA's in-house International Court of Appeal.
The settlement grants Ron's wish and provides that the FIA shall insert a new clause in its regulations "clarifying that anyone who is subject to FIA decisions can challenge them before the national courts." Furthermore, the "FIA submissions have confirmed the availability of legal challenge against FIA decisions both within the FIA structure and before national courts." So, the next time a McLaren is disqualified for a drooping front wing, as David Coulthard's was in the 2000 Brazilian GP, you can expect Ron to bring on the lawyers!
Who lost? The European Commission has plainly attempted to put a brave face on the settlement but in retrospect its staff work came in for a drubbing and the language of the settlement documents accepts the argument made by the FIA's lawyers on the key antitrust points that were the heart of the issue. In a key passage in the settlement, the Commission states:
"The Concorde Agreement provides for FOA to be the commercial rights holder for the FIA Formula One World Championship and to negotiate on behalf of the teams and FIA the organizations of the races with the local promoters and the sale of broadcasting rights with broadcasters. These arrangements do not appear to affect prices or output in the market to any significant degree, individual Formula One events do not compete with each other as they are not broadcast at the same time. Moreover, all Formula One events are available for broadcasting. Moreover, due to the complex technicalities of this particular sport, the Concorde Agreement allows more efficient marketing of Formula One series and guarantees that free to air will be the principal way of transmission to viewers."
There are competition principles enshrined in the document that amend some of the more palpably monopolistic of the Concorde Agreement's provisions, but one gets the sense that the Eurocrats who wrote the settlement document still have not quite completed their education in the University of Formula One.
To the Commission's credit, the provisions in the Concorde Agreement that barred a circuit owner who sponsored a Formula One race from also having, say, Indycars run on the same circuit, have been rendered null and void. Thus, a venue like the Montreal circuit on the Ile Notre-Dame could now host a Formula One race and an Indycar race on the same racetrack and we could finally get a definitive answer to the Burning Question we have all wondered about: Which Formula Is Faster?
But the following aspirational provisions from the settlement, while articulated in good faith to be sure, seem quite unlikely to come to pass:
When I read that sentence I have this vision of Bobby Rahal's Indycar lining up on the grid next to Bobby Rahal's Jaguar Formula One car. Maybe in a Hundred Years!
Who among the players in Formula One had mixed results in this settlement but finished in the points? The Manufacturers.
Apparently, before Ecclestone sold the control premium portion of his stock to Kirch/EM.TV, he offered it to a consortium of the manufacturers who are in Formula One, including most prominently, Fiat (Ferrari), Ford (Jaguar), DaimlerChrysler (McLaren-Mercedes), BMW (BMW-Williams) and Renault (Benetton). The Manufacturers consortium did not bite on the terms Bernie offered and the stock went instead to Kirch/EM.TV.
Having missed out on buying their way into an equity position in Formula One, the Manufacturers began to rattle their swords and threaten to take their football and go home. The European Car Manufacturers Association (ACEA) sprang into action, led by Paolo Cantarella, Chief Executive Officer of Fiat and Chairman of ACEA, and it reportedly has plans to launch a rival single-seater series to Formula One once the Concorde Agreement expires on December 31st 2007.
Ironically, this is precisely the kind of "competition" that the European Commission fosters and the settlement terms give a rock-solid foundation for the ACEA to bring off their articulated goals should they actually see it through. The settlement terms state:
"The reformed rules appear to provide satisfactory guarantees for a new regulatory environment where the FIA's licensing powers and the code's sporting and technical rules will be applied in an objective, non-discriminatory and transparent manner. The FIA will not object to the establishment of new events and participation of circuits, teams and drivers in them. Provided that the essential provisions contained in the code have been complied with. The FIA has in this respect confirmed that all those complying with the rules of the code will have their events listed on the international calendar as a matter of right."
Plainly then, if the Manufacturers are serious about developing a breakaway series to rival Formula One, the legal foundation is now in place to do so. And the Manufacturers have recently taken some concrete steps in the direction of laying the groundwork for a new series. Indeed, even after all of the wrangling over Ecclestone's shares and the 100-year deal was over, as recently as the weekend of the Monaco Grand Prix, Mercedes-Benz Chairman Juergen Hubbert reported that the Big 5 had signed a Memorandum of Understanding in Rome on May 18th 2001, expressing the sense of the group that a new company should be formed shortly "that is capable of preparing for a new race series that could be the successor to the current Formula One, at the latest in 2008."
Between Fiat's Paola Cantarella and Juergen Hubbert of Mercedes-Benz we are looking at companies whose teams collectively spend half a billion dollars a year to put their four cars at the front of the grid race after race, so the new venture they propose can hardly be dismissed out of hand.
But will a rival series ever happen and should it? The last word goes to the two people in the best position to judge the viability of establishing a rival open-wheel series, Max Mosley and Bernie Ecclestone, who tried it themselves (unsuccessfully) back in the early 1980s, when they were at loggerheads with Jean-Marie Balestre, then the President of the FIA.
Bernie's view of the Manufacturers taking over Formula One is delivered with his usual pungence: "It has taken me 30 years to build up Formula One into what it is today and it could take just six months to destroy it." In short, Bernie believes the Manufacturers should stick to selling cars.
But it is Max who puts it best, focusing on the importance of continuity in connecting modern Formula One to the Grand Prix racing of 50 years ago, an almost spiritual aspect of the sport that is an intrinsic part of its appeal: "the car makers should be interested in competing in the same Championship won by Juan Manuel Fangio and Jim Cark, not in creating a new one."
In that spirit, let us hope that 100 years from now whatever splendiferous form Formula One has taken by then still harkens back to the garages of Modena, Molsheim, Surrey and Stuttgart from whence all this has come.
England has its Magna Carta, America has its Constitution and Formula One has the Concorde Agreement, or at least it does until September 1st 2001, when a sea change is set to take place in the economic and sporting structure of Formula One that will hold sway for the next 100 years - a period almost as long as the history of the motorcar itself.
"Following lengthy discussions with FIA and FOA which began in Spring 2000, substantial modifications to FIA's rules and commercial arrangements have been made and further changes agreed to in principle. As a result, the Commission is satisfied that the FIA's role in future will be limited to that of impartial motor sports regulator. FOA has sold its interest in Rallying and all other forms of motor sport other than Formula One, and has agreed to make a number of changes to the current arrangements relating to the marketing and broadcasting of Formula One races.
"Where exclusive rights have been granted in relation to terrestrial television, FOA is now limiting the duration of these contracts to a maximum of five years in the case of host broadcasters; and to a maximum of three years in all other cases. FOA undertakes to notify comparable rival broadcasters when exclusive free to air broadcasting arrangements for a territory expire and to invite them to apply. FIA has agreed to consider applications for broadcast rights on a non-discriminatory basis."
"As motor sport and especially Formula One is a particularly complex technical activity requiring important investments in technological research and development, it is indispensable for all participants to agree on the way the series are organized. In this sport, for instance, all teams participate in all events at the same time. However, it is impossible to market the individual rights of each team participating in a race. As FIA, FOA, the teams, the drivers, the manufacturers and the local organizer or promoter may all have rights in the event, some arrangement between all of them for the sale of rights, especially the broadcasting rights, appears to be indispensable.
"The new regulatory environment removes the previously identified obstacles to intra-brand as well as inter-brand competition. Competing events and series within the Formula One discipline (and with other motor sport disciplines) will be possible. The reforms also create the possibility of increased inter-brand competition. New disciplines can be created, and events and series in potentially competing disciplines can be approved. FIA will have neither the commercial incentive nor the regulatory power to limit the type and number of events it authorizes, other than on the basis of objective criteria."
"The modified rules provide that the Commission has been assured that the FIA rules will never be enforced so as to prevent or impede a competition or the participation of a competitor, save for reasons inherently linked to FIA's regulatory role of maintaining safety standards. FIA has guaranteed that its licensing and disciplinary rules only be enforced to ensure a minimum level of safety at motor sport events (Article 2 FIA code).
The full text of the European Commission settlement can be found in the Official Journal of the European Communities for June 13, 2001
Please Contact Us for permission to republish this or any other material from Atlas F1.
 Email to Friend
Volume 7, Issue 33
Atlas F1 Special
Interview with Stirling Moss
Formula One Hundred: The Denouement
Motorvation III
Hungarian GP Preview
The Hungarian GP Preview
Technical Preview: Hungary
Focus: Hill in Hungary
Columns
Elsewhere in Racing
The Heinz-Harald Frentzen Trivia Quiz
Bookworm Critique
The Weekly Grapevine
> Homepage |
