Sauber and Force India take their case to the European Commission’s Competition Directorate. Joe Saward explains...
Sauber and Force India have lodged official complaints with the European Commission’s Competition Directorate, alleging that the Formula One group is dividing revenues and making rules in “an unfair and unlawful” manner. The complaint challenges not only the financial side of the business, but also the governance structures.
In general, the European Commission tries to stay out of sport – leaving the governance to sporting federations such as the FIA. However, problems in the past resulted in the Commission investigating the F1 structures with agreements being made that limited the FIA’s role to that of a sports regulator, “with no commercial conflicts of interest.” That agreement dates back to 2001, and since then the EU has not been involved in the sport – except for approving the 2006 purchase of the Formula One group by CVC Capital Partners (subject to an undertaking by CVC to divest its interests in MotoGP).
This all worked fine until the old Concorde Agreement ran out in 2010. After that the Formula One group, headed by Bernie Ecclestone, concluded individual deals with the major F1 teams – including different levels of revenue beyond the established payment schedules based on the teams appearances at races and on their results at the race track. In addition to these financial benefits, the Formula One group concluded deals that gave the teams political power, with seats on the Strategy Group – a body which features only six teams. These agreements were cemented with the Concorde Implementation Agreement, signed in July 2013, which created the “new central governing body” which involved 18 voting rights split equally between the Formula One group (six votes), the FIA (six votes) and the six “main F1 teams,” which had one vote apiece. This became public information early in 2014 when FIA President Jean Todt admitted to the media in Bahrain that he could do nothing to help the small F1 teams.
“I do not have the power to change the regulations,” he said. “This year there is a new decision-making body, the Strategy Group.”
Todt said that he was convinced that F1 was too expensive, but added that, “something should absolutely be done. But for us, as the governing body, we have more or less zero influence as to the costs.”
The fact that the FIA has failed to protect the smaller teams is the primary reason that the surviving smaller teams have decided to take action. They have nothing to lose because if things are left as they are, it’s fairly clear that they will go out of business.
In exchange for surrendering its regulatory role, the FIA was given an option (later taken up) to buy a one percent share in Delta Topco – the parent company of the Formula One group – for $460,000. The share was at the time valued at around $70 million. The terms of the agreement dictate that the FIA benefits (and has benefited) from any dividends that are paid, but must continue as a shareholder until CVC sells its own stake. The agreement also guarantees a right of veto for Ferrari, “in respect of the introduction / modification of any technical or sporting regulations (except for safety requirements).” This remains in force until 2020. The signatories also agreed to renew the arrangement until 2030 “on substantially the same terms.”
The arrangements, which appear to weaken the FIA’s regulatory powers, while making it a partner in the F1 commercial business, were not sent to the European Commission for approval. The federation apparently concluding that its own lawyers were sufficiently qualified to decide.
What happens next remains to be seen, but it’s hoped that the European Commission will act quickly to clarify what is acceptable. The investigation could have an impact on the Ferrari IPO, which is due to take place shortly, and will effectively end any hope of a Formula One group flotation – leaving CVC Capital Partners with the option to sell its shareholding. The value of this is now coming down, putting pressure on the private equity group to accept a lower price.
The Competition Directorate is run by the Danish politician Margrethe Vestager, with the German lawyer Johannes Laitenberger, having recently taking up the role of Director-General – although the Spaniard Cecilio Madero Villarejo will be specifically involved in his role as Deputy Director-General for Antitrust activities, a role he has held since May 2011. The breaking up of the Strategy Group and the redistribution of funds could work in the Formula One group’s favour, as it would mean that new financial arrangements would be required. For the moment, though, we’ll just have to wait and see how it plays out.
Joe Saward has been covering Formula 1 full-time for 27 years. He has not missed a race since 1988.
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