Bernie Ecclestone

by Terry Lovell

  For Alfa Romeo and other major manufacturers, though, who were expected to finance the event, it turned out to be a short-lived and highly expensive disaster. The new formula, amid much controversy, failed to materialise. Alfa Romeo, which had been taken over by Fiat in December 1986, decided to dispose of Motor Racing Developments in late 1988 to what a press spokeswoman described as ‘some Swiss interests’. The man who brokered the deal was Ecclestone. It would lead to the eventual financial collapse of the Brabham team, a fall from grace made all the more tragic by its fraudulent exploitation.

  The circumstances had been set in train a couple of years earlier, when world champion golfer Greg Norman met Nigel Mansell at a ProAm tournament in Australia. Over the next 12 months a friendship developed between the two men with Norman becoming increasingly interested in getting involved in a Formula One team. At this stage a meeting was arranged in Adelaide between Norman and Peter Windsor, a former motor sport journalist and the Williams team’s manager of sponsorship and public affairs, who was ambitious to run his own team. The meeting with Norman was sufficiently encouraging for Windsor, when Ecclestone officially broke the news of the Brabham team’s immediate future at the Brazilian Grand Prix, to begin looking for a merchant prince with the necessary finance to buy Motor Racing Developments Ltd.

  The man he decided to approach was Swiss millionaire Walter Brun, who had made his fortune in slot machines and in 1986 won the World Sport Prototype Championship, and who that season had launched the EuroBrun Formula One team, which would appear in 14 Grands Prix before pulling out of Formula One two years later. Windsor also approached Sir Jack Brabham for his assistance in the successful negotiation of a Judd engine deal. By early November 1988 Windsor believed he was in a position to confidently announce that the Brabham team would be back on the Formula One grid in time for the following season. He confirmed the involvement of Brun and also an ‘anonymous’ Swiss banker. That banker was Joachim Lüthi, who owned a financial investment firm called Adiuva Finanz AG, based in Zurich, and also had a 50 per cent interest in a company called Kingside Establishment, based in Liechtenstein. In an agreement with Brun, Windsor, who had quit Williams to become managing director of Motor Racing Developments, was due to receive a 20 per cent stakeholding in the company.

  However, shortly after December 1988, when Brun and Lüthi were registered as directors of Motor Racing Developments, Brun decided to sell his interest in the company to Lüthi, who, according to High Court documents following subsequent litigation by Windsor, paid £5.5 million for the Brabham team. The sale by Brun of his interests in the company to Lüthi brought an abrupt end to Windsor’s Formula One aspirations. One of Ecclestone’s close associates said Windsor had a meeting with Ecclestone at the Brabham team factory in Chessington – ‘I think there was only one meeting’ – to discuss the sale of Brabham, which was followed a short while later by a similar meeting between Lüthi and Ecclestone. ‘He [Lüthi] didn’t want Windsor involved,’ added the associate. Windsor, after bringing the deal together, was being elbowed out.

  In early January Windsor confirmed that he and Greg Norman were no longer involved in the Brabham team. But, angry at Brun’s dealings with Lüthi, he went to law for clarification of his agreement with Brun and its effect on Lüthi’s acquisition of Motor Racing Developments. He successfully applied for a High Court injunction freezing his 20 per cent interest in the company. By then, however, Lüthi had already effectively removed ownership of the shares – and the company – out of the country. Retaining one ordinary share, he transferred the remaining 999 to the Liechtensteinbased Kingside Establishment. The transfer was all part and parcel of Lüthi’s real interest in Motor Racing Developments – to use the company as a cover for a major fraud.

  On 23 December 1988, just two weeks after acquiring the company, he arranged a loan of £2 million to be made by Motor Racing Developments to Kingside Establishment, which then went into liquidation – but not before transferring its funds to a newly opened branch office in Zurich from where it was transferred on to Lüthi’s Adiuva Finanz AG before it, too, went into liquidation. Accountants Robson Rhodes subsequently reported that ‘no details have been found … to confirm the purpose, terms or recipients’ of the £2-million transfer. Motor Racing Developments also paid £250,000 to an unnamed director for loss of office and the company chairman, namely Lüthi, received a payment of £291,000. To cover the transfer to Kingside Establishment, Lüthi arranged for Motor Racing Developments to receive loans totalling £2.285 million from Adiuva Finanz AG. By now, Brun – there is no evidence to suggest he was aware of Lüthi’s activities – was no longer involved in Motor Racing Developments, having resigned his directorship on 28 January.

  To all the world, Lüthi, who in early 1989 flew to Japan reportedly to discuss an engine deal with Honda, appeared to be genuinely committed to the future of the Brabham team. Martin Brundle, the World Sportscar Champion, and promising young Italian Stefano Modena were contracted to drive the BT58 Brabham-Judd. Teddy Mayer, a co-founder of McLaren, was appointed managing director, with Herbie Blash as team director. Hardly surprising in the circumstances, Lüthi was keen on keeping a low profile and tried to persuade Blash, who had no idea of his boss’s grand fraud plans, to act as his front man while he remained in Zurich. Blash declined. Lüthi told a senior associate that ‘if anybody finds out what I’m up to, I’m going to be in trouble’. The associate added: ‘What he was concerned about was that he was in the money business and, basically, if all of a sudden he was being seen to be spending millions and millions, people who were investing money with him might wonder what the hell was going on – where’s the money coming from. Then they would have asked for their money back and he would have been in trouble, which is exactly what happened.’

  Indeed it did. Less than a month after failing in an attempt to get Windsor’s injunction lifted, Lüthi was back in court – but this time in the dock. He was arrested in Zurich in connection with the suspected embezzlement of clients’ funds totalling $100 million, which had been invested in Adiuva Finanz AG. His arrest followed an investigation by the Swiss Federal Banking Commission after complaints from clients unable to withdraw their funds, and, following further allegations, a separate criminal investigation into his business activities by an investigating magistrate in the Swiss canton of Aargau. Before his case could come to court, Lüthi, who was finally charged with embezzling $133 million from 1700 investors, fled to America, where he lived under the name of Terry Sexton. He was arrested by US Marshals in Marina del Rey, California, in 1995 after being located and identified, with the help of the authorities in Switzerland, by fraud investigation specialist Gary Bleakley, of Houston, Texas, who had been hired by one of Lüthi’s victims in the States. He appealed unsuccessfully against an extradition order, and in May 1996 was extradited to Switzerland to complete a seven-and-a-half-year jail sentence.

  Teddy Mayer, who was appointed managing director on 3 June 1989, remained for just one month before resigning. Following a request from Ecclestone, who felt Lüthi needed some help in running the team, Mayer agreed to take leave of absence from his directorship of Penske Cars in Poole, Dorset. Rumours at the time put down his short stay to a clash of management style with Lüthi. More accurately, said Mayer, it was due to inadequate financial resources. ‘It became obvious very quickly that they didn’t have the money to be a serious contender, so I resigned and went back to Penske. The finance wasn’t there to produce a winning car. By the time Lüthi was on fraud charges, I was long gone. I didn’t know what it was all about [Lüthi’s fraudulent activities] … but I soon discovered that as a financier he wasn’t going to do anything that would bring them [the Brabham team] back to their days of glory. It was pretty hopeless.’

  Blash claimed to be not at all surprised by Lüthi’s arrest. He suspected for some weeks that Lüthi was in financial trouble. ‘It was always a case of the money was coming, and then we could see that there were strange manoeuvres going on
, and it didn’t come as a shock that we had problems. The trouble was his heart was in the right place but his wallet wasn’t.’ Blash remained with the Brabham team, successfully persuading the team’s one and only sponsor, a Japanese credit-card company called Nippon Shinpan, to continue its support. Said Blash: ‘The company president was fantastic, to stand up in front of his board and convince them that they should stay with a team whose owner was in prison on fraud charges.’

  Ecclestone believed that Lüthi had tried to do his best for Brabham ‘and keep the old tradition going’. He had been keen ‘to put Brabham where it belonged – on the front row of the grid’. He promised to help Lüthi in that aim, and did so until the end of the Brazilian Grand Prix in March. Ecclestone’s reported observation on Lüthi’s fraudulent activities was oddly sympathetic. ‘As I understand it, I don’t think he [Lüthi] used other people’s money in Brabham. What he used was sponsorship money.’5

  The decision by Nippon Shinpan to remain with Brabham kept the team afloat until the Middlebridge Group, of Japan, bought Motor Racing Developments in March 1990. It switched to a Yamaha engine but neither a change of company nor engine could reverse the team’s fortunes, particularly when Middlebridge began to suffer financial problems due to underestimating the costs of running a Formula One team. Its plight led to Ecclestone, who was negotiating the sale of the Chessington factory to Middlebridge, locking out the team because the company had failed to meet the agreed sale deadline. Yamaha bought the factory, with team manager Herbie Blash remaining as the company’s sporting director, while Middlebridge, after virtually laying off all its staff, moved to Milton Keynes to cut costs.

  The Brabham team staggered on until the Hungarian Grand Prix in 1992, where Damon Hill, a new name on the Formula One scene at the age of 32, had the distinction of driving the last Brabham car to compete in Formula One, finishing in eleventh position, before joining the Williams team the following year. The Brabham team became so short of cash that a Japanese heavy-metal rock star set up a money-raising appeal in an unsuccessful attempt to keep it going.

  Once again, for the second time in five years, Brabham failed to meet the FIA’s registration deadline point. In March 1993 Brabham was effectively laid to rest in a terse statement by the FIA’s World Motor Sport Council which ruled that, unless the team’s debts were settled, it would not be allowed to enter the 1994 World Championship series. It brought to an end a tardy and undignified period which should have had no place in the history of one of the great Formula One racing teams, whose roll of honours reads: 394 Grands Prix, 35 wins, three drivers’ World Championships and two Constructors’ Championships. But they tell little of the insane passion and bloody-minded commitment, the constant roller-coaster ride of chaos and crises, the failures and triumphs from which they were wrought, and which began 31 years earlier when Ron Tauranac arrived in Britain to join Jack Brabham in creating one of Formula One’s legendary teams.

  Peter Windsor’s legal action against Motor Racing Developments was resolved in September 1991 when he was awarded an agreed sum of £450,000. It brought to an end an unhappy – and painful – period in his life. Six months earlier he had been bundled into a van by two men as he left the Williams team factory in Didcot, Oxfordshire. Employees who went to his aid were threatened by what appeared to be a gun. Handcuffed and blindfolded, he was driven to the countryside, beaten up and later dumped by the roadside. He was taken to hospital for treatment to cuts and bruising.

  Windsor declined to comment on the incident, his legal action against Motor Racing Developments or the agreed payment. ‘I’d rather not co-operate on the subject you want to talk about.’

  Notes

  1. Motor Sport, January 1998.

  2. Ibid.

  3. The Times, 29 July 1987.

  4. Daily Telegraph magazine, 4 July 1998.

  5. Autosport, 31 August 1989.

  PART 2

  9

  BERNIE GOES WEST – AND MEETS HIS MATCH

  With the sale of the Brabham team behind him, Ecclestone was now free to commit more of his formidable energy and shrewdness to exploiting Formula One’s commercial assets. A critical constituent to the stability of the golden triangle – the teams, television and the circuits – on which balanced the global marketing platform of Formula One was his control of the organisers and circuit owners. It enabled him to dictate each and every detail from the financial package, which included track signage, corporate hospitality and television rights, to the standard of medical facilities and layout of the paddock and parking areas. (At one Grand Prix he took to the air in a helicopter to check the herringbone pattern of the spectators’ parked cars.)

  According to Patrick Duffeler, who headed the aborted World Championship Racing, set up by the Commission Sportive International to represent organisers in their negotiations with Ecclestone, his technique in imposing his will on organisers whom he considered inefficient or incompetent was simple but effective: he increased the FOCA’s fees to a level he knew they would be unable to afford. ‘His view was that some of those organisers were completely ill-organised … and they were not therefore competent business people and … he felt he could do a better job. So for him to do a better job he said, “I’m going to dictate the [financial] terms and I’m going to make sure this is the way it’s going to be done.”’ Ecclestone would make the financial terms so difficult to meet, added Duffeler, that he would then step in with a financial package to give him control.

  It was certainly in Ecclestone’s personal interest to squeeze promoters for the highest dollar. Once the teams’ prize fund and travel expenses had been covered, whatever was left over was his profit. He was able to produce a flexible financial package to suit almost any situation, as these following examples, which all took in place 1982, illustrate. When the financially strapped owners of the Österreiching, the home of the Austrian Grand Prix, were unable to meet his demands, Ecclestone offered to pay £105,000 to rent the circuit for eight days and take over all promotional rights; when the Argentine Grand Prix, whose sponsors were frightened off by the threat of a drivers’ strike, faced cancellation, he offered to ‘buy’ the race, past losses and all, if a multi-year contract could be agreed; when he negotiated a street Grand Prix in Detroit it was based on a seven-year contract – four years direct and three years option – with the FOCA taking a healthy percentage of the race revenue; when the Brazilian Grand Prix, hit by a falling dollar, was in great danger of being called off, Ecclestone agreed to reduce the FOCA’s prize-money fee by about 30 per cent. The uncharacteristic largesse was due to the fact that on this occasion Ecclestone was the promoter with a significant financial interest in the race.

  For those unable, or unwilling, to meet his terms, the alternative was bleak. When the organisers of the Argentine Grand Prix declined Ecclestone’s offer, the race remained off the calendar until 1995. The Spanish Grand Prix suffered a similar fate when the organisers were unable to raise only $300,000 of the $680,000 he was demanding. The race disappeared from the Formula One scene until 1986. It is significant that Ecclestone’s move to take over the circuits themselves took on a new energy following the Concorde Agreement some 12 months earlier, when he was appointed to market the television rights. Not unnaturally, it was seen by organisers, circuit owners and promoters as formal approval of the one person the FIA had once wanted to see driven out of Formula One. Ecclestone was now an influential member of motor sport’s governing body, which emboldened him to act even more forcefully.

  According to Max Mosley, in the early days the teams had every opportunity to share the rewards of promoting a race if they were prepared to share the risks. If, for example, the gate receipts were on offer because a promoter of a less successful race couldn’t meet Ecclestone’s prize-fund figure, he would first offer a co-deal to the teams. The teams, recalled Mosley, would always decline. ‘They would say to Bernie, “If you want to take the gate receipts, that’s up to. You pay us, and if you win, you win. If y
ou lose, you lose. We don’t care. We’re not race promoters.’” Over a season Ecclestone always came out on top, ensuring that any unlikely loss on a race was more than covered on the next. In this way, long before mammoth television deals starting to yield their own fabulous rewards, he added considerably to his personal riches.

  By the mid-eighties he was known to have had a financial stake in the Grands Prix in Brazil, Portugal, Belgium, Austria and South Africa, as well as a financial interest in Long Beach and Mount Fuji. Prior to Ecclestone’s arrival at the FOCA in 1972, 18 countries had hosted Grands Prix – Argentina, Austria, Belgium, Canada, France, Germany, Great Britain, Indianapolis, Italy, Mexico, Monaco, Morocco, Holland, Portugal, South Africa, Spain, Switzerland and the USA. By the end of the eighties, his efforts had been responsible for increasing that number by a further six – Australia, Brazil, Hungary, Japan, San Marino, and Sweden. To complete the record, by the year 2000 Ecclestone had increased the number of host countries by a further two – Malaysia and America (Indianapolis) which, following the demise of the US Grand Prix at Watkins Glen in 1980, had proved a difficult and uncertain market.