by Terry Lovell
In the days when Formula One had yet to become established as a transnational brand image oozing technological sex and drama, with countries queuing up for the international prestige of being associated with the bold and thrusting new world that a racing car phallically symbolises, what Ecclestone achieved, whatever his method, was an extraordinary example of dogged and determined effort, as he jetted round the world cutting deals with senior government officials and industrial leaders to add another circuit, with all its immensely complex planning and construction at a cost of many millions of dollars, to the Formula One calendar. In the days of the Berlin Wall, he was not deterred either by the political limitations imposed by a deeply divided Europe, nor by unfavourable economic conditions or currency regulations. Ecclestone, as ever, would do whatever it would take to broaden Formula One’s global image for the benefit of sponsors, television and his profit margins.
It led in 1986 to the first Grand Prix in the Eastern bloc, in the Hungarian capital of Budapest, although it came about through a series of fortuitous events. Ecclestone had actually set his sights on a country further east still – in Moscow itself. However incredible at first sight such a prospect seemed at the time, it had a major factor in its favour: the Soviet president, Leonid Brezhnev, was a keen car-racing fan. Ecclestone had made a number of trips to Moscow and talks with senior government officials got as far as discussing a road circuit near the Lenin University of Technology. They came to an abrupt end following the death of Brezhnev in 1982. Yet out of these negative circumstances came a chance meeting that would lead to the launch of the Hungarian Grand Prix.
While returning on a flight from Moscow, after discussions had finally collapsed, Ecclestone renewed an acquaintanceship with Budapest-born Tamas Rohonyi, a resident of São Paulo, who had helped him to organise the Brazilian Grand Prix. When Ecclestone told Rohonyi of what had happened to his plans for a Moscow Grand Prix, his fellow traveller suggested that if he was keen to break into eastern Europe, Hungary, one of the more progressive and ‘westernised’ communist countries, would prove a relatively easier nut to crack. In London, Rohonyi telexed the country’s Minister of Foreign Affairs, who passed a request for a meeting on behalf of Ecclestone to the Ministry of Sport and a senior official of the state-run Hungarian television network. Within a week or two it had been arranged, and Ecclestone flew to Budapest, where he booked into the Hotel Inter-Continental overlooking the Danube, in the suite where Elizabeth Taylor celebrated her fiftieth birthday. A series of preliminary meetings took place but proceeded no further due to difficulties in finding the commercial partners able to raise the necessary investment capital for, among other necessities, the construction of a Formula One circuit.
Any further thoughts of a Hungarian Grand Prix gathered dust for two years until the vagaries of fortune intervened. Following a game of tennis between a senior official of the Ministry of Sport and an adviser to the deputy prime minister, Ecclestone’s proposal was raised in casual conversation. Enthused, the adviser mentioned it to another tennis-playing friend, an adviser to the Ministry of Transportation, who said he would try to bring together a group of companies prepared to fund the construction of the circuit if the deputy prime minister gave his approval. He did – and, under the aegis of the Ministry of Transportation, a co-operative of Hungarian companies pledged to provide the necessary capital was established.
A five-year contract between the FOCA and the Magyar Autoklub was signed in London in September 1985. Ecclestone had negotiated a payment of $3.5 million, 60 per cent of the revenue from the first 10,000 tickets, 2000 free nights in top Budapest hotels – a device to avoid the organisers paying out hard currency and which he converted into cash as part of a travel package sold by his company, FOCA World Travel – and the obligatory track signage and hospitality rights for the benefit of AllSport Management. Eight months later, at a cost of more than £5 million, the 2.5-mile Hungaroring track, 12 miles north-east of Budapest, was ready, and in August 1986 the first Hungarian Grand Prix took place before a track capacity of 130,000 spectators, and, through co-operative television arrangements, a television audience of an estimated 500 million. Ecclestone consolidated his personal financial interest in the Hungarian Grand Prix when its contract came up for renewal by insisting that a company be formed to promote the race. As part of a new deal, Hungarian Formula One Grand Prix KFT came into existence, with 25 per cent of its income going to the organisers and the rest to Ecclestone.
But, by 2001, the future of the Hungarian Grand Prix was under serious threat. While in 1986 a Grand Prix in an Iron Curtain country was a politically prestigious breakthrough for Ecclestone, 15 years later it was in danger of being dropped in favour of a venue that would prove more popular and which Ecclestone had originally targeted – Moscow. In early 2001 he returned to the Russian capital for negotiations with mayor Yuri Luzkhov, whose city council had earlier given its approval to a £70-million development of Nagatino Island, a few kilometres south of the Kremlin and Red Square, where the first Russian Grand Prix is scheduled to take place in 2003. However, its inclusion in a Formula One calendar will exceed the limit of 17 races, which means that an existing race will have to go. The axe was tipped to fall on either the Italian Grand Prix at Imola, Hungary or Brazil, although the FIA was said to be reluctant to lose the South American event. Hungary, seen as the least glamorous, was expected to be axed.
An agreement for the construction of a circuit on Nagatino Island was signed at the Russian Embassy in London in November 2000 between Arrows team boss Tom Walkinshaw, on behalf of his TWR Group, which was awarded the contract to carry out the construction work, and the deputy Premier of Moscow, Iossif Ordonikidze, and the chairman of the Committee for Tourism, Grigori V. Antioufeev. The attraction of a Russian Grand Prix was seen as a major boost to promote desperately needed tourism, trade and commerce. Ecclestone strongly favoured Moscow over eight other venues said to be seeking a Grand Prix because it is more beneficial to Formula One’s global marketing platform. In line with Ecclestone’s obligatory contractual restraint, what it will cost the Russians was not made public. Such secrecy is to his advantage in negotiations, in the same way that the organisers in the pre-FOCA days insisted on confidential one-to-one deals with the teams. It is a restraint that has provoked little public concern. The one exception has proved to be the Melbourne Grand Prix, where protests over the secrecy surrounding the cost to the taxpayer, and ecological damage caused by circuit construction, continue to this day.
Ever since its debut event in 1996, the government of Victoria, Australia, has, despite repeated requests, failed to put full financial contractual details in the public domain, fuelling criticism of the clandestine relationship that can exist between Ecclestone and politicians at the highest level. The driving force behind the move for a Grand Prix in Melbourne was business tycoon Ron Walker, a controversial and entrepreneurial character in the swashbuckling Ecclestone mould. It was with the blessing of his good friend, Jeff Kennett, Premier of Victoria’s Liberal–National government, that Walker, the Liberal Party’s Federal treasurer and fund-raiser, set to work in 1993 on a business proposal to persuade Ecclestone to agree to switch the Australian Grand Prix from Adelaide to Melbourne. Walker was both determined and optimistic.
His determination was spurred by a desire to avenge the defeat of former Victorian Premier John Cain, who had been outmanoeuvred by John Bannon, the Premier of South Australia, to get Ecclestone’s signature on a contract for the staging of the first Australian Formula One Grand Prix at Adelaide in 1985, where it had been held ever since. He was optimistic because he was convinced the time was right. With a government election looming, Bannon’s popularity was on the wane largely due to the collapse of the State Bank. His future was thrown into further doubt by the success of the opposition Liberal Party in its running criticism of fat-cat salaries enjoyed by the Grand Prix organisers while the taxpayer bore the cost of its losses.
Bannon had been a keen supporter o
f the Grand Prix, and it was thought probable that his departure would seriously threaten the continuation of the Grand Prix. Up until then, Ecclestone, in turn, had been a keen supporter of Bannon, assuring him that as long as he was premier the Australian Grand Prix would stay in Adelaide. His admiration was founded on Bannon’s willingness to jump on a plane and fly halfway round the world to Ecclestone’s office, then based in Chessington, Surrey, to state the case for Adelaide. ‘I thought that anyone who bothered to do that should be looked after,’ said Ecclestone, who has nothing but contempt for the establishment snob. The deal was agreed in principle in Ecclestone’s local pub, the Star, near to the Brabham works. ‘If anyone was too stuck up to go to the local pub, I probably wouldn’t want to do business with them,’ he said.
Now it was Walker’s turn to take a plane to the UK, this time to Ecclestone’s office in London’s fashionable Knightsbridge in September 1993 – he had moved out of Chessington five years earlier – where he put forward a proposal that immediately had his interest. Within ten minutes it was agreed that the Australian Grand Prix was on its way from Adelaide to Melbourne for 1996. While the details of the deal were known only to Ecclestone and one or two people close to Kennett, it was understood to have been based on a ten-year contract worth A$15 million a year. With an estimated guaranteed minimum A$150 million in the bank, it had proved a good day’s work for Ecclestone – he had been receiving a mere $9 million a year from the Adelaide organisers, on behalf of the South Australian government. Walker flew back to Melbourne a happy man. But the cloak-and-dagger manner in which payment was agreed, and the use of legislation to block opposition to the Grand Prix, became quite extraordinary.
The contract Ecclestone put his signature to was with a company called Melbourne Grand Prix Promotions Pty Ltd (MGPP) – later to be succeeded by the Australian Grand Prix Corporation (AGPC) – after a semi-government company called the Melbourne Major Events Company (MMEC), of which Walker was the chairman, approached the government on 13 April of the previous year to set up a wholly owned subsidiary company to help finance bids for major events. State Treasurer Alan Stockdale, a friend and confidant of Kennett, approved the move on 30 April. A 21-page report was submitted by MMEC on the economic implications of staging a Grand Prix at Melbourne’s Albert Park, but it was accepted without being submitted for Cabinet approval or Treasury evaluation of its key cost-benefit analysis.
Within a week of Walker’s return to Melbourne, Kennett, after consulting with no other Cabinet minister than Stockdale, confirmed for Ecclestone’s benefit that the total payments would be underwritten by the taxpayer and made through MGPP, or its successor, AGPC, Walker being the chairman of both. He later justified such secrecy by citing Ecclestone’s ‘commercial confidentiality’ clause, which, he said, had made it impossible for the contract’s financial implications, including the full details of the deal and the liabilities of MGPP (or the AGPC), to be studied by the Treasury and the Auditor-General. At an Administrative Appeals Tribunal held in July 1994, where an unsuccessful attempt was made by the opposition Labor Party to force the government to release contractual information about the Grand Prix, Jeremy Kirkwood, the chief of staff of the Treasurer’s Office, said that the government had taken the 21-page report submitted by MMEC ‘at face value’.
Kennett’s zeal for a Formula One Grand Prix began to take on an autocratic dimension soon after MGGP began discussions for the construction of a circuit in Albert Park, one of Melbourne’s most attractive parklands, at an estimated cost of A$60 million (although as it was largely designed as a temporary circuit, it would require a further average annual expenditure of A$14–16 million to cover the cost of erecting, dismantling and storage of grandstands, overpasses, concrete crash barriers and other standard Formula One requirements such as medical and media facilities). When opponents claimed the government was in breach of planning regulations and environmental laws, moves to take their case to court were blocked by Kennett amending legislation – the Australian Grands Prix Act 1994 – to exempt the Grand Prix from such considerations. This Act was also invoked to prevent claims by members of the public seeking compensation in the courts for damage caused to their homes by dynamic compaction of part of the park for construction of the racetrack. A test case brought by one resident whose house had been damaged was unsuccessful, with costs of A$120,000 awarded against the plaintiff.
Kennett was no less obstructive when members of the public sought to obtain details of the contract with Ecclestone under the state’s Freedom of Information Act. He simply made use of the Australian Grands Prix Act 1994 to block applications for any information under the Act relating to the contract with Ecclestone or the Grand Prix. And in a series of protest actions in the park by thousands of protesters against construction of the racetrack, which included the cutting down of over 1000 trees, more than 600 people were arrested. After a court ruled that they had broken no law by protesting on public land, Kennett pushed through amending legislation making it a trespassing offence for the public to enter sections of the park, which were sealed off for 17 weeks, to allow the development of the site to continue free of protests.
Such was the strength of opposition that Ecclestone received threats to his life if ever he dared to visit Melbourne. It was for this reason that Kennett, who was driving the car, refused at first to stop when so requested by Ecclestone while driving through Albert Park, which, with yellow ribbons tied to trees, was witnessing yet another protest by demonstrators. Ecclestone insisted on speaking to a group of protesters to try to persuade them, in vain, of the recreational benefits the new circuit would bring. Instead, he was warned to ‘watch out’ for his health. But, says Ecclestone, he wasn’t concerned: ‘Anyone who threatens to do something, never does it.’
Two days later, while flying on a Shell Group private jet to Adelaide because he couldn’t get a flight out of Melbourne, a ‘massive explosion’ occurred at 2000 feet. An engine was put out of action and, with the hydraulics also damaged, the pilot made an emergency landing. First thoughts were of an attempt on Ecclestone’s life. It was an incident to which, Ecclestone claimed, he was indifferent. ‘He [the pilot] said to me, “I looked round and you were reading a magazine.” Well, I said I couldn’t fix the engine, what could I do? They were paid to worry about landing the plane, not me. That was their problem.’
Ecclestone got on as well with Kennett as he had with Bannon. Once again, it was the matey, down-to-earth attitude that appealed to him. When the news was announced that a circuit was to be build in Albert Park, Kennett agreed to do a photo-call and pose in the park with a chequered flag. While the television cameras were rolling, a member of the public rode by on his bike, shouting: ‘Fuck you, Kennett.’ To which the Premier of Australia replied: ‘Fuck you, too.’ At the end of the story, told by Max Mosley, Ecclestone commented: ‘He’s a great guy. We could do with him being Prime Minister of England.’
Despite the Government’s confident expectations, it is claimed that the Melbourne Grand Prix has hardly proved a financial success, failing even to meet the initial requirements of the Treasury to break even. While Ecclestone has done extremely well, the first Grand Prix in 1996, according to the Auditor-General’s report, cost the taxpayer close to A$60 million. This was set against an economic impact assessment report issued by the government’s Department of State Development, which claimed the race had generated economic benefits to the State of Victoria totalling A$95.6 million.
However, an independent economic report commissioned by the Save Albert Park protest group counterclaimed that the figure was misleadingly based on gross economic impact as well as exaggerated or non-existent benefits.1 It estimated that the net economic impact of the 1996 race, after allowing for the government-funded capital costs, was no more than A$23.67 million. Using increased wealth as the performance benchmark, the report forecast that the Grand Prix would generate for the Victorian economy as little as A$21.87 million over the ten years of the contract. It cla
ims the same capital invested in an equivalent commercial project may well have accrued over the same period net profits as high as A$500 million. By the end of the Melbourne Grand Prix in 2000, accumulated operating losses, which include depreciation, based on figures released by the Australian Grand Prix Corporation, had reached a total of A$31.6 million. The operating cash deficit on the 2000 Grand Prix alone totalled A$3.995 million. These figures do not include costs to the taxpayer incurred by the park, transport and police authorities, nor a total of A$747,000 for the cost of Royal Australian Air Force fly-overs.
Ecclestone claims to have made it a business principle to alert organisers of new Grands Prix, as in Malaysia, China and Bahrain, to the probability that they will not make money. ‘I tell them upfront, “You are going to lose money running this event. You will not make money.” I know how many people are going to be there. There is no bullshit. I would not ever tell them that this is fantastic, that they are going to make a fortune. If they don’t [know], they come crying to me.’ Did he so warn Jeff Kennett? ‘He had enough brains to know that he wouldn’t.’
When Kennett’s Liberal–National coalition was replaced by the Labor Party following the State election on 18 September 1999, newly elected Premier Steve Bracks announced that details of government contracts involving billions of dollars would be made public to end ‘a culture of needless secrecy’. The financial details of 76 contracts were made available to the public – except for the Grand Prix contract with Ecclestone, which was renewed for a further four years in August 2000. Dr Ross Ulman, president of the Save Albert Park group, said: ‘The Melbourne Grand Prix makes a huge loss year on year. We want to know how much is ending up in Ecclestone’s pocket and how much is tax exempt. The Grand Prix, which doesn’t attract that many tourists, generates little economic benefit to the State. To make public the details of all contracts other than the Formula One contract is rank hypocrisy, to the detriment of the taxpayer and the benefit alone of Bernie Ecclestone.’