by Terry Lovell
The Melbourne Grand Prix provides an illuminating example of the political level at which Ecclestone negotiates, of the inviolable secrecy that surrounds his contracts, and the extreme measures, even to the apparent detriment of democratic rights, that will be taken to protect them.
The penalty for refusing to accept Ecclestone’s contractual terms is severe, as German businessman Rainer Mertel, the then manager of Germany’s Nurburgring circuit, was to discover. It cost the Nurburgring the German Grand Prix and Mertel considerable professional anxiety. The circumstances that led to their confrontation came together following the horrific near-fatal accident of Niki Lauda in August 1976 when his Ferrari struck a high kerb at the circuit’s Bergwerk left-hand corner, causing him to lose control and hit a rock-face wall before the car burst into flames.
The 14-mile track, long criticised by drivers for the dangers of its 174 corners and the jumps of Pflanzgarten and Flugplatz, was removed by the FISA from the Formula One calendar until it had undergone a major redesign. It was announced that the 1977 Grand Prix would be staged at Hockenheim, a move that was generally attributed to Lauda’s accident. In fact, Ecclestone had already agreed with Germany’s national sporting authority, the Automobil-Club von Deutschland, at the Monaco Grand Prix the previous year, that the Grand Prix would be transferred to Hockenheim beginning in 1976. Certainly the drivers considered the Nurburgring to be hazardous, but there was another reason – the length of its track made for poor television. The result of the redesign, at a cost of £18 million, was a shorter, safer, 12-corner complex able to accommodate 120,000 spectators, which earned the praise of teams and public alike. Work was completed in May 1984 and the German Grand Prix was ready to return to the Nurburgring the following year. But it was a prospect viewed with dismay by the Automobil-Club von Deutschland. Keen to retain it, senior officials attempted to prevent its return to the Nurburgring, and the fold of its rival, the Allgemeiner Deutscher Automobil-Club, by making heartfelt entreaties to Ecclestone.
But their best efforts came to naught. Ecclestone believed the Nurburgring, the cradle of German motor sport, and where the German Grand Prix had been staged since its inception in 1951, to be the superior circuit since its redesign. He was soon to be forced, though, to reverse his decision when the time came to agree the terms of the contract, a matter he had doubtless considered to be a formality. Mertel was not prepared to sign over the circuit’s advertising rights to be marketed by AllSport Management, the company in which Ecclestone has consistently claimed to have no interest. Mertel, employed by the State of Rheinland-Pfalz, which owned 90 per cent of the circuit, said: ‘Mr Ecclestone said that if I were to go with him, then the Nurburgring would be successful. If not it [the German Grand Prix] would go to Hockenheim. But first I had to give him the advertising rights, which I could not do. It was a matter of doing the honourable thing. The organiser had to have the advertising rights, because without these the organiser could not afford to organise his race.’
The organisers of 56 other national and international races held at the Nurburgring, he added, would also have suffered. Ecclestone, said Mertel, reassured him that the Nurburgring would gain financially by the deal. ‘He offered money to the Nurburgring to give him the advertising rights, but I had to have respect for the purses of the organisers.’ The 1985 German Grand Prix was the last to be held at the Nurburgring. Hockenheim became its new home. The loss of Formula One hit the circuit’s revenue hard. It was, said Mertel, ‘a very, very dramatic [financial] situation’, a dilemma that led to a host of new events, from rock concerts to truck racing, in an attempt to restore its profit level.
But while Hockenheim got the German Grand Prix, it also got increased financial demands from Ecclestone, which led to a massive hike in ticket prices – along with highly expensive corporate hospitality facilities, again for AllSport Management’s benefit – that at one stage threatened the future of the event. One Grand Prix attracted no more than 49,000 spectators, and the Automobil-Club von Deutschland warned that the race might no longer be financially viable. The promoters, Formel Eins Gesellschaft für Motorsport MBH, denied at the time that the German Grand Prix was in any financial danger. However, the financial pressures persisted and in August 1990 the company was acquired by Ecclestone, which gave him an increased financial interest in the well-being of the German Grand Prix. As elsewhere, when it came to settling the FOCA’s package for racing at the Nurburgring, he was effectively negotiating with himself.
Mertel had another reason for opposing Ecclestone’s demand for the advertising rights. As president of the Association Internationale des Circuits Permanents, or Circuits International, established in the early fifties to represent the interests of circuit owners, now numbering 39, he had been urging them to stand firm against Ecclestone’s tactics, which, he claimed, had became so threatening that in December 1987 Circuits International threatened legal action against the FOCA to prevent its ‘interference’ in ‘curtailing’ the advertising rights of its members, ‘an indispensable source of income for each race track operator’ in ‘maintaining and improving modern motor-racing facilities’. However, as Mertel acknowledges, it was a threat of little substance. One by one the organisers capitulated. ‘They were all angry about Bernie, but none had the courage or the power to say no. That was the problem.’ He had learned the lesson known to Duffeler, Ugueux and Treu. He also confirmed the charge that Ecclestone gained control of certain circuits by imposing financial demands that organisers or promoters couldn’t meet. ‘That’s true. And he always said, “Who has obliged you to sign my contracts? It was your free will. You are over 21, you know what you are doing.’” Negotiations were also difficult. ‘If he was on position A, he would then move to position B, and then to C and so on. It was nearly impossible to find a conclusion.’
The two men were destined to clash again, but this time over Grand Prix motorcycling. And Ecclestone would be exclusively representing his own interests, rather than those of the FOCA, through the activities of a marketing company called International Sportsworld Communicators (ISC), which he had set up in 1982, shortly after the FIA, through the Concorde Agreement, leased its commercial rights to the FOCA for Ecclestone to market. He was not slow, naturally, to appreciate that such authority put him in a unique position to exploit the business potential of non-Formula One events, too, although ISC remained more or less dormant until 1985, when his new ally, Jean-Marie Balestre, as president of the FISA, appointed the company to market the television rights of the Formula 3000 International Championship.
ISC went from strength to strength. The International Race Teams’ Association, World Championship motorcycle racing’s equivalent of the FOCA, and the Fédération Internationale Motocycliste, its governing body, agreed that they wanted its boss to do for their sport what he had been doing so successfully for Formula One – the marketing of its commercial interests. In December 1988 ISC was awarded a four-year contract. However, the staging of a round of the World Championship series at the Nurburgring, cohosts on alternate years with Hockenheim, raised once again the issue of advertising rights and Mertel’s troublesome principle. Ecclestone disposed of the problem by announcing that from 1990 the round would be exclusively staged at Hockenheim.
One of his first moves was to get the motorcycle teams to sign contracts with ISC and, with those in his hand, he negotiated on their behalf with the organisers. It was similar to his iron-grip control of Formula One, with the organisers compelled to agree to his terms. Mertel, as president of the Association Internationale des Circuits Permanents, had a brief meeting with Ecclestone at the 1991 Spanish Grand Prix to plead the case of his members, who wanted the freedom to negotiate their own contracts. ‘I told him that, as with Formula One, we did not want a monopoly of motorcycling. He was not interested.’
The loss of the world motorcycle-racing championship series was another significant financial blow for Mertel. After seeking legal opinion he decided to retaliate with a strategy
that in later years others would pursue with equal success, and much to the frustration of Ecclestone’s financial ambitions. In 1992 Mertel filed a complaint to the Directorate-General IV of the European Commission in Brussels, which is responsible for competition policy, alleging that Ecclestone’s monopoly of both Formula One and the world motorcycle championship series constituted unfair competition. The effect, said Mertel, was quite dramatic. Ecclestone agreed that the Nurburgring could be reinstated on condition that the complaint to the European Commission was withdrawn.
‘He said if [we] wanted a motorcycle Grand Prix … then [we] would have to withdraw this complaint.’ He added: ‘He was absolutely fearful of a complaint … which has to do with lawyers or courts and so on [because] he knew that he [did not have] the [commercial] rights of the racetracks.’ The complaint was subsequently withdrawn – and in 1995 the Nurburgring began staging not only a round of the world motorcycle championship series but also became the host venue to the European and Luxembourg Grands Prix, with, of course, the stipulation that Ecclestone had the advertising rights. By then, Mertel’s interest was academic. Twelve months earlier he had resigned as manager of the Nurburgring to accept a senior position in the leisure industry.
Ecclestone didn’t remain marketing supremo of the world motorcycle championship series for long. He had a major skirmish with the Fédération Internationale Motocycliste after it agreed a £30-million contract with a Madrid-based marketing company called Dorna Promoción de Deporte SA. The arrival of Dorna led to his loss of the television rights in a tripartite agreement which conflicted with Ecclestone’s need to be in absolute control. In April 1993 he sold Two Wheel Promotions, a company he set up in September 1991 to take over the marketing from International Sportsworld Communicators, to Dorna for a reputed £50 million. Out of accumulative profits in 1993 of no more than £554,000, in 1992 and 1993 he paid himself a total of £501,000 for his management services.
Until November 1998, when a £30-million deal with Tony George, the billionaire president of the Indianapolis Motor Speedway, heralded its return to America after an absence of almost ten years, Ecclestone had failed with distinction in making Formula One a truly global marketing platform. Ceaseless efforts during the eighties had been largely frustrated by inconsistencies of venue and television coverage. Its total absence during most of the nineties prompted Jacques Nasser, the then president of Ford, to remark: ‘It seems to me it’s difficult to portray Formula One as a world sport without having an event in the world’s largest market.’
It was an absence that plagued Ecclestone. In his mind there was no question where the problem lay. It was ‘because the people who do business there seemed to have failed to understand what a contract is, and to respect it’.2 To others, however, there was a more familiar reason – demanding contractual terms, particularly in respect of television rights, that circuit owners and promoters were not prepared to accept. In a country where there were more than 60 major motor sport events at 45 tracks attracting 12 million spectators, he was discovering that he was not dealing with a European organiser or promoter in fear of his every word and move. For the first time he was dealing with equally hardheaded businessmen whose commercial success did not depend on the patronage of Formula One.
The beginning of Ecclestone’s problems in America began when, in pursuit of bigger bucks, he turned his back on the venue where Formula One had been consistently successful for almost 20 years – Watkins Glen, a purpose-built circuit situated about 300 miles north-west of New York in a small town of about 3000 people. It had been built in 1956 on 680 acres of land – later extended to 1180 acres – acquired by the Watkins Glen Grand Prix Corporation to replace the 6.6-mile course on which the first American road race was staged in 1948, founded, and organised until 1970, by a young lawyer, Cameron Argetsinger.
The first two United States Grands Prix, in Sebring, Florida, in 1959 and Riverside, a suburb east of Los Angeles, in 1960, proved financial disasters. But Watkins Glen, from its debut event in October 1961, won by Innes Ireland in a Lotus, proved an immediate hit with the teams and public alike. In 1966 it put up a record prize purse of $100,000, increased four years later to $250,000. However, its popularity made it a victim of its own success. Following discussions with the FISA, the corporation had to find $3.5 million to extend the circuit by a mile and improve team and public facilities. To raise the money, a high-risk quasi-municipal bond was floated, with the Bank of New York, as trustee, securing the mortgage on the land as security. It was an ambitious sum incurring a debt service charge of $1000 a day, payments which the organisers found increasingly difficult to meet.
According to hotelier Vic Franzese, chairman of the Industrial Development Agency responsible for issuing the quasi-municipal bond, and the then president of the Watkins Glen Chamber of Commerce, of which the Watkins Glen Grand Prix Corporation was a subsidiary, the causes of the problem were safety demands by, initially, the Grand Prix Drivers’ Association for safety improvements, and, latterly, Ecclestone’s financial demands on behalf of the FOCA. ‘The new track was very smooth and much faster. This enabled the cars to sustain much higher speeds – by the mid-seventies they were completing the 31/2-mile laps in about 1 min 34 secs – but they were too high for the safety factor in the construction of the cars. We tried slowing down the circuit by adding, for example, chicanes, but it didn’t work because the cars were still getting faster. So each year the Grand Prix Corporation was forced to add or remove from the track whatever the Formula One powers decided they wanted to try next. To cover the cost we were shelling out perhaps $200,000 every year. That was in addition to about $3 million the Grand Prix was costing towards the end of the seventies. Much of that went on flying the teams in, and the prize money, which, by then, was a closely guarded secret between the Pied Piper [Ecclestone] and one or two others.’
No longer able to service the debt, the Bank of New York foreclosed on the property, forcing the Grand Prix Corporation to declare itself bankrupt in 1981 with assets of $3.5 million against debts totalling $5.9 million. Of that sum, $800,000 was owed to the FOCA. It could have been paid, says Franzese, if Ecclestone had responded more positively to efforts to refinance the Grand Prix Corporation. ‘The Formula One group was prepared to swallow that loss because they were committed to go elsewhere for more money. He [Ecclestone] was looking for millions of dollars, which he thought couldn’t come out of here. He figured there were cities where they were going to throw millions at them. Watkins Glen no longer fitted in with Ecclestone’s plan for the future of Formula One.’
The last Grand Prix at Watkins Glen, won by Alan Jones in a Williams-Ford, took place in 1980. The economy of the community of Watkins Glen, which over nearly two decades had invested a good deal of effort and money in the Grand Prix, was hit badly by Ecclestone’s decision, which also hurt fan support of all American road race sports, said Franzese. ‘Only now is the support for road racing starting to pick up a little.’ But he insists that it was Ecclestone and the teams who were the losers. ‘Watkins Glen hosted 20 successful Formula One Grands Prix that were basically financially profitable. Bernie and company had ten years of failures and ten years of no races in this country after leaving Watkins Glen. They didn’t understand what American fans will support, and where they will spend their money. The new track owners are enjoying a very profitable business. Bernie should have taken a second look before jumping ship. He and the Formula One group miscalculated badly.’
A few years later Ecclestone blamed the backwoods image of Watkins Glen for the teams’ departure. ‘It was in the wrong place,’ he said. ‘Everything was wrong with it. It wasn’t the image we’re trying to project. Didn’t do anything for us.’3 Its image was seriously tarnished, said Max Mosley, by a series of incidents involving locals allegedly setting light to a bus containing the luggage of Argentinian tourists and a car being set alight, which caused its two sleeping occupants to be burnt to death. They were incidents that ‘dear old Vic’ h
ad forgotten about. ‘It got to the point where it really wasn’t good for the image of Formula One,’ said Mosley. And Ecclestone commented: ‘If that wasn’t bad enough, they forgot to pay us $800,000.’
Cameron Argetsinger, who left the Grand Prix Corporation in 1970 and became president of the Sports Car Club of America in 1974, expressed a different point of view. ‘That’s bullshit. Watkins Glen was the right place at the right time, as its success over almost 20 years proved. It is the only circuit in America where a United States Grand Prix has been successful. I think his comments might be coloured by the fact that he got stiffed for $800,000.’
In an era when the global monetary system was less efficient and cheques were not always to be trusted, the financial arrangements between the Grand Prix Corporation and the teams were, as elsewhere, strictly cash only. Michael Tee, then vice-chairman of Champion Sporting Specialists International, which was extensively involved in promoting Grands Prix, was present when an FOCA associate of Ecclestone’s made a payment in cash to one of the team bosses. He said: ‘He came in and said, “Look, can I just have a moment?” I got up [to leave] and he opened a case and it was a mass of dollar bills. He said, “I think you will find everything is there.” He just handed over a wad of notes, closed the case and walked off. He was doing the rounds of the various teams and handing over their “start” and prize money. It was entirely up to them how they put it through their books. In those days everything was cash.’ Such deals, he confirmed, were an intrinsic part of the Formula One culture. He was paid $7000 cash to produce a series of promotional articles and programmes. ‘That, in a minor way, was what was happening [throughout Formula One],’ he said. ‘Now, of course, it doesn’t have to be that way, because money can be put in and moved about so easily from overseas banks … but the amounts now are ridiculous.’