by Terry Lovell
To meet its commitment for the 2002 grand prix, Octagon ensured smooth traffic flow by decreasing ticket sales from 90,000 to 60,000 and, at the same time, introducing some hefty price hikes in addition to a £45 car-parking charge to encourage use of a free park-and-ride service. The flaw with this tactic was that while it was effective enough in slashing traffic volume at a stroke, it also guaranteed a stomping ticket revenue loss, Silverstone’s sole income. But, worse for Bain, he had the misfortune of having an unhappy customer in Ecclestone, who missed an important meeting by 90 minutes after his helicopter had to be diverted to a nearby field due to weather conditions and mid-air congestion. His chauffeur-driven car was also delayed as it approached the circuit.
Ecclestone angrily declared that there had been a lack of adequate sign-posting and organisation of spectator thoroughfares. It was, he claimed, ‘total disorganisation… a county fair masquerading as a world event’. Bain stood his ground, arguing that ‘the feedback from the customers has been healthy. We have done 1,500 customer surveys and one of the questions we asked was whether the signage and police directions were good – 75 per cent said yes. That is what matters rather than the opinion of one man. I’m the first person to stick my hand up if things go wrong. But if it’s unfair, I feel quite strongly about it. This is unfair.’2 Unfair or not, Bain made the mistake of saying so publicly. This public spat with the most powerful man in F1 led, the next day, to his resignation.
Octagon was also facing problems on another, more serious, front: the upgrading of circuit facilities, which both Ecclestone and Mosley insisted were long overdue. The public relations catastrophe of the 2001 grand prix, Lowe issued a damage-limitation statement announcing that, with Dubai and Korea standing in the wings keen to host a grand prix, it was ‘the ambition of Octagon and the British Racing Drivers’ Club to create a circuit that is the envy of the modern racing world’. At the heart of that ambition, based on the 25-year lease agreed by the BRDC with a seven-year break, was a masterplan to build, in addition to a new pit and paddock complex and grandstands, a boulevard entrance, an interactive visitor centre, a hotel and restaurant at a cost of about £80 million, with £40.5 million of the bill being split between Ecclestone, the BRDC and Octagon. BRDC president Sir Jackie Stewart hoped that the government would meet the rest. The contributions of Ecclestone and the BRDC, it was agreed, would be met by a reduction in their respective race fee and lease payments.
But as the months slipped by, the much-trumpeted master plan was no nearer to getting off the drawing board. Efforts by the BRDC chairman, Martin Brundle, to get Ecclestone to do so were stonewalled time and again, said a BRDC source. ‘It was, “I’ll get round to signing those, Martin, leave it with me.”’ Why didn’t he approve the plan? ‘To this day that question has never been answered,’ said the source. ‘Classic Bernie.’ Sir Jackie confirmed Ecclestone’s procrastination: ‘He had it for months on end.’ God knows why he didn’t [sign off the master plan]. Maybe he saw Octagon weren’t going to stay there long term.’ The consequences were stark As long as he withheld his signature, the redevelopment couldn’t take place, which meant that, with the circuit facilities certain not to get the FIA’s endorsement, Silverstone would be dropped from the F1 calendar. Without the grand prix, the value of Silverstone would be drastically slashed, leaving Octagon with a worthless 15-year promoter’s deal with Ecclestone.
It certainly wasn’t long before IPG, tired of bleeding money, decided to cut their losses and run. The first public indication of the seriousness of IPG’s position came in October 2002 when the company announced that Octagon’s losses – £60 million in that year and £74.9 million in 2001 – would reduce its earnings by 15 to 20 cents a share, news that sent the company’s stock into a slide. It shed 31.7 per cent of its value and closed on 19 October at $11.25 a share, compared to $34 a share in mid-May. Over the following months, its vulnerable trading situation forced IPG to go on a non-core assets selling spree to pay off massive debt accrued by Octagon.
This resulted in IPG putting Octagon Motorsports up for sale in March 2003. One indication of the chaotic management within Octagon was the fact that a month earlier the company had announced plans to spend a total of £7.5 million on its circuits – Brands Hatch, Oulton Park, Cadwell Park and Snetterton – including £4 million on redevelopment at Silverstone. The difficulty IPG had in selling Octagon was that whoever bought the company would not only inherit its substantial debts but also the 15-year lease of Silverstone, which had proved so burdensome to IPG. Zero interest in the company led to Silverstone being stripped out of the sale, with the rest of the circuits being snapped up by MotorSport Vision in January 2004 for considerably less than the £120 million IPG paid Foulston. The deal made MotorSport Vision, founded by former F1 driver Jonathan Palmer, the UK’s biggest motor racing venues operator.
In the absence of a buyer for Silverstone, IPG had to dig deep to get out of its contract with Ecclestone and the BRDC. In April 2004, IPG agreed to pay him a total of $93 million over five years. Heading the BRDC board was its newly appointed chairman, Ray Bellm, three-times World Sportscar C2 champion, whose family had made a sizeable fortune in pharmaceuticals. He claimed he was approached to take on the role in order to introduce some entrepreneurial flair and because he was ‘strong enough to stand up to Jackie Stewart’, who had been appointed President of the BRDC in 2000. Their association was to be brief but bloody. IPG’s lease contract with Silverstone was resolved, said Bellm, shortly after the company approached the BRDC board to discuss the cost of an exit strategy. With chief executive Alex Hooton, he flew to New York with parameters set by the board to negotiate staggered release payments totalling £27 million, which reflected the value of IPG’s obligations through to 2007.
The deal was signed on 30 June 2004, and finally brought to a close a monumental fiasco that cost IPG an estimated £500 million. By then Sir Frank, as he became after being knighted in 2001 for his charitable work and services to advertising, had long departed, taking retirement in 2003. In an interview with The Financial Times in 2002, he said: ‘I thought, “Right, I’ve run a tennis tournament [the Stella Artois at Queen’s Club in south London], maybe I know something about sports marketing.” Boy, was I wrong.’ While he was the primary cause of Octagon Motorsport’s travails, senior management at IPG had to share some of the blame. IPG chairman Phil Geier stepped down at the end of 2000, followed by his successor, John D. Dooner, Jr, in March 2003. Geier described the foray into Formula One as ‘the biggest mistake I ever made at IPG’.3
With Octagon Motorsports now no more than a page in BRDC’s annals, the board began the business of negotiating with Ecclestone the grand prix rights beginning in 2005, which, as ever, would prove a grim and arduous affair. A proposal, incidentally, that Paddy McNally’s Allsports should act as interim promoter went no further after he insisted on an annual payment of $5 million to cover anticipated losses. Talks with Ecclestone staggered through July and August without glimmer of agreement. In September, the BRDC put a proposal on the table – a three-year contract for the 2005–07 grands prix at an inflation-linked annual fee of $10.8 million.
Ecclestone’s response was to demand $15.9 million for the 2005 grand prix and $17.3 million for 2006 in line with fees paid, he claimed, by other European promoters. ‘That wasn’t true,’ said a well-placed BRDC source. ‘We knew it wasn’t true because we had been talking to them, and we knew exactly how much he was demanding, which was less than he was trying to get out of us.’ He then put pressure on the BRDC by offering a further two options: a seven-year contract at an annual fee of $13.5 million rising by compounded interest of 10 per cent per year, which would double the fee over the seven years, or a five-year contract from 2007 – without a break and with no grands prix in 2005 and 2006 – on the same terms. The BRDC refused to budge from its original offer.
In October, Ecclestone returned to the table with two further offers – a seven-year deal at the same fee, plus an obligatio
n by the BRDC to build a new pit and paddock, estimated to cost £17 million, before the 2007 grand prix, or for Ecclestone to promote the British Grand Prix and take full rent-free possession of the circuit for seven years, with the BRDC funding a pit and paddock but with no share in the grands prix income. Both offers were rejected by the BRDC. Ecclestone followed up with his final proposal: an initial period of one year, with an option for a further six years at a starting fee of $13.5 million escalating at 10 per cent per year. The BRDC responded by proposing an initial period of two years with the option of a further five years. The proposal also matched Ecclestone’s demands by offering a starting fee of $13.5 million and $14.8 million for the second year, paid up front in escrow. Ecclestone withdrew from negotiations.
Throughout this period, said Bellm, he played little part despite his position. The principal force behind the BRDC’s offers, he explained, had been Sir Jackie Stewart, whose office of president in those days enjoyed greater authority than that of the chairman. Most of the board members, he added, ‘were all over the shop. Some of them wanted a three-year contract, some of them wanted a five-year contract, some of them wanted a seven-year contract.’ Bellm favoured a seven-year contract to enable Silverstone ample time to carry out the extensive redevelopment plans laid out in the now long-forgotten masterplan.
Bellm claims Sir Jackie strongly favoured a three-year contract because he believed that the F1 manufacturers – in hot dispute with Ecclestone over a pay-TV deal with Leo Kirch, of the Kirch Gruppe, which, they feared, would imperil free-to-air broadcasting and their global exposure – would carry out their threat to launch a breakaway Grand Prix World Championship series in 2008. With the then Concorde Agreement due to expire in 2007, a three-year contract for 2005–07 would leave the BRDC free to side with the manufacturers.
Soon after withdrawing from negotiations with the BRDC, Ecclestone announced that he was dropping the British Grand Prix from the 2005 calendar, which prompted Sir Jackie to publicly take him to task. It was morally wrong, he fulminated, for Ecclestone to expect the BRDC to pay him in full for a race for which he had, in effect, already received payment, through the IPG settlement. His decision, he added, was ‘damaging’ to the country. Ecclestone replied by saying that in order to facilitate the British Grand Prix, he had ‘even offered to get involved in a joint-venture deal to help them out. What we offered them is totally fair. The trouble is the BRDC don’t want to get involved in any risks.’ 4
Bellm claims he was given a mandate by the board to agree a deal with Ecclestone as long as it didn’t lose the BRDC any money. Bellm’s approach to Ecclestone was initially, and indirectly, made through McLaren team boss Ron Dennis, who had been elected a vice-president of the club that year. They were sharing a table at an Autosport awards dinner when, said Bellm, ‘he asked me how things were going with the grand prix. I explained that I had a disparate bunch of people [on the board] who were not entrepreneurs and that they couldn’t make their minds up. He asked me what I wanted, and I said I thought we should go for a five-year contract because I wouldn’t get a seven-year contract pass the board.’
Dennis, added Bellm, suggested that he approached Ecclestone ‘to see what the lie of the land was. He came back and said, “Right, you can get your five-year deal, you can get this, you can get that.” Bellm said he went to see Ecclestone the next day. ‘I went through all the details and said, “That’s the deal.” He stood up and said, “It’s been a pleasure dealing with someone in the BRDC who can actually make a decision.” He said, “I trust that you will be here to ensure that the circuit is improved over the next five years to get it up to date.” I told him I would make it my responsibility to get it done.’
But the news of the new contract, which was announced on 9 December, the day before the 2005 calendar was due to be published by the FIA, incensed Sir Jackie, said Bellm. ‘He went berserk because it had not been ratified by the board. He wanted a three-year contract because of the manufacturers and the GPWC situation. He thought they would be successful and then we wouldn’t have to have a contract with Bernie. I told him they would never succeed.’ Bellm’s confidence was based on the opinion of Dennis, whose inside information turned out to be correct. Ecclestone confirmed in December 2008, in a highly public and perennial row over the sharing of F1 profits, that he paid Ferrari $80 million to break rank with the manufacturers, which brought about the collapse of the proposed GPWC series. (See page 341 for full details on the GPWC). But Sir Jackie believed he had had good reason for being confident that the manufacturers would win the day, following an earlier conversation he had had with Dennis. ‘I can tell you that Ron genuinely believed that deal was going to be done’, said Sir Jackie. ‘He said we shouldn’t negotiate for a long-term contract.’
Of Bellm’s decision to agree a deal with Ecclestone, Sir Jackie said: ‘He was supposed to call all members of the board before he agreed anything and he never did. We told him to come back with Bernie’s bottom figure and the number of years. He phoned to say he wanted a meeting the next day. I was there, the accountant was there, the lawyer was there. He went through what he said to Bernie and what Bernie said to him. He said, “Now I need your agreement on these things.” He didn’t get our agreement because we didn’t agree [over the length of the contract]. He said, “Well, I did the deal last night at 6.30.”’ He took upon himself an authority he simply did not have.’ He claimed that both Sir Jackie and Hooton had been made aware of the length of the contract before he signed the deal, which was denied by the 70-year-old Scot and Hooton. ‘Ray was a bit of a loose cannon,’ said Sir Jackie.
Bellm felt his association with Sir Jackie was ‘abrasive’ from day one. ‘He questioned everything I did. The board was all in awe of him. I wasn’t.’ Bellm claimed he had signed a deal within his mandate and got the BRDC a deal that, with an annual increase of five per cent, ‘was the cheapest grand prix of anywhere in the world’ after he negotiated a payment from Paddy McNally of $3 million, reducing the net figure of $13.5 million to $10.5 million. ‘It was a stonking deal,’ said Bellm. In the event, Bellm was voted off as chairman of the nine-man board by six votes to three on 11 January 2005, just one month after he had triumphantly announced the deal with Ecclestone. Bellm, the first chairman in the history of the BRDC to be kicked off the board, took his grievance to the media, claiming that Sir Jackie, with Alex Hooton, had orchestrated the vote of no confidence – a charge that both men denied. Said Sir Jackie: ‘I had nothing to do with that. I wasn’t even in [the boardroom] for the vote. Nor was Alex. The board was left to do its own voting.’
But Bellm, convinced otherwise, wasted no time in campaigning for his adversary’s departure. A few days later, he was urging members to demand the resignation of Sir Jackie who, he believed, should have left all negotiations to the chairman or chief executive. At an extraordinary general meeting on 12 May 2005, Sir Jackie won the members’ vote to remain as president. Four days later, Bellm, who joined the BRDC in 1984, resigned from the BRDC board. He declared: ‘The BRDC needs to sell the rights to operate the circuit to an independent operator so that Bernie can deal with one man. The trouble with the BRDC is that it’s got 500 managing directors and they all think they know best. It’s like a multi-headed dragon that has no idea where it’s going.’
It was not long before Sir Jackie was to experience another challenge to his authority – but this time, more seriously, not from the board but from the members. Its genesis was in a threat from Ecclestone that unless the circuit was radically improved, the BRDC’s contract to stage the British Grand Prix after 2009 would not be renewed. Ecclestone believed that, with the exit payment of £27 million from IPG, it had had the money and the time to carry out substantial redevelopment. Apart from road and access improvements, for which the then prime minister, Tony Blair, authorised a government contribution of £8 million, Ecclestone claimed that little work had been done. Privately, the BRDC’s argument was that it could not carry out the work and meet Ec
clestone’s fees.
Damon Hill, who would succeed Sir Jackie as BRDC president, said: ‘While in Bernie’s mind, Silverstone was given the opportunity to spend money redeveloping Silverstone, there was also the question of how his fee could be afforded. Bernie’s line is, “You had the money, you had the opportunity to redevelop Silverstone”, but when he put his other hat on, he was saying, “Okay, you’ve got enough money to pay my FOM fee.” The grand prix has been affordable since that time because we’ve been able to use the windfall from the Octagon situation but there was not enough there to do both things. Bernie knows how much money we’ve got because he’s a member of the BRDC and he knows what other deals have come to the table. So he knows how much he can charge. That’s Bernie.’
In order to raise fresh investment to fund extensive redevelopment of the circuit – codenamed Project Hill – the BRDC’s board began talks with property developers in July 2005. By early January 2006, members were notified that the preferred partner was a Birmingham-based property developer, St Modwen Properties plc, a property investment and development group with a property portfolio valued at £800 million. St Modwen proposed a £600 million mixed-use redevelopment of the 760-acre site featuring houses, hotels, restaurants and other leisure facilities, plus improved facilities for the teams and further improvements to road access. In return for a 150-year lease, the BRDC would receive a payment of £30 million in advance to cover the cost of a new pit and paddock complex. ‘It was a very good deal,’ said Sir Jackie. ‘That £30 million was a minimum guarantee, and then there were revenues from the leases that went into the development that St Modwen proposed, [with] quite a large percentage coming back to us.’