Bernie Ecclestone

by Terry Lovell

  Mosley, who states that he was unaware of the details of the APM agreement until after he was elected president of the FISA in October 1991, was reported in the London Financial Times2 as claiming that senior officials of the FIA had been unhappy with the deal, and that he suspected that the full membership of the FIA never knew about the huge sums of money negotiated away by Balestre, comments which he later denied making. He claimed, however, that ‘Balestre had up-to-date information from Ecclestone, who advised him against the APM deal’. Balestre and the FIA Finance Committee, he added, ‘formed their own view, as they were entitled to do’.

  It seems then that Balestre had made a major mistake in declining to take the advice of his vice-president of promotional affairs. Yet one is left to wonder how frank Ecclestone had been in giving Balestre the full benefit of his counsel. For while Ecclestone was fully aware of Balestre’s alleged misgivings over the future level of television revenue following the financial problems that had befallen Canal 5, he kept from Balestre information that might have encouraged him to reconsider signing away the FIA’s 30 per cent. Said Ecclestone: ‘As it happened, what he [Balestre] didn’t know was that already at that time I had thought this Channel 5 [Canal 5] was going to get into problems … and I got another deal [with another television company].’ It was an extraordinary admission for Ecclestone to make. As vice-president of the FIA’s promotional affairs, he was surely obliged to put such information before Balestre. It suggests that, for whatever reason, he used his position as president of the FOCA, in which role he negotiated television deals, to abuse his position within the FIA by failing to inform Balestre of the new contract.

  Certainly at the time in 1990, when Balestre and APM were negotiating the terms of the fixed royalty deal, Ecclestone had great confidence in the future of television revenues. He was so confident, in fact, that it was at that time he decided not to renew the FOCA’s contract with the European Broadcasting Union, which expired that year, in order to pursue highly profitable single-country deals, which, as Christian Vogt has revealed, increased ‘about tenfold’ the money Ecclestone had been receiving through the EBU and elsewhere. Ecclestone’s confidence in the future might also have been boosted by the profits of his International Sportsworld Communicators (ISC), which marketed the FIA’s substantially less lucrative non-Formula One television rights, but which increased from £2.2 million in 1989 to £3.4 million in 1990 and £4.87 million in 1992. Indeed, ISC continued to do so well that Ecclestone was able to pay himself a dividend of £4.1 million in 1995, which was transferred to an offshore company in Jersey called Microner Investments Ltd.

  Given the importance of television revenue to the FIA’s prosperity, it could also be argued that Balestre was negligent in observing prudent business practice by failing to seek security from APM in default of payment, or, at least, in authorising due diligence on the company to ensure its financial stability. If so, he would surely have been alarmed by the secrecy surrounding its activities. While the company, which was formed in November 1983 with McNally, Luc Jean Argand, a senior partner in a Geneva-based law firm which represents the legal interests in Switzerland of the FIA, and Beat Corpataux, a Swiss accountant, as its directors, did very well between 1985 and 1988, with profits of $33.44 million against a turnover of $45 million, the company ceased to trade in 1988, with losses of £485,000, after changes in British tax laws brought an end to its tax exemption due to non-resident status.

  In commenting on the value of due diligence, considered a fundamental precaution in such financial arrangements, Mosley justified its absence on the basis that McNally, because of the ‘almost total’ dependence of his Paddock Club on the goodwill of Balestre and the FIA, wouldn’t have dared risk losing it by failing to have delivered the agreed payments. Said Mosley: ‘Balestre could have turned to this [the importance of McNally’s ‘goodwill’ with Balestre and the FIA] in the event of default. Much better than “due diligence”.’ An unusual comment in that Mosley, of all people, would have known that the existence of the Paddock Club depended not on Balestre, or the FIA, but Ecclestone.

  In September of that year a company called Allsopp, Parker & Marsh (APM) was formed in the Republic of Ireland, where it fulfilled certain conditions to register as non-resident for tax purposes – neither its directors nor legal owners were resident in Ireland. The company included in its constitution a provision that enabled it to claim exemption from filing annual returns. In this way it was able to keep its finances from public scrutiny. But it was a malpractice: the exemption is granted to companies who do not trade for profit, a claim that APM was not entitled to make.

  Documentary evidence proves that the two companies were one and the same, but a question mark remains over their ownership. In the instance of the company registered in England there were 12 £1 nominal shares issued: McNally and Argand had one share each, with the rest in the names of nominee directors. In respect of the company registered in Ireland, two nominal shares were issued: Argand had had one share since 1989, and a member of his office owned the other. One would imagine that Ecclestone, as the FIA’s vice-president of promotional affairs, would have been meticulous in knowing who owned the company and to whom, as the person responsible for the distribution of the television revenue, he was paying such large sums of money. It seems not. In reply to a question about the ownership of APM, he said that he had ‘always understood’ McNally to be the owner. The answer to the identity of the beneficial, as opposed to legal, owner lies in a trust in Guernsey, where the ten remaining shares eventually ended up.

  There is some interesting evidence linking Ecclestone to APM. Argand, a director of the company, was a trustee of Orion, a Swiss-based trust set up by Ecclestone to safeguard his fabulous family wealth. A legal adviser to the trust was tax expert Stephen Mullens, who, as secretary of a company bought off the shelf for the setting up of APM, was involved in its initial regulatory filings to Companies House, London, where the incorporation and annual returns of UK companies are recorded for public inspection. Mullens – he had been introduced to Ecclestone by Argand, who has been involved in the legal affairs of drivers for many years, including the drawing up of the business contract between Ecclestone and Jochen Rindt in January 1970 – later became a partner of solicitors Marriott Harrison, who acted as Ecclestone’s legal advisers in a subsequent $1.4-billion Eurobond sale, and whose London offices, from December 1990 until early 1993, were given as the registered address of APM.

  Both Argand and Mullens also became directors of Excelis, a Paris-based company specialising, among other activities, in the organising and promoting of sporting events, including managing the Paul Ricard circuit purchased by Ecclestone, along with the local airport and hotel, for £11.5 million in 1999. It was neither McNally nor Argand, incidentally, who first devised the option of an index-linked annual fixed royalty payment. That device was the inspiration of Ecclestone, who came up with it three years earlier when FOCA members, in signing the 1987 Concorde Agreement, agreed to an identical deal.

  An interesting footnote to this affair is the fact that Balestre, in believing they would prove more profitable than the television revenue, agreed that APM could sell on its behalf the merchandising rights to certain FIA events. APM proceeded to seek the assistance of another company whose expertise was well known to the FIA – Ecclestone’s International Sportsworld Communicators (ISC). Even then, the realisation of their anticipated value failed to meet the FIA’s expectations. APM did little better in marketing the broadcasting rights of non-Formula One championships, which had also been assigned to them. Once again it sought the assistance of ISC, which, in August 1996, acquired the rights from the FIA for itself.

  McNally, invited to comment on the activities of Allsopp, Parker & Marsh, declined to do so unless he was first sent a copy of the entire manuscript. ‘Without it, I cannot see how we can properly consider your request,’ he replied in a letter from the office of AllSport Management in Geneva. He has steadfastly refus
ed over the years to be interviewed about either his personal or business life. The idle days of gossip-column celebrity gave way long ago to the more serious pursuit of making a substantial fortune, which has created a deep aversion to the publicity he once enjoyed. It seems to take an intervention from Ecclestone, whose patronage has been largely responsible for McNally’s riches, to persuade him to face questions from the media.

  When McNally was approached during the German Grand Prix at the Nurburgring by investigative reporter Mark Killick as part of an investigation by BBC TV’s Panorama into the financing of Formula One, for a programme to be broadcast in November 1998, he firmly refused to be interviewed. Killick, trying to establish the beneficial owners of the company and the Paddock Club, went to Ecclestone for his assistance. Ecclestone told him he would fix it. A week or two later Killick received a phone call from McNally. He would be happy to meet at the Berkeley Hotel, in London, for breakfast. It turned out to be not so much an interview as a presentation of a four-page statement typed by McNally himself.

  The ‘old’ company of APM, he said in the statement, had begun in the early eighties – ‘I still have the three-line letter from BCE [Ecclestone] wishing APM good luck’ – with the acquisition from Ecclestone of the advertising rights to the Grands Prix of France, Austria, Belgium and Holland. McNally described these events as the ‘lame ducks’ of the Formula One calendar, where ‘the promoters wanted a race, but did not have the necessary funds and passed on all their commercial rights’. The relationship with Ecclestone was the key to the ensuing success of APM, including the setting up of AllSport Management, which it licensed to provide on-track retail concessions and trade displays, and not least the management of the highly profitable Paddock Club. Said McNally in his statement: ‘The early relationship with BCE has stood APM in good stead – opening doors and giving the company credibility in the marketplace.’

  APM went on to negotiate advertising and marketing contracts – ‘to market on an international basis, ensure uniformity in advertising … provide consistency in service and standards in keeping with the high standards of Formula One generally’ – with circuit owners at the majority of Formula One events, adding Monza and Imola in 1998. ‘APM wasn’t particularly keen [on] the Italian races … but CBE insisted that the Italian tracks had a face-lift.’ Soon afterwards APM became promoter of the Austrian Grand Prix and had the contract for the Chinese Grand Prix, due to take place in Zhuhai, 36 miles from Hong Kong, in 1998, but a few months later this was cancelled due to infrastructural problems. APM also became adviser to the owners of the state-of-the-art Formula One stadium in Sepang, where the Malaysian Grand Prix was launched in 1999, an arrangement that would have been directly due to Ecclestone’s influence.

  McNally’s statement went on to indicate that the activities of APM were directly linked to Ecclestone’s interests: ‘APM’s involvement is not so much conditional as logical considering each race is part of the same World Championship.’ In the circumstances of this ‘logical’ business relationship between the two men, Ecclestone imposed upon circuit owners and promoters the condition that APM’s services be engaged. In return, APM worked with owners and promoters to occasionally subsidise fees demanded by Formula One Administration (FOA), Ecclestone’s company, on behalf of the teams. It also made payments direct to FOA, details of which, added McNally in his statement, were covered by a commercial confidentiality clause. McNally insisted to Killick that Ecclestone had no part in the beneficial ownership of APM.

  Balestre commented on the FIA deal with Allsopp, Parker & Marsh through the Fédération Française du Sport Automobile, of which he remained honorary president. But, oddly, he insisted that the deal he agreed was not with Allsopp, Parker & Marsh but with the FOCA, which would have been negotiated and signed by Ecclestone. In a brief statement, accompanied by three pages listing his titles and achievements in motor sport, he confirmed Mosley’s explanation that, nervous about future television revenue, he had agreed to an annual fixed royalty deal paid in French francs because of the unstable US dollar and because of the decision by television companies not to renew their Formula One contracts. A request for confirmation brought the following response from Balestre, this time through the FIA: ‘The 1990 agreement concerning television rights … was signed by the FIA and the FOCA, following the unanimous decision taken by the FIA General Assembly.’

  Ecclestone had earlier declined to comment, referring all questions to Mosley. In the light of the tens of millions of pounds of television revenue lost to the FIA as a result of the fixed annual royalty deal with Allsopp, Parker & Marsh, one might imagine that Mosley, as Balestre’s successor, would have immediately rejected any thought of committing the FIA to a similar agreement. After all, he had the benefit of knowing that television revenues had increased substantially and were likely to continue to do so. Nevertheless, when the time came to negotiate with Ecclestone the FIA’s share of television revenue, he locked the FIA into a very similar deal. Not for five years, though, but for 15 years. And not this time with Allsopp, Parker & Marsh, but with Ecclestone. Once again, the FIA would receive an index-linked annual fixed royalty for the duration of the contract, which, known as the Formula One Agreement – quite separate from the Concorde Agreement – was agreed by the Senate in February 1995 and signed the following December to have effect from 1 January 1996 through to 31 December 2010. And, once again, it seems likely that the FIA will end up much the poorer.

  Including an estimated sum of $225 million for 1997, figures prepared by Formula One Administration show that it is contracted to receive from broadcasting companies worldwide between 1998 and 2004 a gross revenue totalling $1.555 billion. On the evidence of the FIA’s share of $38 million in 1999 out of a revenue of $£241 million, its royalty payment represented a percentage figure in the region of 15 per cent. By the end of 2004 it will receive, therefore, a total sum of $232.5 million, as opposed to $465 million – the 30 per cent that Mosley surrendered. These figures, of course, make no account for revenue the FIA will lose during the remaining six years of the 15-year contract, from 2005 to 2010. The teams and Ecclestone, on the other hand, will fare considerably better. The 11 Formula One teams, who receive 47 per cent of television revenues, will split between them an estimated total of $730.85 million, with Ecclestone pocketing the balance of $590 million. For the record, the gross revenue for the same period of all of Formula One Administration’s commercial contracts, from television and radio broadcasts to title sponsorship, video production and Grand Prix promotions, will total approximately $2.313 billion. Mosley claims that he had little choice but to remain with a fixed royalty deal in order to protect the long-term interests of the FIA. For a start, he insists, there was no way that the teams, or Ecclestone, would have agreed to continue with the 30 per cent signed away by Balestre. It would have left Ecclestone with just 23 per cent of television rights revenue, not nearly enough to fund his huge investment in the digital technology of pay-TV, which, at that time, promised enormous global returns. ‘My negotiating position was nil,’ said Mosley. ‘All right, I could have gone to some of the teams like Ferrari and said, “Hang on a minute, Ecclestone’s copping at the moment 53 per cent of the business. We can do this differently. The FIA wants only 20 per cent, 15 per cent, whatever… You can have all the rest. Cut Ecclestone out.” And what would Bernie do? To use that old nuclear phrase, it would have been mutually assured destruction.’

  It was the bedazzling potential of pay-TV that prompted Mosley to suggest to Ecclestone in early 1994 a 15-year agreement, on the same fixed royalty terms agreed with APM, on condition that, at the end it, all the commercial rights were signed over to the FIA. ‘It was rather like a 99-year freehold lease – you get small returns in the beginning, but somebody else takes the risk and you get everything back at the end. That was the key to it – if we didn’t get all those rights back and completely under FIA control, we would lose control of the World Championship because Bernie was building the wh
ole thing up.’ Mosley viewed Ecclestone’s growing control with concern for a particular reason – the FIA had no direct contract with him. Its contract was with the FOCA, who then assigned the commercial rights to Ecclestone, leaving him unencumbered by any contract with the FIA.

  So Mosley proposed a different contractual structure: the FIA signed a contract with Ecclestone as well as with the FOCA in leasing the rights, while he did a deal with the FOCA, continuing to pay the teams their share. ‘I said to him that, instead of a five-year deal with the teams, he would have a 15-year deal with us, which was much more bankable. It would enable him to raise additional finance for pay-TV, which otherwise would have been quite difficult to do.’ In February 1995 Mosley went to the Senate for its approval, and then he and Ecclestone spent the next ten months hammering out the finer details of the 15-year agreement.