by Terry Lovell
One of the more important details for Ecclestone, in order to protect his pay-TV interests, was that he acquired beyond dispute legal ownership of the commercial rights of the Formula One World Championship, which he and others had claimed, and which Mosley did not now dispute – ‘ownership of the rights in the Formula One World Championship was not as simple as was assumed in the early Concorde Agreements’ – generally belonged to the organisers or promoters, the party that took the commercial risk, although this could vary from country to country. In England, for example, ownership depends on who owns the land (and can grant or refuse access), while in France and Brazil, certain intellectual property rights belong to the relevant sports federation by law. In yet other countries the performers have an interest.
Ecclestone’s lawyers proceeded to negotiate at least 14 different legal systems worldwide to secure the rights from every conceivable holder in each country so that, no matter who owned what rights in which country, they were secure everywhere. These commercial rights were added to those already in Ecclestone’s rights portfolio, acquired by Formula One Administration Ltd by virtue of its business of running the commercial side of the championship. As part of the deal, the FIA agreed to hand over its few commercial rights – ‘Whatever they were, he [Ecclestone] was better off with them than without them,’ said Mosley.
He was confident that he had secured an ‘outstanding’ deal. ‘My belief is that I got a better deal than anyone else could have because it was more difficult for Ecclestone to take a hard line with me as we had worked together for so long. A major dispute would have threatened to destroy the entire structure, whereas now we are looking at a very bright future.’ That future, however, no longer looks so rosy. While in 1997 pay-TV accounted for nearly half of television income, its worldwide popularity by 2002 was very much on the wane. At the wedding in Madrid on 6 September 2002 of the daughter of the Spanish Prime Minister, José María Aznar, one of the principal guests, Rupert Murdoch, told fellow guest Flavio Briatore, Managing Director of Renault F1 UK, that he was offering broadcasters 50 per cent less for television sports rights due a protracted downturn in advertising revenue. The days of mega-fees were finished, he added, with television fees being halved over the next couple of years. The effect on the pay-TV coverage of Formula One could be devastating – a close associate of Ecclestone’s believed that a sustained drop in income below his 53 per cent share was likely to see him close the entire operation down.
Mosley was unperturbed by the possible collapse of pay-TV revenue: ‘I thought it would become a massively valuable asset. I was wrong. But then so were a lot of people about dotcom companies. Had it been a massively valuable asset, it would have all come to the FIA, all established and working, on a plate, in 2010. But don’t forget, in the end, the FIA has risked nothing.’ One thing is certain, and that is that the special relationship between Ecclestone and Mosley has proved to their mutual benefit in oiling the political and commercial wheels of Formula One. ‘I’m very aware that if someone other than Bernie were running the commercial side of things, life might be very much more difficult for me. And I like to think he realises that if someone other than me were running the sporting side, life might be more difficult for him.’ A former FIA official put it another way: ‘They are wedded together. They cannot split, because they need each other.’
Mosley’s election as president of the FIA brought with it sweeping reorganisation that did much to reduce a committee-bound bureaucracy, including the abolition of the FISA, which was replaced as motor sport’s governing body by the World Motor Sport Council, comprising 19 motor sport delegates and the presidents of the Fédération Mondiale du Karting, the Manufacturers’ Commission and Ecclestone’s company Formula One Administration. Ecclestone’s rise in authority was further marked by his appointment to the Senate, a body of which Balestre was appointed president in return for letting Mosley stand unopposed in the FIA presidency election, and which was established by Mosley to take any decisions ‘required by the current management of the FIA and deal with urgent matters’.
The Senate was actually proposed by Ecclestone and its members represented the powerful European forces: Otto Flimm, president of Germany’s Allgemeiner Deutscher Automobil-Club, the biggest motoring organisation in Europe; Marco Piccinini, a director of the Ferrari board who would later play a corporate role in Ecclestone’s disastrous flotation bid; Rosario Alessi, president of the Automobile Club d’Italia; Alfredo Cesar Torres, president of the Automóvel Club de Portugal; Michel Boeri, president of the Automobile Club de Monaco; and the only non-European representative, Paul R. Verkuil, president of the American Automobile Association.
Meeting quarterly, the Senate also took on the duties of the FIA’s Finance Committee, responsible for approving all significant financial deals, in particular those agreed between Mosley and Ecclestone, before they went to the annual meeting of the General Assembly for approval. Criticisms that the Senate became a mere rubber-stamping process for decisions made by the two men were firmly rebuffed by Mosley, who added that only someone ‘very naïve’ would see its members, three of whom were qualified lawyers, as ‘rubber-stampers’.
It was the Senate who approved the purchase from Ecclestone of an executive jet to ease Mosley’s busy travel schedule. It took place soon after his election, when it was suggested to Ecclestone that the new president ought to receive an honorarium in return for his services. Ecclestone was said to be of the opinion that Mosley didn’t need to be paid, but that a private executive plane for his use would make his job much easier. It so happened that he had a Falcon jet for sale, which was duly purchased for about $2.5 million. Mosley used it for several years before it was sold, to be replaced by a Learjet 31 hired from Ecclestone, an arrangement that was superseded by the purchase in 2002 of a Learjet 60, again purchased from Ecclestone.
The streamlined hierarchy introduced by Mosley allowed more efficient control of the FIA generally and the World Motor Sport Council in particular. It also put Ecclestone in an extremely powerful position, politically and commercially. In addition to being president of the Formula One Constructors’ Association and president of the FIA’s promotional affairs, he was now, as the man with his hands firmly on the Formula One purse strings, one of the most important members of both the inner sanctum, the Senate, and the World Motor Sport Council. Ecclestone and Mosley, who little more than a decade earlier had been arch-opponents of the FIA, were now effectively running it.
It was in this politically benevolent atmosphere that the World Motor Sport Council and the General Assembly, the FIA’s law-making body, approved Mosley’s decision to award Ecclestone the Formula One television rights in December 1995. But in the same year, at a meeting in October, the General Assembly went a step further. It unanimously approved a proposal of the World Motor Sport Council, tabled at a meeting the previous March, which claimed the television rights of all FIA Championships, Cups and Challenges. It came into effect in June 1996, when the World Motor Sport Council extended the rule to include all events that took place in more than one country, such as the Paris–Dakar Rally. Two months later, in August, the television rights of 19 FIA championship events were awarded to Ecclestone’s International Sportsworld Communicators (ISC) for a 15-year period. Ecclestone now had control over the marketing of every major motor sport on every FIA calendar.
The motor sport championships were: World Rally Championship, World Grand Touring Car Championship, Formula 3 Intercontinental Championship, European Rally Championship, International Touringcar Championship, Asia-Pacific Rally Championship, African Continent Rally Championship, Middle East Rally Championship, Karting World Championship, Formula 3000 International Championship, World Cup for Cross Country Rallies, European Truck Racing Cup, European Championship for Rallycross Drivers, European Drag Racing Championship, FIA Cup for Electro-Solar, European Championship for Autocross Drivers, European Hill Climbing Championship, Historic Grand Touring Cars, and Thoroughbred Grand Pri
x Cars.
Ecclestone justified the length of the contract by claiming that such a period of time was necessary in order to recoup losses as a result of the ‘large resources’ invested in the filming of non-Formula One events and their marketing to television broadcasters. However, this claim was in direct contradiction to a letter from ISC to a third party, which stated that ‘ISC does not itself engage directly in the activity of filming motor sport events (it does not, for example, employ any technicians or cameramen). ISC invariably engages or licenses third party production companies … to produce footage of events for which the FIA has transferred the television rights to ISC.’
With control of the television marketing of all other motor sports, Ecclestone was now in a perfect position to ensure that no other event could threaten the dominance of Formula One as the number-one motor sport and, therefore, its television revenue. There had been legal clashes in earlier years over the television rights of non-Formula One events, as seen with the Automobile Club de Monaco and the Automobile Club de l’Ouest over, respectively, the Monte Carlo Rally and the Le Mans 24-Hour race, but that, as much as anything else, had been a political issue of the FIA being seen to assert its authority. This was a very different ball game.
Ever since the breakaway from the European Broadcasting Union, Ecclestone had been pumping huge sums of money into his television production company to boast the latest state-of-the-art digital technology. The General Assembly, unwittingly or otherwise, had now ensured, through the 15-year agreement awarding him the FIA’s Formula One television rights and the granting of all non-Formula One television rights to ISC, that Ecclestone’s massive investment had the best possible protection the FIA could offer. But it was highly probable that, legally, the FIA was in no position to award the non-Formula One rights to Ecclestone. As Mosley conceded, ownership of the rights was not as simple as had been assumed in the early Concorde Agreements, a discovery that would have surely applied with equal force to all motor sports.
Mosley was scornful of any suggestion that the rules had been introduced to restrict television coverage of ‘lesser’ motor sports to the benefit of Formula One. The vast majority of the General Assembly’s 120 delegates, he insisted, would hardly have agreed to such a move when only 14 of them hosted the Formula One races; the remaining delegates would have refused to allow television coverage of their own national motor sport events to be systematically suppressed. To agree with that assertion would be to fail to understand the control that Ecclestone and Mosley wielded over the General Assembly. There were few delegates with an eye to their future who would have dared oppose either man within or without the assembly’s august gathering.
In an attempt to allay the mounting disquiet of organisers and promoters affected by the new rules, Mosley sent an open letter to the presidents of the FIA’s national sporting authorities in April 1996. He justified them by arguing that ‘with the expansion of international television and the vast number of channels (both satellite and free-to-air) which will shortly be available, any other course would involve substantial risks. For example, individual teams and sponsors making programmes that are just advertising disguised as sport; many organisations competing for air time and offering inducements to television channels to show programmes; all sorts of companies springing up from outside motor sport, offering television facilities, and so forth. The results would be chaos, reduced overall coverage and damage to the image of international motor sport.’
The letter did nothing to mollify the organisers. While whatever some organisers and promoters of non-Formula One motor sport earned from television coverage was little enough, it was nevertheless a crucial source of revenue. That they were allowed to retain television rights in their own country was, in practice, of very little worth indeed. For if organisers or promoters wanted their event to be marketed in other countries, where the potential financial returns lay, they were compelled, of course, to go through ISC. And organisers first had to make heavy financial investment in television equipment and expertise to produce a quality considered suitable by ISC. A senior executive of an event in the FIA World Cup for Cross Country Rallies, which he requested not to be identified for fear of ‘rocking the boat’, explained: ‘It was completely at our expense with zero return for us. It is nonsense to say we had rights in our country. It didn’t mean anything at all. We had to give ISC our video material free of charge and they, supposedly, would market it on our behalf. Frankly, we didn’t put huge resources into it because we knew that ISC had absolutely no interest in distributing our product round the world. They never showed us any evidence that they had actively promoted our sport … throughout the rest of the world.’
The impact of the agreement with ISC had a devastating effect even on major manufacturers such as Opel, Alfa Romeo and Mercedes. In the light of the disasters of Procar and the Sportscar World Championship, Alfa Romeo and Mercedes in particular were looking to the German-based national touring car championship, the Deutsche Tourenwagen Meisterschaft (DTM), to provide a major international showcase. However, since its launch in 1986 operating budgets and vehicle costs had grown to such an extent that the manufacturers were having difficulty justifying its cost as a national championship. They successfully applied to the FIA for the series to have international status, which would give much wider television exposure and the opportunity to recoup some of their costs through host countries. The FIA, which largely meant Mosley and Ecclestone, agreed, and in 1995 the DTM became the International Touringcar Championship (ITC). That was when their troubles started.
By the end of the 1996 season, serious concerns were being expressed by the manufacturers about the level of television coverage the series was getting through the efforts of ISC. The following March the championship suffered a major blow in Germany, the heartland of the series, with the loss of television coverage when the independent German television network, RTL, which also, incidentally, broadcasts Formula One, was unable to agree terms with International Touringcar Racing, the organisation which ran the series for the FIA, and which was promoted by ISC. It was suspected that the popularity of the ITC series was proving too much of a threat in Germany for the liking of Ecclestone. Trying to pre-empt such speculation, he issued a statement before the breakdown in talks between RTL and International Touringcar Racing in which he claimed that ‘if ITC is better than Formula One, then so be it. Formula One had better get its act together and do a better job, because we are not interested in protecting anything.’3 It was a statement that did more to confirm than deny that very aim.
The likes of Opel executive director Jürgen Stockmar and Hans Wilhelm Gäb, General Motors’ European vice-president of public affairs, felt in no way reassured. They were experiencing at first hand the damage that was being done by ISC to the ITC series. In a letter to Ecclestone dated 19 June 1996 they were highly critical of the level of media coverage achieved by ISC, including restrictions imposed by the company that year on the general sports media at the first four rounds of the championship at Hockenheim, the Nurburgring, Estoril and Helsinki. They complained that television coverage, both in Germany and overseas, had been ‘a fraction of previous years’ viewing figures’; spectator attendance at the two German tracks had also been ‘significantly below’ that of previous years; and the control by ISC of cameras had been so tight that even the manufacturers had been prohibited from shooting video footage of their own cars.
In a five-point action list, whose implementation was necessary to ‘justify the high financial and technical commitment required’, Stockmar and Gäb wanted ISC to make television and video material freely available without restriction to all interested TV stations and to make available detailed information of international television coverage achieved by ISC. Ecclestone claimed in reply that he had personally made efforts to see ‘greatly improved television coverage that has been enjoyed in the past … and this has been achieved’. Despite contractual agreements he had inherited, he added that he had also �
�managed to expand the coverage’ in Germany. The FIA attempted to confirm Ecclestone’s ‘achievement’ in a press briefing in June 1997, when it claimed that, as a result of centralised marketing through ISC, television coverage of the ITC had been ‘a major success’, exceeding the international coverage of its parent series, the DTM.
But such claims were not borne out by the experiences of organisers, manufacturers and competitors. Nor by the Institut für Medienanalysen, a research company which analysed viewing statistics provided by the Gesellschaft für Sozial- und Konsumforschung, an official monitoring agency set up by German broadcasters. Coverage of the ITC series on free-to-air, satellite and cable television in 1996, compared with the previous year, had dropped by 22.98 per cent, with audience viewing figures down from 237.1 million to 146.12 million, a decrease of 38.37 per cent.
Criticism of ISC was also made by Alfa Romeo, which three months later followed Opel in withdrawing from the ITC. Due to a lack of television and media coverage, the company was no longer able to justify the high cost of competing in the series. The decision by Opel and Alfa Romeo to pull out at the end of the 1996 season left Mercedes as the sole manufacturer. Unable to continue alone, it was forced to withdraw, finally killing a motor sport which had enjoyed huge popularity in Germany for ten years and at one time had been as successful as Formula One. Mosley responded to the manufacturers’ withdrawal by claiming that it had nothing to do with lack of television coverage, but with the ‘very high cost of running cars suitable for the event’. Another factor, he added, was the lack of interest outside of Germany in a series consisting mainly of cars and drivers ‘who were German or mainly known in Germany’. Proof that the FIA was not to blame (as a result of awarding the television rights to ISC), was, he added, the fact that neither Opel nor Alfa Romeo had refused to each pay $2.66 million compensation ‘due to the FIA by each of them under the terms of the guarantees that they offered in return for the FIA’s endorsement’.