by Terry Lovell
They claimed to have had no knowledge of the Formula One Agreement agreed between Ecclestone and Max Mosley prior to its signing in December 1995, which granted him the television rights for 15 years until 2010. They felt that in failing to consult them he had acted unfairly and improperly. In the 1992 Concorde Agreement FOCA members had agreed to transfer management of its commercial rights to one of Ecclestone’s companies, Formula One Promotions and Administration, in return for annual royalty payments, similar to those agreed between Balestre and Allsopp, Parker & Marsh. They saw Ecclestone’s ‘secret’ agreement as a betrayal of their relationship. Also unbeknown to the teams, the name of FOCA Administration Ltd, which represented the teams and to whom the rights had been previously leased for Ecclestone to market, was changed to Formula One Administration, of which he was sole director, and which took effect from February 1997, as details of the flotation launch were being finalised.
The three team bosses had long maintained that the FIA had had no right to assume ownership of the rights. This conflict with Ecclestone – and Mosley – was something of a running sore, a continuation of an earlier dispute over the future ownership of Formula One’s commercial rights in the event of Ecclestone’s death. As early as 1993, Dennis, Williams and Tyrrell, the sole survivors of the first Concorde Agreement of 1981, began discussions with Ecclestone to acquire through a trading vehicle called Newco an option to purchase Formula One Administration Ltd on his retirement or death. At one stage Ecclestone was thought to be open to a deal, which the three men wanted to see concluded in time for inclusion in the 1997 Concorde Agreement. With the support of Luca Montezemolo, the Ferrari team boss, Dennis and Williams – Tyrrell didn’t want the cost – brought in their lawyers to draw up a draft agreement. In January 1995 what became macabrely dubbed the Dying Agreement was circulated to the teams, stating, in effect, that, on Ecclestone’s death, Formula One Administration would be bought from his heirs for its market value less 30 per cent by a company formed by the teams, the size of whose shareholdings would be largely based on seniority. It got no further than Ecclestone’s paper shredder.
He claimed that it would give 51 per cent control of the company to Dennis, Williams and Tyrrell, a counter-argument they firmly denied – ‘it was totally democratic with no one team having control,’ said Tyrrell. But Ecclestone had another reason to reject the bid – by now he was talking to Mosley about the 15-year deal with the FIA to help raise the necessary finance to fund the expansion of his burgeoning pay-TV business. (Mosley, incidentally, claims that it took him about 18 months to overcome Ecclestone’s resistance, due, he believed, to a sense of loyalty to the teams.) From that point, the Dying Agreement, and team bosses’ ambitions with it, died on its feet. Said Ecclestone: ‘If all the teams owned it, they’d destroy it. They can’t agree on anything, not even on how to share their money out. They think they can run the business – I know they can’t.’1
During July and August 1996 a frosty exchange of letters passed between Tyrrell, who believed that the interests of the teams had been subjugated in favour of Ecclestone’s and the FIA’s, and Mosley, who believed that the constructors could have negotiated directly with the FIA ‘but they chose not to’. To which Tyrrell replied: ‘The greatest shock from your letter was the revelation that you believe we, the FOCA, should have been negotiating directly with the FIA for our own future, because Bernie was negotiating for his future and not ours. Were we not entitled to expect the FOCA president would represent our interests above his own?’
In his correspondence with Mosley, Tyrrell’s contentions were based on four claims: Ecclestone should have at all times acted solely for the FOCA and should not have negotiated any arrangements on his own behalf – as president of the FOCA, this raised a clear conflict of interest; ownership of the rights belonged to the teams due to their importance over the years to Formula One; that the teams were receiving an inadequate share of Formula One’s commercial revenue; and that Mosley had taken Ecclestone’s side rather than that of the teams.
Mosley’s reply was that Ecclestone had ‘for at least 15 years’ run his own Formula One business with his position as FOCA president. ‘It is difficult for me to understand how anyone can claim this was a situation of conflict of interest, when it was precisely the arrangement that some of the teams hoped to take over for their own benefit later on, by purchasing the business from Bernie or his estate’; that the teams’ claim of ownership of the commercial rights, which they had agreed to the contrary in successive Concorde Agreements, had no basis ‘in law, in custom or in fact’; that the signatories to the Concorde Agreement were not prohibited from collective bargaining (with Ecclestone) within the agreement to secure a share of other commercial revenues – ‘I do not believe the FIA should interfere in such negotiations’; that the FIA was ‘strictly neutral’ in the commercial arrangements between race promoters and the teams, including Ecclestone in his ‘race-promoter’ capacity.
‘If anything, the FIA has favoured the teams, because we at no time asked them to give up any part of the television income in return for the very big investments Bernie was making in digital TV, time-keeping, circuit hardware, etc, which were for their benefit and as well as his and, ultimately, the FIA’s. It was the FIA which made these investments feasible, even if risky, by swapping its percentage for a fixed fee. In one respect, however, the FIA does prefer Bernie: he has never claimed (as have some of the teams) that the rights in the FIA World Championship belong to anyone other than the FIA. With Bernie, the FIA knows that it will get back its rights intact after the contract period without any disputes.’ Later that month Mosley attempted to isolate Dennis, Williams and Tyrrell by sending copies of his letters to Tyrrell to the teams. In one, he warned that the confrontation had serious implications for the future of Formula One and ‘will almost certainly result in the loss of major sponsors and engine suppliers’.
Such was the degree of anger within the FOCA that some team owners, believing that Ecclestone had breached his legal obligations as president of the FOCA, began discussing a plan to remove him from office. Ecclestone, it was argued, had had no right to negotiate the purchase, for his own interests, commercial rights which, under the terms of the Concorde Agreement, had been assigned to the FOCA for him to market. The proposal to unseat Ecclestone got no further for lack of the necessary support, and, to thwart any future attempt to remove him, Mosley agreed that a new clause would be inserted in the 1997 Concorde Agreement which gave the FIA the right to veto his successor to the presidency of the FOCA.
Due to the long-standing and unresolved tension between them and Ecclestone and Mosley, Dennis, Williams and Tyrrell now refused to add their signatures to the new Concorde Agreement due to take effect from January 1997, and which the rest of the teams had signed the previous March. In return for the loss of ‘their’ television rights, they were insisting on a substantial increase in the teams’ share of television revenue, as well as a wedge of the huge revenues generated by advertising and corporate hospitality – estimated at more than £90 million a year – and fees paid by organisers and promoters, said to total an estimated £80 million a year.
Ecclestone refused to yield, claiming that no team, or teams, was bigger than Formula One. The three rebel team bosses, for their part, continued to claim that it was the likes of McLaren, Williams, Tyrrell and Ferrari who attracted the crowds, the media interest and the sponsors. Without them, Formula One would be like the Premier League without Manchester United, Liverpool, Arsenal and Tottenham Hotspur. Ecclestone set out to bring the three rebel teams to heel by the simple expedient of divide and rule, with money as the lever, guaranteed to succeed in Formula One like nothing else can. Purposefully excluding invitations to Dennis, Williams and Tyrrell, he called a meeting of team bosses at the Excelsior Hotel at Heathrow Airport on 7 August 1996, where he received their immediate and total support by offering them their rebel colleagues’ shares of the 50 per cent of the television revenue allocated to
the FOCA and distributed equally between Concorde Agreement signatories.
Whether it was the loss of their share of television revenue or a decision to keep their powder dry until Ecclestone’s flotation put him in a more vulnerable position – more probably the latter as events would indicate – a few weeks later Williams indicated to Mosley that he might be prepared to sign the Concorde Agreement on equal terms to the other teams. It was also hinted that Dennis and Tyrrell might agree to do likewise. In early September, at Ferrari’s headquarters in Maranello, the teams met to discuss the change of heart. It was welcomed with unanimous approval – but only to a point. They weren’t prepared to welcome the three back into the fold if it meant returning their colleagues’ shares. The meeting was adjourned for three months, until January 1997, when a compromise solution was put on the table. However, it essentially excluded the three teams from the new financial arrangement for 12 months, which was rejected out of hand by Dennis, Williams and Tyrrell, who had now engaged their own lawyers. Their reply was to issue an ultimatum to Ecclestone – either allow them back in on equal terms by 26 March or face a complaint to Brussels under the European Commission’s competition rules.
All three men were willing to go to the edge with Ecclestone. Williams and Tyrrell, in particular, were seasoned stalwarts of the FOCA and had stood alongside Ecclestone in the front line of battle against Balestre and the FIA during the stormy seventies. None of them was a mug punter in his thrall. And, although not in his financial league, they had the money to go more than a few bloody rounds. Dennis, a former mechanic with Cooper and Brabham – he quit some time before Ecclestone bought the team – took over McLaren Racing in 1982, which by 1995 was, after Ferrari, the second richest team in Formula One, with an annual turnover of £48.5 million. He and Williams were attributed with personal fortunes of £150 million and £97 million respectively. Tyrrell’s wealth did not put him in the rich list but he was scarcely in need of an Oxfam food parcel. In 1997, at 72, and after more than 30 years in Formula One, he sold the Tyrrell Racing Organisation he had launched in 1968 to British American Racing for £18 million. (Tragically, he didn’t live long enough to enjoy the money. Five years later, on 25 August 2001, one of the more honest and charismatic figures in Formula One died of cancer.)
In threatening to take Ecclestone to Brussels, the three men knew they were touching something of a raw nerve. By now the German independent television production company boss, Wolfgang Eisele, and his lawyer, Dr Wolfgang Deselaers, were getting ready to go through the German courts for a legal ruling on Ecclestone’s control of Formula One and file a complaint to the European Commission. Although Ecclestone had yet to come toe-to-toe with the bureaucrats of Brussels, the mere mention of their name even then was, said a Formula One insider, ‘like the sight of holy water to a vampire’. With the proposed flotation soon to be announced, the very last thing Ecclestone wanted was a protracted and highly public dispute in Brussels with the three stars of his show as witnesses for the prosecution. Over the next few weeks he came up with a fresh set of proposals in the hope of ending the dispute once and for all. Although its terms were kept confidential, it effectively meant a redrafting of the Concorde Agreement which reinstated the three teams to full parity, their respective shares of television revenue to be restored the following season – a total of £70 million – and full involvement in what was described as ‘a multi-million-pound incentive plan’. It seemed that peace had finally been restored. Unhappily for Ecclestone’s flotation plans, it would prove an all too brief respite.
As someone with an obsessive need to be in control, the way in which news of the proposed launch reached the public domain put Ecclestone in a high state of lather. There it was, splashed across the pages of two Sunday broadsheets in March, at least a week ahead of the scheduled date. There had been a leak. Ecclestone was incensed. The Grand Prix teams had known nothing of the planned flotation. He had been caught off-balance. It was not the most propitious of beginnings in a relationship that, given Ecclestone’s visceral mistrust of the City, was never likely to be smooth and cordial.
Such an unpromising start was followed by a typically indiscreet statement from Ecclestone in which he professed his complete disinterest in a flotation, as well as a considerable lack of confidence in his financial advisers. ‘My feeling is to wait and see. Whatever we put on the market will be valued at that figure, so I may as well wait for the revenue stream from pay-TV, which will bring in enormous profit and give Formula One its full worth. Salomon Brothers is telling me this is a stupid attitude, and the market is good at the moment. The more they talk the less interested I am.’2 It was believed that the leak seriously impaired their relationship, which over the weeks ahead was not improved by the difficulties Salomon Brothers encountered in persuading Ecclestone to be more open with his books.
Commenting on Ecclestone’s unorthodox practice of keeping his financial affairs well hidden, Formula One Holdings’ finance director, David Wilson, said: ‘Bernie has always kept a tight rein on all financial information to protect his position in negotiations with broadcasters, teams and promoters. Now the company is going public that has to be balanced against the need to be more transparent.’3 It soon became clear that the flotation was going to take a lot longer to organise than Salomon Brothers had envisaged. Essentially, they were having considerable difficulty in pulling together a satisfactory five-year trading history for a draft prospectus that had to go before the Stock Exchange for approval before it could be distributed to potential investors. There were, it was understood, inadequate explanations of where the television revenues had gone in previous years, why some had ended up in Geneva and some in London. Ecclestone, it was said, was feeling uncomfortable at the degree of business detail the prospectus would have to reveal. It became increasingly clear to Salomon Brothers that a July launch was going to prove a difficult target to meet. Not for nothing was Ecclestone described by a London investment banker as ‘the client from hell’.4
As rumours abounded in the City of an increasingly tense relationship between Ecclestone and Salomon Brothers, doubts were being cast on a price tag of £2–2.5 billion on a company whose market worth was being calculated on nothing more tangible than television contracts, with assets valued at about £8 million. Television rights sales the previous year had been no higher than £220 million with profits at £85 million. In the view of John Stittle, senior lecturer in accounting and finance at Anglia University, even a £2-billion valuation meant valuing the company at a multiple of 20 times its earnings level, ‘which demonstrated a quantum leap of faith in the size of future revenues. And even that valuation assumed the most optimistic discounted projected earnings at typical media sector estimates and included extremely optimistic forecasts of pay-for-view television revenues.’ Stittle agreed with investment fund managers and financial experts who believed that a more realistic basis of valuation would have been between £1 billion and £1.5 billion.
Some analysts suggested that the anticipated revenues accounted for as much as a third of the company’s expected price, a calculation that apparently did not stand up well against audience figures in Germany, where Ecclestone had signed the £50 million deal with the KirchGruppe. The figure had fallen far short of the 700,000 subscribers that were expected by the end of 1997. Similarly, in France and Italy, where it was estimated 15 per cent of viewers would buy into the digital satellite service, only 30,000 of the channel’s 500,000 subscribers had signed up for the $130-a-year package by September 1997. An industry analyst claimed senior executives at Canal+ were ‘very mad’ at the poor level of consumer interest. He added that the five-year deal between Ecclestone and company chairman Pierre Lescure was in danger of not being renewed ‘if they do not find a solution, because it is a total disaster in terms of financial returns. The same thing has happened in Germany.’
It seemed that fans were sufficiently satisfied with the quality of free-to-air coverage to be disinclined to dip into their pock
ets for the additional cost. Earlier in the year, shortly after the news of the planned flotation was made public, there was speculation at the Brazilian Grand Prix that Ecclestone was planning to limit free-to-air coverage to encourage fans to subscribe to his digital television channel – a tactic not dissimilar to that deployed to promote Formula One to the cost of other motor sports. The dilemma for Ecclestone was that while the potential of digital television was enormous, he was aware that he needed the wider and more popular shop window of free-to-air coverage to keep sponsors happy.
The quality of free-to-air coverage, with just four on-car cameras, continued to prove so attractive, to the detriment of Ecclestone’s pay-per-view revenue, that two years later, in April 1999, faced with complaints from digital television companies who were getting little in return for paying vast sums for a multi-feed service, he threatened once again to reduce the amount of on-board camera coverage to free-to-air television companies to make pay-per-view more attractive. He began to insist that if they wanted to continue to offer multi-feed coverage, they should help compensate the digital companies. The dispute led to the UK television network company, ITV, abandoning coverage of the qualifying session of the 1999 French Grand Prix.
By the end of 2000 – four years after its introduction – only seven countries had taken Ecclestone’s pay-TV deal, leaving him out of pocket each year by many millions of pounds. Its lack of success, he insisted in a Formula One magazine, was due to broadcasters who had ‘failed to get behind it like they should’. Hinting, for the first time, that perhaps he had got it wrong, he added: ‘It’s difficult to know whether pay-per-view is really what people want or not.’