by Terry Lovell
Back in the courtroom, Eisele and Deselaers proceeded to apply even more pressure on Ecclestone and the FIA. Two months later, on 15 October 1997, they extended the court action to also include the television rights to three other championship series – the European Rally, European Drag Racing and European Rallycross, which AE TV Cooperation had also once successfully covered and distributed for the organisers.
As the powers of the European Commission and its potential threat to Ecclestone’s flotation plans became more ominously apparent, it was decided by Mosley to strengthen the FIA’s political clout by becoming part of a recognised international federation within the Olympic Charter of the International Olympic Committee (IOC), which was giving its support to sports federations lobbying the Commission for a more flexible attitude in applying its competition rules, if not a complete exemption through a modification of the European Union Treaty. According to Eisele, Ecclestone believed that an alliance between the FIA and the IOC would create sufficient political power to see off the European Commission. Eisele claimed Ecclestone told him: ‘Do you think you’re going to win against me? We’re going to fund the organisation and get involved with the IOC, and we’ll see whether the European Commission can fight this.’ On 19 September 1998, some 14 months after this exchange, Mosley was in Frankfurt ‘in order to strengthen its [the FIA’s] position towards the European Union [and its competition rules]’, reported the German daily newspaper the Frankfurter Allgemeine.
In a press release to the German news agency, Deutsche Presse-Agentur, Mosley announced that the FIA had joined a working group of the International Olympic Committee. It would work, added the press release, under the leadership of the IOC president, Juan-Antonio Samaranch, and comprise Primo Nebiolo, president of the Olympic Summer Sports Association; Marc Hodler, president of the Winter Sports Association; Jacques Rogge, the president of the European Olympic Committee; François Carrard, the IOC’s General Secretary; Gerhard Aigner, General Secretary of the European Football Union; and Mosley. In the event that the FIA was unable to reach an agreement with the European Commision, Mosley was reported as saying, it was possible that the FIA would file a complaint with the European Court of Justice. The FIA had reason to expect the full support of the IOC. Samaranch was also president of the Royal Automobile Club of Cataluña, organisers of the Spanish Grand Prix and the World Championship rally series in Spain.
It was agreed that members of the working group would call on European leaders to promote the case for the European Union to ease its competition rules. A meeting with Tony Blair at Downing Street went smoothly enough, until Chris Smith, the then Minister for Culture, Media and Sport, asked of Samaranch: ‘Why is that the UK is such a sporting country and yet doesn’t have a single person at the top of any of the big sports federations?’ Mosley joined in the laughter while straight-faced Smith, bemused, looked on.
Notes
1. Financial Times, 3 October 1997.
2. Sunday Times, 15 March 1997.
3. Independent on Sunday, 8 June 1997.
4. The European, 10 July 1997.
14
BERNIE’S ANNUS HORRIBILIS
Nineteen ninety-seven was Bernie Ecclestone’s annus horribilis. The dealmaker extraordinaire had stepped outside of the world of Formula One, which he manipulated with ruthless ease, to discover that his power and authority held little sway in a City suspicious of his somewhat opaque business dealings. In deciding to float Formula One’s assets, he found that its success was dependent on forces outside of his control, a state of being which was deeply at odds with an obsession to control his own path. So it was with the European Commission, which he saw as a body of time-serving bureaucrats. He was highly mistrustful of both, believing that, in their different parasitical ways, they lived off the hard graft of others. Yet the predicament in which he found himself was largely of his own making.
The labyrinthine structure of his companies and overseas bank accounts apart, he made a serious miscalculation in not resolving the television revenue dispute with Ron Dennis, Frank Williams and Ken Tyrrell before he was ready to go public. It simply added to the City’s sense of uncertainty about the man and his business. In the same vein, he made a considerable gaffe in failing to seek the guidance of the European Commission to establish that his television contracts and agreements with the FIA, broadcasters and promoters, the very basis of the assets he was proposing to float, were compatible with the European Commission’s competition laws or merited exemption under Clause 3 of Article 85 of the Treaty of Rome, which, simply put, allows restrictive agreements, if they are beneficial to an EC member country’s economy, and whether such contracts and agreements were indispensable to achieve these benefits. These were errors of arrogance of a man who, over many years and in every area of his personal and business life, had been used to having his way. Why should it prove otherwise with the City’s faceless suits or the paper-shufflers of Brussels?
On 5 September 1997 – about six months after the news of the launch was made public, and which was now about to be postponed for the second time, until early 1998 – the Commission’s Directorate-General for Competition, received an application from Ecclestone in which he sought exemption from the competition rules. And in doing so, he handed on a plate everything that van Miert and his colleagues needed to know about his myriad business activities. For in making the application, it was necessary to supply copies of the amended 1997 Concorde Agreement between the FIA and the FOCA; the Formula One Agreement between Formula One Administration and the FIA, which gave Ecclestone the 15-year television rights; the Broadcasting Agreement between Formula One Administration and television companies; and copies of the contracts between Formula One Administration and promoters.
According to a Brussels lawyer, Ecclestone had been advised that clearance would prove little more than a formality. Instead, it provided the Commission with much of the proof it needed to establish a case against Ecclestone and the FIA. For while Wolfgang Eisele and others had been able to supply evidence of their own dealings with Ecclestone and the FIA, here, in one delivery, was a detailed account of every area of his worldwide operations and of his commercial relationship with the FIA and related parties. As a direct result, the Directorate-General for Competition was able to identify several serious breaches of EU competition rules.
Apart from a number of more minor infringements and the more obvious conflicts caused by Ecclestone’s various roles within motor sport and the FIA, all contracts of more than five years attracted the concerns of the European Commission, which included the ten-year contracts with the teams and several free-to-air broadcasters of the same duration, contracts with a number of pay-television companies of up to 11 years, and, notably, the 15-year contract with the FIA, this last being crucial to Ecclestone’s digital television plans. The European Commission is firmly opposed to a contract longer than five years, unless it involves, for example, a massive joint investment by two companies combining resources to produce a new product or service, and even then for a period of no longer than 15 years. Ecclestone’s business enterprise fell far short of this consideration.
Evidence of monopolistic practice was plentiful: some of the television contracts offered a 33–50 per cent discount to broadcasters who agreed to show only Formula One, which confirmed the long-held suspicions of those who believed Ecclestone had deliberately suppressed other motor sports to benefit Formula One; the 20 promoters – national sporting authorities or circuit owners – with whom Ecclestone had contracts had to give an undertaking that no form of open-wheel single-seat car races other than Formula One and Formula 3000 would take place on their circuits; restrictive working conditions were imposed by International Sportsworld Communicators on non-FOCA TV film crews; the company also had a non-negotiable right to impose a FOCA TV film crew at a circuit without notice; and there was the FIA ultimatum that an organiser or promoter would not be allowed to stage a Formula One race or championship, international series or mot
or sport event which took place in more than one country, unless television rights had been assigned to either Formula One Administration or International Sportsworld Communicators.
Following a preliminary examination of the documents, the Directorate-General for Competition found that the business practices of Formula One Administration, the FIA and International Sportsworld Communicators were not compatible with competition rules. It consequently found to Ecclestone’s dismay, that Formula One Administration did not qualify for exemption under Clause 3 of Article 85 of the Treaty of Rome. In December 1997 the European Commissioner for competition, Karel van Miert, authorised warning letters to be sent to Formula One Administration, International Sportsworld Communicators and the FIA in which it was stated that it was believed that the terms of the Concorde Agreement created ‘a serious restriction of competition’ and that the duration of the exclusivity of the 15-year contract between the two parties was ‘excessive’. Mosley dismissed the letter, claiming it contained so many errors of fact that the FIA spent many months encouraging the Commission to make inquiries ‘to get the facts right, because once we’ve got the facts right we can have a sensible discussion. In a nutshell, I think that letter was hastily conceived and contained numerous inaccuracies.’
The response from Brussels proved the final nail in the coffin for Ecclestone’s plan to turn Formula One into a public company. Within days the substance of van Miert’s letters had been leaked and the flotation was dead in the water. Automotive industry and technology corporate financier Nicky Samengo-Turner, of London-based investment bank Vision Capital, said: ‘Everything that could go wrong with that flotation did go wrong. There seems to have been a serious lack of communication on every front, not least between the various investment banks within the syndicate and the ultimate investment institutions involved in the issue: the teams’ commercial sponsors, who really provide the majority of their income, and therefore working capital. They claimed that they were never consulted for their views on the flotation.’ The bruising experience, though, did no harm to Christian Purslow’s career. He was later appointed managing director of Salomon Brothers – renamed Salomon Smith Barney in December 1997 – to become head of the company’s media and investment banking in Europe.
On 4 February 1998 Karel van Miert, whose relationship with Mosley seemed to take on a personal dimension, followed up his warning letters to Ecclestone and Mosley by taking a sideswipe at the FIA in the legally privileged assembly of the Belgian Parliament. ‘The FIA,’ he said, ‘is a powerful body which does not hesitate to use all means possible to strengthen its position. But, in contrast to what has happened at national level, the European Commission will resist these methods.’1 This reference by van Miert to national events was in respect of a dispute between the French-speaking Walloon regional government of Belgium, in whose territory the Grand Prix at Spa-Francorchamps is held, and the federal government, which announced in December 1997 a ban on all tobacco advertising and sponsorship by 1 January 1999.
The instant response from Ecclestone was to announce the cancellation of the 1998 Belgian Grand Prix unless the ban was lifted on Formula One. The local business populace, alarmed at the loss of the estimated 1.2 billion francs the Grand Prix attracts, feared the impact on the local economy and urged the federal government to reconsider its decision. Spa-Francorchamps, incidentally, is owned by the local authority and its officials are willing to grant all and any concession to keep the Formula One circus returning year after year for the benefit of the money and prestige it attracts. It is promoted through Spa Activities, formerly Racing Francorchamps Promotion SPRL, in which Ecclestone has a principal interest. In addition to the obligatory television rights, it reportedly pocketed the receipts from the gate – and the public toilets. According to a Brussels lawyer, Spa Activities is also provided by the state with accommodation near the circuit for media facilities. Astonishingly, the company then receives a further payment from the state – for allowing the media to use it. The Belgian Green Party claimed that local politicians were prepared to agree to such a one-sided deal because, economically, the Walloon region was ‘a banana republic. They are afraid to lose the Grand Prix.’
In reply to the federal government, the Walloon government insisted that any decision to ban tobacco advertising was one that came within its constitutional authority and went on to declare its support for the race with tobacco advertising and sponsorship. Ecclestone immediately announced the reinstatement of the Belgian Grand Prix. In December 1998, while the Belgian Parliament voted to refer the dispute to the country’s independent judiciary, a decision that led to the Walloons winning the day following a ruling by the judiciary that a tobacco ban should not be imposed in advance of a directive being considered by the European Commission.
Following his criticism of the FIA in the Belgian Parliament, van Miert turned the screws further by giving an interview to the Wall Street Journal in which he repeated a claim that he had rarely seen a case where there had been so many breaches of competition rules. With his flotation plans at that stage teetering on the edge – and the FIA’s ten per cent stake perilously poised with them – van Miert’s warning letter and public criticisms were seen by Ecclestone and Mosley as both unjustified and inaccurate. It was enough to compel Mosley, said to be a more zealous litigant than Ecclestone, to pursue legal action against van Miert.
At the Court of First Instance in Luxembourg in May 1998, the FIA alleged that the warning letters sent to Formula One Administration, International Sportsworld Communicators and the FIA had been issued to journalists and thereby constituted an unlawful release of confidential documents. It was made worse, in Mosley’s words, by ‘the outrageous statements he himself [van Miert] made to the press [the Wall Street Journal]’. In October 1999, following an internal inquiry that attributed the release of the letters to an allegedly inexperienced staff member unaware of their confidentiality, the Commission issued the apology Mosley had sought. But Mosley refutes the inference that it had been an accident. Copies of the letters had been issued, he claims, by an experienced presswoman seconded from the office of former British Labour Party leader Neil Kinnock, now an EU Commissioner, who was acting on the instructions of van Miert’s office. She was left to carry the can and ‘shoved off to an obscure corner of the administration’.
In addition to the apology, the Commission also paid the FIA’s legal costs. ‘Our lawyers tells me this is the first time this has ever happened,’ said Mosley. The issue of the FIA’s costs was certainly one that had occupied the court’s lengthy deliberations. But his claim was not the whole truth. While the FIA was awarded costs of 40,000 euros, it was a mere tenth of the sum it had sought – 400,000 euros, which, in fact, was in excess of the FIA’s actual costs. ‘It was a real smack in the eye for the Commissioners,’ said Mosley. ‘It was seen in legal circles as a tremendous victory for us, and that really pissed van Miert off.’
Said a senior Commission official: ‘We saw no reason whatsoever why we should pay the FIA’s costs. The FIA had repeatedly not attended the hearings that the court called. The general impression in these quarters was that the FIA desperately wanted to keep this case going to be able to say that they have a court case going on against the Commission [to deflect criticism of the commercial relationship between Ecclestone and the FIA].’ Van Miert claimed the Commission’s actions were justified. He commented: ‘Their bill was extremely high. We said no way. The problem of the warning letters was caused by a simple mistake, for which we apologised. As for my comments, I felt I was entitled to make them because they had tried to minimise things all the time. They were not being truthful.’
Mosley believed that the difficulties Ecclestone and the FIA were encountering with the European Commission had been caused not by any infringement of competition rules, but the political division in Belgium over tobacco sponsorship. The political force behind the tobacco ban, he explained, was the Flemish Socialist Party, of which van Miert was a strong sup
porter. The dispute that followed caused ‘a constitutional crisis’, which ‘gravely embarrassed the Flemish Socialist Party and associates of Karel van Miert in the party’. Van Miert laid the blame for the ‘crisis’ at Mosley’s door because it had been provoked by the threat to the Belgian Grand Prix. He then succumbed to hard lobbying by his socialist colleagues to declare the FIA’s contracts anti-competitive. Overnight, according to Mosley, a once friendly van Miert became hostile, and Formula One’s problems with Brussels began. The basis of Mosley’s account was disputed by a spokeswoman for the Belgian Embassy in London, who said: ‘The issue provoked constitutional interpretation, yes. But a constitutional crisis, never.’
Mosley presented his analysis in the January 1999 issue of Business Age, as part of a highly flattering article spread over 15 pages, plus a front cover proclaiming: ‘Why Europe Has to Accept Sport’s New Order’ – namely Ecclestone and Mosley. Its publication was a consequence of a feature on Ecclestone by its editor, Tom Rubython, which had been published by the magazine six months earlier. This one was highly critical of Ecclestone, running under the headline ‘Can You Trust This Man to Run a Public Company?’. Its allegations led to legal action – and, by way of an apology to mollify Ecclestone, the fawning article, which gave Mosley a platform to criticise van Miert. It was one of the last issues of Business Age to appear, and the magazine, already in a financial crisis, ceased publication in April 1999.