Bernie Ecclestone

by Terry Lovell

  At this stage Mosley removed himself from any further formal discussions with Ecclestone. Because of media comment and, in particular, BBC TV’s Panorama was highly critical of the 15-year commercial rights deal he had done with Ecclestone – ‘I wanted to sue, but Bernie said it wasn’t worth it’ – Mosley claims he did not want to be seen to be compromising the FIA’s negotiating position. At the FIA General Assembly on 8 October 1999, a four-man negotiating team including three members of the Senate – Rosario Alessi, president of the Automobile Club d’Italia; Michel Boeri, president of the Automobile Club de Monaco; Otto Flimm, president of the Allgemeiner Deutscher Automobil-Club; and John Large, honorary president of the Confederation of Australian Motor Sport – were appointed to represent the FIA.

  After a series of meetings with Ecclestone over several weeks, Alessi, Boeri, Flimm and Large were united in agreeing a deal which left Mosley somewhat stunned. In return for signing away its commercial interests for the next 100 years, the FIA would receive a payment of $300 million – at the end of seven years. How could they be sure? Well, they reported to Mosley, Leo Kirch, the owner of the KirchGruppe, who at that time was negotiating with Ecclestone a $550-million purchase of half of SLEC Holdings, with an option to purchase a further 25 per cent for $1 billion, would sign a promissory note. It was a remarkably naïve deal. But one that was made possible by Mosley not only giving the four men carte blanche to avoid any media criticism of himself, but also the power to close the deal with the full authority of the FIA.

  During their talks with Ecclestone, Mosley says, he was urging Alessi, Boeri, Flimm and Large to ‘go for more, go for more’. And he certainly had every good reason to do so. At one stage, he was informed by Ecclestone that he was ‘going to talk them into $200 million’. Locked into the deal, Mosley believed there was no way that he could persuade Ecclestone to renegotiate. But, in an attempt to improve the FIA’s position, he offered Ecclestone a 6 per cent discount for early payment in the present and in cash – which, said Mosley, was calculated, based on an assumed compound interest rate of 6 per cent over seven years, to be worth $309 million. Ecclestone agreed.

  However, out of that $309 million would come the $60 million which Ecclestone had promised the FIA for modifying their commercial rights contract to enable the launch of his $1.4-billion Eurobond sale in September 1998. It reduced the actual figure that the FIA would receive in return for locking away its commercial rights for 100 years to $249 million, but which, again at an assumed compound interest rate over seven years, was calculated, says Mosley, to be worth £309 million. He believed it was the best deal he could cut and, in early June 2000, it went before the Senate and the World Motor Sport Council, before being approved at an extraordinary meeting of the FIA’s General Assembly on 28 June. It was a most excellent deal for Ecclestone. By way of comparison, the KirchGruppe paid £600 million to FIFA for the 2002 World Cup rights; Sky paid £1.1 billion for the English Premiership football rights; and ITV paid £120 million for three years of television highlights.

  With the background political moves and pressures to conform with the European Commission’s Statement of Objections, and the apparent lack of firm interest by any other party, it may well have been thought that the General Assembly had had little alternative but to vote in favour of Ecclestone’s proposal. Not so. Another influential and powerful party was indeed interested, and one which was in a financial position to better Ecclestone’s offer. Its members were major manufacturers Fiat, Ford, BMW, DaimlerChrysler and Renault, who in recent years have together come to control more than half of the Formula One teams. Their interest in countering Ecclestone’s bid was born in the main of increasing discontentment caused by the fortunes being raked in by others – and principally Ecclestone – thanks to the tens of millions of dollars they were pumping into the sport each year as the team owners and engine suppliers.

  In April, about ten weeks before the General Assembly was due to meet to vote on Ecclestone’s offer, Mosley had contacted Paolo Cantarella, the chief executive of Fiat and president of the Brussels-based Association des Constructeurs Européens d’Automobiles (ACEA), a lobbying group formed in 1991 to represent the interests of European car manufacturers – though the events that followed were an initiative of the Formula One manufacturers alone – to invite an alternative offer. At a meeting with Cantarella in Turin in early June, Mosley confirmed the FIA’s enthusiasm to discuss the sale of the 100-year rights, adding that it would be ‘very glad’ of an offer.

  Cantarella, aware that the General Assembly was due to meet at the end of the month to vote on Ecclestone’s offer, fired off a letter to the FIA several days later requesting that any decision should be deferred until the manufacturers had had time to consider their counter-bid. Mosley’s response was to insist that the manufacturers’ offer, if it was to be considered, had to be ready for the meeting of the World Motor Sport Council, which was due to take place about a week later, and the General Assembly on the 28th. Given such an impossible time constraint, the manufacturers, unable to formulate in less than three weeks what had taken Ecclestone, a four-man negotiating team and Mosley some eight months to finally conclude, were unable to proceed any further.

  With Ecclestone’s offer the only one on the table, the World Motor Sport Council and the General Assembly decided to accept it on ‘a bird-in-the-hand basis’, as Mosley put it. All the same, he added, the manufacturers could have still made a bid. Although Ecclestone’s offer had been accepted by the General Assembly, it ‘remained on the table’ for ten months. ‘Mr Cantarella … could have made a firm offer at any moment during that period,’ he said. That apparent opportunity came about, in fact, because the FIA was still awaiting payment of the $60 million for the Eurobond deal, which had been due in July. It caused the behind-the-scenes relationship between Ecclestone and Mosley to become somewhat strained. Ecclestone maintained that his family trust, SLEC Holdings, in whose name the 100-year commercial rights were being acquired, had not failed to comply with the agreement. The full payment had been put in escrow before the deal had been agreed.

  However, he argued that the agreement could not be finalised until Mario Monti had signed a final settlement which allowed the existing commercial rights deal between SLEC and the FIA to 2010, along with the 100-year rights, as a one-off ‘leasehold’ sale. It was strongly suspected that Ecclestone had another reason for holding back. He was playing for time until he had concluded negotiations with Leo Kirch, which finally took place in February 2001. He wanted to use Kirch’s money to fund most of the deal with the FIA and he wanted to make quite sure Kirch was on board before he released the $60 million in escrow.

  In January 2001 Mosley flew to Turin for a meeting with Cantarella. Ostensibly, its purpose was to encourage the manufacturers to proceed with an offer. It could also have been a ploy to exert pressure on Ecclestone to hand over the money. The manufacturers, suspecting that they were being sucked into a political dog-fight, decided to keep their chequebooks closed. Although Mosley was aware that there would be no offer forthcoming, the FIA nevertheless announced the following month that it was preparing to sell its rights to the manufacturers. The news, which was designed to give Ecclestone something to think about, coincided with a public ultimatum from the FIA that he had to settle the payment by 22 March, when an extraordinary meeting of the General Assembly was due to be held. The assembly agreed at its meeting to a proposal by the Senate that Ecclestone be given a final opportunity to complete, which he duly did on 24 April.

  The FIA also was paid $4.6 million in compensation, the sum Mosley had estimated it had lost in interest because of the delay. But the money didn’t come from Ecclestone, although it was to him that Mosley took his case. Ecclestone instantly rejected Mosley’s petition, and then phoned Marco Piccinini, Mosley’s deputy president, to tell him of the call from his president. Piccinini, greatly fearing that the entire deal was in danger of going under, phoned Mosley to implore him to drop his demand. Mosley
agreed – but then phoned Ecclestone to pursue the payment. Ecclestone, in turn, called Kirch. Mosley, a touch mischievously, then called Piccinini to tell him what he had done. ‘Oh, my God, oh, my God,’ Piccinini exclaimed fearfully. Kirch, whose company would be liable for 75 per cent of the sum, agreed to pay, with Ecclestone covering the remaining 25 per cent.

  The dispute between Ecclestone and Mosley was interesting not only for the detail of its public airing and its tone – on 2 February Mosley issued a statement denying that there was any ‘question of extorting money from Mr Ecclestone’ – but in that it had reached the public arena at all. Gone was the time when the thought of either man, bound in word and deed for 30 years, becoming embroiled in such controversy could be dismissed as unimaginable. At the height of the confrontation Mosley had seriously considered putting pressure on Ecclestone to pay up by going to court to argue that the FIA owned the trademarks of Formula One, Formula One World Championship and the Formula One Grand Prix. He went so far as to seek the advice of leading counsel and a leading trademark junior, but was persuaded that the complexities and costs of a hearing would probably prove pyrrhic.

  Incidentally, whenever the ownership of Formula One arose in conversation with Ecclestone, Mosley would vary slightly an analogy he had used in disputing the claims of Dennis, Williams and Tyrrell. He likened Formula One to a restaurant owned by the FIA. Ecclestone, as the chef – the teams were the customers – had done a marvellous job and made it enormously successful. But the fact remained that he was the chef, not the owner. The FIA was. It was an analogy that Ecclestone forcefully rejected – he owned Formula One. Full stop.

  On 26 January 2001, nine months after the settlement talks between the European Commission, Formula One Administration and the FIA had begun, Mario Monti formally announced the details of the ‘peace deal’. They confirmed what had been unofficially known for some months: that Ecclestone would no longer continue as the FIA’s vice-president of promotional affairs; that the FIA would end all involvement in the commercial activities of Formula One, thereby restricting itself solely to the function of regulatory authority; and that, in addition to the removal of the penalty clause punishing broadcasters who wanted to broadcast other motor sports, the duration of free-to-air television contracts would be limited to five years in the case of host broadcasters and three years with others.

  Monti said in a statement that ‘substantial modifications’ had been made to the FIA’s rules and commercial arrangements, as a result of which ‘the Commission is satisfied that the FIA’s role in future will be limited to that of impartial motor sports regulator’. Referring to the sale of International Sportsworld Communicators, Monti noted that Formula One Administration had sold its interests in rallying and all motor sports other than Formula One, and ‘had agreed to make a number of changes to the current arrangements relating to the marketing and broadcasting of Formula One races’. The main elements of change listed in the statement were in verbatim:

  FIA has amended its regulations to strengthen the rights of motor sport organisers, circuit owners and participants, and to make it clear that FIA will act impartially as between all forms of motor sport of which it is the regulator.

  FIA will no longer have commercial interest in the success of Formula One and the new rules will remove any obstacle to other motor sport series competing with Formula One.

  FIA will retain its rights over its championships and the use of the ‘FIA’ name and Trade Marks but has removed from its rules any claim over the broadcasting rights to events that it authorises and has agreed to waive any claim to broadcasting rights under the relevant clauses in the Formula One Agreement [‘Concorde Agreement’].

  FIA has made it clear that its decisions will always be reasoned, and that those decisions may be challenged before national courts.

  The FOA group of companies has sold its interests in all forms of motor sport including Rallying and will therefore only have an interest in Formula One (Mr Ecclestone will no longer handle FIA’s promotional affairs and will also reduce his role in FIA in other ways).

  FOA has agreed to limit the duration of its free-to-air broadcasting contracts (to five years in the case of host broadcasters and three years in other cases) and has removed provisions which penalise broadcasters which wanted to broadcast other forms of open wheeler racing.

  Said Monti in the statement: ‘The changes already adopted, together with those agreed in principle, will benefit all citizens interested in motor sport, as well as the sport’s participants. The continued role of FIA as the regulatory authority will ensure that the existing high standards for participants and spectators will be maintained. At the same time, the changes allowing the introduction of new and competing forms of motor sport and creating new possibilities for circuits and broadcasters will bring more choice to consumers both as spectators and as television viewers.’ The Commission, said Monti, was now in a position to give its preliminary approval to the new rules and arrangements, once third parties had had the opportunity to comment following their publication in the Official Journal of the European Communities.

  While all seemed neatly resolved, there remained one awkward question: was Monti’s agreement to a 100-year-old contract in violation of the Commission’s own competition rules? Monti thought not. It appears he sanctioned it on the grounds that ‘a longer duration of exclusive arrangements can prove to be justified, particularly when an operator wishes to enter a new market with an innovative service or to introduce a new technology requiring very high risk and heavy investment’. This was a reference to Ecclestone’s massive financial investment in digital technology, but legal opinion doubted whether it legitimately fell within this consideration.

  Jean-Paul Hordies, the Brussels-based lawyer who specialises in European media and broadcasting laws, believes that it did not. ‘There is absolutely no reason for an exemption on these grounds. The only situation under which the Commission [can] grant an exemption would be where there is massive investment in a joint venture over a considerable period of time. If you take two major companies investing together to do something completely new, which needs such joint forces, the Commission may accept that. A good example would be, say, Renault and Fiat working together in order to produce an electric car on a global basis. That would be grounds for an exemption.’ Nevertheless, Monti was prepared to accept Ecclestone’s digital television company, founded ten years earlier and well established, as ‘a new technology requiring very high risk and heavy investment’. Mosley continued to insist that the essential difference was the extreme duration of the contract, that it was as good as an outright sale of the FIA’s commercial rights, which therefore put the agreement outside of the Commission’s jurisdiction. Neither, he added, did the contract create a new market.

  There remained one other apparently contradictory issue: the question of the actual ownership of the television contracts, which, on the evidence of the Commission’s own investigation, challenged the validity of the FIA’s right to assign them to Ecclestone. The Commission’s Statement of Objections had concluded – and it was one of its ‘most significant conclusions’ – that, as the FIA had abusively acquired the broadcasting rights, it could not validly assign them to Ecclestone. His companies, therefore, had not been in a position to conclude legally enforceable contracts with broadcasters. They would, said the Statement of Objections, have to be renegotiated. Yet that relationship, with Monti’s approval, was being allowed to continue unremedied.

  Here, Mosley claims, without any doubt the FIA would have won the argument in the Court of First Instance on the grounds that, while a promoter may be owner of the commercial rights to an event, the FIA owned the commercial rights to the championship series. The value of the commercial rights were greatly enhanced by the inclusion of an event in an FIA championship series, in return for which those rights were assigned to the FIA and then granted to Ecclestone for marketing. ‘It is certainly right and proper that a promoter may not wish to a
ssign his commercial rights to the FIA. It is also perfectly right and proper that the FIA may not, in that case, wish to include the event in a championship series, unless he agrees to do so. That is the thing that they [the Commission] resolutely refused to understand or accept.’

  Legal opinion in Brussels did not share his confidence: ‘This was not the point of the Statement of Objections, which was that the FIA had allegedly acquired them on the basis of saying to organisers or promoters that unless they assigned them to the FIA they would not be allowed to take part in an FIA series. That would certainly appear to be abusive. A claim that the value of commercial rights might well be increased by inclusion of a circuit in an FIA series is no doubt a valid one, but it seems to me to be a quite separate issue.’

  Before the settlement terms were agreed, Dr Wolfgang Deselaers, the lawyer who represented Wolfgang Eisele in his legal actions against Ecclestone, commented: ‘As a result of the Statement of Objections, which will undoubtedly be confirmed by the European Commission, the Commission can order the FIA to put all [television] contracts out to tender. The teams, the organisers, the promoters, the television broadcasters may get a better deal elsewhere. Maybe so, maybe not. Who with, and how? That is not what it is about. It is now all about free competition, and that would seriously endanger the economic viability of Formula One Administration.’ Yet, as Monti’s approval of the FIA’s 100-year television contract ensured, freedom of competition would not be the victor. The Directorate-General for Competition declined to comment.

  At the end of it all, more than three years after the European Commission had begun its investigation, after all the endless meetings and planning and plotting and legal sideshows, threatened and actual, what had been achieved? Certainly little to diminish Ecclestone’s power or fortunes. His severance from the FIA was of little account to him. He had exploited it well and it was no longer of any political benefit, a spent force to his ambitions and future plans. Similarly, the disposal of International Sportsworld Communicators was no great loss. It had served its purpose in the suppression of certain motor sports to the immense commercial advantage of Formula One and Ecclestone’s personal enrichment, increased even more by its sale. In reality, Ecclestone had lost very little, but had gained much in return. He secured what he had fought tooth and nail to protect – the television rights to Formula One, and now for 100 years, no less. As for the apparently sweeping modifications to the FIA’s rules and regulations, as well as commercial arrangements, to confine it to the role of an ‘impartial motor sports regulator’ and thus open the way for the introduction of ‘new and competing’ forms of motor sport, they had come far too late. The FIA was agreeing to open up a field that would attract few, if any, new runners. The proverbial horse – with Ecclestone and his moneybags on its back – had already bolted.