Bernie Ecclestone

by Terry Lovell

  And the spoils of the hugely expensive battle pitted by the combined forces of Ecclestone and the FIA against the European Commission were, in the end, decided by compromise and political expediency orchestrated by Brussels itself.

  Notes

  1. Sunday Telegraph, 7 November 1999.

  16

  GOODBYE KAREL … HELLO LEO

  Seven months after his departure from the European Commission, Karel van Miert, in an article published in the German magazine Focus, claimed, among other comments, claimed that ‘certain people’ had spent ‘a great deal of money’ trying to ‘destroy’ him. It had been even more stressful than an investigation into the activities of a Belgian steelworks, which led to its closure and the need for him to have police protection from the threats of angry steelworkers. In October 2000 Mosley sued for libel, an action he lost not because the claims were true, but because the High Court ruled that there was no reasonable prospect of a jury deciding that he could be identified by the article. A year later Appeal Court judges upheld the ruling.

  This bizarre episode finally closed the book on his career in Brussels. He went on to become president of the Netherlands Business School, near Amsterdam – and lecturer in European competition policy.

  And what of the fate of Wolfgang Eisele, whose complaint set the European Commission off on the trail of Ecclestone and the FIA? In July 2000, six months before Mario Monti announced the settlement with Ecclestone and Mosley, Eisele, attempting to overturn a court judgement that any violation of television rights could only be contested by those parties directly affected, agreed to withdraw his final appeal to Germany’s Federal Court of Justice in Karlsruhe in return for a substantial payment from Ecclestone, the details of which, as usual, were covered by a confidentiality clause.

  Dr Wolfgang Deselaers, Eisele’s lawyer, suspected that Ecclestone had agreed to a settlement after he was given to understand that it would be easier to settle his differences with the European Commission if Eisele was removed. ‘I think the Commission made it clear to them [Ecclestone’s lawyers] that it [would be] much easier for them [the Commission], politically, to settle with Ecclestone in respect of Formula One if there was nobody around saying it was a scandal.’

  The discussions which led to the pay-off had taken place over many months. It had taken so long because ‘maybe it wasn’t too clear to him [Ecclestone] that the small Mr Eisele could really endanger the flotation of Formula One, that this small case which became bigger and bigger could really be a hindrance to his Formula One plans’. As far as Eisele’s actions against Ecclestone and the FIA were concerned, their objective, he said, had largely been achieved through the suspension of the FIA’s Article 27 in February 1998, which returned the marketing, including the crucial television rights, of all non-Formula One championships to the organisers. Of the settlement with Ecclestone, he said: ‘It was the right time to find a solution, rather than to fight the next ten years in court.’

  Such settlements are not an uncommon strategy in Ecclestone’s defence of his interests. Eisele and Patrick Peter are two notable examples. Another less publicised one is businesswoman Nicky Morris, who in 1998 set up a website called Formula1.com, which two years later was reaching 750,000 viewers a month and, encouragingly, managing to break even from its revenue of advertising, Grand Prix ticket sales, merchandise sales and the syndication of content. That is, until its existence was drawn to Ecclestone’s attention, along with the fact that Morris had registered the ‘F1.com’ domain name. His first move was a complaint in March 2000 to the World Intellectual Property Organisation in Geneva (WIPO), claiming that the name ‘F1’ and the domain name were the property of Formula One Management and therefore an infringement of trademark rules. WIPO found against Ecclestone after Morris, who argued the name was generic, demonstrated that many businesses unrelated to Ecclestone’s commercial activities use ‘Formula 1’ or its abbreviation in their names.

  Pressure on Morris was stepped up by the FIA posting notices at the Malaysian Grand Prix in 2000 warning that photographers who abused their press accreditation would have it removed. As a result, two leading photo agencies were compelled to cease supplying Morris with picture coverage. Around the same time, Ecclestone issued a court action against Morris in San Francisco, claiming trademark infringement. Morris retaliated by bringing an anti-trust lawsuit, which, unsuccessfully, Ecclestone attempted to block by applying to have it dismissed. The date for the hearing was set for February 2002. But, a month before legal battle was due to commence, a confidential settlement offer was made to buy Morris’s dotcom company, which she accepted.

  Before the success of the Formula1.com website, Ecclestone was said to have been relatively unmoved by the Internet as a medium to promote Formula One, although, with broadband capability giving access to highquality video pictures, it was being increasingly seen as providing a strong promotional platform. Consequently, he was, it was reported, ready to invest £30 million in an official site. Now he had Morris’s. The power of his money had won the day yet again. Following the publication of the Commission’s Statement of Objections in June 1999, Ecclestone was approached by various companies who, now aware of the details of the Commission’s findings, were looking for a stake in Formula One. They included Rupert Murdoch’s BSkyB, the American venture capital firm KKR, and Nomura, as well as one from a consortium which would have given a substantial stake to the Formula One teams. Their approaches, inevitably, reached the ears of Robin Saunders, the head of Westdeutsche Landesbank’s asset securitisation and principal finance group, who had structured the $1.4-million Eurobond rescue operation. Given her favourable relationship with Ecclestone, she was in pole position to move quickly to pull off a prestigious coup.

  Capitalising on her inside knowledge and relationship with Deutsche Bank, whom she had left to join WestLB, and which, through Morgan Grenfell Private Equity, its capital venture arm, already had a 45 per cent shareholding in the Arrows team, she approached Ecclestone, who introduced her to Stephen Mullens, lawyer for the Orion trust, which safeguards the Ecclestone family wealth and owns the shares in SLEC Holdings. He, in turn, introduced Saunders to Luc Jean Argand, one of the trustees, which led to a series of meetings between Argand, his fellow trustees – whose number included a banker – and her former employers, which, by mid-September 1999, resulted in the agreed sale of up to 50 per cent of SLEC Holdings Ltd, the Formula One holding company, in a $1.3-billion deal. Morgan Grenfell agreed to pay $325 million for a 12.5 per cent stake, with an option to take up a further 37.5 per cent valued at $975 million. Saunders, who, combined with the Eurobond sale, had in the space of four months put a total of $2.4 billion in Ecclestone’s family trust, was thought to have done well in getting what was generally seen to be a high price, particularly as there was considerable pressure on Morgan Grenfell to either take up the option or sell it on by a deadline of 1 February 2000. Despite a frantic series of meetings with potentially interested bidders, including media and television companies, sports management groups and venture capitalists, the deadline passed with Morgan Grenfell unable to meet either option.

  (Ecclestone was actually not best pleased by the trustees’ decision to sell the shares. But, following his heart operation and given his advanced years, they believed that, in the event of his death, their value would drop dramatically. He later acknowledged the wisdom of their prudence. ‘Think about this for two minutes: I’m gone, Slavica marries a strapping young guy who can do all the things I can no longer do … he comes along and says, “Darling, what’s happened with this. It’s completely mad. You should sue them.” And if she’s passionately in love, and it’s no aggravation to her, he would go to a lawyer and they’d sue the trust. They are obliged to act in the best interests of the trust. They were absolutely correct.’)

  Standing in the wings, however, was San Francisco-based American private equity firm Hellman & Friedman, who had already come to an agreement with Ecclestone to take up the option if Morga
n Grenfell failed to do so. A principal figure was Melbourne businessman Ron Walker, who had been responsible, on behalf of Victorian government premier Jeff Kennett, for securing the controversial Grand Prix in Melbourne’s Albert Park in 1996. He was now the go-between for Ecclestone and another Australian, Brian Powers, a managing director of Hellman & Friedman and chairman of John Fairfax Holdings, Australia’s leading newspaper and magazine publisher. Walker knew Powers, a former executive in Kerry Packer’s media empire, through their association of mutual friends and business interests.

  The day after Morgan Grenfell’s option deadline expired, Hellman & Friedman moved to take it up. Fourteen days later, on 16 February, the deal was closed in London, with Hellman & Friedman paying $712 million for the 37.5 per cent stake. In a fanfare of bullish hope, it was announced that Formula One was expected to be floated within 12 months, with Powers leading the roadshows in both Europe and America. Amid the standard razzmatazz, Hellman & Friedman’s chairman, Warren Hellman, declared his company was ‘thrilled’ to be making its largest investment to date. It soon had good reason.

  One month later Hellman & Friedman and Morgan Grenfell agreed to sell their shareholdings to German media company EM.TV & Merchandising AG. With Walker once again playing a pivotal role, the Munich-based company agreed to pay $1.65 billion in cash and equities for the shareholdings of a 50 per cent stake in Formula One. In little more than a month Hellman & Friedman had made profits of more than $247 million. The precise figure earned by Walker was kept confidential, but it is understood that his activities earned him fees totalling $93 million.

  The EM.TV deal included a compulsory 25 per cent share option to be taken up within 12 months, which some observers mistakenly interpreted as a sign that perhaps Ecclestone was beginning to relax his grip on Formula One. It was an interpretation he was quick to nail, insisting that whatever the extent of EM.TV’s shareholding, he would remain in absolute control of the reins. To him, their 50 per cent gave them no more control than owning 5 per cent. EM.TV, he proclaimed, had control of nothing. Control of all commercial activities, through Formula One Administration, of which Ecclestone was chief executive, lay with the Ecclestone family trust, which, as it was in the name of his wife, Slavica, meant that he remained very much at the helm.

  EM.TV’s plans to increase its shareholding received a crippling setback by October when an accountancy error, said to have occurred during the $680-million acquisition the previous March of the Jim Henson Company, maker of The Muppets TV show, forced the company to correct its half-year figures, which led to a drop of 30 per cent in share value and wiped about $2.7 billion off its market capitalisation. Far from thinking of taking up the 25 per cent option, the company declared that it was prepared to consider selling part of its 50 per cent stake in order to ease regulatory concerns over the control of Formula One, although, more accurately, it was in order to halt the falling share price.

  All the while, Formula One manufacturers had looked on from the sidelines in a state of consternation. Concerned that half of Formula One could once again end up in the hands of a media ‘outsider’, Paolo Cantarella, Fiat chief executive and president of the Association des Constructeurs Européens d’Automobiles, the European manufacturers’ association, had, within the week, approached Ecclestone on behalf of certain manufacturers to express their interest in taking up all of EM.TV’s stake, plus a further 10 per cent. The proposal had an obvious appeal to Ecclestone.

  Based on the $1.65 billion paid by EM.TV, which put a capitalisation value of $3.3 billion on Formula One, the sale of a 60 per cent shareholding would generate a further $1.3 billion for his family trust. Having the manufacturers as stakeholders in Formula One was attractive to Ecclestone for one other significant reason. Given that they were frustrated as key players by their impotence in a sport they largely subsidised, it would end their threat to set up, as had been speculated more than once, a rival motor-racing series, now made more feasible by the commercial freedoms established by the settlement of the European Commission’s Statement of Objections. Indeed, Ecclestone’s one criticism of the trustees’ decision to sell the SLEC Holdings shares was the resultant hassle it would cause him with the manufacturers.

  By late 2000, while a due diligence was being carried out on SLEC Holdings by TAG McLaren Holdings, discussions were taking place for a preferential three-tier shareholding structure, with A, B and C shares being made available respectively to team-owning manufacturers; the manufacturers who supply the engines; and independent team owners. In the opinion of Dr Mark Jenkins, senior lecturer in strategic management at the UK’s Cranfield School of Management, who spent two years studying the commercial structure of Formula One, it was only a matter of time before the manufacturers began to play an increasingly influential role in Formula One. Back in July 1999 he gave three reasons.

  Firstly, a continuing global concentration of the motor industry suggested that in a few years’ time there would be six car manufacturers – two in the US, two in Europe and two in Asia – and with manufacturing capacity and technology on equal par, brand-enhancing involvement in motor sport, which promotes the right kind of sexy, dynamic image, would become all the more crucial. Secondly, the dependence of the teams for works engines would lead to a more committed relationship with the manufacturers, and, thirdly, the end of tobacco sponsorship in 2006 would lead to the constructors becoming even more dependent on the manufacturers. ‘Consequently, the manufacturers will want to play a greater role in the ways in which motor sports in general, and Formula One in particular, are marketed and run,’ said Jenkins.

  But the manufacturers, whose sidelining in the bidding for the 100-year television rights contract with the FIA just seven months earlier was still a recent memory, were once again to be frustrated. A few months later, in February 2001, it was announced that Ecclestone had agreed a deal with the KirchGruppe. It bought half of EM.TV’s 50 per cent stake for $550 million and paid close to a further $1 billion for the compulsory 25 per cent option, giving Kirch and EM.TV a 75 per cent controlling interest. The news provoked an immediate response from the manufacturers concerned that the KirchGruppe, with vested interests in its own struggling pay-TV company, would combine resources with Ecclestone’s considerable digital television interests to reduce free-to-air coverage of Formula One in order to give a much-needed boost to subscriber audience figures. By 2000 a predicted audience figure of 2.9 million had barely exceeded two million, and that at an estimated cost of $3 billion.

  In an effort to mollify the manufacturers, both Ecclestone and Kirch issued statements of reassurance that the future of free-to-air coverage was safe. But the manufacturers remained unconvinced, preferring to believe that the Ecclestone–Kirch alliance posed too big a threat to their lifeblood of global publicity. This, in addition to getting what they saw as less than an equitable return on their massive bankrolling of Formula One, prompted them to a new level of action. They were now ready to set up their own World Championship series.

  In April 2001, when the KirchGruppe and EM.TV held a 75 per cent controlling interest in SLEC Holdings, the Ecclestone family trust which owns the 100-year television rights, he announced that he would stay at the helm of Formula One until at least the end of the Concorde Agreement which was to expire at the end of 2007. The statement was intended to make clear that his grip on Formula One remained as strong as ever, hinting even that it might remain so beyond that agreement. A precondition of his remaining in charge of daily operational control, the statement continued, had been a guarantee that his policy of worldwide, live free-to-air television coverage remained unchanged.

  This was for the benefit of the Formula One manufacturers – Fiat, Ford, BMW, DaimlerChrysler and Renault – who believed that the deal with the KirchGruppe was a deal too far for their interests. Leo Kirch attempted to strengthen the guarantee given to Ecclestone by offering the manufacturers the right of veto if any move was made to take Formula One away from free-to-air television. Kirch�
�s chief executive officer, Dieter Hahn, flew to Italy in an effort to reassure Paulo Cantarella, Fiat chief executive and the then president of the Association des Constructeurs Européens d’Automobiles, that the interests of their Formula One members would not be harmed. The trip proved a damp squib. The two men failed to agree, and Hahn departed leaving Cantarella unconvinced. He preferred to suspect that the pay-TV interests of Kirch and Ecclestone, which were failing to live up to profitable expectations, would sooner or later diminish free-to-air coverage, which would reduce even further what they saw as poor returns on team budgets costing on average more than $100 million a year, most of it funding new engine and design technology. (Mercedes-Benz was said to have spent more than $240 million on the 2003 season.)