Bernie Ecclestone

by Terry Lovell

  The ACEA sent a warning shot across the bows through a press release declaring that the manufacturers ‘do not accept that Formula One can be directly or indirectly controlled or exploited by just one television broadcaster, with the risk of limiting the viewing to the sole subscribers to pay-TV’. If the deal went ahead, ‘the manufacturers, which … are the principal players in Formula One, will consider alternative solutions’. These included, the ACEA warned, terminating the current Concorde Agreement and the setting up of an alternative World Championship series. Once the deal between Ecclestone and Kirch was signed, the manufacturers began to make good their threat. A press release issued 4 May 2001 stated that the manufacturers had signed an agreement to form a company to set up an ‘open-wheel, single-seat motorracing series’ by 1 January 2008.

  Over the next few months, the structure of a joint company called GPWC Holdings BV, registered in Holland, was put in place. Cantarella was elected chairman, a position to be rotated annually between members of the board, which comprised vice-chairman Professor Jürgen Hubbert, management board member, DaimlerChrysler; Patrick Faure, executive vice-president, Renault; Dr Burkhard Goeschel, director of research and development, BMW; and Dr Wolfgang Reitzle, premier automotive group vice-president, Ford.

  On 27 November 2001 the board members met with Formula One team bosses to invite them to participate in the proposed new World Championship series. A press release stated that it would ‘channel all Grand Prix-generated incomes such as that from TV rights, promotion of races, hospitality activities, track advertising, merchandising, internet opportunities and the like, through their joint organisation, with the aim of substantially improving the financial benefits of all participating teams and ensuring full economic transparency’.

  Such a breakaway series threatened to have a devastating impact on the future of Formula One. The withdrawal of the top-of-the-bill teams – Ferrari (90 per cent owned by Fiat), TAG McLaren (40 per cent owned by DaimlerChrysler, with Ron Dennis owning 30 per cent), Benetton (owned by Renault), Jaguar (owned by Ford) and Williams (engines supplied by BMW) – would certainly undermine, if not destroy, the universal appeal of Formula One. It would also, if successful, seriously threaten the value of the 100-year television rights, a principal asset of SLEC Holdings. There was perhaps a further factor for Ecclestone to consider: by then he would no longer be able to count on the support of Mosley, who down the years has played a key role in the rise of Ecclestone’s political and financial fortunes. On 5 October 2001, at the age of 61, Mosley was re-elected President of the FIA for a third four-year term at the FIA’s annual General Assembly in Cologne; he later declared his intention not to stand again.

  Someone who would certainly play no part in future proceedings was Leo Kirch, who had paid Ecclestone $1.55 billion for a 50 per cent stake in SLEC Holdings. In May 2002, less than five months after the manufacturers had invited the rest of the teams to join forces, severe cashflow problems and an unmanageable debt-load forced his pay-TV operation, KirchPayTV, to file for insolvency after shareholders and creditor banks Commerzbank and DZ Bank were unable to agree a $132-million bridging loan. A month earlier he had resigned as chairman of the KirchGruppe; his departure was accompanied by that of chief executive Dieter Hahn.

  In late 2001 KirchPayTV was under considerable pressure to achieve a series of undisclosed financial targets linked to financial backing provided by Rupert Murdoch’s BSkyB Group, which had a 22 per cent shareholding interest and had an option to call in the loans if the targets weren’t reached. It had been this kind of straitjacket pressure that had helped to convince the manufacturers that Kirch’s interest in SLEC Holdings was solely in the pay-TV potential of Formula One’s global television audience, to the detriment of the much wider audience of free-to-air broadcasting. Although Kirch’s departure removed the manufacturers’ anxiety about Formula One television coverage going pay-per-view, it did nothing to stay their demand for a bigger share of commercial revenues in return for their investment dollar.

  In proposals drawn up by bankers Goldman Sachs on behalf of GPWC, the manufacturers guaranteed to increase the teams’ income by 60 per cent in 2008, and nearly treble it by 2010. They planned to achieve it by substantially increasing the teams’ share of the television rights, from 47 per cent of the gross to 75 per cent of the net, plus a substantial stake in other Formula One-related revenue, from track signage, retail merchandise and Paddock Club hospitality, all of which would be increased by shrewder negotiations.

  These were clearly nervous times for the manufacturers. Prior to a meeting with teams at a Munich hotel on 10 April 2003, their spokesman at Mercedes-Benz refused to confirm its purpose or that it was even due to take place. In an attempt to thwart any unauthorised leaks, the teams were compelled to sign confidentiality agreements covering the details of the GPWC proposals drafted by Goldman Sachs. Ironically, this showdown between Ecclestone and the manufacturers was a rerun of the days when, a little more than 20 years earlier, as the confrontational president of FOCA supported by a group of insurgent constructors, he had unsuccessfully tried, with Mosley’s counsel and collaboration, to wrest control of Formula One from his adversary, Jean-Marie Balestre, the president of FISA, and the continental manufacturers by setting up a breakaway world championship series. Now it was the manufacturers who were the rebels taking on an ‘establishment’ created by Ecclestone and Mosley.

  Whatever Ecclestone’s private concerns, his response to the manufacturers’ threat was, typically, one of deadpan indifference. With about five years of the Concorde Agreement still to run, he believed he had time on his side, that he could afford to sit it out. To Ecclestone it was business as usual. As far as he was concerned the pressure was on the manufacturers to unite the teams – no easy task, as he more than anyone knew – and then produce a proposal acceptable not only to him, but also to a consortium of banks: Bayerische Landesbank, Lehman Brothers and JP Morgan, major creditors of Leo Kirch’s fallen media empire, and to whom its 75 per cent shareholding had reverted.

  First, the manufacturers had a number of obstacles to surmount, not least that of gaining the confidence of the rest of the teams – especially that of the smaller, less wealthy privateers such as Jordan, Minardi and Sauber – that a breakaway rival series would be underpinned by the contractual guarantee of a long-term commitment to Formula One. Both Mercedes-Benz and Renault have over the years dipped in and out of Formula One whenever it has suited their economic fortunes.

  The contract in existence between Ecclestone and the teams was to run for ten years. It was thought most unlikely that the teams – and this included BAR and Toyota in addition to the privateers – would agree to less than five years, if not seven. The question was whether or not the manufacturers could persuade their respective boards to approve such a commitment. It would mean in effect a contingent liability – a commitment to expenditure against anticipated revenues – of billions of dollars in uncertain future trading conditions. It was considered improbable that the likes of Jürgen E. Schremp, the cautious chief executive officer of DaimlerChrysler, the parent company of Mercedes-Benz, and his main board of directors would approve a liability that could threaten its core business.

  It was also believed that the manufacturers faced a major marketing problem in that a rival series would not be able to use the title of Formula One, the copyright of which is owned by Ecclestone. Its appeal would therefore be greatly diminished in the eyes of the all-important broadcasters, who would not be keen to pay top dollar for an event lacking the global brand of the Formula One World Championship series. Like sponsors, they crave stability. If they had to push the button, they would, it was thought, stay with Ecclestone on the basis that it was better the devil they knew. They would also be concerned about the manufacturers’ decision to exclude the FIA from their plans, which stipulated an alternative regulatory body. The decision to do so was made on the probable, and understandable, grounds that Mosley was so close to Ecclestone. But, po
litically, it was not perhaps the most tactically prudent of moves. Mosley, believing that the exclusion of the FIA was an attack on its primary business, made calls to the ACEA and to certain chairmen of the manufacturers. The response from both parties was implicitly critical of any move to exclude the FIA.

  Both were aware of the lobbying power that the FIA wields in Brussels, which is such that it can significantly influence European Commission legislation on a range of issues from car emissions to safety features. A movement of the FIA’s stance, which is generally finely balanced between the manufacturers and the safety tsars, could cost the manufacturers dear in production costs. But instead of seeking a form of alliance with Mosley, the snub to the FIA ensured that he and Ecclestone were brought closer together in standing against a breakaway series.

  When the FIA agreed to sell to Ecclestone its commercial rights for 100 years, its lawyers insisted on the inclusion of a clause giving the FIA the right to veto any sale of shareholding which could constitute change of control, which was what would take place if the manufacturers were successful in achieving their intended aim of acquiring the 75 per cent stake of the three banks. As things stood at that time, Mosley was not in the mood to give it his blessing.

  Finally, the manufacturers had one other problem to resolve – that they could guarantee the teams a calendar of 16 Grands Prix. It was thought improbable that they could, as Ecclestone had the promoters’ contracts in his bottom drawer, along with the television contracts, most of which extended well beyond 2008, the start season of the proposed rival series. It could be said the manufacturers were all dressed up with nowhere to go.

  The obvious threat to Ecclestone’s hand was the loss of the star performers. Would Formula One be the same without Ferrari, McLaren, Williams and Benetton? Ecclestone was convinced it would. He would cite the departure of the classic names of Brabham and Lotus as evidence that Formula One is bigger than any team. How it might survive a haemorrhage caused by the departure of the principal members of the cast in one swoop, though, would certainly test that theory to its absolute limit.

  But Mosley believed that Ecclestone was right. He was of the opinion that it would be perfectly feasible to run Formula 3000 cars, just ten seconds slower per lap than Formula One cars, without lessening the spectacle for spectators or television audiences. With engines lasting a season rather than a race, they would also be considerably cheaper for the teams to run. Further, and crucially, its credibility could be greatly enhanced by Ecclestone using his ample wallet to lure three or four of the leading drivers to compete in the FIA-backed world championship. In those circumstances, it was thought that Ferrari, the one irreplaceable team and, historically, ever ready to use its unique marque to its best advantage, would not be long in following suit, which would mean the beginning of the end of the manufacturers’ rival series.

  But all the speculation, predictably, came to nothing. As with the historic battles between the FOCA and the FISA of previous years, both sides knew they had too much to lose by fighting to the death. As then, peace was restored through the art of compromise. Negotiations between Ecclestone, the banks and the manufacturers dragged on for almost two years before a provisional settlement was reached. On 4 December 2003 a secret meeting was held in Geneva between representatives of GPWC; the three banks, as the shareholders of SLEC; Bambino Holdings Ltd, of which SLEC is a subsidiary; and Ecclestone, as the chief executive officer of Formula One Administration. A statement was issued by Dr Gerhard Gribkowsky, chief risk officer of Bayerische Landesbank; Prof Jürgen Hubbert, the DaimlerChrysler board member responsible for Mercedes-Benz, and chairman of GPWC; and Ecclestone, which declared that they were ‘very happy’ to have ‘reached a breakthrough in our negotiations about the future of Formula One. The outcome is in the best interests of Formula One and the millions of its fans around the world’.

  It was agreed that a Memorandum of Understanding would be prepared by the end of the month detailing the ‘future structure’ of Formula One. It was understood at the time that Ecclestone had agreed to a ‘significant’ increase in the teams’ share of all Formula One-related income, while, in return, the teams agreed to a lengthy extension of the Concorde Agreement due to expire at the end of 2007. It would, however, be another 18 months before a Memorandum of Understanding was finally signed.

  Progress was interrupted by the interest of CVC Capital Partners, a Luxembourg-based global private equity and investment advisory firm, in acquiring Bayerische Landesbank’s 48 per cent shareholding, which, after prolonged negotiations, finally took place in November 2005. At the same time, CVC acquired Ecclestone’s 25 per cent shares in SLEC Holdings, the proceeds of which he invested in Alpha Prema, a subsidiary of venture capital firm Alpha D2 in which CVC has a majority stake. The following month Alpha Prema acquired JP Morgan’s stake, while in March 2006 CVC bought Lehman Brothers’ 14.1 per cent shareholding.

  The manufacturers now found themselves at the negotiating table with a different animal indeed. In addition to a more equitable share of Formula One revenues, the manufacturers wanted Formula One to be self-sustaining, with the remainder of the profits being reinvested in the sport to cover the cost, for example, of track maintenance and the setting up of independent funds to assist smaller teams through temporary financial difficulties. But these proposals got short shrift from CVC. A spokesman for one of the manufacturers said: ‘They had a much more aggressive approach as to what to do with the business. It became very clear to us that we had no chance whatsoever of stopping them taking money out of the sport.’

  The manufacturers also had two other issues on their agenda. They wanted to be involved in structuring the race calendar and, more importantly, to have a principal role in naming a successor to the ageing Ecclestone. They were fearful of a destabilising power battle in the absence of an heir apparent capable of matching Ecclestone’s skills and expertise. Said the manufacturers’ spokesman: ‘There was a zero long-term strategy. Any other company that generates the kind of turnover that F1 generates has some sort of succession back-up plan. Bernie didn’t. He didn’t even have a chief executive officer at the time.’

  Neither CVC nor Ecclestone was moved by the manufacturers’ arguments. But they did succeed in persuading Ecclestone and CVC to agree to a 50-50 split in Formula One revenues, a ground-breaking agreement that was formalised in a Memorandum of Understanding at the Barcelona Grand Prix in 2006. It was signed by the manufacturers – BMW, Daimler, Honda, Renault and Toyota – on one side and, on the other, by Ecclestone and Donald Mackenzie, head of CVC’s London operations. ‘We didn’t get all that we wanted,’ commented the spokesman, ‘but an equal division of the revenues was a very big improvement compared to what it used to be.’

  All in all, just another another day and another deal in Formula One wonderland.

  17

  THE CASH-FOR-ASH AFFAIR

  Until November 1997 the name of Bernie Ecclestone would have meant little to people outside of Formula One. Then, literally overnight, to his immense anger and great embarrassment, it all changed. He became a front-page figure at the centre of a sleaze scandal that rocked the six-month-old New Labour government of Prime Minister Tony Blair. Another colourful incident was about to be added to his chequered CV. And a new phrase to describe a million pounds – a ‘Bernie’. That was how much he had paid, it was whispered behind cupped hands, to bring about a change in government policy exempting Formula One from a ban on tobacco sponsorship and advertising, which were worth a combined estimate of $250–300 million a year to the teams.

  It was a sensational affair which began innocently enough in October 1995 with an invitation to Blair, then Labour Party leader, to visit a British Grand Prix. It ended in a political storm which raged for months, and with Blair being the first Prime Minister to be rebuked for breaching House of Commons rules on disclosure of gifts and hospitality. Allegations of impropriety were also levelled against one of his senior ministers and the credibility of a close adv
iser was seriously damaged, while an apologetic and chastened Blair, who had delighted in mocking the previous Conservative government for a series of tacky kiss-and-tell exposés involving its MPs, was compelled to go on television to try to persuade a sceptical British public that, in his own words, he was ‘a pretty straight kind of guy’.

  The invitation had come from Max Mosley during a visit to Blair’s home in Islington, north London, where, over a cup of coffee made by the Labour Party leader himself, Mosley promoted the FIA’s road safety and environmental work. Tobacco sponsorship and advertising were not discussed. The meeting had been arranged at Mosley’s request by David Ward, who had worked as head of policy for John Smith, the previous Labour leader, until his death in 1994, shortly after which he joined the FIA as director general of its European Bureau in Brussels, and went on to become director general of the FIA Foundation. Following his appointment as president of the FIA in 1993, Mosley had tried unsuccessfully to headhunt Ward, with whom had had developed a friendship through his interest in motor sport. In the mid-1970s, as a student, Ward had been a keen go-kart racer; he later took part in amateur sports car events and is a former winner of the Lords versus Commons charity race at Brands Hatch. Their friendship enabled Mosley to be persuaded to donate several thousand pounds to Smith’s Industrial Research Organisation, which, among things, financed his office.

  When Mosley expressed his interest in meeting Blair, Ward was in a position to pull the right strings. And Blair was happy to respond – his close advisers had been made aware of the donors to Smith’s organisation, and, further, Ward believed that Mosley’s contacts in motor sport and the automobile industry could prove invaluable in boosting the Labour Party’s war chest for the government elections that were just 18 months away. Some four months later, in February 1996, Ward received a phone call from Jonathan Powell, Blair’s chief of staff, and a former first secretary at the British Embassy in Washington, where he had learnt much about successful fund-raising from closely monitoring Bill Clinton’s election campaign. Powell wanted to know one thing: did Ward think that Bernie Ecclestone might make a donation to the Labour Party? Ward, aware of Mosley’s invitation to the British Grand Prix, suggested that Blair follow it up. He would then have the opportunity to meet Ecclestone, who had just been named in the press as Britain’s highest-paid businessman, with a salary that year of £54.9 million, which would lay the ground for an approach at a later date. Powell thought it a good idea. Arrangements were made for Blair to attend, with his family, the 1996 British Grand Prix.