Luca di Montezemolo’s media gathering the other day in Italy resulted in some headlines about the potential for a Formula 1 “breakaway” series. This was largely journalistic spin, as Montezemolo was simply listing the ways in which the commercial structure of the sport could develop: keeping the same arrangement as today; finding new owners who leave Bernie Ecclestone in charge (which is actually what is happening); or finding a new model, like the NBA, which for those who do not know is the National Basketball Association in the United States. This league is owned by the teams and run by a commissioner, who is appointed by the team owners. This does not work very well either as there is an ongoing dispute between the team owners (and the commissioner) and the player’s union, who are trying to revise their Collective Bargaining Agreement (CBA) before it expires in June 2011. Everyone wants to make more money or protect what they are currently getting and they have to find a suitable solution. The owners are threatening to stop all games until they have a settlement while some players are talking vaguely about going to play for international teams…
Anyway, extracting the idea of a breakaway from Montezemolo’s commnets is what might best be described as “news optimisation”. which basically means making it up as you go along…
Montezemolo failed to mention that the right to have “a World Championship” belongs to the FIA and that this was what ultimately defeated the Formula 1 teams back in what was called the FISA-FOCA War 30-odd years ago when the teams led by Bernie Ecclestone (Brabham) and Max Mosley (March) tried to grab the commercial rights of the sport from the federation. They learned during that encounter that the FIA was a very powerful body and so Ecclestone became the commercial guru in F1 and Mosley inserted himself into the salons full of blazers and worked his way to the top, a true Trojan Horse. Once consolidated in power, Mosley then sold the family silver to Ecclestone for a very small sum of money, and managed to get away with it by claiming that he had done enough to guarantee the future of the federation and create a foundation to use the money for the good of (blah, blah, blah). This was true, but clearly the sport was worth a lot more than Mr E paid for it.
Now, with Mosley having been moved sideways into vaguely uppity retirement but with Ecclestone still charging on into old age, the times they-are-a’changin’. The next set of negotiations must deal with the future, but also with the past. A breakaway is not a sensible idea, unless the FIA is involved – and that may not be possible because of the wherefores and therefores of contractual talk. We have seen in rallying that the Intercontinental Rally Challenge has tried to compete with the FIA World Rally Championship. The result is two competing series which detract from one another. No-one gains. Most of the teams in F1 compete in it because they want to win World Championships and finding money to compete in an Intergalactic Something-like-F1 Series is not going to be as easy as it now is.
It is widely held in F1 circles that there are only two brands that really matter in Grand Prix racing: Ferrari and Monte Carlo. Without these two a World Championship would not be a World Championship. That is the theory. In fact the loss of Monte Carlo might not be as bad these days now that we have events such as Singapore. They used to think that the World Rally Championship could not survive without the Monte Carlo Rally, but it has done for the last few years, although the best solution would obviously be to get the Monte back in the WRC calendar. I would argue that the third important brand is “Formula 1” and/or “Formula One” itself. It works fine, even if the brands is a bit messy around the edges (Have you ever tried clicking on www.formulaone.com?
The problem is that the Formula One group (and the spelling of the number if important) has a deal that is considered to be too generous, taking 50% of all the revenues from the sport of Formula 1. Most sports leagues give around 15% to the promoter. It is clear that the teams want the figures to be altered and, while they respect what Bernie Ecclestone has done, they feel that they are the people putting on the show. The FIA is in a delicate position because of Mosley’s 100 year deal for $350 million. Overturning that would be a major undertaking. Other options are for the FIA to find the funding, perhaps with the teams and other “stakeholders”, to buy the rights back from CVC Capital Partners, who bought them from Ecclestone; or for Ecclestone to find a more benign organisation than CVC which would exploit the sport to a lesser extent and that would be happy with a number closer to 15%. This appears to be his plan at the moment with talks believed to be very advanced with Abu Dhabi, which does not need the money but would enjoy the strategic value of ownership of the Formula One group.
In any case, the key issue in the next two years is to manage the transition as gently as possible so as not to damage the sport. That will take wise heads and sensible compromises. Ego is bound to get in the way to some extent, but backward-looking ideas such as breakaways are not the way forward.
joeblogsf1 
Another brilliant insight. I wasn’t aware about this new Ecclestone plan for the future. Thanx, Joe. Always great.
It was the EU that forced the ‘off-loading’ of F1s commercial rights, originally Mr.E just managed them on behalf of the FIA, but ultimately this wasn’t acceptable to the EU.
CVC are preparing to divest themselves of F1 as their investment is about to come to an end, with such investors as the California Public Employees Retirement fund being major winners, with a return of over 13%.
The Abu Dhabi Investment Authority and Mubadala (who have recently sold their stake in Ferrari), seem to be manoeuvring as potential buyers, although the teams themselves could potentially buy the commercial rights by getting investment from one or both of the aforementioned groups.
Karen Terry,
The EU opposition is a myth. It is true that the EU was not happy with the way things WERE structured and insisted that this be changed.
They would not have made an issue out of it if things had been structured differently…
Similarly, if the structure was correct then the EU would have no complaints.
It is all nice and optimistic to believe that Abu Dhabi with endless oil money will bail F1 out from the private equity capital and accept 15% where CVC took 50%. It would be wonderful but how realistic is that? I will believe it when I see it.
In the absence of a free lunch one needs to inspect the options that both sides actually have if the conflict continues. The FiA and FOTA have become very united against FOM. Where the FiA under Mosley would mainly take the FOM side now under the control of Todt it sides with FOTA. Bernie desperately tries to separate the two organizations but so far all the post June 2009 issues and conflicts have ended with a swift compromise between FiA and FOTA.
If a free lunch solution fails the unity between FiA and FOTA may turn into a huge problem for Bernie. He will get between a rock and a hard place trying to keep hold of the money for his CVC masters and keeping the teams on his F1 grid. None of the teams has signed a separate deal with him due to being broke and desperately needing money. With the RRA and the engines now all settled for cost containment it becomes increasingly likely that there will be no stragglers to pick from the flock.
As long as FOTA is united they will have the upper hand on Bernie and a break away is easy enough to do. They have no contractural obligations as they had in 2009. They must not delay a deal beyond 2011 because they have commitments towards their employees to meet. The FiA can administer any other world championship with another name and leave FOM with an empty 100 year shell.
So it really depends of either finding the “free” lunch or of CVC becoming realistic with their robbery attitude.
Very interesting, and the logical way out. CVC needing the money to keep the promises made to their investors has always been the bottleneck in any solution that would allow the sport to move forward.
But CVC is also Bernie, as are the individual companies that own the various sub divided rights to air time, track advertising, track promotion, hospitality catering etc. Don’t forget that CVC has been deliberately loaded with gigantic amounts of debt and pays vast amounts in interest.
Joe
The EU said the FIA had “infringed Articles 81 and 82 (previously articles 85 and 86) of the EC (now EU) Treaty”, and that ‘action should be taken to limit the FIA to a regulatory role only’, (ie, divest itself of the commercial rights).
And that: “The role of FIA will be limited to that of a sports regulator, with no commercial conflicts of interest”.
And, ‘To prevent conflicts of interest, FIA has sold all its rights in the FIA Formula One World Championship.
The FIA will, therefore, have no influence over the commercial exploitation of the Formula One Championship.
Karen Terry,
I was simply explaining what happened and why. If you choose not to accept that then that is your choice.
It is ridiculous to suggest that F1 cannot survive without Ferrari, or without Monte Carlo.
By repeating such nonsense it only makes the arrogance coming from Ferrari much worse. They are supposed to be a competitor among other competitors, not a competitor above everyone else with more rights than others.
Perhaps some EU competition court can look into this favouring of one competitor over others…
Oh, and when I started watching F1 for many years Ferrari was a midfield team and pretty much irrelevant in the Championship battles. It’s not that long ago that this was true.
As far as I am concerned they did not have a special status and I don’t see why I should give it to them. Just saying “’cause they’ve been there for so long” is a pathetic excuse. Is Ferrari a paralysed grandfather who must be given a seat at a bus at the expense of others? Is that what they mean when they say they’ve been there for so long?
Joe,
“It works fine, even if the brands is a bit messy around the edges (Have you ever tried clicking on http://www.formulaone.com?”
Ooooh!!!
I do not understand your business with Grandprix.com and all that. But I do remember it wasn’t that domain, and thinking maybe the only reason you came to agreement with FOM was the disproportionate money angle. And a lot of grace from your side.
I don’t think at all it is Ferrari + Monte Carlo + a class name.
I believe brands only work in comparison. Like going for a medium latte (cough, splutter) or any middle thing on a menu in a mass market restaurant. No choice, even a false choice, no deal.
I wish Di Montezemolo would stop polishing his slick credentials. We know he’s good. So, he’s sandbagging.
– j
Yeah, I always got the feeling that EU thing was an excuse made up by Max Moseley to justify selling the rights off to his mate Bernie. In fact, I reckon that the EU should have taken more notice of the way in which the FIA only allowed FOM to bid for the rights and gave him a 99-year lease! Also, I’m sure that the Concorde Agreement is highly anti-competitive…
Joe, you say “Montezemolo failed to mention that the right to have “a World Championship” belongs to the FIA”.
How can the FIA stop anyone from running a championship; are you saying that have trademarked such as obvious term? Even if that is the case, it shouldn’t be the work or rocket scientists to come up with a different name, if they were serious about a breakaway championship.
Roger,
There is a trademark.
Thanks for your end of year analysis of the “boring” part of F1, Joe. I normally blank the business aspects of the sport, but your comments in this piece made interesting reading.
And clicking on the formulaone link was indeed a revelation.
I’d always associated Formula One with baby milk-replacer and John Innes potting-compound!
Perhaps Bernie should change the name of F1 to something less ubiquitous… how about “Formula Turbo”?
This brings to mind the old Fleet Street moto “Never let the truth get in the way of a good story”.
The racing graveyard is full of the bones of series that were supposed to compete with F1 or some other top incumbent series – A1GP, Champ Cars, Formula 5000, anyone?
It does beg the question just how many series can the world motor racing scene hold? My guess is not as many as most people – including ‘Proton Boy’ – think. There just aren’t that many sponsors with deep enough pockets to go round. It’s probably relatively easy to start up a formula, get enough sponsors, find venues, find people wanting to compete (often refugees from other series) – there are enough tracks around the world gathering dust, but will they ever have the longevity of F1? I think not.
Dodger,
“Yeah, I always got the feeling that EU thing was an excuse made up by Max Moseley to justify selling the rights off to his mate Bernie.”
How amazingly wrong you can be.
The deal barely passed EC (EU) scrutiny. Long after it was done. And then – I hope i get the right spark – because of concern over driver contracts.
Everyone has reasons to sit in a room and do a deal. F1 simply wasn’t so big when the deal was struck. And today I hear the word, “stolen” bandied about. But only in one place.
If you’ve the “real” story, pray tell.
– j
Karen Terry,
I’d completely side with Joe about the EU-related myths. The EU or any similar “body” produces zillions of papers which are hardly understood by more than a few insiders and thus can easily be used as alibi for almost anybody and anything. Especially vis-a-vis a bunch of elderly blazer-and-club-tie bonvivants within the FIA and the rest who are either ignorant plebeians or don’t count at all or both.
I think there are other sport’s world federations that control commercial rights of their top notch international events and series (i.e. FIFA, http://bit.ly/febGQR, page 18). What might have been the problem of the FIA and F1 rights was either statutory or simply a question of their headquarters. As I remember, FIA under Mosley even temporarily moved to Geneva, although I’m not sure whether it was a comlete or only a partial move. Anyway, for some reason it was done and I’ convinced Mosley (and Ecclestone) knew the exact reason why.
The incredibly comfy 100-year deal between old friends was one of the big gold bricks of the 20th century and I’m sure it would have been regarded completely differently, if it was a state affair in a democratic land with normal political opposition and acceptable level of corruption. But FIA of that time was like a country with a very authoritarian regime and under “constant threats from outer enemies”. As such it was not transparent, of course, but translucent it was, if one cared to see.
Joe
“In fact the loss of Monte Carlo might not be as bad these days now that we have events such as Singapore. ”
You’ve been drinking too much Red Bull or some other concoction.
I was re-reading Brundle’s book the other night, the one which essentially explains to the lay-observer, what the tracks are or were like. It made me think why maybe no track is sacrosanct, and many of the old favourites for fans were designs (or tarmac – laying quirks) of lunacy. So, I suppose it’s possible more tracks will go. I’m only saying that it’s possible, and there have existed fair enough reasons before. Anyhow, I think there’s no immediate worry over Monte Carlo, even if the rush is to new venues.
The whole EC/EU thing, always gets blood pressures high. They’re not the only body to try to bury the world under a snow of paperwork, though. And they are a touch more fractious than your usual government department, which leads me to wonder just how you get a full on conspiracy working about something as geo-politically insignificant as F1.
Bojan,
MM was holding meetings in Geneva up to the end.
It’s possible in my mind, that was connected with legal sructure for settling FOTA things, more than FIA. If you really want to get conspiratorial, why was FOTA happy to meet him there to do critical deals?
But you hit on what is, to me, the most interesting thing.
By which, i mean, it’s not usually possible to construe a new place of business, just by sitting down somewhere else.
Loopholes are attractive to anyone in business, some would say they are the vital stuff. I mean to suggest, that those who stay in business have to pull counjouring tricks, have to not be transparent, so loopholes are more than a bit handy.
It does look, in hindsight, that the FOM license ought to have contained a rider for the FIA. But that is being 20:20. The sums involved, sorry to harp on about this, were still pretty big for the time. Can any one of us honestly say they would have extracted a better bargain?
Furthermore, it’s all too easy to mistake what the teams got, with what the FIA got. I’m not too bothered what a quango gets. The teams settled, but have a fresh chance any minute now. The most worrying thing is when track organisers are pushed, and what that does to the fans. (Or at least my race – going plans!) But, I always ask myself “is it possible that someone other than BE is being unreasonable or silly?”. People do very odd things in business. We’d not know. That, pushing the tracks, I think, upset enough people, it will be scaled back discretely.
I think I’m just going to relax a bit on this one now!
On silly thought, which just got my palm connecting with my face:
Why did the teams, FOTA, need to settle anything, when they can do what they like once the Concorde ends?
OK, I get it. In theory FOM and CVC and their lot piled on the pressure worrying about beakaways.
But, if i was a team manager, I’d settle that by writing a one liner, along the lines of “Do think I am totally bonkers?”
For the inner loop of this argument, some of them did act bonkers, maybe on purpose, some bluffs were surely called.
Still, that does not prevent putting one’s hands up in admission and saying sorry. (In private, with the door locked, and your lawyer tied up and blindfolded in another room, but just saying you can do this, even in business) I mean it does not need a whole contract to settle.
I’m sounding unclear, because it’s too convolute to write even a half-wit summary here.
My point remains, that if you have a true, clean, chance to get your own way, and just have to wait a bit, what makes a person go to the negotiating table early.
We could say “the sponsors”. I’d say (if i were a team manager) “I’m not biting the hand which feeds me”.
Trying to follow the confusion, rather than the money 🙂
– –
As a footnote, can anyone think of a team who left the grid, who didn’t do something very very silly? (Minardi was silly, by his own admission, for selling the use of his name. Sauber admitted he made a mistake also, and came back to make good)
As a second footnote, since the original Concorde teams ganged up to get rid of Balestre (best collective decision they made) isn’t all this talk about “open” and “competition” imossible to settle without busting them?
I’m thinking out loud. I’d genuinely appreciate any thoughts.
– j
Karen Terry,
the europa website often confuses visitors, at least me . . .
but if i have the right things, from 2001, it’s a case of horse, door, bolted.
The FIA argued they were divested of commercial interest, to support their case that they were independant.
So, that divestiture is merely historical record, not a ruling or agreement. The Commission wanted some concessions, and got them, but they roll back into the FIA’s effective jurisdiction, and into contracts I doubt even a very good new entrant gets to see before they are effectively accepted.
The FIA did agree to juggle their rules to accomodate new entrants, and SLEC (FOM) did too. Concorde was changed also.
But it doesn’t imply, as the press release can be read, that as a result of this agreement, anything was sold.
If you plug 52001XC0613(01) into your search, that is what I am looking at.
I’m wondering if I could change my name by deed to “E&EO”, but i think I have this right. It was a very followed case, but this is the quote which always spoils it for the curious observer:
“If a party considers that its observations contain business secrets, it must indicate the passages which in its opinion ought not to be disclosed on the ground that they contain business secrets or other confidential material, and state the reasons. “