Challenges

It is a bad state of affairs when all that one can read in the newspapers about Formula 1 is court reports from Munich and sad memories of events 20 years ago. I am tempted to say that a savvy communications operation would be busy pumping out any kind of stories in order to offset the damage and obscure some of the negative stuff with diversions and smokescreens. In the days of puff being more important than substance that would probably require Lewis Hamilton and Katy Perry admitting they are “just good friends’ on Twitter (not a bad idea given Ms Perry’s 52 million followers).

The usual programmable parrots seem to have gone the way of the Norwegian Blue, perhaps because they squawked so loudly about there being no chance that Bernie Ecclestone would ever stand trial that their credibility is shot now that he is up in front of Der Big Beak.

The Formula One group doesn’t do PR beyond feeding the parrots, and no-one wants to start until a new age has begun. The FIA still prefers to be the guardian of the sport by publishing dull newsletters with pictures of the President shaking hands with Mr Bobble Hat, a road safety bureaucrat in Ruritania.

This storm will blow over, one way or the other, but the “weather forecast” beyond that remains stormy. Several of the small teams are teetering on the brink of destruction and having argued for a time that the sport needs spending limits to be sustainable, they have now given up being subtle and are shouting it from the rooftops. As things get more desperate, the team bosses feel they have less to lose and are willing to speak out more. The anti-cost restrictions types need to remember that the worst enemy anyone can have is someone with nothing to lose. This was clear from a letter that was sent by the small teams to the FIA after Jean Todt’s interviews in Bahrain, in which he said that the FIA could not do anything about a cost cap.

Quite rightly, they asked: “Why? You’re the FIA. You can do what you like. You are the regulator.”

What was odd in Bahrain was that Todt said that “all the teams that are part of the strategy group are against the cost cap now. So clearly, if the commercial rights holder and if six teams…are against, I cannot impose. It’s mathematics. In this case, no more cost cap.”

He told another reporter “we do not have the mandate to do something against the will of the majority”.

The FIA is thus saying – on the record – that it does not have the power to impose a cost limitation. How does that work given the legal status of the federation?

Those with long memories – and Todt should be one of them – know that back in the 1990s the European Competition Commission launched an investigation into the way Formula 1 was being operated, following a complaint in 1997. The resulting investigation lasted until the middle of 1999 when the Commission opened formal proceedings against the FIA and the Formula One group. At the time the European Union was still formulating its relationship with sport in general, which led to the Nice Declaration in 2000 which recognised the independence of sports organisations and their right to organise themselves “on the basis of a democratic and transparent method of operation”.

A year later the Commission closed its anti-trust investigation into Formula 1 after the parties agreed to make changes which limited the FIA to “a regulatory role, so as to prevent any conflict of interests”. The Commission added that it would keep the sport under scrutiny to make sure that everything worked properly. Two years later the Commission announced that it was ending its monitoring of the sport, stating that was it satisfied that all was well.

At the time the investigation was troublesome because it meant that Bernie Ecclestone’s plans to float the Formula One group, in league with the investment bank Salomon Smith Barney had to be put on hold because the markets were wary about the effect that the dispute might have. After a second attempt at a flotation which would have been fronted by the FIA, Ecclestone decided to issue a bond secured on the future profits of the sport. The US investment bank Morgan Stanley Dean Witter agreed to underwrite that scheme. This was followed at the end of 1999 by the private sale of shares in the business to Morgan Grenfell Private Equity. The transactions set the Formula One company on its course towards various German owners and the eventual outcome was that it fell into the hands of bankers.

The key question today, that the small teams have touched upon, is whether or not the new agreements between the big teams, the FIA and the Formula One group, which cover the period 2013-2020, are acceptable to the European Commission or, indeed, whether the European Commission even knows about them. And if not, why not? Logically, the best course of action when one has such rules to follow is to run these things past the authorities before they come into operation, but last year everything was a little rushed.

The FIA was very keen, you may recall, to get a commercial deal sorted out before its elections at the end of the year.

Among the things that were agreed was that the FIA would have an option to buy a share in the Formula One group. This was attractive because it had a cheap price tag and promised to deliver a substantial pay-out when the share was sold. That may seem like a good idea, but was that acceptable under the EU’s ideas about conflicts of interest and the clear division between commercial and regulatory roles?

And were the agreements made between three groups fair and transparent? And, of course, there was also the question of the federation being allowed to regulate the sport as it sees fit. Something that Todt now says that it cannot do.

One presumes that the legal people at the FIA have been through all of this with a fine tooth comb and that all is well.

The current Competition Commissioner Joaquín Almunia from Spain will be in office only until the end of October after which a new commissioner will take over, but the secretariat will continue to keep an eye on all matters relating to competition within the EU. The last thing that the sport needs is another EU investigation lasting for four or five years. This would frustrate CVC’s desire to float its shareholding, something that has already been held up by Bernie Ecclestone’s legal troubles. The price of the company would go down and who knows what the city slickers would do to slip away with their pockets stuffed with fivers?

There are times when the sport seems like the character of Christian in A Pilgrim’s Progress. Must it wade through the Slough of Despond, battle through the Valley of Humiliation, avoid the temptations in the fair at Vanity and cross the Delectable Mountains to arrive in the Celestial City? Or is there a faster highway?

And until the sport emerges from its trials, one assumes that most of the potential sponsors that love F1’s spectacular numbers will sit back and twiddle their thumbs and wait until the coast is clear and the green flag is raised so that they can go surfing again, the water having been cleared of squaline predators.