So, you are a race fan, but you don’t really follow the politics. It is a blur of acronyms, smoke and mirrors. You know that the Concorde Agreement is important because it holds the whole sport together, but how does it all work? And what is happening at the moment?
The Concorde Agreement dates back 32 years to 1981 when the first such structure was put in place. It has changed a great deal since then but there have been successive Concorde Agreements in 1987, 1992, 1997, 1998 and 2009. The aim is to have another to cover the period 2013 – 2020. At the moment there are 13 potential signatories to the deal: the FIA, which owns and regulates the sport; the Formula One group, which has purchased an exclusive right to exploit the commercial rights of Formula 1 from January 1 2011 until December 31 2110; and the 11 Formula 1 teams, who are quite incapable of working together and thus end up being exploited because they always allow self-interest to get in the way of sound commercial thinking. Some of them support the Formula One Teams Association (FOTA) when it suits them to.
For some time now, Bernie Ecclestone, the boss of the Formula One group, has been under pressure to float shares in that business on the stock exchange. There is no reason why he would want to do that because transparency and rule by committee are not his thing. There are other more complicated issues, such as dubious claims to F1 trademarks, but the primary risk factor for investors is that there is no binding agreement between all those involved. The shareholders in the business want that to happen, although they are a fairly toothless bunch when it comes to decision-making because it seems that the Ecclestone Family still owns the voting rights to the business and so the investors are only there for money.
Ecclestone has been working for some years to get a new Concorde Agreement in place. His first step was to split up the teams. He did this by offering the bigger operations more money and more influence and then whipped the smaller teams into line with a “take it or leave it” approach. However, the teams were still not willing to sign a full Concorde Agreement and only agreed to financial deals in order to ensure their short-term futures. They believe that they should get a bigger share of the money generated than is the case. Ferrari – the best-known and most popular F1 team – is really the key to the game and so Ecclestone first did a deal that got the Italians on his side. He then offered lesser incentives to the others at the front end. Down at the back, he did not even bother with the Marussia team. There is an argument that this is contrary to the competition rules of Europe but as yet the situation has not been challenged. It is an odd thing because traditionally Ecclestone has always wanted one more team than is needed in order to keep all the smaller operations hungry and thus have a sport without any “passengers”, but one supposes that the investors did not want to “waste” $10 million a year on the team.
Having got the teams settled Ecclestone then began discussions with the FIA. The federation has a problem in that a lot of the member clubs feel that the sport should provide it with more money. The sport is rich but the automobile clubs around the world do not see that cash. So Ecclestone had to make some concessions to keep the FIA happy without upsetting his investors. The FIA could at some point challenge the 100-year agreement if there is a change of control or if Ecclestone gets into legal trouble, so he needs to keep the federation as happy as possible. The deal struck last week was one that will give the FIA around $240 million over the term of the next Concorde Agreement, plus one percent of the business if the Formula One company is ever floated. In addition he has agreed that it is the right of the FIA to nominate single suppliers for such things as tyres and fuels. This is a potential source of revenue.
The key question now is what rights Ecclestone has won for himself in the course of these negotiations. There is a hint from the World Motor Sport Council that this might include more races (hence more profits) as it has endorsed a 22-race calendar for 2014, despite the fact that the rules state very clearly that there will be no more than 20 races. This is probably a negotiating ploy. The teams do not really want more races. Ecclestone has always believed that F1 should be pretty exclusive, in order to keep up its value, but at the same time he needs to keep the money men happy.
Extra races may mean more costs but for the teams it also means more earning potential, although this would need to be significant as teams will have to start rotating personnel if there are more than 20 races.
However, if the teams agree to sign up to Concorde, the calendar could – no doubt – shrink back to 20 events.
The other question is over the planned F1 Strategy Group, which will have only the top six teams involved.
Not surprisingly the smaller teams feel threatened by that and do not want to agree. This too is a position from which Ecclestone can retreat if the teams agree to sign Concorde…
The game continues.