There are some who seem to think that the Liberty Media purchase of the Formula One group could be stopped by the European Union, perhaps having been prompted by those pulling their strings to try to stir up trouble.
So, let’s have a look at the realities of the situation.
There have been rumblings about the EU getting involved in the sport since July 2013 when the Concorde Implementation Agreement was first put in place, creating the F1 Strategy Group.
No action was taken.
The first hint of any protest came in November 2014 when a British MEP, Anneliese Dodds, wrote to the new European Competition Commissioner Margrethe Vestager, raising questions about competition issues in Formula 1.
Nothing happened. Another 11 months passed.
In October 2015 Sauber and Force India lodged official complaints with the EU Competition Directorate, alleging that Formula 1 is dividing revenues and making rules in “an unfair and unlawful” manner. The complaint challenged not only the financial side of the business, but also the governance structures.
Eleven months have passed.
It is only in the last few days that letters have been sent out to the various parties involved, asking questions. A cynic would suggest that this sudden burst of activity may well be based on the fact that there are going to be new people in charge of the Formula One group and thus new ideas and a willingness to make changes to keep the authorities happy.
In general, the European Commission has always tried to stay out of sport, leaving the governance to sporting federations. It is only when these bodies get out of control that the EU acts, although in the cases of big international organisations such as FIFA and UEFA, it has been the Americans who have been the ones to wade in. Having said that, Formula 1 did run into trouble with the EU competition department back in 2001 and, after a lot of huffing and puffing (most of which was unnecessary), the FIA and the commercial rights business were forced to change some of their regulations and agree on proper ways to do business. After that, there was no interest at all from the EU and the purchase of the Formula One group by CVC Capital Partners was waved through in 2006, subject to CVC selling its interest in MotoGP, which it duly did.
Everything was fine until the Concorde Agreement ran out in 2010. After that the Formula One group concluded individual deals with the major F1 teams, including different levels of revenue beyond the established payment schedules,
based (in theory) on the teams appearances at races and on their results on the race track. In addition to these financial benefits, the Formula One group concluded deals that gave six teams seats on the Strategy Group: five by rights of various kinds and the sixth going to the best performing smaller team from one year to the next. These agreements were cemented in July 2013, with the Strategy Group becoming a “new central governing body” with 18 voting rights split equally between the Formula One group (six votes), the FIA (six votes) and the six “main F1 teams”, which had one vote apiece. This became public information early in 2014 when FIA President Jean Todt admitted to the media in Bahrain that he could do nothing to help the small F1 teams.
“I do not have the power to change the regulations,” he said. “This year there is a new decision-making body, the Strategy Group.”
The fact that the FIA failed to protect the smaller teams was the primary reason that the surviving smaller teams decided to take action. They had nothing to lose.
The other element of the July 2013 Concorde Implementation Agreement that was questionable was that the FIA was given an option (later taken up) to buy a one percent share in Delta Topco, the parent company of the Formula One group, for $460,000. All the indications are that this share came from Bernie Ecclestone, rather than from CVC, but there was an agreement for the FIA to retain the share until CVC sold out.
The agreement also guaranteed a pre-existing right of veto for Ferrari, “in respect of the introduction/modification of any technical or sporting
regulations (except for safety requirements)”.
The arrangements, which clearly weakened the FIA’s regulatory powers, while making it a partner in the F1 commercial business, were not
sent to European Commission for approval, the federation apparently concluding that its own lawyers were sufficiently qualified to decide on the matter.
A new set of owners will obviously be keen to smooth everything over with the Commission and fix anything that is deemed to need fixing. They will, no doubt, agree to whatever the EU wants, if only because it will give them more money and more power. There must, in any case, be a new commercial deal struck with the teams before 2020 and this will need to be in line with what the EU wants and the rules of transparency on the NASDAQ. Liberty Media clearly has a very different approach to business than CVC and Bernie Ecclestone and, if it is necessary, the active involvement of these two entities can be terminated in the autumn of 2019. If Liberty is up front and shows a willingness to change things, then the EU will most likely be happy to wave through the new deal.
The EU might possibly decide to look retrospectively at what happened between 2013 and now, but the Competition Directorate has much more important things to worry about and does not want to be involved in the sport. The EU might fine the FIA for giving up some of its governance in exchange for a share in the commercial side of the business, but it is more likely that it will simply rule that the FIA must sell its share and govern the sport as it is supposed to do. The federation is contracted to lease all commercial activities to the Formula One group until 31 December 2110 (something that has been approved by the EU) and changing that would require one party or the other to go out of business. That is not likely to happen if the new owners agree to put the house in order and pay the FIA a sensible sanctioning fee. The big teams may not like being forced to accept changes to their deals, but if the EU says it must happen, they know very well that it is best not to fight and risk fines and, in any case, they are all going to negotiate new deals with Liberty and so they will be hoping to end up better off. The EU might choose to fine CVC and Ecclestone, but that would no doubt entail years of legal fights that no-one wants. So what is the point?
When all is said and done, waving the new commercial deal through with a few conditions to be met is the best way forward for the EU. Sorting out the governance issue is not really a big deal as the FIA has little choice but to do as it is told. Sorting out the money is something that Liberty can and will want to do – and the EU will support it.