KERFUFFLES AND TRANSPARENCY

The current kerfuffle about FIA President Mohammed ben Sulayem’s tweet regarding the possible sale of the Formula 1 group (not that it ever seemed more than a tickle from Saudi Arabia’s Public Investment Fund) is much ado about nothing, but it does highlight a number of things about the sport which probably need fixing.

Some have already extrapolated the story into calls from the F1 teams to have the FIA President removed. This is a pretty daft idea as the F1 teams do not choose the president, unless they can influence all the FIA member clubs around the world. So let us not work ourselves up about such jibber-jabber.

Ben Sulayem is not blameless in this affair, as he has had a tendency since the start of his mandate to want to be seen to be involved in a lot of things. He enjoys the spotlight rather too much than he needs to. One can accept such things in the first year of a new president, wanting to be respected and not really knowing how to achieve that, but if it goes on too long, it can become a problem. In part it is to do with the contrast to Jean Todt’s style of managing F1 problems. He did not seek recognition (one can argue he did that in other areas of FIA activity), but he let F1 get on with things and tried to avoid the kind of dabbling that made Max Mosley’s time as FIA President (before Todt) so stressful for the sport. One can say, perhaps, that Ben Sulayem simply wants to show folks (primarily in Saudi Arabia) that he’s an important figure in the decision-making process.

In respect of commercial matters, he is not.

The FIA has many important jobs to do, in terms of safety, rule-making, licensing officials, competitors and tracks and so on, but commercially it has no say. To be honest we don’t know all the details of this because the celebrated 100-year agreement between the FIA and the Formula 1 group is confidential and the most guarded secret there is in the sport. In theory, legal arguments aside, the FIA still owns the commercial rights to the Formula 1 World Championship, but it has leased these to the Formula 1 Group, now owned by Liberty Media, until the end of 2110. There is, therefore, nothing to worry about for the next 88 years.

Back in 2000, when all of this was being discussed, the FIA General Assembly rejected a deal for Bernie Ecclestone to lease the entire World Championship, but agreed to extend the commercial rights deal he had had since 1997. As a result the governing body continues to supply the administrative and legislative services for the World Championship. The separation of roles was required because the European Commission insisted upon it. Thus Formula 1 was granted an exclusive license with respect to all of the commercial rights to the World Championship, including its trademarks, in exchange for a one-time fee of $313.6 million and annual regulatory fees, which can be increased over time. Many thought this deal was scandalous given the money that F1 generates, but Mosley said that he needed to take action – and it was all he could get from Ecclestone at the time. The FIA put the money into a Foundation, which today has very little to do with the sport, beyond funding some safety research from time to time.

The 100-year agreement is separate from the Concorde Agreements, which are contracts between the FIA, the commercial rights-holder and the participating teams, which set out the basis on which the teams participate in the championship and how they all share in its commercial success. The current Concorde Agreement, runs until the end of 2025.

The 100-year agreement is made up of seven different agreements that cover all aspects of the deal (in much the way as the Schedules in the Concorde Agreement). The fees paid to the FIA are subject to modification in the different Concorde Agreements or, in recent times, the Implementation Agreements, such as in 2013, when the fee structures were reworked to better reflect changes that had taken place. That also included changes to the governance structure of F1.

What we do NOT know are the terms and conditions in the 100-year deal, specifically relating to such things as the duties of the two parties, termination, dispute resolution and so on. Lease agreements usually include a renewal clause and may even include stipulations related to converting the lease into a sale. But we do not have any clear knowledge of how changes of control impact the 100-year deal, except what we have seen when CVC Capital Partners sold the business to Liberty Media. At the time, Liberty said in its SEC filings that the completion of the sale was subject to certain conditions, including the receipt of clearances and approvals by antitrust and competition law authorities in various countries and “third-party consents and approvals, including that of the Fédération Internationale de l’Automobile”. This seems to suggest that the FIA had to give consent or approval for the deal to go ahead. This suggests that the FIA could stop a sale happening by refusing to consent, but we do not know under what circumstances that might happen. However, it is safe to assume that there would be phrases such as consent not being “unreasonably withheld”, conditions such as the change of identity or control “not materially altering the entity that exists” and, obviously, the something to do with the suitability of new owners.

Given that Liberty Media is a listed company, trading on the NASDAQ, it is a little odd that the disclosures required do not include an explanation of exactly how (if at all) the FIA could stop the transfer of its lease deal to a third party.

Much coverage has been given to Liberty Media’s legal people sending a letter to the FIA, which was sent to the teams (thus guaranteeing that it would leak), in which they said that “the FIA has given unequivocal undertakings that it will not do anything to prejudice the ownership, management and/or exploitation” of those rights it has leased.

“We consider that those comments, made from the FIA president’s official social media account, interfere with those rights in an unacceptable manner.”

The letter said that the suggestion that any potential purchaser of the Formula 1 business is “required to consult with the FIA is wrong”.

This is odd given the previous SEC filing.

The lawyers added that “any individual or organisation commenting on the value of a listed entity or its subsidiaries, especially claiming or implying possession of inside knowledge while doing so, risks causing substantial damage to the shareholders and investors of that entity, not to mention potential exposure to serious regulatory consequences” and concluded that “to the degree that these comments damage the value of Liberty Media Corporation, the FIA may be liable as a result.”

The F1 share price has not been impacted by any of this chatter.

The SEC has rules about market manipulation, including when someone is “spreading false or misleading information about a company”.

The point in this case, however, is that we do not know what is false… as Liberty Media has indicated that it requires “consents and approvals” to have a change of control and yet says it is wrong to say “that any potential purchaser is required to consult with the FIA”.

The only conclusion one can draw is that the lawyers are playing semantic games and that only a buyer (rather than a potential buyer) needs approval.

But who knows?

Perhaps it would be sensible if we all did… transparency and all.