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Editorial

Changing of the guard?

 by Commando Cody
October 23, 2002

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Bernie is trying to broker long-term peace in Formula One
Photo by Getty Images

Team owner Frank Williams has called the upcoming meeting of the Formula One Commission on October 28th the most crucial meeting in two decades for Formula 1. He's undoubtedly correct but perhaps not for the reasons being put forth in the motorsports press. What will probably be decided on October 28th is who owns Formula 1.

For most of the past two decades which Williams alluded to there has been little question of that: Bernie Ecclestone "owned" Formula One.

But all that changed in the last two years when Ecclestone, in a complicated series of transactions, sold 75% of Formula One to the German media giant Kirch Gruppe. The Formula 1 constructors were furious and demanded an equity position in the series. When that was not forthcoming, the automobile manufacturers threatened to start an alternate Formula 1-type series, the Grand Prix World Championship, to commence after the expiration of the current Concorde Agreement--the secret agreement governing the financial arrangements in Formula 1--in 2007.

Earlier this year, the Kirch Gruppe went bankrupt and SLEC, the holding company for Formula One's commercial rights, came into the possession of three of Kirch's creditor banks: the Bayerische Landesbank, JP Morgan and Lehmann Brothers. The Formula 1 manufacturers then entered into negotiations with the banks to purchase an equity share of SLEC. The banks first offered the auto makers a minority stake and were refused, with the Formula 1 constructors demanding at least an 80% share. Price is reportedly also an issue with the Kirch stake in SLEC having cost $2 billion. The banks are said to have loaned Kirch $1.6 billion so it can be assumed that that is their bottom line. Not only do the automobile manufacturers not want to pay that amount but the television revenues which underlie the value of SLEC have fallen precipitously this year.

Negotiations between the parties had apparently stalled when the Formula One constructors apparently hit upon a new strategy: winning control of the Formula One Commission, the ultimate decision-making body in Grand Prix racing at the meeting on October 28. This would put them in a position to dictate terms to SLEC and Bernie Ecclestone (who still retains a 25% stake in the holding company) when the Concorde Agreement is to be renegotiated. Thus, they would not need to start their own championship and Formula 1 would remain intact.

The structure of the Formula One Commission is such that its 26 votes are apportioned between the teams, the sponsors, race promoters, engine manufacturers, tire manufacturers, the FIA and Ecclestone. The FIA is headed by Bernie's friend and lawyer, Max Mosley, and can be expected to vote with Ecclestone. Eighteen votes are needed for control of the commission. The teams are allocated a block of 12 votes, based on the will of the majority. If they are split equally, so is their block of votes. Otherwise, the block goes with the majority. Significantly, it does not matter in the voting how many teams participate. The thinking of the auto makers was that they could carry out an internal coup of Formula 1 by putting together their 12 votes with two votes from the sponsors (Marlboro and Exxon Mobil), one vote from the tire manufacturers (represented by Bridgestone), one vote from the engine manufacturers (represented by Ford) and two votes from an undisclosed source (obviously the promoters and an FIA representative).

This was the situation into which Bernie Ecclestone and Max Mosley in recent weeks introduced their divisive 9-point plan purportedly designed to improve the Formula One show and cut costs. This has caused quite a bit of discontent as the proposals raise important questions about the future of the sport. McLaren team boss Ron Dennis accused Bernie Ecclestone of using the "tactics of diversion" to derail the issue of the ownership of Formula 1.

If so, the FIA proposals have had at least some of their desired effect. The teams linked with the GPWC are McLaren, Ferrari, Jaguar, and Renault. Sauber votes with Ferrari. Prior to the issuance of the FIA plan the independent teams, Williams, BAR, Jordan, Minardi and Arrows were expected to join the GPWC group in the takeover. Toyota does not get a vote. But several of the smaller teams have come out in favor of some of the FIA's more radical proposals, like weight handicapping, and are beginning to feel that a Formula 1 Commission run by the automobile manufacturers might not be in their best interests. If they stick to that conviction, the teams block vote is split 6 to 6 and the coup cannot succeed.

As a result, in recent weeks the right of some of the small teams to participate in the October 28 vote has been called into question. At the moment there are theoretically 10 operational Formula One teams. Arrows has not been seen since the Grand Prix of Germany and missed the last five Grands Prix but, due to an inexplicable failure to act on the part of the FIA, would still seem to have some vague right to vote on the Formula 1 Commission. This would be decided by the chairman of the Commission, Bernie Ecclestone, although in practice he usually hands the task over to Max Mosley. But would the decision hold up under scrutiny? McLaren boss Ron Dennis, among others, is vocal in his objection to Minardi having a vote because the team has not scored enough points in recent years. His attempts of late to extract the Prost team's Concorde money, which was gifted to Minardi by Ecclestone, is hardly likely to enlist the team's cooperation in any attempted coup. This may account for his objection.

If Arrows and Minardi are deprived of their voting rights, there will be only eight teams left. In such an event, if the vote is split four to four, the teams' 12 votes will be split into six for a proposal and six opposed. In order to defeat a proposal--such as one of Max Mosley's 9-point plan elements--eight votes are needed. The big teams can count on the two sponsors, the engine manufacturer and the tire manufacturer to vote with them so that creates the necessary block to any of Mosley's more frivolous suggestions. However, if there are nine teams and the split should go five to four in favor of a proposal, the teams' entire block vote would go with the idea and it would pass.

It is a delicate balancing act. It is precisely the special interests which have prevented the auto manufacturers from gaining political control of the Formula One Commission in the past. This time around Ferrari, Williams, McLaren and Sauber seem united with the votes of Jaguar and Renault uncertain. All the big four need is one of the undecided to carry the teams' vote but already there is talk that Jaguar will not support any action which attacks Minardi (a Cosworth customer) and that would deprive the big teams of a crucial two votes as Ford, which represents the engine manufacturers, will back Jaguar.

Earlier this week, the German newspaper Suddeutsch Zeitung reported that an agreement had been reached between the Kirch creditor banks controlling the Formula One group of companies and the automobile manufacturers. According to the paper, which has strong connections within financial and industrial circles in southern Germany, there is a deal in place to extend the current Concorde Agreement for another 10 years, until 2017. The article stated that this would be done with two 5-year contracts, allowing for a certain amount of renegotiations with each contract renewal. No details were given as to how the money in Formula 1 would be divided up in future but there was a suggestion that in the long run the agreement would enable the auto makers and the teams to take an equity position in Formula 1. As part of the deal the banks have apparently agreed to give the teams more of the income which comes into the Formula 1 associated companies in future.

This is not the first time that a report has been made saying that this deal is done but on each occasion there has been an immediate denial from one of the involved parties. So far, no one from the GPWC or the banks has publicly reacted to the story.

Which leaves a number of questions unanswered. If the banks and the auto makers have reached a separate agreement, do the manufacturers need an internal takeover of the Formula One commission? In either case, could this mean an end to Bernie Ecclestone's rule over Formula 1?

Assuming that it doesn't, it will undoubtedly mean that Bernie's share of the revenues from Formula 1 will be diminished. Is this why Bernie is reportedly trying to buy a controlling interest in CART? Does he see it as a new source of revenue? His own alternative Formula 1 (he has trademarked the name)? A way to make his leadership more attractive to the Formula 1 automobile manufacturers? A pawn to be used in the upcoming Formula 1 Commission battle? And, if so, how will it be used?

It's interesting to note that Ecclestone reportedly tried to buy a third interest in Ferrari recently. Bernie has a long history of doing business with Ferrari, so he may have seen Fiat's apparent need to divest itself of the company as a good deal? Or he may have been trying to buy control of the Ferrari vote in the upcoming Commission meeting? In any case, Fiat reportedly withdrew Ferrari from the auction block last week.

The entire Formula One world is in motion and the moves and countermoves by everyone involved promise to continue right up the moment of the vote(s). Come what may, there is going to be epic event in motor sport taking place on October 28. 

The author can be contacted at feedback@autoracing1.com

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