European commission investigating F1 finances and anti-competitive accusations

Fri, Jan 9 2015

The Kingdom of Formula One reminds us of renaissance Florence - ruled by a singular chieftan behind a mask of representative involvement, rife with spectacularly convoluted machinations, awash in innovations that help define our world and far-flung, vindictive misery. If we found out Bernie Ecclestone's real last name was de Medici, well, it would explain a lot. Now after a bit of back-and-forth, the European Commission (EC) has taken aim at the kingdom, investigating whether F1 is anti-competitive and if the FIA has abused its antitrust agreement.

The reason for EC scrutiny is that a British member of the European Parliament who represents an area in southwest England, Anneliese Dodds, has fielded complaints from engineering companies in her constituency that recent moves in F1 have put them out of business. She wrote to the EC to question why the FIA now has a stake in F1 when it signed an agreement in 2001 to be solely a governing body and abdicate any stakeholding in the sport. She also questioned the F1 Strategy Group, a group of the six top teams in F1 that makes decisions about the direction of the sport; she says that the Strategy Group not only appears to be a case of the F1 shirking its rule-making duty, it has resulted in unfair treatment of the small teams that aren't in the group.

Dodds has a bit of a point. In 2001, the FIA sold F1's commercial rights to Ecclestone for 100 years for a sum of $313.7 million. That was done to placate European regulators who insisted that "the role of FIA will be limited to that of a sports regulator, with no commercial conflicts of interest." Although the rights are ultimately owned by the FIA and bring in a $10M fee every year from Formula One, those rights bring in $1.6 billion each year to Formula One Management (FOM), the company that owns F1. When Ecclestone was trying to get the new Concorde Agreement signed in 2013 that governs the running of the sport, the FIA wouldn't sign, saying it wanted F1 to share a larger slice of its revenue – the FIA has been losing money for years, see. To the get the FIA to sign, Ecclestone sold it a one-percent stake in F1 for $460,000 and gave the FIA a $5M signing 'bonus;' whenever F1 has its IPO, that stake is estimated to be worth about $120 million - not a bad return. Yet, according to the aforementioned 2001 agreement, the FIA can't have that equity stake.

The FIA accepted another $40 million during those Concorde Agreement negotiations in order to agree to the Strategy Group. Whereas before, all of the teams had to agree on major changes to the sport, the six teams in the Strategy Group can make decisions that affect all eight teams, and some would argue that its decision to reject a cost cap is what killed Caterham and Marussia last year, and keeps teams like Lotus, Force India and Sauber on the ropes. And that, to bring this back to the beginning, is what drove those engineering companies in Dodds' constituency out of business, and why she has written to the EC.

The EC initially responded with a letter that sounded like a brush-off, but the Times of London reports that Force India, Lotus and Sauber have met with the EC in Brussels to discuss the state of the sport and F1 finances. We're probably a long way from anything happening, but more storm clouds are forming over the sport.

News Source: Forbes
Image Credit: Shaun Curry/AFP/Getty Images

Earnings/Financials
Government/Legal
Motorsports
Lotus
F1
fia
bernie ecclestone
force india
european commission

By Jonathon Ramsey