Bernie is
trying to broker long-term peace in Formula One
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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.
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