ATLAS F1   Volume 6, Issue 30 Email to Friend   Printable Version

Atlas F1   Formula One Hundred

  by Thomas O'Keefe, U.S.A.

Recent reports claim that the FIA had agreed last month to grant Bernie Ecclestone the commercial rights to Formula One for 100 years - almost an eternity in motor racing terms. Atlas F1's senior writer Thomas O'Keefe sets out to sort the facts from the rumours, and to contemplate the implications of such a deal for the European Commission, for Bernie and Max, and for the fans

For weeks there have been scattered reports that something significant is happening behind the scenes in Formula One, something that somehow relates to the settlement of the antitrust case brought by the European Commission against the FIA and Bernie Ecclestone's companies. The latest round of stories claimed that on June 28th, 70 delegates from motor sports federations across the world got together to vote unanimously on a resolution that grants the commercial rights to Formula One for 100 years to Ecclestone's company, SLEC (SLavica ECclestone?), which is now 50% owned by German media company, EM.TV.

Turning to the FIA's website, one looks in vain for a report on this matter. The press release about the meeting of the General Assembly on June 28th reports the meeting included elections to fill certain vacant positions in the World Motor Sport Council; a discussion on the ongoing sparring of different factions in India as to who shall be the ruling sporting body; and a reference to a discussion of "different matters." It is noted that another meeting of the General Assembly is calendered for October 6, 2000 in Seville, Spain. Nothing is said about the 100-year lease with Bernie.

Is the FIA trying, perhaps, to hide something here (an impossible task in Formula One), or is there some other explanation for the shroud of official silence that has fallen on this subject? And if the rumors are true, is it a good or a bad deal for Formula One, both the fans and the sport?

What happened on June 28th: Herein of the Duke of Westminster Solution

No one at the FIA has officially confirmed the story of the 100 year lease, but this is what can be gleamed from public sources: the General Assembly and World Motor Sport Council meetings were held in Paris, on June 28th; a week before that, the World Motor Sport Council had already voted unanimously in favor of the 100-year lease, at a meeting in Warsaw, Poland, held on June 21st. Furthermore, the June 28th meeting was not devoted solely to one item but rather to a wide variety of matters, including the items mentioned above, changes to the FIA's Sporting Regulations, arranging for a headquarters building in Paris and, in addition to all that, What To Do About Bernie and the European Commission (the "EC").

To back up a bit, on May 5th, the EC had announced that a hearing on the alleged antitrust violations by the FIA and by Ecclestone's companies, which was set for May 10th, was postponed so that the parties could enter into settlement talks. Since early May, the FIA and the EC have doubtless been behind closed doors in Brussels and London trying to hammer out a deal. Plainly, on June 28th, the General Assembly, acting in an Extraordinary Session, voted to approve the parameters of settlement with the EC, which included not only changes in the Sporting Regulations, which were perceived by the EC as restricting competition, but also the disposition of commercial rights to Ecclestone.

What conceivably could be the rationale for the FIA leasing Ecclestone the commercial rights to Formula One for no less than 100 years? After all, Bernie already had a lock on the business until 2010 under the latest draft of the Concorde Agreement. Why was 90 years more thought to be better, and how does this help settle the antitrust case brought by the EC?

It would seem that it all has to do with the technical but magical difference between a long-term lease and a license, whereby under the European Competition law, a "license" is a term which connotes a short-term assignment of rights. In other words, let's call it the Duke of Westminster Formula.

Who is the Duke of Westminster and what has he got to do with Formula One? You can walk along the streets of Belgravia in London, a stone's throw from Harrods, and what you can see are row upon row of fabulous Victorian town houses, embassies and the occasional mews cottage, all uniformly colored creme, with a park at the center of it all. Who owns this entire neighborhood? The Duke of Westminster, that's who, and he has leased the so-called Freehold - the land underlying Belgravia - to others for 99 years, the Duke's way of handling the patrimony of land holdings passed down to him from generation to generation. Indeed, there is a statue of the Duke of Westminster on a prominent corner across from the park, presiding over this prime real estate.

In essence, the Duke of Westminster's method for managing freehold estates has now come to Formula One, with Max Mosley in the role of the Duke of Westminster - managing the patrimony of the sport, its TV broadcasting and other commercial rights, and Bernie Ecclestone in the role of the holder of the 99 year lease. (Of course, because this is Formula One, we needed to go the 99-year lease and the Lords of the Realm one better and round it off to an even 100 years. After a generation or two, who's counting?)

This is the rationale for a 100-year lease under EC Competition Law. If the FIA licenses the commercial rights outright to Ecclestone as it has over the years, it immediately puts itself in jeopardy of running afoul of the rules against anticompetitive behavior in the way that the FIA deals with those commercial rights. In a speech given by Professor Mario Monti, the head of the Competition Directorate of the EC in Brussels on April this year, the following principles were articulated in applying Competition Law to Sports and the sale of broadcasting rights by sports federations like the FIA. Says Professor Monti:

"Sports coverage on television exhibits certain particular characteristics different from other programming:
  • It is an ephemeral product. Audiences are primarily interested in the live broadcasting of sports events;
  • It is difficult to find substitutes for particular sports events; and finally
  • The rightsholders for popular sports events are in a strong position. The concentration of rights in the hands of certain sports federations reduces the number of rights available, and these are reduced even further if contracts are concluded on an exclusive basis for a long duration, or covering a large number of events.
The Commission is particularly concerned about the impact on the structure of the TV market, with the risk of development of oligopolistic market structures.

The particular issues that arise with regard to broadcasting rights relate especially to the collective selling and purchasing of broadcasting rights and the exclusivity granted in respect of those rights."

*   *   *

"The Commission has already had occasion to say that exclusive contracts for a sporting event or for one season in a given championship do not normally pose any competition problem. However, exclusivity of a long duration and for a wide range of rights is unacceptable because it is likely to lead to market foreclosure."

In order to disentangle itself completely from the kind of scrutiny that the precepts set forth by Professor Monti dictate, the FIA has developed a technical but elegant approach to the problem that entirely sidesteps the EC as far as the FIA is concerned and allows the FIA to get on with its principal mission: running the sport. By leasing the commercial rights long-term, it is the holder of the lease that must be in compliance with the teachings of Professor Monti, i.e., Bernie Ecclestone and his companies, not the FIA.

Why would the EC accept this legalistic construct as a compromise? Perhaps because the EC 's new staff working on the case against Formula One recognizes that it has its weaknesses and is looking for a way out. Also, it must be said that although the Duke of Westminster solution seems preposterous at first blush, it does make some kind of intellectual sense from a Competition Law standpoint, whereby a long term lease, once entered into, pretty substantially dissipates the ability of the lessor (in this case, the FIA) to act in an anticompetitive manner with respect to exploiting those rights, because the lessor is out of it, having made his deal with the lessee upfront.

So where does that leave Ecclestone and SLEC? Apparently - and we are speculating a bit here - having to comply with the teachings of Professor Monti: licensing or otherwise assigning broadcasting rights in a manner that respects the principles of duration and exclusivity that are part and parcel of the world of EC Competition Law.

But Bernie has at least one basis to argue for longer duration contracts than is usually tolerated by the EC, even under Professor Monti's principles. According to Monti himself there is one escape hatch on the duration question:

"Nevertheless, in some cases a longer duration of exclusive arrangements can prove to be justified, particularly when an operator wishes to enter a new market with an innovative service or to introduce a new technology requiring very high risk and heavy investment."

Does this sound like Bernie's Digital TV Production Company to you?

And what pound of flesh will Ecclestone have to give back to pacify the Eurocrats and settle his part of the case with the EC? In accordance with the EC's "Television Without Borders" Directive, part of the remedy being fashioned by the EC would probably require Bernie to guarantee that free over-the-air TV of Formula One races would be available throughout the 15 countries of the European Union for so long as he holds the commercial rights. Remember what Bernie was quoted as saying last year: he said there would be free over-the-air programming of Formula One "forever." He wasn't kidding.

Turning to the questions raised at the outset, why all the secrecy? And, does this deal make sense for the FIA, for the fans or only for Bernie and his shareholders and their successors in interest?

First, although it is virtually impossible to keep a secret in the close-knit world of the pitlane and paddock, it is entirely possible that the EC wants it that way, which may explain the news embargo. Remember the terse EC press release on May 5, 2000 announcing the commencement of settlement talks: "the FIA has nothing to add to this statement." Regulatory approvals of a settlement like this are complex and time consuming so the shroud of secrecy is not in and of itself surprising. After all, this is not a done deal yet, as I would think it might also require some acquiescence by the Team Owners and an amendment to the Concorde Agreement.

As to whether the 100-year solution makes sense, it may make sense for the FIA because it gets the FIA out of the Competition Law thicket. A settlement also helps the EC itself because it will no longer have to squander its limited enforcement resources to make out the case against Formula One that there is a "market" and that the FIA and SLEC are monopolistic and that the TV rights contracts reflect abuse of monopoly power within the meaning of EC Competition Law. The EC has other fish to fry and probably wonders how it ever stumbled into the pit lane of Formula One in the first place; the prior EC staff, who originally brought the case, probably underestimated how formidable the combined forces of Max and Bernie can be, once aroused.

Obviously the 100-year solution helps Bernie and his companies, since the 100-year contract, with the imprimatur of the EC, will establish a rock-solid basis for a successful IPO, the Holy Grail for all entrepreneurs, even taking into account the fact that whoever administers these rights for SLEC or its successor companies will have to play by the EC's rules as to regulatory compliance; a hundred years' worth of commercial rights will fund loads of paper shuffling to accommodate the EC's rules and regulations.

And what of the sport of Formula One and its fans? What is in it for them, if anything? As is often the case in these business matters having to do with the architecture and economics of the sport, the fans do not have a car in this race: we are all affected by these decisions but we are mere observers, at least until the IPO comes about when we could become shareholders, if we so chose, and attend annual meetings and ask direct questions from the floor of Bernie as to, for example, the quality of TV coverage. (If you want to know when Bernie will retire, it is the year of that first annual meeting!)

It is probably the sheer bedazzlement of the term "100 Years" that has floored everyone: will we even have Formula One racing by then? Or cars with tires (grooved or otherwise) and engines as we know them? Will the way we "see" Formula One in 2110 be on a screen or through a device that even the most futuristic current cyberthinkers cannot conjure up?

Just this week it was discovered that scientists have apparently broken the universe's speed limit, 186,000 miles per second, the Speed of Light, when in an experiment in Princeton, New Jersey, physicists sent a pulse of laser light through cesium vapor so quickly that it left the chamber before it had even finished entering. If that is the year 2000, who can imagine what 2110 will be like? It is truly ironic that a 70 year old like Bernie is the one planning for it all!

Nonetheless, while it is difficult to know what the future of the sport will bring, we can rest assured that whatever Formula One Hundred looks like that many years hence, as long as there are human beings involved there will be still the tripartite tension, the three-legged stool on which it all stands or crumbles: the sport, the fans and the business people who bring it all together. Some things don't change.

      Related Articles:
Formula Bernie
(Sep-29, 2000)

Ecclestone: the Interview
(Feb-23, 2000)

Face to Face with Max Mosley - Part II
(May-31, 2000)

Face to Face with Max Mosley - Part III
(Jun-7, 2000)

Thomas O'Keefe© 2000 Kaizar.Com, Incorporated.
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