ATLAS F1   Volume 7, Issue 7

  F1 Business: The Leaning Twin Towers of Fisa

  by Thomas O'Keefe, U.S.A.

In what took the entire circus by surprise, the two 'founding fathers' of modern Formula One, Bernie Ecclestone and Max Mosley, engaged in a public spat of words and warnings over an overdue payment for the 100 years of commerical rights Ecclestone was awarded last year. Is this the start of a new FOCA/FISA like war, or is it just a choreographed charade between the formerly lawyer-client partners and friends? Thomas O'Keefe offers some insight

"Beware the Ides of March", said the Soothsayer to Julius Caesar in Act I, scene II of Shakespeare's play of the same name.

The modern day Caesar of Formula One - Bernie Ecclestone - has been given the same warning by FIA President Max Mosley (his former lawyer no less), who has urged Ecclestone to pay $60 million to the FIA (formerly known as FISA) on or before the FIA's next General Assembly meeting on March 22nd 2001, or risk committing an Event of Default that could jeopardize Ecclestone's claim to the valuable commercial rights of Formula One. The $60 million is supposedly a down payment on the $360 million due to the FIA from Ecclestone's Companies as a payment for the FIA's agreement, announced in June 2000, to license the commercial rights to exploit the FIA's Formula One Championship for 100 years. (See "Formula One Hundred")

Ecclestone - himself not a lawyer but a man who by now should be deemed to have passed the bar by on-the-job-training in at least the twelve nations to which he has taken Formula One - is the one taking a very legalistic view of the matter, asserting that the monies are not due for another seven years. Ecclestone told the Financial Times last week that Mosley had his facts wrong on what was agreed upon by the FIA General Assembly last year: "There is no truth in the article. [The Ecclestone Family's trust] has seven years to pay, unless the company floats [its stock in an IPO] ... If the FIA wishes the trust to pay earlier than envisaged, it will need to grant it a discount."

Ecclestone even hinted darkly (this time with his tax lawyer hat on and staking out the moral high ground) that the scurrying around by the FIA to collect past due debts has something to do with the FIA's tax compliance in various jurisdictions. Says Ecclestone: "It is possible that this money was not paid because the FIA had not yet decided where it was to be paid, whether in Paris, in England, or elsewhere, for tax reasons." That seems far-fetched, given the FIA's status as an international federation of auto clubs, but hey, when you punch Ecclestone, you can be sure he is going to punch back.

With Ecclestone, words have always been weapons and he dismissed Mosley's demands as "extortion", though he did not say he would not pay in the end. To most people, use of that highly charged term would be "fighting words" but to those who know him, that's just Ecclestone, for whom colorful and vivid language is irresistible.

Mosley knows Ecclestone as well as anyone, is somewhat of a wordsmith himself and is alert to Ecclestone's verbal dexterity. In responding to Ecclestone, Mosley did not rise to the bait of the extortion charge and did not reply in kind and escalate the rhetoric but instead minimized the importance of this tiff over a mere $60 million or so, saying last week: "There is no question of extorting money from Mr. Ecclestone. We are just trying to get his family trust to keep to their undertaking to agree [to] a contract and make an initial payment of $60 million. This should all have been done last July. We have now informed them that if they don't complete [the downpayment] immediately, the next FIA General Assembly (on 22 March) may decide to make other arrangements. This seems to me entirely reasonable."

So, what is going on here between the lawyer and his former client? Is it a garden variety in-house collection matter that has somehow slipped out into the open? Does this dispute reflect a more permanent and divisive rift between the two Twin Towers of Formula One and the respective divisions of the sport that they represent? Or is it simply Mosley and Ecclestone, attorney-client and friends, simply sparring in public with a wink and a nod, strutting and fretting their hours upon the stage but knowing all along that things will get sorted out in the end?

Although the history of these two men would suggest that this is all some complicated, stylized Kabuki dance that has a known beginning, middle and end to the performance, it is surprising that it should come up so publicly and on the number one topic of Formula One: the sale of TV broadcasting rights. In Mosley's case, he appears to be preparing himself and the FIA for his new role as European Statesmen, in addition to being President of the FIA. And it must be remembered that he is poised to formally announce whether he will run again this year for another term as President of the FIA, and amongst his constituency are people who doubtless would like to keep Ecclestone's feet to the fire but do not have the courage to say so publicly.

As an example of how far Mosley has come as a Statesman in less than a year, last year he was engaged in an all-out political war with the European Commission (which the recently announced settlement shows he ultimately won); this year he is being honored by the head of the European Commission's Antitrust or Competition Directorate, Professor Mario Monti, who was suing him until fairly recently. Professor Monti will be the keynote speaker at an FIA and European Olympic Committee-sponsored conference called "The Rules of the Game," Europe's first conference on the Governance of Sport, to be held in Brussels in two weeks time, which presumably will put the FIA on display as the model for Sports Governance in the European Union.

One of the goals of this Sports Governance conference is "to debate governance issues in a forum designed to promote the highest standards of governance and accountability." It will be recalled that in last month's announcement of a settlement of the European Commission's antitrust proceeding, there were several provisions intended to get the FIA out of the commercial aspects of the sport and make it clear that the FIA will act impartially between all forms of motorsport for which it is the regulator, in the hopes of eliminating "all possibility of future conflicts of interest."

So if you were Mosley and are expected to be conducting the sport with accountability and without conflict of interest, when some member of the FIA General Assembly or an ambitious staff member of the FIA or European Commission points out that your friend and colleague Ecclestone arguably owes the FIA a $60 million "earnest money" payment, you have no choice but to send a demand letter, simple as that, even though you know Ecclestone's "good for it."

But if you are Ecclestone, the downpayment and the whole rumored 100-year licensing plan on which it is premised is in all likliehood contingent on the European Commission actually consummating the settlement, which is still perhaps months away, while the settlement is exposed to public review. If nothing else, Ecclestone is a Closer. From Ecclestone's standpoint, the deal is not yet done, so why should he pay until it is a Sure Thing.

Much as it may gall Ecclestone, however, pay he must, because the 100 years licensing of the broadcast rights is the revenue base for the whole financial structure of the commercial side of Formula One, the sine qua non without which the Ecclestone Bonds, the proposed IPO and the various stock acquisitions being bruited about in the press would have no foundation.

Unless Ecclestone wants to redeem all the Ecclestone Bonds and buy-back all the stock sold to EM.TV, his lenders would never permit him to default on the $60 million payment if it is arguably due. My suspicion is that Ecclestone will find some way to save face and compromise this matter, perhaps by escrowing the money or posting a standby letter of credit which will not be liquid funds to the FIA until the European Commission Settlement is signed, sealed and delivered.

I suspect Mosley and Ecclestone know why each has been forced to say and do all this publicly over a piddling $60 million (probably less than the budget for Minardi) and that there are no permanent hard feelings between them over this. But remember, these men do not function alone: they have staffs that develop institutional biases and the way this matter played out publicly suggests that some staff member or other miscalculated, and that may have repercussions on other issues on the agenda for this year. Hopefully, this episode, like all the other multiple Formula One business issues that are still up in the air, will be behind Mosley, Ecclestone and us when the flag falls at Melbourne.

Thomas O'Keefe© 2007
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