Decisions made in the next few months could change the future of top class motor racing forever. The leading members of the manufacturers' consortium, the GPWC, have said that if there are no developments in their favour before the end of the year they will begin to organise their own championship for 2008. Bernie Ecclestone has a difficult task at hand: he must juggle the demands of the GPWC, the teams and the banks that co-own his Formula One empire, without losing his own grasp on one of the world's richest sports. Formula One journalist Caroline Reid analyses the situation

One of the most important milestones for Formula One in the past year slipped by almost unnoticed a couple of weeks ago. On October 31st, the European Commission finally concluded its monitoring process of the sport, five years after it first raised objections about the way F1 was run, and two years after it agreed that all the necessary changes had been put in place.

It was the European Commission's anti-trust investigation that brought Bernie Ecclestone's plans for a public flotation of Formula One's holding company to a halt in the late 1990s. Since then the world, and the sport, have changed a great deal, but a renewed opportunity to float is an interesting prospect for Ecclestone to mull over. It gives him another card in his hand in the toughest game he has played since the FISA-FOCA wars of the early 1980s.

Ecclestone refuses to answer any questions about the possibility of a new flotation. He knows that floating the sport will be far from easy, especially given the hostility from some areas of the City - the business district of London - to his original flotation plans, and there are several problems he must first address, most noticeably, what can be done about the GPWC.

The original flotation plans

Rumours that Ecclestone was about to take Formula One public first surfaced in March 1997. The business community was extremely excited by a flotation that was valued at as much as $2.5 billion (US) and would consolidate Ecclestone as one of the richest men in Britain. The flotation was due to take place in time for that year's British Grand Prix, but all did not go to plan.

People in the City were wary of Ecclestone himself for a start. His entrepreneurial and centralized manner of running the sport was alien to them, and others questioned why he was so keen to change his stake in Formula One Holdings (FOH) into cash. There were also problems with the teams: Williams, McLaren and Tyrrell had refused to sign the 1997 Concorde Agreement - the document that ties the teams to Formula One - because they felt they should be receiving a larger share of the pie. And several observers were questioning – rightly, it now seems - the future of the F1 digital TV enterprise, which Ecclestone claimed would bring in $1 billion a year by 2002.

But by far the most worrying obstacle for potential investors was the European Commission's anti-trust investigation into the FIA and Ecclestone's group of Formula One companies. A German TV producer had complained to the German courts after the FIA had favoured Ecclestone over him to cover the European truck racing championship that he had previously filmed. The EC competitions commissioner, Karel van Miert announced that he would be investigating the legality of Ecclestone's television contracts, FOH's main source of income.

The potential investors took cold feet and the flotation was delayed indefinitely. Ecclestone eventually raised cash in a different way. Firstly he set up a $1.4 billion Eurobond in the company, then he began to sell off parts of the Formula One parent group, SLEC. These shares, 75 per cent of the company, eventually fell into the hands of doomed German media giant, Kirch, and were claimed by three banks as a security on an unpaid loan when Kirch went bust in 2002. The banks - Bayerische Landesbank, JP Morgan and Lehman Brothers - remain in control of that 75 per cent to this day.

Van Miert eventually left his post at the EC and was replaced by Mario Monti, an Italian and former Fiat board member who was more sympathetic to the needs of Formula One. After the FIA agreed to end its commercial interest in the sport and Ecclestone agreed to sell off some of his worldwide motorsport rights to other companies, a settlement was reached. The EC investigation was closed at the end of 2001, and two years later, on October 31st this year, the subsequent monitoring process was finally concluded and F1 was given the all clear.

Hanging in the balance

Back in 1997, the teams were offered 10 per cent of the shares of a public Formula One company, in return for signing the latest version of the Concorde Agreement and surrendering some of their revenues from TV money. In the current climate it is unlikely that 10 per cent - just one per cent of the equity each - would be acceptable to the teams and the car manufacturers that back them. The threat of a rival series has given the teams another bargaining tool.

The five GPWC manufacturers (Ferrari, Renault, Ford, BMW and DaimlerChrysler) would like a far larger share of the pie either directly or through the teams they own, but Ecclestone has often said he feels the teams would ruin the sport if they took overall control and it is unlikely that the equity would be offered at a price that suited them. Another problem is that the manufacturers find the idea that they could run the series attractive and any number of shares for the teams might no longer be enough to solve the problem.

A financial insider, who has worked closely with Ecclestone in the past, comments: "If you look at the value that the manufacturers would achieve by having an alternative circuit they would probably think that would be more substantial and they could mould it to suit their own ends. Say for example you give them 30 per cent of the company and Formula One is floated at $4 billion, to pluck a number out of the air, they get just more than a billion to split between the five of them. For the big manufacturers that's nothing. They would spend that kind of money on Formula One in a year."

But there would be more equity to play with than in 1997. Then the split was to be 30 per cent to Ecclestone, 10 to the teams, 10 to the FIA and the remaining 50 floated to the public. The FIA, however, would no longer be able to take up its share as the EC ruling means that the governing body must have no commercial interest in the sport.

There is always talk that Ecclestone, now 73, might retire, but those speculations have been around for a decade and he shows no sign of heading off into the sunset just yet. However, he has recently told Formula One insiders that he expects his successor to be Marco Piccinini, the deputy president of the FIA and sporting director of Ferrari in the 1980s. Piccinini is from an Italian banking family and is understood to be amenable to the City.

The SLEC banks have made it clear that they would welcome a flotation, providing that they can get back the $1.5 billion they loaned to Kirch in 2001. Ecclestone has said he will buy back their stake if the teams sign the new Concorde Agreement until 2015. Struggling privateer teams such as Jordan and Minardi would also welcome a flotation as a stake in the company - while minuscule to the world's leading car manufacturers - would be equal to several times their yearly budget.

But until a new Concorde Agreement is signed, a flotation is impossible. Without a new agreement there is nothing to stop the manufacturers going ahead with their plans to launch a rival series in 2008, and they will not allow their teams to sign unless their demands are met.

Frank Williams explains: "Any bank in London will tell you that you need cash flows almost guaranteed for many, many years ahead before you can go to the market and get the flotation away. The Concorde Agreement expires in four years time and no one's going to buy into a sport that could hypothetically be terminated at that time.

"As a team we have regrettably very little say in what goes on with the shares in Formula One – the word that springs to mind is that we are flotsam and jetsam bobbing around on the waves – but I think that the banks will clearly want to exit tidily and to get their investment back in due course. The whole GPWC issue is very slow moving at the present time. Until it's concluded, the question of ‘when' a flotation would happen cannot be answered."

The financial experts agree. One city financier comments: "The problem is until they find a compromise with the manufacturers they're never going to get the kind of value that makes sense to Formula One. I don't think Formula One's at risk but the market likes stability otherwise it's uncomfortable. But if all the issues were resolved I imagine it would sell for at least what it was valued at before."

Renault chairman, Patrick Faure, said earlier in the year that he believed that the GPWC issue would be resolved by October. Ferrari president, Luca di Montezemolo, said that it would be sorted out by December, otherwise the GPWC would start to prepare for a new series in 2008 and then there would be no going back. In truth the light at the end of the tunnel is probably a long way off yet and the European Commission's favourable move has not had the immediate and sensational impact that it would have had three or four years ago.

About the author:
Formula One journalist Caroline Reid has written for publications such as F1 Magazine, EuroBusiness and BusinessF1. She is now a freelance journalist, working in London.