When Bernie Ecclestone and the GPWC announced that they had reached an agreement back in December it seemed as if all Formula One's problems were over. But it is far from that simple. The December announcement was not an ending, but a beginning and nothing has been finalised. With the first deadline of a January press conference now missed, Caroline Reid looks at the obstacles that still have to be negotiated before F1's latest truce becomes a permanent peace

It seemed that the genius of Bernie Ecclestone had struck again. The GPWC's plans to set up a rival championship had started to sound like a genuine threat to the future of Formula One, but then in December it was announced that the rebellious manufacturers, the shareholding banks of Formula One commercial rights arm SLEC and Ecclestone had signed a document called a 'memorandum of understanding' concerning an allied front on the sport's future. The threat of a splinter series had been averted.

The fans were delighted by this development and the media optimistic that all Formula One's problems had been solved. More than one newspaper, magazine or website ran the headline 'Peace in our time'. Had the editors of those publications been a little more fastidious they might have paused to remember the most famous use of that phrase: when British Prime Minister Neville Chamberlain declared he had persuaded Adolf Hitler to commit to peace… three years before the outbreak of the Second World War.

The Formula One Administration/GPWC/SLEC press release of 19th December set out a list of objectives for the new alliance. On paper they seemed simple enough, but on further thought they were more like sacred relics in a mythic adventure: objects that require superhuman effort to obtain but without which the quest cannot be completed. Ecclestone has worked magic on this scale before, but the road ahead is not yet clear of obstacles.

A memorandum of understanding is in no way a binding agreement and if this is all that has been signed then none of the points of agreement that are subsequently listed in the press release can be taken as concrete yet. A memorandum of understanding is a declaration of intent between parties, made until a more certain agreement can be arranged. There is no absolute commitment to the terms it refers to. For example, last year the GPWC signed a memorandum of understanding with the teams with a view to setting up a rival championship.

A press conference to clarify the aims and objectives of the GPWC and SLEC was promised for mid January. It never happened. Officially this was for logistical reasons - a number of very important business figures from several different countries needed to be brought together in the same place at the same time - but there have been whispers that the real reason behind the delay is that finding a solution to satisfy everyone is proving more elusive than expected. Missing this deadline inevitably means that the next deadline - to have some of the changes in place for the beginning of the season - may also be missed and signing a new Concorde Agreement by the middle of the year is less likely.

The points agreed upon that were described in the 19th December press release require further scrutiny. At first glance this press release appears to be a comprehensive account of what the GPWC and Formula One will gain from the peace agreement. Yet on further study many of the points laid out in the memorandum of understanding are ambiguous and contradictory. The implication is that either there is some pressing need to keep the details secret at this stage, or that the details have yet to be established, in which case there is a great deal of work still to be done and the GPWC saga is far from over.

The following objectives were agreed by SLEC and the GPWC:

"Team revenues to increase significantly over distributions presently received under the current Concorde Agreement"

The division of the spoils is likely to be the main point of contention between SLEC and the teams. At the moment, the ten teams receive 47 per cent of the total television revenues from Formula One, with SLEC (owned 75 per cent by the German banks and 25 per cent by Ecclestone) taking the remaining 53 per cent. The word is that the teams will continue to receive 47 per cent of these television revenues, but will also take 47 per cent of SLEC's other revenues, including tracks' franchise fees, hospitality, trackside advertising, video game licensing and other licenses.

On the face of it, this seems like a financial loss for Bernie and the banks. This is odd to observers who have long believed in Bernie's ability to chase down every last buck and also because the only reason that the banks are involved in Formula One is because they want to claim back as quickly as possible the money that was owed to them by SLEC's previous shareholder, defunct German media giant Kirch.

Arguably Ecclestone and the banks had no choice: had they not made such concessions the threat of a rival championship would inevitably have reduced their revenues in the long term anyway. There was some talk that Ecclestone would buy the banks' stake in SLEC back from them with a view to selling it on later at a profit. But the surprise declaration that the banks will stay on as shareholders (see below) seems to have ruled this out as an option.

Where revenues are concerned, Bernie's old ally Patrick 'Paddy' McNally must also be taken into the equation. Currently McNally's Allsport Management runs the exclusive Paddock Club hospitality package and sells trackside advertising for most of the races. The revenues are currently split between him and Ecclestone. There is talk that the need to provide the teams with revenue from trackside advertising and hospitality may force Ecclestone to bring these two revenue sources in house at Formula One Management, cutting out McNally's third party input and leaving more money for Ecclestone and the teams. But not only is McNally a good friend of Ecclestone, he has done an excellent job of running Allsport's interests in recent years and cutting out his expertise might be detrimental to the revenues.

"GPWC will be represented on the SLEC board with three directors"

This is one of the less contentious points and is an obvious concession for SLEC to make if the GPWC is to have more control and input where the running of Formula One is concerned. The main question is which three of the four car manufacturers that make up the GPWC will be represented. Ferrari would seem a clear favourite, whereas Ford's relative lack of financial commitment to Formula One at the moment (illustrated by the budget cuts at Jaguar) would suggest a lack of overall commitment from the company. That would leave Mercedes, BMW and Renault to fight over the remaining two seats.

"Current SLEC shareholdings are not expected to change significantly, with Bayerische Landesbank, JP Morgan and Lehman Brothers continuing to own a majority of the SLEC shares"

This came as a surprise to many people who expected that the settlement between SLEC and the GPWC would see the GPWC buying the three German banks' share in SLEC. It made sense, as the GPWC had attempted this previously but the banks had deemed the price too low. The wording here is tantalisingly ambiguous though. Not only is there no indication of timescale for this continued ownership, but Bernie Ecclestone's name is conspicuously absent. Why not mention that he will continue to own the remainder of the shares? It carries the implication that Bernie might be ready to sell up and head off into the sunset, although those close to him have always said that they believe he will continue working until his coffin is nailed shut. And to give the statement further ambiguity "not expected to change significantly" is not the same as "will not change".

But what is most problematic about this statement is that it has been contradicted further on in the press release and since by Ecclestone himself. It is virtually unthinkable that the banks would continue to hold a majority stake if the company went public, something that it is later said to be a commitment in the 'short to medium term'. Furthermore, last month Ecclestone told the London Financial Times newspaper that the banks wanted to 'get the hell out of it' but were being restricted from doing so by the FIA right to prevent the shares falling into the hands of groups it considered bad for the interests of the sport.

"Commitment by all signatories to an IPO of the company in the short to medium term"

Bernie Ecclestone has attempted to float Formula One on the stock market before, but it has never come to anything due to initial hostility from some of the teams, an anti-trust investigation by the European Commission and general scepticism in financial circles. With the first two of these obstacles removed, now could be Ecclestone's best opportunity so far to take his company public.

Once again, however, the statement is fraught with ambiguity. 'Short to medium term' is far from specific and is further confused by comments from SLEC insiders that they do not expect an IPO for a year after a new Concorde Agreement is signed - which stretches the definition of 'short term' as that date is now a minimum of eighteen months in the future. Mysteriously the release simply refers to an IPO of 'the company' while never specifying which company it is talking about. Originally Ecclestone intended to float the company Formula One Holdings, which is not mentioned in the press release. SLEC, FOH's parent company is mentioned, however, as is one of FOH's subsidiaries, Formula One Administration. This may be an indication that it has yet to be decided which of the network of Formula One companies will go to the stock market.

There still remains the problem of overcoming hostility to a Formula One IPO in financial circles. Insiders in the City (London's financial centre) and senior figures in motorsport finance have expressed grave doubts that Formula One could float. Ecclestone has said in the past that he didn't think the City understood Formula One. F1 is a famously secretive sport whereas investors require transparency before they are willing to put their money into a company. Ecclestone was previously reluctant to reveal previously secret commercial contracts to the world, but he might be forced to if an IPO goes ahead. His secretive and idiosyncratic style has brought Formula One into an era of extreme opulence, but ironically it may be this that makes an IPO untenable.

"Mr Ecclestone, CEO of Formula One Administration, will continue to run the company as CEO"

To many Formula One fans and insiders, this would seem to be stating the obvious. Formula One without Bernie is almost unthinkable and he is held in awe by many as the only person who could have made Formula One into the commercial success it is today.

But in the City, Ecclestone is not so well regarded. The way he does business is alien to their principles of transparency and accountability. One witty hack once remarked that Ecclestone is famous in Britain for two things: giving £1 million ($1.6 million) to the Labour government, and having a wife who is a foot taller than he is. The former episode and the ensuing row over Formula One's exemption from a tobacco advertising ban has made him a controversial figure who the City treats with caution.

Last time that Ecclestone tried to float Formula One, analysts also saw a problem with his age. That was seven years ago and now he is 73. It is unheard of for a company with the market value of Formula One (estimated at as much as $4 billion) to go public with a chief executive over the age of 70, something that is only compounded by the lack of a clear successor.

This is a major problem. Although Bernie has touted former Ferrari team principal and current FIA deputy president, Marco Piccinini, as his heir apparent, Piccinini has no real experience of doing the job. He is not based at Formula One head office in Knightsbridge and under the European Commission's anti-trust ruling his important role on the sporting body the FIA prevents him from strong involvement in a commercial role. He has also been mentioned as Max Mosley's successor as president of the FIA and he cannot take on both roles. An understudy to Ecclestone could perhaps be brought in with a view to taking over the top job in a few years time, but it will be difficult to find anyone acceptable to both parties.

All this raises the question of what would happen should Ecclestone suddenly die, fall ill or retire. His grip as Formula One's ringmaster is so tight that the whole show could possibly fall apart without him. He controls complex negotiations with television broadcasters, the teams, sponsors, promoters, circuits, the FIA and the car manufacturers, balancing their needs and demands. He is seemingly invaluable and consequently takes a handsome salary, at an estimated $80 million, many, many times the average salary of a FTSE 100 chief executive at $3 million. Formula One may be in a position where it can't float with him and can't float without him: with him Formula One struggles to fit the image of a typical public company, but without him its complex web of deals and agreements might collapse.

One option is that Ecclestone might select his successor, teach him all he knows and then retire in a few years' time, paving the way for a successful IPO. But this is not a quick process and few who know Ecclestone can imagine he would be contented to spend the rest of his life on the beach.

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.

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