Atlas F1 Bernie's Midas Touch
Goes Up in Smoke

  by Forrest Bond, RaceFax Online;
Pictures provided by F1Picturenet

When the Belgian government booted tobacco advertising out of Spa, Bernie Ecclestone was clearly caught off guard. Ecclestone asked the team owners and the tobacco companies for a show of strength, and in an unprecedented turn of events, failed to get it. By the end of the weekend, people were beginning to wonder if Formula One's long-time ringmaster had run out of tricks

Bernie EcclestoneWhile little has been made of the milestone, when the checkered flag falls over the Suzuka finish line in late October, it will mark the end of the 50th season of Grand Prix racing's 'modern era'.

Over those five decades, Formula One has produced a pantheon of heroes and villains, men whose exploits have given the sport a larger–than–life aspect, elevating its history to the status of legend.

Quite naturally, most of F1's storied participants have been drivers, men whose careers ranged from the epic to the tragic. Adding to the drama of the sport's history, a significant number have been viewed as both hero and villain, Ayrton Senna and Michael Schumacher springing readily to mind as the most recent examples. Even designers of engines and racing cars - from Vitorio Jano to Adrian Newey - are celebrated in Formula One for technological achievements that bordered on the mystical as they all but defied the laws of physics.

Team owners, many of them as idiosyncratic as the more notable drivers they hired and fired, have contributed to Formula One's rich history. Enzo Ferrari is, of course, the benchmark by which autocratic team owners are judged, but a short list would also have to include such men as owner/driver Bruce McLaren and Colin Chapman, the latter still sometimes rumored to be living on John Delorean money somewhere in South America.

Die–hard fanatics can even relate stories about chief mechanics, like Ermanno Cuoghi, who served Niki Lauda so well and for so long at Ferrari, only to be fired for declaring his intention to follow Lauda to Brabham. Largely uncelebrated in F1 legend, however, are the men who have wielded the ultimate power over Formula One, the heads of the FIA's frequently renamed, and ultimate disbanded, sporting arm, and more recently, the commercial power brokers.

Few today will have ever heard of Prince Paul–Alfons von Metternich, whose weak leadership and pre–war values ran headlong into the increasing commercialization of the sport in the 1970's. More are aware of Jean–Marie Balestre, who succeeded Metternich as head of the FIA's Commission Sportive Internationale, and ultimately became president of the FIA itself, though Balestre is remembered chiefly because his watch included the fabled FISA–FOCA War of the late '70s and early '80s. That conflict produced two other men who would figure large in Formula One, Bernie Ecclestone and Max Mosley. It also produced a landmark redistribution of the power in Formula One, and changed the face and direction of the sport forever.

Ecclestone - acting for the team owners as head of the Formula One Constructors Assn. (FOCA), and with Mosley as his law–degreed lieutenant - emerged from the war with control of F1's commercial interests, while the enigmatic and mercurial Frenchman and the FIA were left with technical ownership of Formula One and control of the sporting aspects. In effect, the teams had won, for even changes to the regulations would largely require their agreement. But as time would show, the real winner, the man to whom power was truly granted, was Ecclestone.

Ecclestone as Brabham team chiefBy the re–division of authority to which they agreed, Ecclestone and Balestre laid the foundation for the multi-billion-dollar, global sports–entertainment franchise which Formula One has become, though they could little have envisioned the orders–of–magnitude increases in the commercial value of the sport which lay ahead. Clearly, though, Ecclestone's vision of the future was much closer to the eventual reality than was Balestre's.

The key element in the peace treaty - the original and still secret Concorde Agreement - lay in the fact that the teams emerged from the FISA–FOCA War with the commercial rights to Formula One, rights which were duly vested in Bernie Ecclestone, the man everyone seems to agree was ideally suited to wielding them.

Even with the benefit of hindsight, it is difficult to overestimate the contributions to the sport which Ecclestone has made in wielding his unprecedented power. In point of fact, what Ecclestone has accomplished with the spoils gathered from the war has made him arguably the single most important figure - and not coincidentally the wealthiest - to emerge from the entire 1950–1999 period.

Unique among his contemporaries, Ecclestone had a clear and prescient vision of the future of Formula One, and at its core was television.

At the time Ecclestone gained his power, television was still a humble thing in Europe. Most countries had a minimum number of channels available in the pre–cable '80s, and most of those channels were government–operated, or at least government–controlled. Commercial opportunities were not readily apparent, except to Ecclestone.

In order to realize those opportunities, Ecclestone set about changing the face of Formula One. As both a team owner (Brabham) and head of FOCA, Ecclestone began to mold Formula One into a more telegenic image, in preparation for the coming media explosion he alone foresaw. Jeans and t–shirts were no longer allowed on pit road, quickly replaced by team uniforms. Cars had to be prepared to appearance standards as high as those the teams applied to technical preparation. Gradually, at Ecclestone's insistence, the rag–tag band of itinerant racers following the summer sun was transformed into a spit–and–polish cadre of professionals, in both appearance and demeanor.

At the same time, Ecclestone began to work his well–developed entrepreneurial skills on the world of television.

Ecclestone and Eddie JordanWhere previously, most broadcasters had carried their home Grand Prix and perhaps a couple of others, there was nothing like the full–season coverage we've come to take for granted. In those countries which hosted a Grand Prix, Ecclestone required that the network which produced the coverage show all the races, offered in exchange for bargain basement rights fees. Country by country, Ecclestone marched Formula One across Europe's television screens.

Even the rules of Formula One were changed to make the sport more attractive to television and television viewers. Timetables were set and rigidly adhered to by all. And gradually, what Ecclestone had expected became reality: more viewers meant more spectators at the races, and more spectators meant more viewers. Ecclestone had found the entertainment business's equivalent of the perpetual motion machine, and once the number got large enough, the machine began to disgorge money. Large amounts of money.

Country by country, as the at–home audience became sufficiently substantial, Ecclestone renegotiated his contracts with the broadcasters. What had been virtually free programming was priced in accordance with the number of people who couldn't get enough of Formula One. The tobacco companies had become involved in F1 long before the FISA–FOCA showdown, John Player being one of the first non–automotive companies to underwrite an F1 team, in the mid–1960s. But with the advent of a major television audience, more came into the sport and all paid more dearly for the increased exposure. Formula One had found its soulmate, and Ecclestone had been the matchmaker.

It was a brilliant strategy, and one Ecclestone executed just as brilliantly. The influx of money transformed Formula One into the highly professional presentation we see today. It also transformed the team owners who stayed the course - and Ecclestone, of course - into multi– millionaires. And even if no one seemed to know just how many millions Ecclestone was taking home, no one begrudged him the money, because it was his concept, his management and his force of will which had made it all happen. Besides, everyone was banking more money than they'd ever dreamed of seeing.

It seemed too good to last, and it was. Formula One's financial house continued to be built on a foundation of tobacco smoke, but the winds of social change were about to clear the smoke.

Ecclestone and Ron DennisThe anti–tobacco forces were gathering, especially in the U.S., and with Formula One not racing in America, Ecclestone found the social reformers easy to dismiss. The movement spread to Europe, but as the European Union struggled with the issue for nearly a decade, Formula One continued its dependency on cigarette money in the blissful belief that either proposed legislation would never pass, or that it could somehow manage an exemption to any restrictions.

Ecclestone did attempt to cover the bet, however. Perhaps coincidentally, Ecclestone fixed on his next great promotional venture, digital pay–per–view (PPV) television.

The possibilities and benefits seemed beyond measure. Ecclestone, who had already created FOCA Communications to produce commercial season–review video tapes, expanded its charter. The advent of satellite television distribution promised to break down national borders, the multi–channel cable television explosion was becoming a reality, and digital television was being touted as the future of broadcasting. In all of it, and especially in digital television, Ecclestone saw financial opportunity, and prepared to expand FOCA Communications into a digital TV production company.

No longer would Formula One be dependent on the wildly varying quality of local broadcasters to produce its television coverage. Ecclestone could both produce and distribute the race programs, offering multiple channels and charging viewers directly, making his deals with a smaller number of satellite broadcasters whose 'footprints' frequently transcended national borders. Advertising, digitally inserted into the pictures, could be sold on a country–by–country basis, the banner on a bridge over a pit straight, for example, being sold to different advertisers in different parts of the world. More specific target marketing would be possible, and with premium pricing.

Once again, Ecclestone was ahead of the curve, pioneering a market which barely existed. With digital television available only in a couple of European countries, the revenue potential was then modest. Viewers who did have access would have to be convinced that the PPV service was substantially better than the readily available, over–the–air free broadcasts. And the expense of setting up digital broadcasting - offset by minimal income - would be staggering.

Ecclestone and ken TyrrellEcclestone holds his financial information close, but there is general industry agreement that the start–up costs ran around $80 million, and that the annual operating costs are running somewhere between $30 million and $50 million.

The money may not be 'on the screen', as they say in Hollywood, because so far, the digital coverage isn't substantially better than terrestrial broadcasts, but much of it is certainly visible at Grands Prix. 'Bakersville', the Eddie Baker–run digital production compound, occupies a massive area at each race, and requires 16 tractor–trailer rigs for its transportation from race to race. For the 'fly– away' events in Asia and South America, two cargo jets are needed. Bakersville is staffed by 120 people, and brings 30 cameras to each event.

The investment was supposed to be short–term; an audience of three million was projected for 2000, but as 1999 closes out, the actual audience is perhaps 350,000, mostly in Germany and Italy, the French having failed to embrace digital F1 with open arms and checkbooks. Britain will evidently be added next year, which will boost the revenue, but the overall target - nearly $1 billion in annual revenue, or three times what terrestrial broadcasters now pay - will almost certainly remain well out of reach for the foreseeable future.

The staggering scope of the investment Ecclestone was required to make in digital TV had a number of knock–on effects, and none were positive.

First, it created significant dissension in the ranks. In combination with the London Times ranking Ecclestone progressively farther up its annual lists of Britain's wealthiest, it made the team owners far more aware of just how much Ecclestone had been earning from his position as Formula One's 'commercial rights holder'. In addition to the lion's share of the profit from over $300 million in broadcast television revenue, Ecclestone's labyrinth of companies was getting a percentage of essentially every dollar which changed hands at a Grand Prix with the exception of ticket sales. And while ticket revenue went to the race promoters, Ecclestone had made himself the promoter of an increasing number of Grands Prix.

Dissatisfaction with the distribution of profits from what they saw as their labors led the team owners to demand a renegotiation of the split, just as Ecclestone was in need of ever larger amounts of working capital to fund the digital expansion.

Ecclestone and Max MoselyUltimately, the team owners won, more or less, when the 1997 version of the Concorde Agreement was rewritten for '98, specifically to change the profit distribution.

To recoup the lost revenue, Ecclestone planned to take his recently created umbrella company, Formula One Administration (FOA) onto the public stock market, in an attempt to generate as much as $2 billion dollars. The need was pressing, and not simply for Ecclestone. While he and Mosley had each apparently not expected it to happen, the European Union's health ministers had enacted, in late '97, a ban on tobacco advertising which would hit Formula One and its teams in October, 2006. As if all that were not enough to deal with, the increasing public awareness of how much money Formula One was turning over annually, and how much of it was going to Ecclestone, drew some unwanted attention to the sport.

A monopoly suit filed against the FIA and Ecclestone by an obscure German sports television producer, Wolfgang Eisele, suddenly gained the attention of the major media, as well as the EU's competition commission. Working initially from information provided by Eisele and in his legal filings in Germany, the commission began an investigation of the FIA and Ecclestone, and found everything from an Ecclestone conflict of interest to what in the U.S. is called a combination in restraint of trade.

That action, still pending, posed a significant threat to Ecclestone's existing broadcast contracts, as well as the digital television future he envisioned, and in turn, threatened the financial underpinning for his plan to take FOA public. As a result, Ecclestone had to abort the public offering.

While it may not have been part of the original plan, in renegotiating the revision to the Concorde Agreement and the revenue division, Ecclestone largely justified his percentage by telling the team owners that the additional revenue from digital television would replace the income which would be lost to a tobacco advertising ban.

That was welcome, if somewhat suspect news. As team owners well knew, the tobacco companies were spending more for the exposure available from Formula One because their marketing opportunities in other areas were being increasingly restricted.

Ecclestone and Alain ProstJust how much the tobacco manufacturers were contributing is largely left to speculation, but the best figures available came from Mosley in early '98. According to him, those companies collectively pump between $200 million and $320 million a year into the sport, and that apparently represents only direct sponsorship payments to the teams. Track banner advertising, paddock club entertaining at the races, race programs and other revenue - much of it going directly to Ecclestone, and not divided with either the FIA or the teams - was evidently not included in Mosley's estimate.

While some team owners had faith in Ecclestone's digital PPV future, they also knew that replacement sponsors would likely find it impossible to justify paying as much as the tobacco companies were spending. Covering their own bets, many sought ever–greater dependence on major auto manufacturers, not merely for their engines, but for additional, direct financial participation. Witness Jackie Stewart selling his entire team to Ford, and Ron Dennis and Mansour Ojjeh selling a 40 percent interest in the TAG/McLaren Group, including Team McLaren, to DaimlerChrysler.

Collectively, all of these events marked a major change in how Ecclestone was operating. Instead of acting, F1's ringmaster was increasingly reacting, and to events outside his ability to control them.

That change became unavoidably evident at last week's Belgian Grand Prix, a race where, it should be noted, Ecclestone is the promoter.

On the Monday before the GP, the cars which rolled out of the transporters were still carrying their tobacco advertising. The next morning, team fax machines began spitting out urgent messages to strip off the tobacco decals; the cars would have to run 'unbranded'.

Last year, the Belgian parliament had passed legislation which banned tobacco advertising in sport from the beginning of this year. The Walloon regional government, having become seriously attached to the millions the Belgian GP pumped into the local economy each year, decided that the national government had transgressed the rights of the regional government, and enacted its own legislation to counter the ban.

Ecclestone and Jean TodtThat impasse will be resolved, probably this fall, by an international court of arbitration in Geneva, but in the interim, Mosley and Ecclestone had tried to pressure the Belgian parliament by threatening to pull this year's GP from the calendar.

For reasons not clear, Ecclestone decided that, even though the conflicting laws remained unresolved, the teams would be able to run branded at Spa. That he'd misjudged the situation became clear at the 11th hour. Under threat of half–million–dollar fines against the teams and tobacco companies, not to mention a possible year of jail time, the teams and their sponsors opted for discretion. Thus the faxes on Monday.

As the team owners and the sponsor representatives arrived at Spa late in the week, Ecclestone was clearly not doing business as usual. Where normally he spends most of his time closeted in his elaborate motorhome, summoning others to racing's equivalent of a Papal audience, from Friday morning, Ecclestone was on the move.

Making the rounds of the teams' motorhomes, Ecclestone lobbied each of the tobacco–backed team owners, and then the individual tobacco company representatives, to 'run branded' in spite of the threat posed by the Belgian legislation. None would agree to support him.

On Saturday, Ecclestone was again lobbying intensely, ultimately calling the team owners and sponsor representatives together for a joint meeting. Promising to 'take full responsibility', he again called for a show of support. And again, all declined, some pointing out to Ecclestone that he couldn't take responsibility in the face of possible fines and jail time; who was responsible would be the decision of prosecutors, not Ecclestone. None were prepared to take the risk.

It was, for Ecclestone, a stunning defeat. For a year, he had been on record that no additional European races would be run with generic logos. More recently, he had made it clear that, if the Belgian ban were enforced, there would be no Belgian Grand Prix this year. Yet there they were, practicing, qualifying and racing at Spa bereft of their tobacco logos.

When the cars ran unbranded at Spa despite his pleas, Ecclestone was transformed from the most powerful man in F1, if not all of sport, to the equivalent of the boy who cried wolf, reduced to telling local authorities that - barring a Walloon win in arbitration - what was taking place out there in the Ardennes forest was the last Belgian Grand Prix.

Ecclestone's motorhome at GPsFor Ecclestone, what was at risk was far more than his profit as the Spa promoter. While earlier this year he had succeeded in attracting $1.4 billion from an FOA bond issue, that amounted to a loan. To repay it, and leave him the funds to nurture digital PPV television, Ecclestone had been counting on reviving his plan to float FOA on the public stock market.

If the Belgian national law stands, Ecclestone fears that other European countries will follow suit, accelerating the timetable established by the EU tobacco ad ban, and concurrently reducing the time available in which to replace tobacco money with PPV revenue. Further, that threat, combined with the impending decision by the EU's competition committee - which may nullify Ecclestone's ownership of F1's broadcast rights - puts at risk his planned flotation of FOA.

In sum, the entire financial underpinning of Formula One is in considerable doubt, and Ecclestone is essentially powerless to allay the fears which potential investors must now harbor.

Potential investors are not the only ones with doubts about Ecclestone. Increasingly, the teams have begun to doubt, not simply when they'll see significant revenue from Ecclestone's digital PPV scheme, but if they'll ever see it. Ecclestone's earlier attempt to influence the British government's tobacco ad ban decision largely backfired, resulting in considerable negative publicity for Formula One, and coming close to crippling the then–new government of Prime Minister Tony Blair.

The EU's monopoly investigation is still a major threat to the basic financial structure of F1, as is the coming EU tobacco advertising ban. And as the crowning blow, there was the Belgian fiasco - Ecclestone's first major miscalculation and significant outright loss. Collectively, all of this has seriously undermined his long–standing image as the man who could make it happen, whatever 'it' turned out to be, and put his position as F1's ringmaster at considerable risk.

If a driver is only as good as his last race, a deal–maker is only as good as his last deal. With Ecclestone's Belgian arrangement having come apart, there are now substantive indications that some of the team owners have decided that, his past contributions notwithstanding, the ringmaster is not the man to lead them into Formula One's second 50 years, and that the first, tentative steps in a search for someone to replace him have already begun.

Forrest Bond© 1999 Atlas Formula One Journal.
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