08/05/2011
NEWS STORY
There's an interesting article in the Independent entitled 'Murdoch v Ecclestone: the fight to win control of Formula One racing.'
It starts as follows: "To judge by the denials, nobody is interested in buying control of Formula One motor racing, even though it is one of the world's most lucrative sporting circuses. But in reality, a battle is brewing between two of the world's richest - and most ruthless - businessmen to seize the wheel of a multibillion-pound industry." It all sounds very familiar but in fact, a close look reveals that the article was in fact printed on 21 February 2002.
F1's boss Bernie Ecclestone certainly wasn't exaggerating when he said in a recent interview with the official F1 website that Murdoch's News Corp media empire "have been trying to buy the TV rights from us for a long time." There's one reason it hasn't happened yet and won't happen in future.
Pitpass has already reported that News Corp would face a tremendous hurdle from the teams if it actually put its money where its mouth is and made a bid for F1. The reason for this is, of course, the fact that sponsorship is the teams' largest source of income and a move to News Corp's pay per view stations would severely dent this by reducing viewing figures.
Since Pitpass first raised this point it has been repeated by everyone, from the teams to Bernie Ecclestone, but some have said that News Corp could keep F1 on free to air TV to solve the problem. It is hard to imagine News Corp's shareholders would agree to spending billions (the highest estimate flying around is £7bn) on F1 only to be forced to allow its free to air rivals to broadcast it.
News Corp's shareholders have already filed a legal complaint accusing Murdoch of using the company "like a family candy store," by buying his daughter's business. So it wouldn't seem sensible to agitate them further by spending a fortune on something like F1 which is not core to News Corp's existing business and would actually benefit its rivals. As if this wasn't enough of a problem, as Pitpass has also already reported, Prince Alwaleed, a Saudi-Arabian billionaire who is the second biggest shareholder in News Corp after the Murdoch family, particularly dislikes F1.
But let's pretend that News Corp does manage to convince the teams (and the FIA, which could veto the deal) that F1 will stay free to air. Then let's pretend that the News Corp shareholders are happy for the company to throw billions at F1 only to have to offer the sport to their rivals to broadcast. Even if News Corp could surmount all these hurdles it would face an even bigger problem with no real likelihood at all that it could overcome it.
One absolutely crucial point which very few media outlets have even mentioned has been revealed in detail by Pitpass' business editor Chris Sylt in an article for the Independent{/i. According to the European Union's Merger Regulation 139/2004, when one company buys another, if the combined business has revenue in excess of £4.4bn (€5bn) globally and £220m (€250m) in Europe, the transaction must be examined by the European Commission.
Given that News Corp alone had revenue of £20bn ($32.8bn) last year with F1, which is firmly based in Europe, making £960m (€1.1bn) there is no doubt whatsoever that a takeover would be investigated by the EC.
One F1 blogger falsely wrote that "the other argument put forward is that the European Union would oppose such a deal, but it is not clear how that could happen if much of the business was on the Internet, which is a global phenomenon." However, in fact, it is not the source of F1's income (be it from the internet, from races or otherwise) which would trigger the investigation but it is the London location of its headquarters and its annual revenue.
For the sake of comparison, it is worth noting that when Mercedes and the Aabar Abu Dhabi investment fund bought 75% of the Brawn GP team in 2009 the EC even investigated that deal - it had to because Daimler and Brawn's revenue exceeded £220m (€250m) in Europe and £4.4bn (€5bn) worldwide.
So, we have established that the EC would have to investigate a News Corp takeover of F1 but would it give it clearance? The very reason that the EC sets thresholds for the deals which it investigates is to ensure that the larger takeovers do not stifle competition. This is where the brakes would be put on a News Corp takeover of F1.
To see whether News Corp's competitors were going to lose out by the company buying the rights to an entire sports series (indeed the most watched annual series worldwide), the EC would require it to affirm whether it will broadcast F1 on its own channels or offer them to its rivals. Either way News Corp would be put in a no-win situation.
If News Corp were to move F1 to its own channels (pay per view or otherwise) it would obviously give it a position of dominance over its rivals and since we are talking about it broadcasting an entire series that would be a pretty big position of dominance.
Likewise, if it were to offer the rights to broadcast F1 to its rivals it would still be in a position of dominance. Imagine a scenario where the BBC broadcasts News Corp-owned F1 but near to the end of the BBC's F1 contract it also ends up bidding against News Corp for the rights to cricket. News Corp could increase the price of F1 by such a large amount that it couldn't afford cricket as well.
Likewise, imagine a situation where, for example, the Mobil 1 oil company wants to advertise during motorsport TV programmes and so has to advertise during News Corp's broadcasts of IndyCar on Sky because it is the only major racing series on a channel which takes advertising. When it comes to F1's contract on the BBC being renewed, News Corp could simply fail to pick up the phone to ITV if it wanted to broadcast it. This would prevent Mobil 1 moving its advertisements from Sky to ITV's broadcasts of F1.
We could go on and on creating these kind of examples to show how it would be a complete conflict of interest for a broadcaster like News Corp to own a sports series such as F1 but there really isn't any point in doing so because if it ever came to making a bid, the EC will do just that when it explains why the deal is blocked.
Indeed, this is almost certainly one of the very reasons why News Corp has not said that it is bidding for F1 and will most probably never do so. If it were to make a formal bid for F1 it would have to engage a team of accountants and other experts to prepare it and this would cost money. Sure, a company like News Corp can afford it but if its in-house lawyers are telling it day in day out that there is no chance the EC would clear a takeover then it would simply be money which it knows would be wasted. Of course, writing a press release saying that it might bid for F1 costs nothing and this is what it has done already. What News Corp has to gain from this phantom bid is one of Sylt's stories for another day.
This tale couldn't be left without mentioning that the EC blocking a News Corp takeover is far from hypothetical. In 1998 the UK's competition commission blocked BSkyB, in which News Corp has a 39% stake, from buying Manchester United due to the power it would give the firm in negotiating broadcast contracts. Amongst the reasons for its objection were the fact that owning the team would give it influence over its competitors and a financial benefit which would not be available to other broadcasters. BSkyB pays a princely sum to broadcast the Premier League but if it owned Manchester United some of this money would come back to it through the team's prize winnings which are paid by the League. Likewise, if News Corp owned F1 and its channels broadcast it, the fee they paid to do so would come straight back to their owner since it would own the sport.
Bearing in mind that the competition commission prevented BSkyB from buying one team for all these reasons it is simply inconceivable that it would let its owner buy an entire sports series. It is also interesting to note that when Sky News' very own business editor Mark Kleinman wrote about the possibility of News Corp taking over F1 (http://blogs.news.sky.com/kleinman/Post:ba1e6a4b-b146-4edc-ae17-1bdcdcbeb360) he mentioned that BSkyB had failed to buy Manchester United but didn't explain why. It is a point which was most certainly conspicuous by its absence.