15/05/2012
NEWS STORY
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With nearly a year to go before the expiry of the Concorde Agreement, the commercial contract at the heart of F1, it is surprising to say the least that the majority of teams have agreed to sign up to race until the end of 2020 as F1's boss Bernie Ecclestone revealed back in March.
The Concorde Agreement commits the teams to race in F1 and when it has come up for expiry in previous years they have threatened to pull out of the sport unless the contract met their requirements. This time round the only team which is reportedly considering making any threats is Mercedes but its bargaining chip may not be as strong as it seems.
The main reason for the lack of threats lies in clause 4.5 b) of the current Concorde Agreement which prevents the teams from making "any public statement or statements in any medium, whether orally or in writing... to promote... an equivalent championship or series to the FIA F1 Championship... until after completion of the last Event in the 2012 Season." This explains why they couldn't threaten a rival series but they still usually hold off signing right until the eleventh hour (or sometimes even after the contract has expired) so how did Ecclestone get the majority of them to commit so quickly?
The Concorde Agreement itself is a 300 plus page document whereas what the teams have currently signed is a 30 page agreement to sign the main contract. It is much like the memorandum of understanding which was signed in Barcelona in 2006 and preceded the current Concorde Agreement. The fewer the pages, the less time it takes the lawyers to work through it.
In addition, Ecclestone came up with the savvy strategy of creating clauses in the upcoming Concorde which favour Ferrari, McLaren and Red Bull Racing. Once these top three teams were committed, the rest had little choice but to follow suit.
Ferrari, McLaren and Red Bull were tempted by getting seats on F1's board and a boost in prize money. Currently 50% of F1's profits is shared between the top 10 teams and Ferrari gets a separate fee due to its historic status. However, under the new contract additional payments will go to any team which has competed since 2000 without making a change to its name with further payments to reward past Constructors' Championship winners and back-to-back champions. There has also been talk of Ferrari being given the opportunity to take a small stake in F1 itself as part of a plan to float the business on the Singapore stock exchange this year.
These terms don't favour Mercedes as not only has it not been given a board seat but it has changed its name multiple times in recent years making it ineligible for additional payments. It has not yet signed the contract and, according to the Daily Telegraph, the team is considering making an anti-competition complaint to the European Commission (EC) due to what it believes to be preferential treatment to Ferrari, McLaren and Red Bull.
On the face of it, this seems to be a significant threat because it could de-rail the plan to float F1. In the late 1990s the EC launched an anti-competition investigation into F1 and this put the brakes on its first attempt to float. However, leading sports lawyers agree that Mercedes' case would not be strong.
Speaking to Pitpass' business editor Christian Sylt, Paul Stone, sports and media partner at City law firm Charles Russell, said "it's not that unusual for teams to have an ownership stake in the body that exploits the commercial rights associated with their league or tournament. For example, the Premier League is owned by its 20 member football clubs. So a minority stake held by one of the F1 teams in itself is unlikely to give rise to competition law concerns."
Another media and sports lawyer, Charles Braithwaite from Collyer Bristow, concurs. He told Sylt that "on the basis that Ferrari is not taking a controlling stake, competition law is unlikely to be relevant and other teams are unlikely to be successful in making a related claim for anti-competitive behaviour to the European Commission." Bristow adds that "appointing team representatives to the board is likely to result in questions of independence."
It suggests that Mercedes has little choice but to fall into line or pull out of F1. Nico Rosberg's maiden win at the Chinese Grand Prix in April may have given the team renewed interest to stay even if it isn't entirely happy with the commercial arrangement.
This doesn't mean that the Concorde and the flotation have a smooth road ahead. Commitment from the teams to race is important but investors need to be convinced about the prospects for the business. F1's revenues are largely proportionate to the number of races on the calendar and the Concorde caps this at 20 - a limit which has been reached this year.
Only one other motorsport management company has ever been floated and this is F1's US rival IndyCar which listed on the New York Stock Exchange in 1998 under its previous guise of Championship Auto Racing Teams Inc. The flotation was driven by former chief executive Andrew Craig and this makes him uniquely positioned to comment on F1's situation.
Craig told Sylt that "the long term 'story' to be presented to investors will need to set out a comprehensive vision for the future. F1 is running at or near to maximum capacity in terms of races so long term growth will have to come from either substantially enhanced revenues from existing sources or from the development of new revenue sources. In other words, will growth within the existing business model be sustainable over the long term?"
He adds that provided investors can be convinced that F1 has a growth plan there should be significant interest in the flotation. "There will be high visibility of future revenues due to the long term nature of both race promotor and TV contracts. Assuming that these contracts include accelerators each year there will be good visibility of future growth as well. Tight control of operational costs in a traditionally lean organization results in superior margins. There is a lot here to like."