28/01/2013
NEWS STORY
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We are now under seven weeks away from the start of the Formula One season and there is one crucial difference behind the scenes which separates 2013 from recent years. The Concorde Agreement, the contract which has been at the heart of F1 since it was first signed in 1981, expired at the end of last year and a new draft has not yet been agreed.
In years gone by it was thought that races could not go ahead if there was no Concorde. Some misguided sources still believe the lack of the Concorde would lead to significant change. One recent report suggested that without the contract, the FIA "could effectively lose control of its own championship." It even claimed that if the contract was not in place F1 would have to drop the FIA name from its title, so could not be known as the 'FIA Formula 1 World Championship'. Is this true or just rambling hearsay? Time for Pitpass' business editor Christian Sylt to explain.
Prior to the Concorde first being signed F1 races ran as ad hoc, almost amateur, events. Each team made separate deals with each event promoter and television coverage was sporadic since races could be cancelled at the last moment if there were not enough cars to fill the grid. Brabham team owner Bernie Ecclestone realised that F1 could generate significant income from television stations if its coverage was inconsistent. This would benefit the sport overall so he decided to focus his efforts on running F1 instead of Brabham.
"I had a decision to make: do I look after my team and let Formula One splutter along in a very amateurish way or do I look after Formula One. I couldn't do both jobs properly," says Ecclestone. He convinced the teams to sign a contract committing them to race and it was named after the location where it was signed - the FIA's headquarters on the Place de la Concorde in Paris.
Ecclestone took the contract to TV companies who could then guarantee coverage. His company Formula One Promotions and Administration (FOPA) negotiated the deals and took a share of the proceeds with the remainder going to the teams and the FIA. In addition to committing the teams to race, the Concorde determines how F1 is run from the location of races to the amount of prize money which is paid out. This has changed several times since 1981 and under the most recent Concorde the teams shared 47.5% of F1's underlying profits with Ferrari taking an additional 2.5% all to itself.
It is completely reasonable to say that modern day F1 literally wouldn't exist if it wasn't for the Concorde. However, that doesn't mean to say that the contract is still needed.
The Concorde is signed by the teams, the FIA and the sport's rightsholder the F1 Group, which is run by Ecclestone and controlled by private equity firm CVC. Ecclestone has spent the past year trying to negotiate a new contract, to run until the end of 2020, but it has still not been signed. Instead, he has agreed separate legally binding contracts with the teams which outline their financial terms and guarantee their participation in F1. These bilateral agreements are known as 'Team Agreements' and they have been entered into by the teams and F1's direct rightsholder Formula One World Championship as well as one of the F1 Group's intermediary holding companies SLEC Holdings.
Perhaps the best description of the significance of the Team Agreements can be found in the prospectus for the stalled flotation of F1 which was due to take place last year. The prospectus is an official F1 company document so its reliability cannot be questioned.
It states that under the Team Agreements, "Teams have agreed to participate in the World Championship from 1 January 2013 to 31 December 2020." Bearing this in mind, it is not surprising that Ecclestone recently said "it doesn't matter to me whether we have got the Concorde Agreement or not." The Team Agreements do the job for Ecclestone and he says that the hold-up with signing a new Concorde is coming from the FIA which sets F1's regulations.
"The Concorde Agreement is really made up of two sections. We have already dealt with the financial section with the teams. It is all done so it is a case of the regulations which change all the time. It's a case really of how you change the regulations," says Ecclestone.
The Concorde Agreement validates F1's regulations so the teams have less visibility of technical changes if there is no contract in place. This is the last thing they want. However, simply because the teams would prefer there to be a Concorde, this does not mean that Ecclestone or the F1 Group needs the contract to be in place. And it certainly doesn't mean that the F1 Group's commercial rights would change if the Concorde is not signed.
"We don't need the Concorde Agreement signed. We have a 100 year agreement which is basically a long term Concorde," says Ecclestone adding "the FIA probably needs the Concorde Agreement more than us because we can safely rely on the 100 year agreement." He is referring to an agreement which the F1 Group entered into with the FIA on 24 April 2001 when it acquired the commercial rights to F1 for 100 years at a price of £198.8m ($313.6m) as well as an annual regulatory fee of £6.6m (€7.7m) and £215,000 (€250,000) per race if there are more than 16 in a season.
In a nutshell, the F1 Group's rights to run the sport come from the FIA and are conferred by the 100-Year agreements. Crucially, these rights specifically relate to running the 'FIA Formula 1 World Championship'. So, as long as the F1 Group is running the sport (and it has the contract to do this until the end of 2110) it has to be known as the 'FIA Formula 1 World Championship' regardless of whether or not a Concorde has been signed.
Again, the most official description of this can be found in the flotation prospectus which states that "the FIA owns the World Championship and has granted us the exclusive commercial rights to the World Championship until the end of 2110 under the 100-Year Agreements. Consequently, the full title of the World Championship is the 'FIA Formula One World Championship'... Even if the Current Concorde Agreement was not renewed, the FIA is still under an obligation to hold the World Championship under the 100-Year Agreements."
So, if the Concorde is not signed by the start of the season the teams will still race (because they have committed to doing so under the Team Agreements) and the F1 Group's commercial rights won't change since they are granted by the 100-Year agreements. The lack of a Concorde would give the teams less visibility over the regulations but it wouldn't mean that F1 is "hanging in limbo." Try telling that to some people.
One recent report claimed that a meeting took place last Wednesday between Ecclestone and Ferrari, Red Bull Racing, Mercedes and McLaren. It said that they met "with the main discussion point being the need for a Concorde Agreement; whether F1 without Concorde - and, by extension, without FIA involvement - is viable. Thus the FIA could effectively lose control of its own championship, which would in future be known not as the 'FIA Formula 1 World Championship', but simply as the 'Formula 1 Championship'."
It seems that either the author didn't have access to key documents such as the F1 flotation prospectus or, if he did, then it doesn't look like he followed them.
Even the time line of the article seems skewed as it states that "when the teams in the early noughties threatened to set up their own breakaway series unless their demands (75 per cent of revenues) were met, CVC Capital Partners...agreed to a broad fifty-fifty split." CVC only agreed to buy F1 in November 2005 so how can it have agreed to a deal with the teams when they threatened to break away in the early noughties?
However, what is particularly interesting is that you don't even need access to any documents to realise that it is not accurate to say that without the Concorde F1 would not be known as the 'FIA Formula 1 World Championship'.
The Concorde which expired at the end of last year was entered into on 5 August 2009 but the previous one expired at the end of 2007. F1 was without a Concorde for all of 2008 and half of 2009 yet the FIA did not "effectively lose control of its own championship" and the sport did not lose the FIA from its title.
The F1 flotation prospectus puts it best: "Throughout the 2008 season and during part of the 2009 season while the Current Concorde Agreement was being finalised but was unsigned, we held the World Championship without disruption on the basis of previously agreed arrangements with individual Teams, and without a then current Concorde Agreement with the FIA." If this previous experience is anything to go by then don't expect any disruption this year and certainly don't expect F1 to drop the FIA from its title.