25/09/2017
NEWS STORY
Until a few weeks ago fans might not have even known that Formula One's governing body the FIA had a grant scheme to pay motor sport clubs all over the world. Then a series of reports blew the lid on this and now the British government has received letters calling for an investigation into it. An external agency has looked at it before as a report by Christian Sylt for Forbes reveals.
When F1 fans hear about the FIA they usually think of it as the body which makes the rules for races and hands out punishments to drivers or teams which break them. However, it's much more than a policeman.
The FIA also comprises 245 motoring and motor sport clubs with the former representing motorists and the latter governing four-wheel racing in the country that it's based in. Multiple motoring clubs in the same country can be members of the FIA but only one motor sport club in each can be what is known as an Autorité Sportive Nationale (ASN), meaning National Sporting Authority. Over the past few years the FIA has launched a Sport Grant Programme to help them but where did the money come from?
The Sport Grant Programme was launched in 2014 and the official FIA newsletter from June that year reveals the reason it was created. Talking at the 2014 FIA Sport Conference its president Jean Todt said that "more work needs to be done to "make motor sport simpler and safer" and to "integrate technical progress" into the federation's sporting activities. "It is upon these three bases that we will be able to construct an ambitious development policy for ASNs, similar to what is being done by other international sporting federations."
To quote the FIA's newsletter, Todt "concluded by saying the key to this development would be the careful allocation of the funding made available by the F1 Concorde Agreement and funds from the 100-year rights issue of F1 that are now available." The newsletter adds that the FIA's deputy president for sport Graham Stoker expanded on this and said that "a new grant aid programme will be rolled out in the coming days."
So there you have it, straight from the horse's mouth: the FIA set up the grant aid programme to promote the development of its motor sport member clubs in the three areas of making motor sport simpler, safer and integrating technical progress. To establish this grant aid programme the FIA allocated "funding made available by the F1 Concorde Agreement and funds from the 100-year rights issue of F1." So what does that mean?
The Concorde Agreement is the governance contract at the heart of F1. The previous Concorde Agreement ran from 2009 and it is commonly thought that it isn't still in force as it expired at the end of 2012. However that's not actually correct.
As shown on page D-3 of the filing from F1's owner Liberty Media, 'Concorde Agreement' "means the Concorde Implementation Agreement or any replacement agreement." And what does the Concorde Implementation Agreement mean? Well, page D-3 explains that its purpose is "modifying the terms of the 100 Year Agreements and the terms upon which the 2009 Concorde Agreement will be applied and renewed in respect of the period 1 January 2013 to 31 December 2020." In other words, the Concorde Implementation Agreement extended the 2009 Concorde Agreement until 2020 and modified its terms. So the Concorde Agreement is indeed still in force.
The Liberty filing adds that the Concorde Implementation Agreement was signed in July 2013 by the FIA and F1's key companies, including its direct commercial rights holder the UK-registered Formula One World Championship (FOWC) limited, and its owner at the time CVC.
So, to give a summary, the British government has been asked to investigate grants that the FIA has given to its clubs. The FIA says the money for these grants was "made available by the F1 Concorde Agreement and funds from the 100-year rights issue of F1." The Concorde Agreement refers to a contract signed in 2013 by F1's commercial rights holder and the FIA. It runs until 2020 and modifies the terms of the previous Concorde Agreement. One of these modifications was a boost in the entry fees teams pay the FIA to race in F1.
One section of the Concorde Agreement sets out the Sporting Regulations which F1 races run under and Appendix 7 of those regulations lists the fees that teams have to pay the FIA to enter F1. In 2013 the entry fees accelerated so much that then McLaren boss Martin Whitmarsh feared they would contribute to the collapse of several teams as Pitpass reported. In short, the 2013 Concorde Agreement extended its predecessor until 2020 and the team entry fees payable to the FIA increased with it.
Reflecting this, two months after the 2013 Concorde Agreement had been signed the FIA issued a press release, saying that "the 2013 Concorde Agreement has now come into force. This agreement provides the FIA with significantly improved financial means." And what did the FIA do with this increase in funding? It set up the grant scheme.
This can be seen by clicking on the tab marked 'WHAT IS THE SPORT GRANT PROGRAMME?' on the FIA Sport Grant Programme website which reveals that "The FIA Sport Grant Programme was established in 2014 with funds from the Concorde Agreement as a new source of funding for National Sporting Authorities (ASNs)." Page 23 of the FIA's 2014 ASN Development Manual confirms this and states that "a new source of funding is available from the FIA from 2014 coming from Concorde monies. This fund is dedicated to developing motor sport and helping to strengthen ASNs."
However, it doesn't stop there. The FIA's June 2014 newsletter also specified that the grant money came from "funds from the 100-year rights issue of F1 that are now available." So what does that mean? Page A-8 of the Liberty filing answers that question as it states that "under the 100-Year Agreements entered into by Formula 1 and the FIA in 2001, Formula 1 was granted an exclusive license with respect to all of the commercial rights to the World Championship, including its trademarks, in exchange for a significant one-time fee of $313.6 million in 2001 and annual escalating regulatory fees to the FIA."
In other words, the 100-year rights issue involved the FIA granting an exclusive license for F1's commercial rights to FOWC for 100 years. The June 2014 FIA newsletter says that the money for its Sport Grant Programme came from "funds from the 100-year rights issue of F1 that are now available." So what money is this?
The Liberty filing states that the FIA was paid $313.6 million in 2001 in return for F1's 100-year rights contract so that is clearly not what it was referring to when it said money was "now available" in 2014. However, the Liberty filing also states that the FIA receives annual regulatory fees under the 100 Year Agreements. The 100 Year Agreements comprise seven agreements and the one the FIA newsletter is referring to is the Regulatory Agreement. This is defined on page A-17 of the Liberty filing as the agreement relating to regulation of the FIA Formula One World Championship dated 24 April 2001 between FIA France and FOWC."
To recap, the 2014 FIA newsletter says that the funds for the grants paid to its clubs come "from the 100-year rights issue of F1 that are now available." These funds are annual regulatory fees which have been paid by FOWC to the FIA since 2001 when the Regulatory Agreement was signed. So how did the funds become available in 2014? The answer to this is is that the 2013 Concorde Agreement didn't just increase the entry fees paid by the teams, it also increased the annual regulatory fees paid by FOWC to the FIA.
This is reflected in the Executive Summary of the 2013 Concorde Agreement which has been reported by media outlets including ITV News. The increase in annual regulatory fees paid by FOWC to the FIA and the increase in entry fees paid by the teams to the FIA are both listed under the heading 'Main Provisions' in a column marked '2013 Concorde Implementation Agreement'.
To wrap all this up, the FIA says that the money paid to motor sport organisations from its Sport Grant Programme comes from the Concorde Agreement that it signed with F1's commercial rights holder and from the annual regulatory fees that it receives from F1's commercial rights holder.
The grants allow each motor sport organisation to apply for a maximum of £44,000 (€50,000) per year and, according to page 44 of the FIA's 2016 Activity Report a total of £2.8m (€3,130,757) was paid out last year alone.
Page 74 of the Activity Report shows the part this plays in the FIA's finances as "expenditure in 2015 amounted to € 103.4m, an increase of 22.4%." It adds that the FIA had "resources of €114.9m, an increase of 6.4% on the previous year. Some 40% of the total is derived from Formula One activities, primarily from compensation received through the FIA's fulfilment of its responsibilities as an international sporting federation within the championship."
The FIA Sport Grant Programme website lists the hoops that applicants have to jump through in order to get access to the money. There is no suggestion that the projects which receive funding are illegitimate or that the application process is improper in any way. As it is the FIA which pays out the grants, obviously neither FOWC nor the teams or drivers play a part in the application process.
According to page 75 of the Activity Report, last year the FIA requested a compliance analysis of its activities in general in order to safeguard its operation against the threat of bribery and corruption and guarantee legal compliance. The analysis was carried out by the consultancy firm Deloitte and took place between January and March 2016.
Deloitte's report noted that the FIA had already implemented mechanisms to improve its compliance policy including the formation of an ethics committee, creating a conflict of interest declaration form and the existence of grant review committees. However, although Deloitte recognised that the threat of corruption was diminished, the Activity Report says it "noted that residual risks remain."
Accordingly, Deloitte put forward a number of recommendations which were reviewed by the FIA's Statute Review Commission. It proposed detailed measures of implementation which led to changes to the FIA regulations being ratified at its General Assembly meeting in December last year.
An FIA spokesperson acknowledged this in a statement which said: "The FIA is active throughout the world in promoting motorsport. In keeping with the role of an international federation, the FIA makes grants to local motorsports associations in line with internationally respected principles of using sport to bring people together.
"All grants are subject to rigorous internal scrutiny and the FIA will continue to lead the way in ensuring compliance as it strives to put in place best practices.
"This includes implementing recommendations made by Deloitte following its compliance analysis that was carried out in 2016, at the request of the FIA, to assist it in reaching its compliance goals. This also included the appointment of a new compliance officer to lead oversight and who has recently joined the FIA. Further details on actions in the domain of Compliance and Transparency will be provided in our next Activity Report."
A spokesperson for F1 added "It is not within our remit to influence or determine how the FIA promotes, develops and regulates motor sport, nor how its funds are applied. We are satisfied that we are in full compliance with applicable sanctions."