Is Bernie a Crook? A Disturbing Look at the Bernie FIA Financial Deals
Chris Helps
The secret finances of Formula One
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INDEX TERMS Motor racing|Formula One, need for greater transparency and
accountability;Sport|Formula One, example of money-making business, need for
transparency regulation;
DATE 15-Jul-00
WORDS 1015
Grand prix motor racing is producing extraordinary amounts of money, which
are being handled in an extraordinary way
The secret finances of Formula One
"HE HAS a travelling bus; this bus is rather grander than the word 'bus'
normally conveys and is, perhaps, more similar to the tent of a medieval
king on the battlefield. There are the equivalent of courtiers who control
access to the presence." Thus an English judge in a recent civil case,
summing up the style of a defendant, Bernie Ecclestone, who runs Formula One
( F1 ) motor racing. Among those who have been admitted to the presence are
the German chancellor, Gerhard Schroder, and the British prime minister,
Tony Blair. Mr Blair's Labour Party once received a £1m ($1.5m) donation
from Mr Ecclestone (and had to return it after a brouhaha about a concession
to F1 on tobacco advertising).
Mr Ecclestone's dominance of F1 is deeply entrenched. He is a vice-president
of the sport's governing body, the Federation Internationale de l'Automobile
( FIA ), and his family owns a company (Formula One Management) that has
acquired exclusive commercial rights to F1 . The unpaid head of the FIA ,
Max Mosley, recently noted that "The FIA , in conjunction with [ FOM ],
essentially is F1 ."
Last month the FIA granted Mr Ecclestone a 100-year extension of its
commercial rights, until December 31st 2110, for about $360m, with only a
small part of that sum to be paid upfront. The terms and even the existence
of the deal have been kept extraordinarily secret. There were no competing
bids. The $360m compares with $400m a year paid recently for the TV rights
to America's NASCAR stock-car racing, or with the $2.4 billion three-year
deal that three companies recently paid for TV rights to Britain's premier
league soccer.
The Economist has been investigating the complex relationship between Mr
Ecclestone's companies and the FIA , and has uncovered several disturbing
features (see ). Not only do our inquiries suggest that Mr Ecclestone has
been sold the FIA 's commercial rights to F1 for a remarkably low price;
they also show that the FIA has forgone an estimated $120m of revenues in
favour of companies closely linked to Mr Ecclestone. And they point to
conflicts of interest between his FIA role, his position as boss of the F1
constructors' association and his ownership of various F1 companies. Almost
entirely thanks to F1 , Mr Ecclestone has, over the past decade, become
Britain's richest entrepreneur.
If the murkiness around this were limited to the internal workings of this
particular sport, that would be bad enough. But everybody touched by F1 has
accepted a way of doing business they would not tolerate elsewhere. It is
not just politicians such as Mr Schroder and Mr Blair who risk being
tainted. F1 is no longer the preserve of rich eccentrics or speed-crazy
aristocrats; silk scarves and goggles went out a long time ago. The sport
now features such familiar car makers as BMW , DaimlerChrysler, Honda,
Jaguar (owned by Ford), Ferrari (owned by Fiat), Renault and Toyota. Among
the big car firms only General Motors and Volkswagen are steering clear of
F1 . And beyond the car companies stand a host of oil, tobacco, banking and
consumer-goods firms that plaster their decals on cars and on trackside
posters.
The amounts of money involved in F1 may seem small change besides the
turnover of such corporate giants. But the financial controversy is not
about to go away. In 1997 Mr Ecclestone had to scrap a planned flotation of
his main company, because its sponsors were unhappy about the state of his
affairs and about an investigation by the European Commission that is still
continuing. It took months of arm-twisting to get a substitute bond issue
off the ground, and even then many bonds were left in the hands of one of
the lead managers. Financial markets are good at flushing out financial
information; should a flotation return to the agenda, more secrets will out.
Those proud car firms might yet regret their tame acceptance of Mr
Ecclestone's grip on this sport.
No longer just games
The secrecy surrounding Formula One's finances also points to a more general
lesson. This is only one of several international sports that have, over the
past couple of decades, turned into giant money-making businesses. Largely
thanks to television, the cash pouring into such sports as football and the
Olympics has multiplied hugely. There is nothing wrong with that: indeed,
putting more money into sports that give pleasure to lots of people should
enhance human welfare. But the amount of cash now sloshing around and the
speed with which it has grown do raise two general concerns.
The first is that the governance of international sports is ill-adapted to
this new world of money. A host of financial scandals, from the bribery
around the Salt Lake City Winter Olympics in 2002 to gambling on cricket
matches, have exposed the frailties of international governing bodies, which
are all too often composed of ageing worthies with little business nous. The
latest example is the row over the award in a disputed vote of the 2006
football World Cup to Germany rather than South Africa.
The second point is that, now that so much sport has become a money-making
business, it needs not only more professional governance but also greater
regulatory scrutiny. The European Commission's probe into F1 has been
salutary. Similar inquiries into Europe's football leagues have also focused
attention on the inter-connections between exclusive TV rights, teams and
promoters. And they have increased the pressure for greater transparency
over such matters as TV contracts or the bidding for international events.
More openness, greater competition and better governance: all three would go
a long way to subject the likes of Mr Ecclestone's empire to proper public
scrutiny. Nobody can object to legitimate entrepreneurship in promoting a
sport. But when the odour that surrounds a sport becomes too overpowering
the worst danger of all looms: that it will switch off the interest of the
general public. And that is the biggest reason why Formula One needs greater
transparency and accountability.
Chris Helps
From "The Economist"
Grand prix, grand prizes
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INDEX TERMS Motor racing|Formula One, analysis of financing;Sport|Formula
One, analysis of financing;
DATE 15-Jul-00
WORDS 4205
At the heart of one of the worlds most-watched sports, grand prix motor
racing, lies a tale of extraordinary secrecy and of the financial dominance
of one man, Bernie Ecclestone
Grand prix, grand prizes
ON JUNE 28th, in the offices of the Federation Internationale de l'
Automobile ( FIA ) in Geneva, delegates from over 70 national motoring
associations around the world, who comprise the FIA 's supreme body, its
general assembly, met in extraordinary session and voted unanimously on a
single resolution. It was to approve a deal, recommended by the FIA 's
senate, to grant the FIA 's commercial rights to Formula One ( F1 ) motor
racing until December 31st 2110-ie, for more than 100 years-to one man,
Bernard (Bernie) Charles Ecclestone. There was no auction for these valuable
rights; Mr Ecclestone was the only bidder. The delegates were sworn to
strict secrecy to ensure no leaks.
The price for such a sweeping concession: $360m, payment of most of which
the FIA has deferred for many years. With this deal, Mr Ecclestone, through
Formula One Management ( FOM , the key trading company in his empire), has,
in effect, sole rights to negotiate with and collect lucrative fees from the
promoters who put on grand prix races. He also has sole authority to sell
television rights worldwide for a sport whose 17 races each year pull in an
aggregate TV audience of around 5 billion.
The FIA is a non-profit-making association that regards itself as the world
governing body for four-wheel motor sport, including F1 . This means it
approves and enforces the sporting and technical rules established for the
F1 championship. The FIA has to approve every circuit wishing to stage a
grand prix; it subjects every F1 racing car to technical scrutiny, and so
on. The FIA is dependent on the F1 championship for a substantial proportion
of its income.
The FIA 's president since 1991 has been a suave English lawyer, Max Rufus
Mosley (son of Sir Oswald Mosley). He is a longstanding associate of Mr
Ecclestone. Mr Mosley worked for Mr Ecclestone and the other teams as their
in-house lawyer from 1977 until he was elected as FIA president. The FIA
presidency is an unpaid post. During Mr Mosley's presidency, Mr Ecclestone
has become the richest entrepreneur in Britain, thanks to F1 .
In 1987, under the presidency of Mr Mosley's predecessor, Jean-Marie
Balestre, a Frenchman, Mr Ecclestone became the FIA vice-president with
responsibility for promotional affairs. Mr Ecclestone, Mr Mosley and Mr
Balestre comprise three of the eight members of the FIA 's powerful senate.
Another member is Marco Piccinini, a director of Ferrari. Mr Piccinini is
one of two directors of FOM apart from Mr Ecclestone.
As Mr Mosley puts it: "The FIA , in conjunction with [ FOM ], essentially is
F1 ...In short, the FIA and [ FOM ] co-operate to put on the 'circus'."
Everybody in F1 recognises "Bernie" and "Max" as F1 's ringmasters.
The financial trail
Until very recently, there have been few clues about F1 's financial
structure; for 20 years Mr Ecclestone has been the person best-placed to
know how much money was flowing where and to whom. A 1998 BBC "Panorama"
investigation cast some light on the sport's highly unusual finances. Mr
Ecclestone's ultimately successful attempt to raise $1.4 billion through a
bond issue in June 1999 lifted the veil a little. Over the past three months
The Economist has examined the extant filings of every British company of
which Mr Ecclestone has been a director since 1951. We have also followed
the flow of the billions of dollars generated by F1 through Mr Ecclestone's
hands, and examined various deals involving the commercial rights for F1 .
This article traces that flow, and raises a number of questions about it.
A recent civil case in the English courts also shed some light on Mr
Ecclestone's idiosyncratic business methods. "He conducts much of his
business by way of meetings without making notes and his memory of what
occurred at such meetings is somewhat hazy," said the judge, Mr Justice
Longmore. Mr Ecclestone's word is his bond, or so people in F1 believe.
Although FOM successfully defended the case, the judge, referring to a
promise made by Mr Ecclestone to the plaintiff, said: "In fact [ FOM ] was
doing exactly that at the same moment Mr Ecclestone was agreeing that it
would not. In this respect, I do have to record that Mr Ecclestone has not
been a man of his word." Neither was the judge too impressed with him as a
witness: "...I have some reservations about any evidence from him that is
not supported by other evidence in the case."
Mr Ecclestone cut his business teeth selling second-hand motor cycles. Early
in his career, he showed a talent for financial trickery. After he sold his
motor-cycle business, he put about Ł10,000 of its money, rightfully
belonging to the taxman, in his own pocket. When the Inland Revenue sued
him, the judge described Mr Ecclestone's "machinery" as "altogether
extraordinary", and ruled that he had breached company law. Strangely, Mr
Ecclestone, never normally one to shirk a battle, did not appear as a
witness. The judge said that "...the documents themselves and the admissions
made out of court cry out for an explanation...and [Mr Ecclestone] does not
condescend to give one..." In December 1971, he ordered him to pay over the
Ł10,000.
Two months before that judgment, Mr Ecclestone had bought the Brabham F1
team. At this point in his career he was selling second-hand cars, and also
providing finance for customers. In 1971, he also bought 26 acres of
woodland adjacent to his house. To do so, he borrowed money from a company,
Rochelle, based in Guernsey, an offshore tax haven-hardly the first port of
call for most people financing a land purchase.
The Ecclestone revolution
Our investigation into F1 shows that an estimated $120m was forgone in
unusual circumstances by the FIA between 1987 and 1996 in favour of two
companies to which Mr Ecclestone is closely linked. Moreover, Mr Ecclestone'
s combined roles from 1987 as president of the Formula One Constructors'
Association ( FOCA , the F1 teams' collective voice), as a vice-president of
the FIA and as owner of several F1 companies involved him in conflicts of
interest. Our investigation also shows that the FIA 's senate in 1995
approved a deal to grant FOM an exclusive 14-year lease on the FIA 's
commercial rights to F1 . The then vice-president of FOCA , Ken Tyrrell,
says he was unaware of the deal until after it had been concluded. Its
effect was to substitute Mr Ecclestone's company for FOCA , which had been
granted a series of leases on the commercial rights since 1981. It was this
deal that the FIA members voted to extend by 100 years on June 28th.
How did Mr Ecclestone manage to get into such a powerful position? When he
bought the Brabham team in October 1971, he was entering a sport dominated
by well-heeled amateurs. Rich businessmen, minor aristocrats and hangers-on
would drift around the grand prix circuit as if it were one huge, if rather
louche, party. The sport was governed by members of the "blazerati", as they
are known.
The sport was unprofessional, the circuits and the cars were dangerous, and
drivers were often killed. The ordinary fans were mad-keen enthusiasts
prepared to put up with chaotic organisation and muddy fields to see their
heroes flash by in a couple of seconds and a hail of spray. TV networks
tended to broadcast only their national grand prix race and maybe one or two
famous foreign ones, such as Monaco's.
Mr Ecclestone saw that many of his fellow team-owners were engineers or
former drivers with little interest in the administration and politics of F1
. They were content to leave such matters to him, as he developed a growing
interest in negotiating with race organisers on their behalf, and took over
the complicated logistics of moving the F1 circus around the world. He
became president of FOCA in the mid-1970s.
At this time, the costs of running F1 were rising, leading to growing
tensions inside the sport. Both FOCA and the FIA wanted control of the money
from TV broadcasters and race promoters. After a bitter fight between Mr
Ecclestone and Mr Mosley, on one side, and the FIA on the other, a
compromise was reached in 1980, known as the Concorde Agreement (named after
the Place de la Concorde, the site of the FIA 's office in Paris).
The agreement split F1 's revenues between the interested parties, the FIA
and FOCA . The agreement also recognised the FIA as the supreme rule-making
body and owner of all the commercial rights, including TV and radio
broadcasting, to the sport. But the commercial rights were leased
exclusively to FOCA for four years. At this time Mr Ecclestone was
personally deputed to manage the rights on behalf of FOCA .
The practical outcome of the Concorde deals was to make the whole sport more
professional. For instance, the teams who signed them guaranteed to turn up
to each race. This in turn meant that broadcasters could rely on a proper
spectacle. Mr Ecclestone, spotting the potential to bring more money into
the sport, signed a deal with the European Broadcasting Union ( EBU ) in
1982. The EBU is an umbrella organisation for public-service broadcasters in
Europe. Under the new deal, according to Mr Ecclestone, European
broadcasters agreed to show every grand prix, instead of the previous ad hoc
coverage. This was a turning-point for the teams' finances. TV coverage oils
the wheels of F1 . Sponsorship had become an essential source of income for
an F1 team, and the price that a sponsor pays is directly linked to the
number of TV viewers.
By the mid-1980s F1 's TV income had become more secure. Mr Ecclestone
renewed FOCA 's contract with the EBU in 1985 for a further five years.
However, he did not renew the deal in 1990 because he smelled more money for
F1 , and, by extension, himself. So F1 became the first major global team
sport to break ranks with the EBU . Mr Ecclestone realised shrewdly that
there were now more bidders in Europe for the TV rights, because of the
growth of commercial channels. And, by this stage, the number and
demographic profile of F1 viewers were more attractive to advertisers, so TV
channels could afford to pay more.
Bernie in pole position
In 1987 Mr Ecclestone entered a new phase of his F1 career. That year, he
became a vice-president at the FIA . In 1988 he sold his Brabham team. A new
Concorde Agreement also came into effect for five years; a similar
agreement, known as the 1992 Concorde Agreement, extended it to the end of
1996. Under these agreements, the FIA once again leased its commercial
rights to FOCA . This time, however, FOCA members allowed Mr Ecclestone's
then key trading company, Formula One Promotions and Administration
( FOPA ), to manage the rights. So these agreements were, in effect, trust
arrangements between Mr Ecclestone and FOCA .
There were two streams of revenue: fees paid by broadcasters, and fees paid
by race promoters (see diagram 1). TV revenues were split 47% to the F1
teams; 30% to the FIA ; and 23% to FOPA . Promoters' fees were kept by FOPA
, which undertook to pay prize money to the teams, hitherto paid by the
promoters. The teams ceded the promoters' fees to FOPA because Mr Ecclestone
was prepared to take some commercial risk, since not all the promoters were
considered good for the money. For Mr Ecclestone's part, this deal was a
significant opportunity: the larger the fees, the more money for him.
Promoters, who are not necessarily circuit owners, bear some of the costs
and financial risk of staging a grand prix. Their costs include maintaining
or renting a track, advertising, FIA fees, safety personnel, and so on. They
rely for their income on ticket sales, fees from concession holders, and
some corporate hospitality. They must cede to Mr Ecclestone any media rights
they have and agree to restrictions on promoting other types of races. Most
also give up trackside advertising rights and set aside an area for the
Paddock Club (a swish corporate hospitality suite that is part of the F1
circus).
By the early 1990s Mr Ecclestone was to acquire yet another hat. He himself
became a promoter at several circuits. For instance, he has run the Belgian
grand prix at Spa for the past decade. As the rights holder, FOCA 's name
was on all contracts with TV companies and promoters. So for those races
that he promoted until 1996, this led to Mr Ecclestone, wearing his FOCA
hat, negotiating with himself wearing his FOPA hat.
Formula One goes offshore
Given the background of Mr Ecclestone's dealings with the EBU , the
transaction the FIA proceeded to conclude was peculiar, to say the least.
For the duration of both the 1987 and 1992 Concorde Agreements, it
surrendered its 30% of the TV revenues, which were worth an estimated $120m,
to two companies, both called Allsopp, Parker & Marsh ( APM ), in return for
a modest annual fee. The FIA claims that the deal was done because of
uncertainty over F1 TV revenues. In the light of the EBU deals, this
explanation is very hard to credit. The FIA has declined to answer any of
our detailed questions on the APM companies. Mr Mosley has told us "...most
of your questions are misconceived and there is little I can usefully do,
short of attempting to write your article for you."
The biggest question is: Who was behind the APM companies? The first APM
APM1 ) was a British company incorporated in 1983. Its first directors were
Patrick (Paddy) McNally and Luc Argand, a Swiss lawyer. Mr McNally used to
work for Philip Morris, a tobacco company, where one of his jobs was to act
as gofer for the late James Hunt, F1 world champion in 1976, who drove for a
team that was sponsored by a Philip Morris brand. Mr McNally has been a
close business associate of Mr Ecclestone since 1984. Mr Argand is a trustee
of an offshore trust set up by Mr Ecclestone's Croatian second wife as part
of an elaborate tax-avoidance scheme (see diagram 2). In 1996 Mr Ecclestone
transferred two of his key companies to his wife.
APM1 had 12 shares of equal nominal value. Legal (as opposed to beneficial)
ownership of ten of them can be traced via two other companies to a trust in
Guernsey. Whoever was the beneficial owner, the secret was safe in Guernsey.
There are other intriguing facts about APM1 . A firm of solicitors made its
initial regulatory filings; the person who signed some filings was Stephen
Mullens. From late 1990 until early 1993 the address of APM1 's registered
office was that of Marriott Harrison, a firm of solicitors of which Mr
Mullens was by then a partner. This firm acted for Mr Ecclestone's companies
in last year's bond issue. Mr Mullens is a legal adviser to Mr Ecclestone's
family trust. Mr Mullens and Mr Argand are directors of Excelis, a French
company that owns the Paul Ricard racing circuit. Excelis is ultimately
owned by the same family trust.
APM1 was highly profitable: its total profits were nearly $34m on sales of
$46m between 1985 and 1988. This compares with profits of just over Ł9m
($14m) for FOPA , Mr Ecclestone's company. APM1 's profits escaped British
tax, as the firm was deemed to be non-resident in Britain for tax purposes.
After changes in British tax rules in 1988, APM1 was no longer non-resident
and ceased to trade.
In September 1988, a company also called APM ( APM2 ) was formed in the
Republic of Ireland. At that time the Irish authorities allowed local
companies to be non-resident for tax purposes, subject to certain criteria.
APM2 was deemed to fulfil a key criterion as none of its directors, who
appear to be nominees for its real directors, lives in Ireland. Nor were its
legal owners based in Ireland. APM2 has two shares. Mr Argand has been the
legal owner of one share since 1989, and people in his office the other one.
APM2 has never filed any accounts in Ireland. In order to keep its finances
secret, it has claimed an exemption that is open only to "a company not
trading for the acquisition of profit by [its shareholders]". To qualify for
this exemption, a company's constitution must include an explicit provision
to this effect. Although APM2 's constitution does contain such a provision,
it was clearly trading for profit.
Documents show that APM1 and APM2 were really the same company. So the
beneficial owners of both must have been one and the same. Mr Ecclestone has
told us that he has "always understood Mr McNally to be the owner of
Allsopp, Parker & Marsh." However, according to audited accounts for APM1 ,
which Mr McNally signed, he held only one of APM1 's 12 shares. The accounts
tell the same story for Mr Argand.
As Mr Ecclestone was responsible for distributing FOCA 's TV income, he
should have known about payments of the size and importance of those made to
the APM companies. However, Mr Ecclestone has challenged this inference,
saying: "Insofar as it involves payments by FOCA , your information about an
agreement between Allsopp, Parker & Marsh and the FIA is not correct."
Mr Ecclestone has further links to APM2 . In 1987, the FIA transferred to
APM the right to exploit the broadcasting rights to FIA championships other
than F1 . From 1990 until 1996, APM2 asked International Sportsworld
Communicators ( ISC ), another company controlled by Mr Ecclestone, to
administer some of these rights. In August 1996, ISC concluded an agreement
with the FIA under which it obtained the rights previously held by APM .
This year Mr Ecclestone's family sold ISC for an undisclosed sum, but
certainly many millions of dollars.
As well as the FIA 's 30% share of F1 TV revenues, two other sources of F1
revenues appear to have passed through the APM companies: income from the
Paddock Club and money from trackside advertising which, together, now run
to tens of millions of dollars a year. The financial manager for one
promoter told The Economist that Mr Ecclestone had given his company no
alternative but to surrender trackside advertising rights to the APM
companies. Similarly, the Paddock Club got a prime site free. He also said
that he believed that Mr McNally was in charge of A PM2 ; and that he had
never heard of its registered directors. Yet Mr McNally has never been a
director of APM2 . It is surprising that Mr Ecclestone insisted on these
benefits going to APM2 if he was not absolutely certain about its beneficial
ownership.
The APM companies also have a trading relationship with Allsport Management
SA (Allsport), a Swiss company set up in 1984. A Swiss company's financial
information is not available for public inspection, nor can its beneficial
ownership be traced. Today Allsport is the name associated with trackside
advertising rights and the Paddock Club. The current directors of Allsport
are Mr McNally, Mr Argand and a Swiss woman. Mr Ecclestone has told the
press that Allsport is Mr McNally's company. While it could be argued that
Mr Argand adds gravitas to the board, it is equally possible that he
represents the interests of a beneficial shareholder of Allsport other than
Mr McNally. Mr McNally has declined to answer any detailed questions on the
APM companies or on Allsport.
Cashing in
Mr Ecclestone's main company made a profit before tax (and his own pay) of
Ł59m in the year to March 1996. He foresaw fabulous wealth if he could float
it on the stockmarket. One potential problem was that Mr Ecclestone's name
was not on any of the contracts for F1 rights: FOCA 's was. This problem was
solved when, in late 1995, the FIA 's senate granted the FIA 's F1 rights to
FOM (ie, Mr Ecclestone) for 14 years for $8m-9m a year, instead of 30% of
the TV revenues as under past Concorde Agreements. In other words, from
1997, the FIA surrendered directly to FOM income that had previously gone to
the APM companies.
The teams were furious that Mr Ecclestone, as president of their
association, FOCA , had done a deal with the FIA to swap his company, FOM ,
for FOCA as the rights holder. Three F1 teams-McLaren, Williams and
Tyrrell-stood up to him. The remaining eight teams promised support, but
this soon evaporated. The three teams refused to sign a new Concorde
Agreement, even though this hurt them financially.
Mr Ecclestone appointed an investment bank, Salomon Brothers, to prepare for
the flotation of Formula One Holdings ( FOH ), but the quarrel with the
three teams overshadowed his plans. These were put on hold after the
European Commission started an antitrust investigation. In June 1999 it made
an initial ruling that F1 was in breach of European competition laws, though
Mr Mosley and Mr Ecclestone hotly dispute this. The case continues. The
commissioner who launched it, Karel Van Miert, refuses to comment other than
to say it was "the most menacing case" he had undertaken.
Mr Ecclestone soon came up with an alternative to a flotation: a bond issue
underpinned by revenues from race promoters and TV broadcasters. To launch
this the Concorde Agreement needed to be extended to ten years, for which Mr
Ecclestone wanted the support of all the F1 teams. The rebel teams, one of
which was under new ownership, changed their minds and signed the new 1998
Concorde Agreement. It is not clear why they did so, but the best clue may
lie in the bond-issue prospectus, which states that: "Upon any flotation of
FOH ...some of the Formula One teams are expected to become significant
shareholders in FOH ."
Despite the European Commission's investigation, the bond issue was launched
last summer, raising $1 billion for the Ecclestone trust. The co-lead
managers of the bond issue were Westdeutsche Landesbank (West LB ), a German
state-owned bank, and an American bank, Morgan Stanley Dean Witter. As there
was little appetite for the bonds, West LB initially took as much as
two-thirds of them on to its own books, financing that purchase by issuing
bonds of its own. As West LB 's bonds were state-guaranteed, they carried a
lower rate of interest than the bonds issued by Formula 1 Finance.
Since the bond issue, Mr Ecclestone's family trust has raised a further $1
billion by selling 50% of SLEC Holdings (a holding company for FOM ) to two
firms, which, in turn, have sold out to EM.TV , a quoted German media
company, for $1.8 billion.
Companies issuing bonds that are to be listed on a stock exchange have to
prepare a prospectus. This document discloses all material matters, like
important contracts, affecting a company's business. A likely candidate for
disclosure in such a prospectus was the arrangement between Mr Ecclestone
and the FIA. The royalty of $8m-9m a year payable by FOM rose to $38m a
year, though this still seems a small amount given that F1 's total TV
revenues for 1999 were $241m. A 30% share for the FIA would be equivalent to
$72m, and F1 's TV revenue can be expected to rise over the next few years.
The relatively small size of F1 's total TV revenue surprises some
observers. "Mr Ecclestone is not extracting full rents from his TV rights,"
says one leading sports-rights consultant. One explanation may be the 33.3%
discount that Mr Ecclestone has given to broadcasters if they agree not to
show other races, such as America's Indy 500. Another may be that Mr
Ecclestone is, in effect, FOM ; he spreads himself extremely thinly as he
handles the negotiations with TV companies. But a cynic might predict that
the rents may rise now that FOM has bought the FIA 's F1 rights for a
further 100 years for a multiple of less than one times FOM 's 1998 revenues
($404m). In 1998, FOM made pre-tax profits of $202m.
Other motor-sports rights are soaring in value: the American TV rights for
NASCAR , an American stock car championship, fetch $400m a year. FOM , in
fact, makes most of its profits from promoters' fees rather than TV income.
FOM 's share of TV revenues has to pay the millions of dollars that it costs
to provide the picture feed to broadcasters. By contrast, FOM is maximising
revenues from promoters. For instance, a South Korean company was to have
been charged $12m to stage a race in Korea in 1998, and that fee would have
risen by 10% a year.
Mr Ecclestone's position in F1 is now unassailable. Promoters cede any media
rights they have to him. Similarly, under the Concorde Agreement, the teams
surrender the right to their images. So the circuits are disenfranchised
from the broadcasters who, in turn, are disenfranchised from the teams. The
teams are beholden to Mr Ecclestone. His longstanding associate, Mr Mosley,
is in charge of the sport's governing body. Nearly all of F1 's affairs are
shrouded in extraordinary secrecy; not only are the terms of all agreements
"commercially confidential", but even the existence of some agreements is a
secret. Nobody inside F1 is seriously able to question how it is run. That
is what happens when one man is allowed to establish such a financial
stranglehold on a sport.
Bob Dog
>
>
> From "The Economist"
>
>INDEX TERMS Motor racing|Formula One, analysis of financing;Sport|Formula
>One, analysis of financing;
>DATE 15-Jul-00
<snip everything>
Frightening and disgusting. He makes Vince McMahon (WWF)
look like an honest man by comparison.
Bob Dog
bg12345.apexmail@com
siegfr...@my-deja.com
Journal....
September 5, 2000
------------------------------------------------------------------------
--------
Handicappers' Call for Grand Prix:
Rugged Race for U.S. TV Viewers
By NATHAN HEGEDUS
Staff Reporter of THE WALL STREET JOURNAL
Formula One auto racing roars into Indianapolis on Sept. 24 for the
U.S. Grand Prix.
Who cares?
As far as Americans are concerned, the answer is unclear. While more
than 300 million viewers from Japan to Germany tune in twice a month
from March to October to watch 22 custom-made race cars twist and turn
through the streets of Monaco, Sao Paulo and other exotic locales, U.S.
audiences have been sparse. The last Grand Prix in the U.S. was in
Phoenix in 1991; subsequent races were canceled after years of poor
attendance. But some -- including upscale advertisers and cable-TV
networks -- think Americans are ready to embrace the high-end mystique
of the world's favorite auto-racing circuit.
"The U.S. audience is virtually unaware of the size and scope of
Formula One," says Susan Nicholas, the president and chief executive
officer of Tag Heuer USA, the American division of the luxury Swiss
watchmaker owned by LVMH Moet-Hennessy Louis Vuitton SA, and the
official timekeeper for Formula One. "But now the American market has a
bigger appreciation for finer things. This is a true sport with style."
The Formula One season consists of 17 Grand Prix races, with contenders
sometimes topping 200 miles per hour. Besides Tag Heuer, Formula One
backers include the Mercedes-Benz unit of DaimlerChrysler AG; Intel
Corp., British American Tobacco PLC, HSBC Holdings PLC, Hewlett-Packard
Co., and Compaq Computer Corp. Most of the companies work directly with
the individual F1 teams, which guzzle hundreds of millions of dollars a
year. And many are betting that the Formula One race in the U.S. will
boost their sports-marketing strategies.
Formula One's Grand Prix races attract ads from international marketers
such as Qantas Airways and Swiss watchmaker Tag Heuer, the
events' 'official timekeeper'
"It is a sexy, glamorous sport that is interesting to watch on TV,"
says Tracy Lovatt, chief executive of exp.Momentum, the London branch
of the New York-based Momentum, an events-marketing business owned by
Interpublic Group of Cos. Exp.Momentum's Formula One clients include
Lucent Technologies Inc., the telecom-equipment manufacturer. Octagon,
a sports-marketing division of Interpublic, owns Brands Hatch, a road-
racing track outside London that will host the British Grand Prix for
six years starting in 2002.
The two cable networks that cover F1 racing are expanding their
coverage for Indianapolis. Fox Sports Net, News Corp.'s regional cable
sports network, which reaches 70 million homes, will televise practice
sessions, qualifying sessions and a one-hour prerace show. Speedvision,
an all-racing cable channel that reaches 28 million homes, is airing a
10-week retrospective on F1 in America, and a one-hour special on Sept.
10. Speedvision's investors include Fox Sports Net, the AT&T Broadband
unit of AT&T Corp., Cox Communications Inc. and Comcast Corp. Both
networks also will provide full coverage of the actual race.
"F1 is clearly more popular outside the U.S., but it has a loyal,
passionate following here," says Arthur Smith, a Fox Sports Net vice
president. "We hope it will grow."
The race for TV viewers will be highly competitive. The Olympics,
college and pro football and late-season baseball will all be in full
swing, and all have huge followings -- as opposed to Formula One,
which "never translated effectively to the U.S.," says Jay Rosenstein,
a sports-marketing expert who recently joined WeMedia Inc., an Internet
company dedicated to people with disabilities. Why the lack of U.S.
appeal? "Partly because there were no American drivers and because of
its distance from the American scene," he says. "Now, it's hard to
parachute in and become a singular special event."
In the early 1960s, Formula One established a niche in this country in
Watkins Glen, N.Y. But when it attempted to broaden its base two
decades later, the response was disappointing.
"When they tried Phoenix, Detroit and Long Beach [Calif.], they had a
hard time developing loyalty," says Stu Grant, general manager of world-
wide racing at Goodyear Tire & Rubber Co. Mr. Grant says the
Indianapolis race will be different because of the area's rich racing
heritage and the track itself. "Indianapolis will be successful," he
predicts.
The U.S. already supports three major auto-racing circuits and scores
of smaller and diverse series, from drag racing to motorcycle racing to
lawn-mower racing. The three dominant leagues are National Association
for Stock Car Auto Racing, or Nascar; Championship Auto Racing Teams,
or CART; and Indy Racing League, or IRL. CART and IRL race "open-wheel"
cars similar to Formula One machines, though the U.S. versions are not
built from scratch. Nascar uses vehicles that appear, on the outside,
to be standard commercial automobiles, such as the Ford Taurus.
In the past decade, Nascar has parlayed its Southeastern blue-collar
roots into a national phenomenon with shrewd marketing, accessible and
charismatic drivers, and exciting competitive races. Attendance at
Nascar Winston Cup races, the premier Nascar division, nearly doubled
to 6.5 million in 1999 from 3.3 million in 1990. Last year, Nascar
signed a six-year TV deal with News Corp.'s Fox and General Electric
Co.'s NBC for more than $400 million a year starting in 2001.
Traditionally drawing on a slightly more affluent Midwestern base, CART
and IRL are both relatively healthy, though still recovering from a
nasty 1996 dispute that saw American open-wheel racing split in two.
CART drove away with the higher-profile teams and drivers while IRL,
headed by Tony George, the president of the Indianapolis Motor
Speedway, retained the crown jewel of American racing, the Indianapolis
500.
Most observers agree the U.S. Grand Prix will not compete with American
racing leagues, which have established or growing fan bases. Also,
despite American racing's recent move into the mainstream, its fans
generally do not fit the upper-class profile that F1 attracts in
Europe. To make the U.S. Grand Prix accessible to its Midwestern base,
the Speedway sold most race tickets for between $75 and $85, only $10
higher than for the Indianapolis 500 and Nascar's Brickyard 400, the
track's two main attractions. At most Grand Prix races, tickets can run
into the hundreds of dollars.
A Grand Prix is a spectacle in its own right, however, and can only
draw more fans to auto racing, not further divide the pie, according to
Fred J. Nation, a vice president for the Indianapolis Motor Speedway
and Indy Racing League.
With its roots on road courses over city streets, most Formula One
races are now run on road tracks similar to the newly constructed 2.606-
mile oval road course at the Indianapolis Motor Speedway. Organizers
say the new course will ensure an exciting and high profile race. The
more than 200,000 available tickets sold out months ago, according to
Mr. Nation. F1 has signed a multiyear contract with the Speedway, and
German software company SAP AG also made a multiyear commitment to be
the race's title sponsor.
"Before, there wasn't a [U.S.] venue that would shape up to our
standards," says Bernie Ecclestone, who co-owns the company that
controls the F1 circuit. "Indianapolis has done us proud."
On the business side, Formula One is undergoing major changes, though
Mr. Ecclestone retains firm control. In February, he sold half of SLEC
Holdings, the company through which he controls everything from F1
television rights to race promotion to a piece of merchandising sales.
The two firms that bought into SLEC, Morgan Grenfell Private Equity, a
unit of Deutsche Bank AG, and Hellman & Friedman LLC, a San Francisco
private equity firm, planned to take the company public. Then in May,
they sold their stake for approximately $1.8 billion in cash and stock
to EM.TV & Merchandising AG, a German children's media company that
said it also desired a public offering.
One obstacle to any initial public offering for SLEC Holdings is a four-
year-old European Commission antitrust investigation into whether Mr.
Ecclestone and the Federation Internationale de l'Automobile, or FIA,
the sport's governing body, illegally stifle competition, especially
regarding TV rights. Mr. Ecclestone denies all charges and says that
the FIA, not SLEC, "needs to amend its statutes."
In late July, some news reports suggested that Mr. Ecclestone and EM.TV
might sell part of SLEC Holdings to the car manufacturers and team
owners to soothe regulators. Mr. Ecclestone strongly denied that
pressure from the European Commission would trigger a sale. EM.TV
declined to comment.
However, some EM.TV investors are nervous about the antitrust
investigation, the large amount of EM.TV stock now in the hands of the
two investment firms and whether EM.TV, which recently bought Jim
Henson Co. and its Muppet characters, has lost focus with its F1
involvement.
Meanwhile, Tag Heuer got an early start in trying to raise F1 awareness
with the Hollywood set. It distributed 100 "Formula One 2000 Grand Prix
Chronograph" watches, valued at $1,700 each, in the "Oscar basket"
given to all performers and presenters at this year's Academy Awards.
"It is hard to understand Tag without F1," says Ms. Nicholas of Tag
Heuer USA. "If sport is in our blood, then F1 is our soul."
Sent via Deja.com http://www.deja.com/
Before you buy.
David Betts
> >
> > From "The Economist"
> >
> <snip everything>
>
> Frightening and disgusting. He makes Vince McMahon (WWF)
> look like an honest man by comparison.
Actually, it's the same old stuff that has been published before. I
always ignore anything like this. You should too. There is nothing
more dishonest than so-called investigative journalism.
--
David Betts (dav...@motorsport.org.uk)
"In the end it's always a matter of more accelerator and less brake" -
Frank Gardner
Photo albums:
http://albums.photopoint.com/j/AlbumList?u=10440&Auth=false
Hans V
meldingsnyheter:8pfdj0$spm$2...@newsg1.svr.pol.co.uk...
> "Bob Dog" wrote
> > >
> > > From "The Economist"
> > >
> > <snip everything>
> >
> > Frightening and disgusting. He makes Vince McMahon (WWF)
> > look like an honest man by comparison.
>
> Actually, it's the same old stuff that has been published before. I
> always ignore anything like this. You should too. There is nothing
> more dishonest than so-called investigative journalism.
>
> --
> David Betts (dav...@motorsport.org.uk)
>
because investigative journalism in your view most often are dishonest?
Thats rich and I beg to differ here, David. As a long term occasional reader
of the Economist I'd say this is one of the most serious and credible
publications there are. And it's long overdue someone took a close look at
the way F1 is managed and Bernies many shady deals. Not very surprising
Bernie and F1 doesn't come out looking very good.
Hans
Ric.
"David Betts" <dav...@dbassoc.freeserve.co.uk> wrote in message
news:8pfdj0$spm$2...@newsg1.svr.pol.co.uk...
> "Bob Dog" wrote
> > >
> > > From "The Economist"
> > >
> > <snip everything>
> >
> > Frightening and disgusting. He makes Vince McMahon (WWF)
> > look like an honest man by comparison.
>
> Actually, it's the same old stuff that has been published before. I
> always ignore anything like this. You should too. There is nothing
> more dishonest than so-called investigative journalism.
And it is precisely this kind of attitude that allows dishonest, on the
boundaries of what is legal business practice to continue - with your money
David!!!
Maybe it is not that you ignore it, but you don't want to take the time to
understand it. I risk a flame war saying this but your apathy sickens me.
Ric.
Antti Tolamo
wrote:
>David Betts <dav...@dbassoc.freeserve.co.uk> skrev i
>meldingsnyheter:8pfdj0$spm$2...@newsg1.svr.pol.co.uk...
>> "Bob Dog" wrote
>> > >
>> > > From "The Economist"
>> > >
>> > <snip everything>
>> >
>> > Frightening and disgusting. He makes Vince McMahon (WWF)
>> > look like an honest man by comparison.
>>
>> Actually, it's the same old stuff that has been published before. I
>> always ignore anything like this. You should too. There is nothing
>> more dishonest than so-called investigative journalism.
>>
>> --
>> David Betts (dav...@motorsport.org.uk)
>>
>So you dismiss The Economist as a credible source of information, just
>because investigative journalism in your view most often are dishonest?
>
>Thats rich and I beg to differ here, David. As a long term occasional reader
>of the Economist I'd say this is one of the most serious and credible
>publications there are. And it's long overdue someone took a close look at
>the way F1 is managed and Bernies many shady deals. Not very surprising
>Bernie and F1 doesn't come out looking very good.
>
>Hans
I have to agree with you. I'm also long time reader of Economist,
and it has pretty high standards.
Article may be somehow pointless, but I think main reason is that F1
and especially Ecclestone are so secretive. What stands out,
necessarily isn't very encouraging. And that's hardly fault of
journalists.
Antti
Fredrik B. Knutsen
David Betts wrote:
>
> "Bob Dog" wrote
> > >
> > > From "The Economist"
> > >
> > <snip everything>
> >
> > Frightening and disgusting. He makes Vince McMahon (WWF)
> > look like an honest man by comparison.
>
> Actually, it's the same old stuff that has been published before. I
> always ignore anything like this. You should too. There is nothing
> more dishonest than so-called investigative journalism.
David, I have to say I find "The Economist" to be pretty serious reading
material, and pretty high on journalistic integrity by comparison with
other UK papers that I read.
When folk from outside the world of motor racing take a look, and
criticize what they see, I think it behooves us to take it seriously and
not dismiss it out of hand as a matter of course.
Doc
>
> --
> David Betts (dav...@motorsport.org.uk)
>
> "In the end it's always a matter of more accelerator and less brake" -
> Frank Gardner
>
> Photo albums:
> http://albums.photopoint.com/j/AlbumList?u=10440&Auth=false
--
Doc Fredrik B.Knutsen
Cheek Racing Cars
www.cheekracing.com
David Betts
>
> Maybe it is not that you ignore it, but you don't want to take the
> time to understand it. I risk a flame war saying this but your
> apathy sickens me.
You won't get flamed by me, Ric....but you really shouldn't mistake
scepticism for apathy. I was a newspaper journalist. Then I spent 20
years countering their misrepresentations on behalf of one of the
world's great companies. I know how these publications work. I know
how these articles are written. Some of the most respected
publications are the worst. There may well be skeletons in the closet,
but don't take the word of the media hype-mongers. It's much more a
question of 'Who shall we get this week? I know, we haven't done
Bernie for a while.'
Chris Helps
one of the world's great companies
>>
A corporate spin-doctor - well, that would explain your attitude towards
investigative journalism. I mean we all know how those mean, evil,
journalists are always making up lies about all the wonderful, saintly
corporations ...
Sky
David Betts <dav...@dbassoc.freeserve.co.uk> wrote in message
news:8pgcsr$dur$2...@newsg3.svr.pol.co.uk...
Jeff York
>On Sun, 10 Sep 2000 01:26:05 GMT, "Chris Helps" <sk...@home.com> wrote:
>
>>:) Three F1 teams-McLaren, Williams and
>>:)Tyrrell-stood up to him. The remaining eight teams promised support, but
>>:)this soon evaporated. The three teams refused to sign a new Concorde
>>:)Agreement, even though this hurt them financially.
>
>Well, well, well........ this explains the support given to
>Ferrari.....
>
>I wonder if Mr York remembers our long ago discussion about FIA
>propriety?
Indeed I do.. I also seem to remember having my tongue *very* firmly
in my cheek at the time.. I wouldn't trust them then, as now, as
far as I could throw them..
BTW - that's probably got my competition licence cancelled.. :-)
--
Jeff. Ironbridge, Shrops, U.K.
je...@jakfield.xu-netx.com (remove the x..x round u-net for return address)
... "There are few hours in life more agreeable
than the hour dedicated to the ceremony
known as afternoon tea.."
Henry James, (1843 - 1916).