If you’ve followed a few of my posts over the last several months, you’ll know that I have discussed news stories about the formal complaint made by Force India and Sauber regarding the prize money payout format that Formula One Management employs. The complaint was made to the European Parliament and there were calls for a review but nothing had been announced.
It seems that the issue will now get a thorough look into the situation from an anti-trust standpoint according to Forbes.
“The European Parliament publishes an annual Competition Report and amongst the anti-trust areas referenced in the 2017 edition is the motion to back “calls for an immediate investigation into competition concerns arising from the Formula One motorsport industry.” The vote to approve the report was passed through today with 476 in favor compared to 156 against.”
To author Christian Sylt’s credit, he’s been following this particular issue for many months now and even when the story seemed to evaporate, Chris would stay tuned in to the situation and every once in a while, there would be another letter sent or another call from a British MP to the EU to take a closer look. It seems that request has been heard.
The article brings up a couple of good points/questions about how this could impact the sport should the EU find it’s prize money distribution model is errant and, perhaps even more seriously, they find that the sale of F1 to Liberty Media is ripe with conflicts of interest. If my counting is correct, that will be the third time F1 has been sold and the third controversy surrounding it. First Kirch, then CVC and now Liberty Media.
EU regulations state that the regulatory body, the FIA, cannot have a financial stake in the series but they do as they purchased $458,197 worth of ownership stock and then converted that through the approval of the sale to Liberty Media into a cool $70 million. That’s one heck of a return in just four years and a return that would only happen if they approved the sale which they had the legal authority to do.
As the article points out, there’s nothing untoward about Liberty Media as a new owner, I think many believe that’s a good, fresh start for F1 but the FIA’s involvement is a little more ambiguous.
“There is no suggestion that Liberty wasn’t suitable buyer but as Forbes has revealed it didn’t make its first approach to CVC until September 2013 so when the FIA acquired its 1% stake two months earlier it could not have known for certain who would buy F1. What the FIA did know for certain is that its 1% stake came with the crucial condition that it could only be monetized in the event of a sale by CVC and this required its approval.
The FIA knew that if it approved the sale it would make a net profit of $79.5 million on its stake and the only way it could get it was by approving the sale. CVC on the other hand needed the FIA’s approval in order to sell its stake and make $3 billion on it. Liberty needed the approval to buy F1 and it paid a total of $80 million in cash and shares to the FIA.”
It will be interesting to see what, if any, fallout comes from the EU’s investigation and ultimately there could be some of the Bayern LB bank and German government frustration over the sale of F1 without getting a big piece of the action. I’ve read reports that the penalty for a guilty verdict could be in the millions of dollars and a complete restructuring of the organization and its model.
I would be stunned if Liberty Media weren’t already aware of that and to be honest, the conspiracy theorist in me has them banking of the situation. Bringing Ross Brawn in as the technical brain for F1 has been a very good move by Liberty Media but it does seem to clash somewhat with the FIA’s role as the sporting and technical regulation body over the sport. I wonder if any of this could create leverage points for Liberty Media in dealing with the FIA as they head toward 2020 when all contracts expire? For that matter, who knows what deals may or may not have been struck already behind closed doors?
I’m not suggesting anything untoward here but if the EU can get some big cash out of this deal, I suspect there will be an effort to do so. There’s also the notion of re-writing the prize money distribution, which I’m not sure I am a big fan of to be honest. Those negotiations need to happen between the teams and Formula One Management. However, as the article points out, there could be knock-on effects should the EU demand some sort of uniform equity distribution.
“It could also jeopardise F1’s future as its best-known teams, including Ferrari, have built their business models around the multi-million Dollar bonuses they receive. There is a real risk they could reverse out of the series if Europe’s anti-trust regulator forced F1 to balance its prize money payments.”
You have to wonder if teams like Red Bull Racing, Williams, McLaren and even Ferrari aren’t banking on a top-5 constructor payout as a crucial part of their team budget as well as Ferrari’s additional $100 million historical team payment. Will teams leave the sport should the EU demand some sort of total divided equally by ten teams scheme? Time will tell but prepare yourself for some more legal wrangling over the ownership and prize money distribution model…The EU to the rescue as it were.
Hat Tip: Forbes