Ecclestone greases F1 float with FIA equity stake of 1%

You may recall that Formula 1’s governing body, the FIA, announced that they had signed an agreement with the commercial rights holders. For years the Concorde Agreement has governed the sport, which was a tripartite agreement between the FIA, Formula One Management (FOM) and the teams. This agreement is something different and it appears it gives the FIA more of what they want—money.

According to the Guardian’s Christian Sylt, the FIA will now receive a 1% stake in Formula 1 nested in the planned flotation of the sport. This could mean an increase in FIA revenue from $10m annually to $40m plus a 1% equity stake worth $120m. It’s a strong financial position but check out Mr. Sylt’s article and you’ll see that the FIA was offered the 1% stake to support the flotation.

There is no secret that FIA president Jean Todt has been working to increase the revenue structure overall. In 2013 the FIA increased the entry fees as well as the cost of F1 driver’s licenses in an effort to find more revenue. The deal made by Formula 1 boss Bernie Ecclestone and the FIA should net a significant increase for 2014 if the flotation does happen.

The racing series was slated to float on the Singapore stock exchange in June of last year but the economic downturn postponed the IPO. The IPO may be postponed longer as Ecclestone is in court this week facing accusations of bribery and undervaluing Formula 1 for the sale of the series to CVC back in 2006.

In an interesting correlative story, the BBC’s Andrew Benson wrote a nice piece suggesting that the FIA’s desire for more money has actually bolstered Ecclestone’s power in F1 and control of the sport. In short, the FIA have sold their firm regulatory grip couched in the new Strategy Group gambit recently announced.

The FIA used to have an F1 Commission with a Sporting working group and a Technical working group. Changes to the regulations required unanimous decisions. Now the FIA has agreed to a Strategy Group.

The new group has many teams on edge and for good reason. Comprised of six teams including Ferrari, Red Bull, McLaren, Mercedes, and Williams as permanent members with the most successful team not in this group making up the 6th member—which is now Lotus F1.

Mr. Benson makes a very astute comment about the power this new group wields and who holds it:

“On the face of it, then, the FIA has significant influence. But in reality it does not work like that. Because any motion only needs 10 votes to pass, Ecclestone only needs four teams to support him to win any vote on the strategy group.

Red Bull, who are extremely close to him, are considered pretty much a given, and to get three more “straightened out”, as one senior figure puts it, is child’s play for a man of Ecclestone’s influence. So, in reality, Ecclestone effectively controls the strategy group.

The same goes for the F1 Commission, where the eight race promoters, tyre supplier and sponsors, along with the majority of the teams, again weigh things in Ecclestone’s favour”.

In essence, Benson argues that the FIA has given up its power or strategic position in exchange for cash and this dovetails with Mr. Sylt’s story of the FIA receiving a 1% equity stake in F1.

Ultimately the commercial rights holder has divested itself significantly in the last year selling nearly 30% of its equity stake in F1. Time will tell if the IPO does go ahead but if you were thinking Ecclestone could be weakening his position, you may be wrong as Mr. Benson points out.

It does, however, appear that Mr. Ecclestone is orchestrating the future of F1 toward the top teams and their ability to have a larger role in the governing of the sport as well as a bigger year-end payout percentage for the top 10 teams. Like most things in F1, however, I’m throwing darts here because very few have all the details of all the agreements going with the governing and money side of the sport. However, I do know that Ecclestone is doing more deals and contracts than Once’s Mr. Gold/ Rumpelstiltskin. How will it turn out? “that remains to be seen…deary”.

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