If you’ve been following the sale of Formula 1 over the last few years and the financial and political ramifications, then today’s news that the Serious Fraud Office’s pre-investigation into the process will interest you.
The issue at hand was the deal that introduced the FIA as a stakeholder in F1 and while news outlets have covered the investment sporadically, in fairness, Christian Sylt has been bird-dogging the complete sale of F1, it’s financial tendrils and ramifications for a long time now and called this particular issue out as a possible sticking point to any future enquiry. You can read Chris’s report here, here and here.
The FIA’s 1% ownership of F1 originally cost approximately $460k but when Liberty Media bought controlling interest in F1, the FIA converted that initial investment into a $70m windfall. There were concerns over a conflict of interest in the sale of F1 as the FIA had final approval over any potential sale and rubber-stamping Liberty’s acquisition would mean benefitting themselves. There was also initial reports that the FIA was legally not able to own a portion of F1 per EU anti-competition law.
This issue was brought up in several reports from Sylt and was even commented on by both the FIA and Liberty Media with both organizations downplaying any legality issues or conflict of interest. Now it seem the SFO is taking a deeper look.
The financial details of the deal were never made public but at the heart of the agreement were two arrangements that look highly questionable: the FIA was granted and chose to accept a $5 million (£3.9m) lump sum for entering into the agreement as well as a 1% stake in Formula 1 for $460,000 (£358,800) – a tiny fraction of the market value.
CVC was the controlling shareholder of Formula One for more than ten years and made several billion pounds from the sport which, for much of that time, thrived under its ownership.
Donald MacKenzie is understood to have led the talks with the FIA. Mr MacKenzie declined our offer of an interview. A spokesman for CVC told ITV News: “The agreement does not breach the Bribery Act, and any suggestion to the contrary can only be based on a misunderstanding of the facts and is false. We have recently confirmed this with our outside legal advisers.
“Any suggestion that CVC or Mr MacKenzie was involved in bribery, whether through these arrangements between F1 and the FIA or otherwise, would be baseless and wrong.”
Neither the FIA nor CVC have offered a detailed explanation for why the FIA was granted the $5 million (£3.9m) or the 1% share option at such a discounted rate.
The fact of the matter is, as the ITV article points out, is the conflict of interest and the impact it has had on small teams who have seat at the F1 Strategy Group table or no vote in the series. Three teams are now defunct due to exorbitant costs ushered in by a rubber-stamped hybrid engine format the FIA endorsed and the F1 Strategy Group insisted on.
There was also a complaint registered by small teams Force India and Sauber to the EU that asked for a review of the deal as it was damaging to their livelihood based on the prize money payout structure.
The FIA and new owners, Liberty Media, are keen to move on and claim there’s nothing to see but several MP’s and organizations are not so sure and the investigations could uncover what ahs previously been very private financial information.
The Formula One Group said: “The figures quoted, including the equity stake, were negotiated to ensure that the FIA could continue to provide and enforce a long-term regulatory framework, which provides safety and stability for the benefit for all key F1 stakeholders including teams, drivers, other partners and, of course, the F1 commercial rights holder itself”.
The FIA said: “The Concorde Implementation Agreement entered into by the commercial rights holder of Formula 1 and the FIA in 2013 introduced a new governance structure for Formula 1 and redefined certain conditions applicable to their relationship, in particular to ensure that the FIA be properly remunerated for its regulatory role.
“Within this agreement, a lump sum payment of $5m (£3.9m) was made to the FIA as part of the global consideration received in connection with the renegotiation of the terms of the agreements between the commercial rights holder and the FIA, and of the Concorde Agreement, at that time.
“Following its approval, the Concorde Implementation Agreement came into force and this sum was paid to the FIA and properly accounted for.
“No individual received any payment out of this sum. Any allegation to the contrary would be defamatory.”
Hat Tip: ITV