In the run-up to the Australian Grand Prix, two totally differing statements were put out within a day of each other by Formula One Management (F1's de facto commercial rights' holder) and the Formula One Teams' Association. This, of course, led to suggestions that one or the other (possibly both) was being economical with the truth in their squabble over the sport's revenues, for it could hardly get more contradictory than:
FOTA - The purpose of the meeting was to discuss payment of money owed by CVC (the effective owners of the commercial rights to Formula One) to the teams and relates to agreed sums owing from the 2006, 2007 and 2008 championship years.
Dr Mario Theissen, Flavio Briatore, and Christian Horner © LAT
FOM - In particular FOTA claimed that monies are owed by CVC (FOA's controlling shareholder) to the teams for the 2006, 2007 and 2008 championship seasons. Neither CVC nor FOA owes any amount to any team.
However, as proven by the diffuser row, the devil lurks in the interpretation, and seemingly both parties are essentially telling the truth - from their own perspectives. In order to arrive at that conclusion it is necessary to understand the background to the situation, and where it leads to from here on in.
Back in November 2005, Bernie Ecclestone did a deal with vulture fund CVC Partners and the then-shareholders of the sport's commercial rights. In terms of the deal, CVC came in at approximately 63%, the Ecclestone family trust at 8%, with the balance being split almost equally between merchant banks JP Morgan and Lehman Brothers, and a conglomerate of smaller parties.
In order to consummate the deal, CVC needed to raise - fast - around $2,3bn on the open market against the sport's future income, and approached the Royal Bank of Scotland, coincidentally (or not) then considering taking over the primary sponsorship of Williams F1.
However, in order to satisfy RBS's surety demands, CVC needed to prove that long-standing agreements with all teams, whereby they committed to the sport until at least 2102, were in place, or the equity fund had no deal.
Those teams not yet in the long-term fold - basically the motor manufacturer operations, less Ferrari - sensed an opportunity and increasingly pressured the CRH for 60% of the sport's revenues generated between 2008 and 2012 - well up from the estimated 23% the teams were collectively due for the 1998 to 2007 period.
Stalemate was quickly reached. This worked in favour of the GPMA (the manufacturer team grouping), but jeopardised the CRH's ability to raise the funds. In fact, the impasse came close to torpedoing the deal, which left CVC vulnerable to some rather heavy penalty clauses.
Thus the company's top executive Donald McKenzie flew to that year's Spanish Grand Prix in Barcelona and negotiated with Renault's Alain Dassas - recently appointed head of Renault Sport despite having a financial background and being an F1 virgin. McKenzie pressured Dassas to persuade the GPMA teams to accept 50% of the sport's revenues, backdated to January that year.
(Based on an average annual turnover of $1bn, the difference pans out at $40m - a not insignificant amount, but still less than 1% of the sport's total turnover during the period, begging the question why negotiations were so protracted, particularly given the CRH's urgent need to raise the RBS loan...)
Renault president Alain Dassas and BMW CEO Burkhard Goschel © XPB
Whatever. The McKenzie/Dassas deal was enshrined in individual memorandums of understanding entered into between Delta Topco (the CRH vehicle) and the 'rebel' teams, which enabled McKenzie to persuade RBS chairman and petrol head Sir Fred Goodwin to loan the money to consummate the deal.
Meanwhile, teams of lawyers beavered away at converting said MoUs into legalese, and the word in the paddock of the time, was that there would soon be peace in our time - something this column was sceptical about, (correctly) concluding:
Peace, it seems, is unlikely to be brokered before the new era (2008) kicks in. But, then, Formula One has never led a peaceful, harmonious existence. It simply is not in the sport's nature.
As it's now public knowledge, the MoUs kicked back and forth until well after the old Concorde Agreement expired, and the 2008 Australian Grand Prix made history as the first F1 race to run outside the cosy covenant for over 25 years - which went almost unnoticed. This situation in turn suited the parties' various agendas - until the credit crunch hit and Honda withdrew from the sport.
Simultaneously, RBS ran into big trouble and discounted the deal to a conglomerate for around 50% of true value - none of which affects F1 in the slightest, regardless of the incoherent ramblings of some 'specialists'. The crisis led the motor companies to send their bean counters to scour the books of their F1 teams, and guess what: there existed some enormous black holes in team accounts, particularly alongside journal entries such as 'FOM Revenue (50%)'.
Instead, vastly reduced values, equating to around 23%, were stated - and, yes, you've guessed it: FOM had religiously paid the 'Concorde teams' their full whack and the manufacturer teams only at expired Concorde levels as the MoUs had not been converted, and thus, in FOM's opinion, no legally binding contracts existed which required it to pay the 'rebel' teams. At all ...
The GPMA teams, though, asserted that they have fulfilled all moral and commercial conditions as required by both the MoU and Concorde drafts (a source maintains there have been over 70 drafts to date), and that they should thus have been rewarded at the full rate even if their signatures have not actually endorsed any agreement.
When F1 was swimming in money and the manufacturer teams were able to touch Big Daddy for funding whenever things were tight, matters were easy. But, suddenly, Daddy is under enormous pressure, and given that the cumulative delta between what FOM has paid and the teams maintain they are owed, adds up to around $750m (an average of $100m per team for the period) team comptrollers have become rather edgy.
Bernie Ecclestone © XPB
However, what happens from here on in is even more interesting: Should FOM, for which read CVC, maintain it has no further obligations, and $900m with interest surely provides the company with sufficient reason to adopt that stance, particularly as the amount virtually Delta Topco's outstanding debt to the bond holders, then the teams seemingly have two courses of action open to them:
Adopt a positive stance and work towards signing the agreement without unnecessary delay, even if it means conceding certain points, or:
Take on FOM (and CVC) in what is likely be an expensive, protracted and highly embarrassing fight in the Queen's courts. Oh, to be the judge in that one, should it ever come to pass...
However, if FOM has 900 million reasons to not pay, the teams, too, have a handful of strong cards, for the commercial rights have no value without the teams, and they could conceivably form their own series. Many in the paddock believe Honda would not have exited the sport had there been greater clarity surrounding F1's revenues, and the question, therefore, is whether more manufacturer teams will exit the sport if they don't receive their entitlements ASAP.
Yes, Ferrari is and has been a signatory to the new Concorde (if its bi-partite deal can be referred to thus) since January 2005, when it cut a separate deal which included a $100m sweetener with Ecclestone. He knows no breakaway series could thrive without the iconic team; equally Ferrari's Luca di Montezemolo heads FOTA and is increasingly flexing the organisation's muscles. Already he has called for 75% (or even more) of revenues from 2012-onwards, so the patrician Bolognese simply views this skirmish as good practise ahead of the real struggle.
In the end sanity is expected to prevail - but many believed that to be the case back in May 2006...
* * *
Besides Brawn's fairy tale victory, the diffuser row and the FOM/FOTA war of words, the other big story in the Melbourne paddock surrounded Abu Dhabi's Yas Marina circuit, which rumours suggested, would not be completed in time to host the 2009 season finale come 1 November.
Whilst the economic crisis has taken its toll across the world, and, as the mass exodus of people and paper from Dubai has proven, the Middle East is far from immune to such travails. However, on account of its oil reserves, Abu Dhabi is and remains one of the world's richest states - with a per capita income of around $50,000 per annum.
Construction of the Yas Marina circuit
Against that background and the fact that construction companies seeking work in the region are presently a dozen in the region, should the rumours be taken seriously, particularly when Emirati honour is at stake?
First, consider that the doomsayers have historically taken pot shots at most new circuit projects, certainly since Malaysia made its debut in 1999. Then, when the Circuit de Catalunya upgraded for 2001, similar fears were mooted. Come 2004, the Bahraini circuit was said to be far from ready, and ditto when China made its debut later that year. Turkey's circuit, opened in 2005, provided similar fodder.
Yet, in every instance the circuits have delivered, and in the main the man behind successful delivery - either as the responsible person or consultant - has been the 20-year F1 veteran Philippe Gurdjian, who has received no less than five FOM accolades for excellence for his work at various circuits during his career. Add in more awards for the outstanding test facility he created at Paul Ricard in the south of France, and he is probably the most decorated promoter/circuit administrator in the history of F1.
Gurdjian, who has around 20 successful grands prix to his CV, was appointed by His Excellency Khaldoon Al Mubarak, chairman of Abu Dhabi Motor Sport Management and chairman of Abu Dhabi's Executive Affairs Authority to head the project, and given the French Armenian's successful track record there is little reason to doubt that the race will go ahead.
Whether, though, the Abu Dhabi Grand Prix runs to a full house, or becomes the world's first grand prix TV spectacular, is another question. Don't discard the notion of a spectator-less GP: as CEO of the Paul Ricard facility, which owner Bernie Ecclestone decreed should be developed purely as a test track and thus has no spectator facilities, Gurdjian ventured that Paul Ricard could host a grand prix with only selected high (as in stratospheric) rollers, TV cameras and the media in attendance - as outlined here.
As unlikely as it sounds that could come to pass if push comes to shove...
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