Ecclestone: How he ended up in a Munich court

Bernie Ecclestone is a man used to answering questions.

On the Sunday morning of each grand prix, no matter what exotic locale the F1 grid finds itself, he walks with local officials, kings, princes or celebrities in tow, introducing the good and the great to the drivers and to each other. All the while simultaneously responding to questions from the press corps about the events of the week: who is up, who is down, is the Bahrain race on or not, and will we have anemically teeny four-cylinder turbos or lusty V8s?

Ecclestone's mastery with the media is almost as legendary as his mastery of money. He tells you only what he wants you to know. Sometimes he answers like the Delphic Oracle - "let's see what happens" - and sometimes with words that cut to the quick when a business rival has to be disciplined.

Historically, Bernie's favourite target over the years has been Luca di Montezemolo, the 64 year-old head of Fiat and Ferrari who has made it clear that to his mind, at 82 years of age Ecclestone's best days are behind him and it is time for a succession plan.

For his part, Bernie, who used to travel on behalf of the Formula One Constructors Association to Maranello to meet face-to-face with Enzo Ferrari on a regular basis, leaves you with the impression that he views di Montezemolo as a mere poseur by comparison to Ferrari.

Putting aside family members, there is only one person other than di Montezemolo who has been bold enough to pounce on Ecclestone in his world, a prominent and influential British advertising guru named Sir Martin Sorrell. The head of WPP Group, the world's largest advertising agency, Sorrell has been a constant critic of Ecclestone from his perch as a non-executive board member of CVC, the private hedge fund that now owns F1. Sorrell wanted Flavio Briatore gone from the scene for the Italian's role in the scandal surrounding the Renault team in the 2008 Singapore Grand Prix - and you know what happened to him.

Sorrell tried to add Ecclestone's scalp to his trophies when Bernie made one of his rare mistakes with the press. In an unguarded moment during an interview in his office at Princes Gate in London, Bernie - himself famous for his somewhat dictatorial ways - was asked by Rachel Sylvester, a political journalist for The Times, whether he could name "a favorite historical dictator".

Ecclestone fell into the trap of trying to be too clever and said: "In a lot of ways, terrible to say this I suppose, but apart from the fact that Hitler got taken away and persuaded to do things that I have no idea whether he wanted to do or not, he was, in the way that he could command a lot of people, able to get things done."

Ecclestone might have unintentionally portrayed himself as an admirer of Hitler, but when Sylvester's story appeared in The Times, Sorrell spoke for the majority of the CVC board when he condemned Ecclestone's comments as "disgusting". Was Eccelstone's job under threat?

Di Montezemolo chimed in, seizing upon Ecclestone's faux pas by saying that Bernie must go.

But Donald McKenzie, CVC co-founder and managing partner who had orchestrated the acquisition of F1, backed Bernie. He took the position that should decide whether Bernie should stay or go, not the teams and certainly not Ferrari.

In the Dock

But that was then and this is now. Ecclestone is in another rough patch.

On November 8 and 9 in Munich, Germany, he testified in the bribery and corruption case of Gerhard Gribkowsky, a former banker with a state-owned German bank, Bayern LB. Prosecutors claimed that Gribkowsky received a $44 million bribe in connection with the 2006 sale of the company that controlled F1 to private hedge fund CVC by Bayern LB and a consortium of banks, including Lehman Brothers and JPMorgan Chase.

How did these banks end up owning an interest in F1 to begin with? Reluctantly. It is not because they are Michael Schumacher fans.

Bayern LB and two other creditor banks took stock in F1 as collateral on a loan made by the consortium to Kirch, a German media company. When Kirch defaulted on the loan in 2002, the banks inherited the stock that had been pledged by Kirch as security for what turned out to be a bad loan.

At the time the banks realised on their collateral, Ecclestone's family trusts owned 25 per cent of the stock and the consortium of banks owned 75 per cent, so it was always an uneasy harness between the two stockholder groups, a founder group and a bank creditor group.

From the outset, Gribkowsky was a thorn in Ecclestone's side. As the lead bank's representative, in 2004 Gribkowsky brought a litigation in the High Court in London challenging Bernie's control of the Board of Directors of F1 and Gribkowsky and the banks won the case. Justice Andrew Park ruled that the Ecclestone family trust had too much influence over the management of F1 given the proportions of ownership of stock held by the consortium of banks.

Luca di Montezemolo has been a frequent Ecclestone sparring partner © LAT

Surprising as this outcome was, even more of a shock was Ecclestone's decision not to appeal. As a result, the banks were allowed to appoint more of their own hand-picked directors and thus began the tension between Bernie and the banks that continues in the courtroom in Munich seven years later.

Obviously, Ecclestone was not used to sharing power with cost accountants and bankers and he began quite logically to work with Gribkowsky and the banks to achieve what both sides wanted: to get the banks out of F1, so that the banks could recover a portion of what they had lost on a bad loan and Bernie would be free to run the sport without having to consult the suits.

Ecclestone summed up the situation at the time, commenting on Justice Park's decision. "These people [the banks] didn't get these shares out of choice, they got them as security, they want to get out," he said. "We have no problems with the banks. This is just a problem of them trying to put a value on their shares."

With this identity of interest, both Gribkowsky and Ecclestone were interested in selling on the shareholder interest of the banks to a new investor and CVC, a UK-based private hedge fund, was the buyer that presented itself and Gribkowsky seems to have been the key intermediary between the banks and CVC's Donald McKenzie.

Ecclestone has been called to testify in this Gribkowsky case because it is alleged that in order to make some money for himself on this deal, Gribkowsky threatened to go to the UK's Inland Revenue and prompt an investigation into the financial affairs of Ecclestone and his companies and family trusts. In response to that threat Bernie allegedly paid Gribkowsky $44 million to eliminate the threat - not chump change and not a pretty story.

The German prosecutor argues that these monies paid by Ecclestone (as well as a commission paid to Bernie on the transaction in exchange for his guaranty of prior debts of the companies that controlled F1) rightfully belonged to the state-owned German bank and the diversion of these funds by Gribkowsky was a violation of his duty to the bank, and amounted to tax evasion and corruption.

Truth and Consequences

You can be sure that whatever happens at the trial, the long knives will be out for Ecclestone's head, with Sorrell and di Montezemolo leading the way. Di Montezemolo's comments over the weekend on the future of F1 may be evidence that he is just warming up.

It should be remembered, however, that CVC director Donald McKenzie has also been called to testify in Munich, presumably to confirm that CVC was not aware that money had been paid to grease the skids in facilitating its acquisition of F1. Although such testimony will show CVC is pure as the driven snow when it comes to Gribkowsky, the whole episode raises questions about CVC's due diligence in the transaction itself.

This is not Ecclestone's first time testifying in court on an F1 case. Many years ago when the very first attempt to organise a Korean Grand Prix was undertaken, there was a default by the construction group in the building of a circuit in South Korea and Bernie cashed the letter of credit posted as security for the project. The construction company challenged his decision to draw down on the letter of credit in the High Court in London and Ecclestone testified on his side of the case.

Justice Longmore heard the case and ruled in Ecclestone's favour, "with some regret", as the judge put it. The judge took a shot at Bernie's credibility and ways of doing business.

Longmore said: "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. He did not prepare himself in any detail and, when asked about documents, had to take some time to familiarise himself with them. He thought he knew what he would or would not say or do in various situations and could thus easily convince himself that he did or did not say or do something if it was different from what he now thinks he would've said or done. I have some reservations about any evidence from him that is not supported by other evidence in the case."

In time, Ecclestone had the last laugh as the Korean group that Justice Longmore seemed to be feeling sorry for subsequently became embroiled in a bribery scandal. Bernie wanted his lawyer to send the news article of the scandal to Justice Longmore as proof to the judge that Bernie had been the credible witness, not the Koreans.

Ecclesone and his trackside office bus © LAT

There is also alleged bribery and tax evasion in the Gribkowsky case. Ecclestone seems to be a cooperating witness and has not been charged by the Germans prosecutor but Bernie has conceded that he succumbed to Gribkowsky's Inland Revenue threats. The prospect of putting up with mountains of papers and squadrons of auditors in his last years at Princes Gate was apparently a prospect that was such a colossal waste of time that Bernie would rather pay Gribkowsky.

Ecclestone's decision to pay Gribkowsky to keep his silence seems bizarre and uncharacteristic in retrospect but for Bernie life is all about Time, now more than ever, and not having to waste it doubtless meant something to him. To a person like him, the $44 million paid to Gribkowsky is little different than the extra earner of $55 million paid to Ferrari last time around for signing the Concorde extension agreement: to a businessman like Ecclestone, it is simply the price of doing business.

If you have seen Ecclestone in action, you will know what I mean. He runs a multi-billion-dollar sport with split second precision on the basis of three devices: his wrist watch, his walkie-talkie and a cell phone. Imagine what it must be like for a man like that to have to sit in a German court room waiting to be called as a witness and then waiting for his English words to be translated into German so as to be understood. Worth at least $44 million!

Selling Out?

Nobody covered themselves with glory on the deal that led to CVC acquiring F1 and by next week the goods they bought will inevitably be tarnished a bit. Hedge funds hate two things: publicity of any kind and not getting out of an investment while the going is good.

Solution? Position the investment for sale to the next owner and reign in Ecclestone to the extent possible while the CVC honchos review the value of what they own.

Another approach would be to go back to finding an Ecclestone successor, but McKenzie knows that is a non-starter based upon prior experience.

I know it sounds unlikely but another solution is for CVC to count its blessings over the last five years of its investment in F1, from which it did very well, and cut a deal with Ecclestone himself. Sell the damaged goods back to him at a reasonable discount, after which Bernie will figure out a way to eventually sell the whole shooting match to the teams in his 90th year when he will probably be ready to leave the helm at Princes Gate and, as his ex-wife Slavica once joked, be buried in his bus, his office on GP weekends.

Tom Bower, in his book No Angel: The Secret Life of Bernie Ecclestone, remembers a comment Bernie made to him one night before the 2010 Italian Grand Prix: "I'm worried to shit it will all go down after me."

Me too.

Sorrell is the canary in the coalmine: if he is heard from after Ecclestone and McKenzie testify at Gribkowsky's trial, then there could be trouble ahead. But if Sorrell goes quiet on orders from the CVC board not to taint the goods further, we will not be surprised to see Bernie on the grid at Abu Dhabi this Sunday, glad-handing one and all, and wondering if that deal he is working on with Vladimir Putin will be inked once Putin is back on the top at the Kremlin . . .