Behind the Smoke Screen

The most extraordinary thing about Sunday's 'peace agreement', which was announced as the cars were warming up for the Spanish Grand Prix, is that nowhere does it guarantee peace, and, in fact, could still result in the very opposite, possibly with just four motor manufacturer-backed teams and not five.

The Grand Prix Manufacturers' Association's press release announced the signing by all five members of a Memorandum of Understanding on the commercial structure of Formula One. However, at no stage has there been an announcement that Bernie Ecclestone or his majority shareholder CVC Capital Partners have also accepted this MoU.

What was signed by the five members - representing BMW-Sauber, Honda Racing F1 Team, McLaren-Mercedes, Renault F1 and Toyota Racing - was a document signifying their acceptance of the heads of agreement and some of the many fine points relating to the sport's commercial aspects between 2008 and 2012.

No more, and no less, and, in the absence of a statement from either/or both Formula One Management and CVC - and, for that matter, the FIA, who widely trumpeted the signing of an extended version of the Concorde Agreement in January 2004 - it must be assumed that no such signature has been applied to the MoU.

There have been, of course, all manner of errors relating to the MoU, with some team and media members referring to the document as a revised draft of the existing Concorde Agreement, the document which at present governs the commercial, sporting and technical aspects of Formula One.

Not so: the MoU certainly cannot (yet) even be viewed as a commercial agreement, merely one which outlines the major conditions to be included in the binding agreement still to be drafted and signed - if the MoU is accepted by Ecclestone and CVC.

And, again, not so: there are no guarantees that there will even be a 2008-2012 Concorde Agreement, for nowhere does the 'C' word appear in the 2008-onward regulations as published, and it is quite conceivable that the sport will, for the period, be governed by three distinctly separate documents: the sporting regulations, the technical regulations, and the commercial agreement, with the appropriate agreements being trotted out as necessary whenever resolution is sought.

This would, of course, be highly convenient for the governing body, for should there be litigation over commercial matters - from which the FIA is formally excluded in terms of its European Union mandate - the governing body would be unaffected, whereas it would automatically be party to proceedings were it a signatory to an umbrella agreement.

What the GPMA release intended to (and did) portray was unity among the manufacturers. Unity in having accepted the commercial terms offered en bloc in the last week, and unity in committing to the sport after 2008.

Put in layman terms, the MoU is an intent to accept, not the final acceptance, and here it is salient to record that an MoU was signed by the parties - including Ecclestone - in December 2003, and withdrawn by the manufacturers four months later after they accused Ecclestone of reneging on certain clauses.

In theory, a repeat could occur as readily as could final acceptance.

What complicates the matter is that Renault F1, acting alone among GPMA members, issued a release stating their commitment to Formula One beyond 2008, then refers to their signing of "a contract with Formula One Administration (FOA) that will lead to a new Concorde Agreement running from 2008 to 2012".

Have Renault signed an agreement with FOA which is separate from the MoU?

On the face of it, yes; based upon specific information from a GPMA spokesman, no.

Why, then, did Renault issue the release, which, crucially, does not appear to commit the company to Formula One to 2012? Their release refers to a notional agreement running through to 2012, but at no stage does Renault actually commit to staying in the sport, only that they are committed beyond 2008 - which could as easily be 2009 as it could be 2109.

These are mysteries which will, no doubt, be clarified in the fullness of time, but certainly raise suspicions that all was (is) not well in GPMA corridors.

Saliently, one of the final 'sticking' points - right through to the start of last week there had been at least a dozen, ranging from the number of passes per team to the percentage split of Formula One's annual revenues, which were whittled down to four as the week progressed - was the right of exit from the sport by teams, who, for whatever reasons, decide Formula One no longer suits their situations.

It is, of course, logical to suspect motor manufacturer-owned teams of leaving on whim or board decision, but Red Bull could as readily decide that the sport no longer complements its overall marketing objectives as could Renault - for, forget not, both are in the sport purely to sell product.

Does it really matter whether that 'product' is round and opens with a ring pull, or runs on round black things and opens with a key? The net effect of departure from the sport is the same: one or more less teams.

So, could it be that Renault negotiated a right to exit with lesser (or even zero) penalties as and when it wishes, in return for publicly 'committing beyond 2008'? If it walks like a duck and quacks like a duck, it surely is a duck?

According to a team principal who spoke on condition of anonymity, the three remaining deal breakers were revenue split, airfreight contributions, and the size of Ferrari's special sweetener (and whether or not that is picked up by teams).

The sport's annual revenues are estimated at $800 million (USD), and since 1997, all teams have shared approximately 23% of that. The manufacturers pushed for a greater share - some say 60%, as part of the new deal - with Ecclestone offering a maximum of 50%.

It has been said that he originally offered 60% on condition that the motor companies accepted full responsibility for their teams' withdrawals; when that was not accepted, the slice was cut to 50%.

One source maintains that 55% was the final agreed disbursement, although the most likely scenario is that Ecclestone offered 50%, backdated to this year. The outcome of the airfreight contribution and Ferrari's heritage bonus is unknown, but Ecclestone did not amass a multi-billion fortune by charitably dishing out dosh to teams...

Whatever, however, was agreed was sufficient for the GPMA to put pen to MoU, which, though, is not binding agreement.

So, given that true peace did not break out in Barcelona, where to now for Formula One?

For the sport to prosper, three distinctly different entities need to thrive in harmony, and the more harmonious their inter-relationships, the healthier the prosperity of the Formula One. The three entities are:

The governing body, presently the FIA.

The commercial rights' holder, whoever/whatever that may be now and into the future.

The teams, whether two or 18.

The most stable geometric form is a triangle, for each side braces its opposite numbers, and what is needed are the bilateral relationships between each of the three entities forming a cohesive whole through their interaction.

An ultra-strong relationship, some believe too strong, already exists between the governing body and the commercial rights' holder, while an 'open' relationship would seem to be in the offing between the teams and the commercial rights' holder - although, until Ecclestone/CVC have signed, no such relationship can even be assumed to exist.

This relationship, however, can (and probably will) be strengthened over the forthcoming months.

What remains outstanding, though, is a mutually fulfilling relationship between the governing body and the teams, Concorde or no Concorde, and that will take a while longer to achieve, if ever. And, therein lies the real requirement for lasting peace in our sport in our time, and until that is achieved, any hailing of peace is no more than premature, regardless of the presentation.

Sunday's GPMA announcement went a long way towards achieving the ideal, but right now, it appears to be little more than a 50-page, white flag cease-fire offer while the five (or four?) members of the GPMA retain loaded arms pending further action from the "other" sides.

As Bernie Ecclestone has stated regularly of late, "It will all end with a press release." The most important one is yet to be issued.

The Road to Barcelona

Regardless of the eventual outcome, Sunday's MoU announcement was the result of a road well traveled, one with more curves, bends, chicanes, blind rises and tunnels than even Monte Carlo's Grand Prix circuit - where further news on 'Peace on our time' is expected to break, signifying that matters are far from complete.

This long-running saga began in 1997, when the present Concorde Agreement, in terms of which teams are paid a collective 47% of television revenues (around 23% of Formula One's estimated overall income of $800m per annum) in return for their participation in all rounds of the FIA Formula One World Championship to 2007, kicked in.

Previously, F1 boss Bernie Ecclestone, as head of the Formula One Constructors' Association which represented all teams, negotiated deals with television stations and circuits on behalf of FOCA, kept a slice (believed to be 12%) for his efforts and split the rest with the members on a performance-related basis.

Come the mid-nineties, five years after Max Mosley toppled Jean-Marie Balestre as head of the governing body, Ecclestone negotiated the 10-year commercial rights to the sport for his own account, doing individual deals with teams. By keeping negotiations confidential he was able to ensure maximum income and minimum payouts, thus trousering of 77% of revenues and ensuring multi-billionaire status for his family.

The rights to the sport he then moved into various trusts and offshore companies, with SLEC - named after his wife, Slavica Ecclestone - being, to all intents and purposes the Formula One's ultimate holding company. In 2000, whilst an EU monopolies commission investigated his dealings, the German media company EM TV and Merchandising acquired a 50% share in SLEC, with an option to purchase an additional 25%.

The following year, 2001, the financially challenged EM TV sold out to Kirch Media, then one of Germany's largest media groups, in the process exercising EM TV's right to the option. EM TV/Kirch thus owned 75% of SLEC, most of which had been exchanged for indebtedness to a trio of banks: BayernLB, J.P. Morgan and Lehman Brothers. These were owed a collective $1,6bn.

Two simultaneous, but unrelated moves, saw the EU drop investigations into the FIA/SLEC deal after restricting the FIA to a regulatory role, whilst the Association of European Carmakers (ACEA), made up of BMW, Fiat-Ferrari, Ford-Jaguar, Daimler-Mercedes, and Renault, announced plans to set up an alternate Grand Prix World Championship (GPWC) to ensure free-to-air broadcasting of the competition endeavours.

The move appeared to be little more than a sabre-rattling exercise to force Ecclestone to increase payouts and provide additional air time.

Then, come mid-2002, Kirch, crippled by debt after taking over EM TV, filed for bankruptcy, and the three banks swap debt for equity, thus acquiring 75% of a group they do not understand, nor wish to retain.

Thereafter all remained quiet on the political front whilst sides posture for position; then, in December 2003, a breakthrough Memorandum of Understanding agreed by GPWC and Ecclestone is announced. Four months later GPWC announces its withdrawal from the MoU, alleging SLEC has reneged on most points.

In September Jaguar announces its withdrawal from the sport, selling its Grand Prix interests to Red Bull.

In January 2005 cash-strapped Fiat withdraws its equally squeezed sister Ferrari from GPWC, and a saviour deal is struck whereby the Prancing Horse commits itself to Formula One until 2012 in exchange for an upfront payment said to total $100m. Immediately thereafter, Red Bull signs up to Ecclestone's championship, followed by the Midland Group, which had earlier purchased Jordan.

In March, GPWC, down to just BMW, Mercedes and Renault, wooed Japanese companies Honda and Toyota, forming the Grand Prix Manufacturers' Association, which takes up GPWC's cudgels and vows to press ahead with its alternate championship.

Between 2003 and mid-2005 the banks and Ecclestone had been locked in various litigation suits over control of SLEC.

In October 2005, CVC Capital Partners announces it has negotiated the purchase of the banks' interests in SLEC, and the Ecclestone family's shareholdings via a company to be known as Alpha Prema on behalf of its Fund IV - which could (or not) be owned by CVC.

Ecclestone's family in turn purchases a significant share in Alpha Prema holding company TopCo, owned by Fund IV.

In February 2006 the EU instructs CVC to rid itself of MotoGP before approving the deal, which carries GPMA's endorsement, by which time Williams - having split from BMW - commits to Ecclestone's championship, whilst Red Bull's second outfit Toro Rosso and newcomer Super Aguri do likewise.

There are thus seven team committed, with five vowing to go their own way.

Then, last Sunday in Barcelona, GPMA signed the announced MoU, whilst news has yet to break that Ecclestone has done likewise....

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- The Autosport.com Team

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