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Formula One stalled by EU
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June 30, 1999: 11:11 a.m. ET
Commission hits at auto racing 'cartel' TV talks; sports claim special status
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LONDON (CNNfn) - European Commission officials issued a damning verdict on the organization of international motor racing Wednesday, telling motor racing chief Bernie Ecclestone that contracts he secured to sell the television rights to the sport may break European competition rules.
The decision, which follows a two-year investigation, led to concern among investors in the $1.4 billion Formula One bond issued by an Ecclestone-controlled company last month and secured by revenue from TV contracts. It also cast doubt on Ecclestone's plans to float his company, Formula One Holdings (FOH), next year.
Sports lawyers said the commission's intervention could impact contracts in other sports, where spiraling TV revenue has transformed often amateur-run sports into multi-billion dollar businesses. "The Formula One example [from this judgment] could just spiral," said Paul Cairns, a solicitor at Harbottle & Lewis in London.
Sports officials responded with calls for sport to be excluded from normal competition rules.
The commission said that Fédération Internationale de l'Automobile, motor sports' governing body, did not have the legal power to grant the TV rights to two Ecclestone-controlled companies, Formula One Administration and International Sportsworld Communications.
"Unless [Ecclestone] renegotiates his links with the FIA, the commission could fine them up to 10 percent of their annual turnover (revenue)," said Cairns.
A commission official told CNNfn.com that the FIA and Ecclestone's companies operated a quasi-cartel based on long-term agreements between Ecclestone and Max Mosley, a long-time associate who heads the FIA.
Ecclestone was unavailable for comment, but the Swiss-based FIA said it was "surprised" that the commission should "leak" details of its investigation before supplying the association with a copy.
FIA said in a statement that it looked forward to a "rational discussion of the issues," but made no comment on the validity of its contracts with Ecclestone.
The official, who declined to be named, said the key objection was that Ecclestone and the FIA, operating through a pact known as the Concord agreement - were able to exclude teams and circuits from the multi-billion dollar motor racing circuit. "To come to the party at all you have to have the agreement of these guys," added Cairns.
He cited Ecclestone's recent statements over the battle to stage the British Grand Prix between two rival circuits. Ecclestone told the owners of the Silverstone track that the race would not be staged there unless they agreed to a takeover bid from the owners of Brands Hatch.
Bonds broken
The impact of the commission's preliminary findings spilled over into the bond market. The report comes just weeks after the long-delayed bond issue, which replaced plans for an earlier $2 billion offering and a $3 billion initial public offering of FOH.
The original plans were dropped last November after complaints from motor racing teams about the share of the proceeds and the interest of competition officials sparked investor concern.
The issue of $1.4 billion in bonds, arranged by WestLB and Morgan Stanley, was backed by the value of future TV contracts. Though a break-through deal with an innovative structure, it met with a lukewarm response from investors.
WestLB declined to comment on the EU findings, but market sources said it had taken $800 million onto its own books and plans to securitize it at a later date. Morgan Stanley sold some of its allocation to U.S. investors last week.
One banker, who declined to be named, pointed out that the Formula One bonds were backed by future contracts not covered by the commission verdict. However, the value of these contracts reflected revenue from the current deals and FOH's ability to negotiate future contracts.
Exemption calls
The commission has been approached by the leadership of some sports - and by the German government -- to grant exemptions for cartel-like arrangements in negotiating TV rights. Some soccer chiefs argue that the joint negotiation has benefited clubs by maximizing negotiating power and ensuring that cash reaches smaller clubs.
Some fear that forcing teams to negotiate alone would concentrate resources even more in the hands of the largest clubs.
Competition officials in the United Kingdom are already investigating the rights of the Premier League, which oversees the country's top soccer league, to negotiate TV rights on behalf of the 20 clubs.
The commission said sport is a normal business and cannot be excluded from normal competition laws.
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European Commission
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