But Ecclestone’s once ironclad hold on F1 is being threatened. He no longer has a lock on the TV rights; after a series of deals ending in 2001, Kirch Media acquired 75 percent of SLEC, the Ecclestone rights company named after his Croatian wife, Slavica, a former model. When Kirch collapsed, a consortium of banks took control of the firm. And now there’s a new challenge: the top F1 car manufacturers–Ferrari, Mercedes, BMW, Renault and Ford, which underwrite the racing teams and give the sport its considerable technological cachet–are poised to grab a much bigger chunk of the financial pie for their teams. Doing so would further dent Ecclestone’s power, giving the carmakers and the teams a much stronger voice in how the league is run. “It’s all OK,” Ecclestone told NEWSWEEK. “We can sort it out.”
They’d better. The auto companies have vowed to bolt F1 and start their own circuit unless Ecclestone gives the teams more of the cash from TV rights, trackside advertising and ticket sales. According to Frank Williams, head of the Williams/BMW team, the car manufacturers are also looking for “greater commercial transparency” in the series. For instance, it was only recently that some teams claim to have learned how much money the sport generated from all sources.
The current dispute largely stems from a 10-year contract, called the Concorde Agreement, that Ecclestone and the teams signed in 1997. It divvied up the sport’s profits–allocating 47 percent of the F1 TV money to the racing teams (many of which have partnerships with the carmakers), along with a $35 million prize fund. Some teams and manufacturers were dissatisfied with the arrangement; they believed they were forced into the deal. The subsequent Kirch investment in F1 engendered more ill will. “[Bernie] made a fortune and the teams didn’t participate,” a source close to the car manufacturers told NEWSWEEK.
In November 2001, the manufacturers struck back. Led by Italy’s Ferrari, they set up the Grand Prix World Championship–ostensibly a new racing league that would compete with Formula One. Although it doesn’t yet exist, it’s been an effective wedge for getting Ecclestone and the banks to the bargaining table. In fact, for all of Ecclestone’s clout, the manufacturers seem to have most of the leverage. Without the top car companies, the F1 series would surely collapse. Were Ferrari to bolt, the banks would own “100 percent of nothing,” as president and CEO of Ferrari Luca di Montezemolo put it earlier this year. (Michael Schumacher, the uber-F1 driver and five-time league champion, drives for Ferrari.) The racing teams, with huge subsidies from the manufacturers, spend between $50 million and $150 million annually to compete in the 16-race circuit. (Schumacher alone, for instance, just extended his contract two years for an estimated $40 million per annum.) The manufacturers spend the money basically for product placement: F1 is an ideal advertising showcase for its sleek, 230-mile-per-hour cars.
An agreement is likely to be hammered out in the next few weeks that will satisfy the carmakers but keep Ecclestone in charge of the sport he’s nurtured, ferociously, for more than two decades. “They don’t want to destroy the golden goose,” says Tom Rubython, editor of BusinessF1, a motor-sports magazine. The new deal will have to placate both Ferrari and the banks. According to some analysts, the banks–JPMorgan, Lehman Brothers and Bayerische Landesbank–would be more than happy to get rid of their Formula One stake. The only question is who will assume their reported $1.6 billion share. Unsurprisingly, the carmakers have so far refused to bite. However, a final settlement may include the top teams and carmakers buying a portion of the series.
Ecclestone seems ready to make some concessions. He told NEWSWEEK that he’s “hoping we’ll be able to give more money to the teams.” Although he’ll sacrifice some of his F1 earnings, a revised Concorde Agreement will ensure F1’s long-term stability. That’s crucial given that the sport’s commercial sponsors, who pour hundreds of millions into it yearly, prepare their marketing plans years in advance. There is another intriguing factor–the so-called Tifosi public-stock offering. (Tifosi is the nickname for Ferrari fans.) According to the Atlas F1 Journal of Formula One Motorsport, the Tifosi IPO, which has been considered to help Ferrari’s ailing parent company, Fiat, could be preceded by Ecclestone’s buying a stake in the Italian car manufacturer. After the buy-in, the theory goes, Ecclestone could then exert his newfound influence to sink the manufacturer’s bid for a rival racing league–if the current negotiations collapse–and seal an extension on the Concorde Agreement.
All this financial maneuvering has not hurt the sport’s popularity. Rule changes have helped to stimulate competition on the track, easing the concerns of critics who say F1 had become boring because Schumacher wins too many races. Meanwhile, Ecclestone is planning to expand F1’s already broad geographic reach. Last week he revived talks for a grand prix in India; over the next two years, the sport’s humming V-10 engines will race in China for the first time, along with stops in Turkey, Bahrain and possibly Russia. As team owner Frank Williams notes, “There are a lot of big egos [in F1].” That accounts for the power struggle now underway. But presumably nobody is too proud or greedy to run the sport off the road. Racing is a tricky business. Nobody knows that better than Bernie Ecclestone.
