Thursday 1 October 2015

The hammer to break F1's deadlock? Thoughts on the F1 teams' complaint to the European Commission

We all know what the problems are now in F1. We know too that the solutions are usually obvious, but that also due to the sport's ways simultaneously can seem exasperatingly far from reach. Extended spells of mind-numbing frustration are quite the lot for observers of this game, those who instead wish to see the sport flourish.

Are Bernie's deals to be void?
Photo: Octane Photography
And for a good while now even among the other matters of contention there have been a few that have over-arched the rest. The first are the commercial deals in place for the period of 2013-2020 that the teams signed (a few say under duress). Those which skew revenue very heavily towards the few outfits at the top, as well as gives five teams money just for being them. In the cases of Ferrari and Red Bull rather vast sums of it. Underlining its absurd distortion the pair, despite severe underperformance on track in 2014, each got more significantly wedge for the year even than the dominant Mercedes.

Worse it leaves very little for those towards the back, and indeed such are the minimum costs just for turning up in F1 (which themselves have increased in recent years) this money distribution condemns most have-not teams to hand-to-mouth existences. For them competing at the front is an ambition in theory only. Sheer survival is the priority, and one not always achieved. Caterham indeed went bust last season while Manor (nee Marussia) very nearly went the same way.

Then we of course have the notorious Strategy Group, in place since late 2013, and you might say the governance equivalent of what's just been described. In it sits the governing body the FIA, Bernie Ecclestone's commercial lot FOM, as well as six teams - a 'big' five which are permanent: Ferrari, Red Bull, Mercedes, Williams and McLaren, and whichever other one was highest in the previous year's constructors' standings (currently Force India). The other five (next year six) 'smaller' squads are not represented at all.

The Strategy Group was brought into being by a bilateral agreement between FIA and the commercial rights holder CVC with Bernie, and while the F1 Commission on which all teams are represented still signs off Strategy Group proposals the potential nevertheless to put those represented on the group into a dominant position is apparent. Plus that the F1 Commission is a large group containing in addition suppliers and promoters further means the small teams' power was not great.

As for why all this was set up, well theories as to that could fill an article all by themselves. But many have looked to that a few at the top of the sport such as Luca Montezemolo then of Ferrari and Bernie had long advocated an in effect two-tier F1, where the small teams stop being constructors and become the big teams' customers. This some suspected was a means of achieving that.

But although as outlined the problems associated with this were well known, and the manifestations obvious, fixing it was another matter. There were contracts signed and active and those doing very well out of them weren't going to abandon them thanks very much. As intimated some thought rather than simple (self-interested) lethargy they wanted to bleed the smaller teams dry because of strategy. Whatever was the explanation though there was deadlock. Nothing to be done.

Well no, there was in fact a hammer that could well break the deadlock, which had been lurking in the background all along. That of the European Commission, which among other things exists to uphold rules of fair competition.

Sauber and Force India have made a formal complaint
Photo: Octane Photography
As soon as the Strategy Group came into being indeed there were rumours that none other than Mercedes was considering a challenge via that path (seemingly it was brought back into line with an improved deal), while Bob Fernley of Force India also questioned its legality in public.

Last year too an MEP by the name of Anelise Dodds, who represents a constituency where a number of Caterham and Marussia staff lost their jobs late last year, explored the possibility of making a competition complaint. "The Commissioner in charge has made it clear to me that she can't do anything until the teams themselves submit a formal complaint" she said. Yet that's what we now have. This week two teams in the shape of Force India and Sauber in a major power play took the plunge with the European Commission.

Essentially the complaint is that the financial deals and the Strategy Group don't allow the smaller teams to compete. The accusation is that they are anti-competition (one person involved who remained nameless used the word "rigged" in describing F1 competition), in effect a cartel, which is against EU competition law. Article 101 of the Treaty on the Functioning of the European Union to be precise. As well as that potentially FOM is abusing its position as sole buyer/seller of F1 services, the sort of thing which is forbidden in Article 102.

As for what happens next, one point to make is that F1's top brass isn't likely to be led away in handcuffs FIFA style, unless corruption is found which is unlikely as it's not what the accusation is right now. Instead it is ventured that this is unlawful rather than illegal. So an endgame if this is proved would likely instead be the current teams' contracts with FOM being voided and the Strategy Group ended, presumably to be replaced by something more equitable. Some have spoken of the possibility of fines too, which if levelled against the FIA at least might give that body a headache.

What the complainants have to demonstrate to EU competition commissioner Margethe Vestager is that this state of affairs has wider economic repercussion, such as on media deals, ticket sales and merchandise and that by extension the fans are losing out (saying it affects only those employed in F1 ain't enough). In other words, they have to demonstrate that there's a broad public interest.

I'm not a lawyer (if I was I'd be charging you for saying this) but from my distant and non-legal perspective a case can be made here. That F1 with more even revenue distribution at least would be healthier as a sport - from being more competitive as well as its competitors being more secure financially - and therefore merchandise and ticket sales and the like would increase. The suggestion that the Strategy Group works against competition for those not on it is backed up in raw results too (albeit its defenders might argue this is to confuse cause and effect). No team outside the Strategy Group has won a race in the time it's existed. Indeed they've scarcely featured on the podium - I make it only Sergio Perez in Bahrain 2014 and Romain Grosjean in Spa this year; competitiveness seems near impossible for them. Smaller squads are going bust as we know too.

Romain Grosjean's podium in Spa was rare
success for a non-Strategy Group team
Photo: Octane Photography
And looking elsewhere the sports associated with healthy growth are those that make an effort to equalise money and opportunities. The English Premier League in football is an apposite example. Last season the team that finished bottom, Queens Park Rangers, got around two thirds of the payout that the champions Chelsea got, even though the 'merit payment' based on the table position was over 20:1 in favour of Chelsea; even though too that Chelsea featured in more than double the live TV games. Compare this too with F1 where Ferrari got not far off four times what Sauber did in total (imagine what would happen in a year that Ferrari did well...). Most large American sports too deliberately engineer in equability in many ways.

But demonstrating this legally is another thing of course. And James Allen has outlined that presumably the first thing Sauber and Force India will have to do is explain why they, apparently willingly, signed the deals in the first place.

Even though too there has now been a formal complaint whether the Commission picks it up is not automatic either. Joe Saward for one was optimistic about the whole shebang: "I believe that the trigger would not have been pulled, unless those involved know that they will be successful. This has been going on quietly for many months" he has said,

Allen however was cautious: "colleagues in Brussels say that it is far from certain the EU will decide to go ahead and take F1 on. In fact they put it at 70-30 against at this point".

But to take another point related to the FIFA case, many reckoned that the EU will be keen to be seen as active on this one, given as far as we could tell it was caught apparently sitting on its hands with FIFA and all that, with it instead being left to the FBI to take it on.

There's also the consideration that whatever it decides the EU isn't known for moving quickly. The teams at the back aren't going to get money and power tomorrow, in other words. Allen cautioned that "nothing will happen in weeks, let alone many months".

As for F1's current power brokers, well even Bernie who penned the deals claimed late last year claimed not to like them: "there is too much money being distributed badly - probably my fault" he said, as well as adding he's not personally bothered how the teams divide up money between themselves. Adam Parr for one though felt he could see through it and that was simply Bernie's time-honoured attempt to pit large teams against small.

Whether he actually wants it or not though such statements could have the effect of Bernie saving face even if the contracts are voided. Or at least he'll be able to claim he has saved face. Which may be why he's saying them.

Might a healthy and competitive F1 be our outcome?
Photo: Octane Photography
And to wit BCE's reaction to the complaint of the two teams was a typical straddling of defending the current settlement while also apparently accepting the complainants' point of view.

"They [the teams] must give it a go, and if they're successful it's good, and if not then it costs nothing" he said.

"The bottom line is, what they are saying is we're giving too much money to some people and not enough to the others. But all this was done whereby everybody knew what they would be getting and what would happen, and they all signed contracts which were very clear.

"They've had a change of heart I suppose, and I don't blame them, not at all. Somebody will have a look at it and either decide the agreements they've signed are valid and they stick by them, or they're not valid and they have to be changed.

"From our point of view it won't make any difference at all." So old man river fully intends on keeping rolling along, whatever happens.

But if the end result of this is a healthier sport with fairer governance and financial distribution, with smaller teams better able to complete (or at least not exist locked in a desperate battle to survive until the end of the week) and the concept of teams dropping off or becoming customers finally is shorn, then that can be counted as a major triumph. In a way it's sad it's had to come to this, but it also given everything feels necessary too. As Saward added in this vein: "Formula 1 has reached a point at which change must come and it has to be forced to make changes, because everything is locked and no one wants to budge. A wrecking ball is required."

Whisper it, as we've been disappointed before, but this week we might just have seen the beginnings, finally, of F1's salvation.

Thanks very much to my estimable brother Derek Keilloh for his help with this article, particularly in picking through the legal stuff.

1 comment:

  1. There seems to be a need to more evenly distribute the rewards to all the teams. Otherwise there will inevitably only be those 5 major teams remaining.
    At the same time I have no idea of the legalities involved with a commercial venture in the EU. Regardless, this should provide some real drama for us.