26 replies to this topic

[sblick]

Just a thought I had. I am sure Bernie has some language somewhere. I guess I don't know specifics of Concord Agreement, but my hope would be by doing this Jean Todt could unilaterally redistribute the proceeds of the commercial money.
If Jean wanted to bring in a Resource Restriction can he do that unilaterally?

One last question. Would the manufacturers want of the engine freeze to be lifted be a good time to iron out a resource restriction agreement? Mercedes doesn't want costs to go up, so could you put a budget on it and spend the next couple years hammering out the problems so you could spread the RRA to the teams?

[johnmhinds]

If the FIA pulled back the commercial rights for any reason they wouldn't set up a system where they run the commercial rights side of the sport themselves, they would have to put them up for auction again.

 

And Bernie would probably just outbid everyone and buy them back again.

[BlinkyMcSquinty]

While head of the FIA Mosley sold the commerical rights for Formula One to Bernie for a pittance. Bernie reciprocated by giving Mosley a LOT of money, and the first thing he did was move to Monaco to avoid British tax laws. Bernie then sold those rights to CVC for a very handsome sum, and overnight went from being a millionaire to billionaire.

 

So this "deal" is enforcable for 100 years, and a legal contract that cannot be easily broken. CVC are making a lot of money from this deal, estimates are that they have made enough profit to cover the initial sale price. CVC is a money business, they have no interest in Formula One apart from raping money away.

 

Todt's hands are tied, and unless he can somehow find a breach of contract, there is little he can do.

 

To believe that the big teams like Ferrari and Red Bull sincerely desire to lower costs is believing in mythical creatures. They talk the talk, but every time it came down to a vote, they voted against it. The big teams are willing to spend whatever it takes.

[Rob]

If the FIA pulled back the commercial rights for any reason they wouldn't set up a system where they run the commercial rights side of the sport themselves, they would have to put them up for auction again.

 

And Bernie would probably just outbid everyone and buy them back again.

 

But they would be able to set a term that is much shorter than the 100 years that Bernie got the rights for.

[grahamshevlin]

There are clauses in the agreement which, if broken, would give the FIA the ability to terminate the contract and take back the commercial rights. From what I have read elsewhere, one of the clauses obliges FOM to provide a minimum of 16 cars entered for every Grand Prix race. There may be other clauses that I am not aware of. 

The 16 car clause is the reason why so many different ideas are being thrown up in the air by Bernie Ecclestone at present about how to keep the grid numbers up. If the 3 existing backmarker teams (Force India, Sauber and Lotus) go out of business over the Winter or at any point in the 2015 season, Formula 1 will eventually find itself with only 12 cars entered from 6 teams, well under the 16 car contractual limit. Hence the proposals to (a) trigger the contractual clauses in several teams' agreements with FOM that they have to run a third car in 2015 if asked to by FOM, or (b) fill the grid with other cars to a different specification (the latest weird proposal being circulated under the "GP2+" acronym). 

[R Soul]

I'd love to see how this would go in court.

FIA: The commercial rights holder is in breach of its contract to supply 16 cars.

FOM: That's because the governing body passed rules which made it too expensive for small teams to compete.

FIA: No it's because the commercial rights holder skewed the money from commercial rights in favour of the big teams.

FOM: When we set those rates general competition was more affordable. The governing body moved the goal posts many years before the current contract expires.

FIA: Goal posts? The commercial rights holder moved the bloody race tracks. All these flyway races are very expensive.

... and so on.

[redreni]

I don't think the court would get as far as entertaining those arguments. The minimum promoter guarantee is between the commercial rights holder and the event promoters. If it isn't met, I don't think it affects the commercial rights holder's agreement with the FIA at all. Unless there are clauses to that effect of which I am unaware.

As I understand it the FIA has leased the commercial rights to F1 to Bernie, who has sold them on, and the FIA is now stuck with that. What the F1 teams could do, though, with or without the FIA's blessing, is not enter F1 and form another series. If such a series attracted most of F1's best entrants and venues, most people would regard it as being effectively the continuation of F1, even if F1 continued in some form. That's the most realistic way of getting rid of the leeches and keeping the profits within motorsport.

The problem is the breakaway series would be run by the top teams, and we've already had a glimpse, through F1's current streamlined governance processes, of the completely ridiculous manner in which such a series would likely be run.

[grahamshevlin]

The problem is that there are separate contracts between different parties 

- Contract between FOM and the FIA (governed by the 100 year commercial rights contract)

- Contracts between FOM and the circuit owners/promoters

- Contracts between FOM and individual teams 

- Contracts between FOM and television companies 

 

It seems that all of these contracts say different things about required numbers of cars. Based on what has been published elsewhere, the FIA contract requires 16 cars. The contracts between FOM and the circuits require 14. The contracts between FOM and the TV companies seem to pay on a sliding scale based on the number of cars. The contracts between FOM and the teams all have different language in them about whether a team may be asked to run a third car if other teams drop out. 

In short, it is a legal and contractual dog's dinner. 

[pdac]

The problem is that there are separate contracts between different parties 

- Contract between FOM and the FIA (governed by the 100 year commercial rights contract)

- Contracts between FOM and the circuit owners/promoters

- Contracts between FOM and individual teams 

- Contracts between FOM and television companies 

 

It seems that all of these contracts say different things about required numbers of cars. Based on what has been published elsewhere, the FIA contract requires 16 cars. The contracts between FOM and the circuits require 14. The contracts between FOM and the TV companies seem to pay on a sliding scale based on the number of cars. The contracts between FOM and the teams all have different language in them about whether a team may be asked to run a third car if other teams drop out. 

In short, it is a legal and contractual dog's dinner. 

 

And that's by design.

[BillBald]

We could just wait 100 years.

[redreni]

The problem is that there are separate contracts between different parties 

- Contract between FOM and the FIA (governed by the 100 year commercial rights contract)

- Contracts between FOM and the circuit owners/promoters

- Contracts between FOM and individual teams 

- Contracts between FOM and television companies 

 

It seems that all of these contracts say different things about required numbers of cars. Based on what has been published elsewhere, the FIA contract requires 16 cars. The contracts between FOM and the circuits require 14. The contracts between FOM and the TV companies seem to pay on a sliding scale based on the number of cars. The contracts between FOM and the teams all have different language in them about whether a team may be asked to run a third car if other teams drop out. 

In short, it is a legal and contractual dog's dinner. 

 

Have you got a source for that? (Not doubting you, but I don't think I've heard that before). And do we know if the commercial rights agreement specifies what remedy the FIA can seek should the number of cars fall below 16? And is the relevant number the number of cars that enter the Championship, or is the clause also triggered if fewer than 16 cars turn up for an event?

[uffen]

We could just wait 100 years.

Hey, we don't have to wait that long! There are only, what... 94 years left?

[grahamshevlin]

Have you got a source for that? (Not doubting you, but I don't think I've heard that before). And do we know if the commercial rights agreement specifies what remedy the FIA can seek should the number of cars fall below 16? And is the relevant number the number of cars that enter the Championship, or is the clause also triggered if fewer than 16 cars turn up for an event?

Here is an article that outlines some of the contracts and contradictions (but it seems that the FIA-FOM contract may actually require 20 cars. Or not...maybe...the article makes it clear that this is a complete mess). 

Edited by grahamshevlin, 14 November 2014 - 04:10.

[pdac]

Here is an article that outlines some of the contracts and contradictions (but it seems that the FIA-FOM contract may actually require 20 cars. Or not...maybe...the article makes it clear that this is a complete mess). 

 

I love the dig at Christian Sylt:

 

"not an accredited member of the FIA Formula 1 media, but has appointed himself an F1 business expert"

 

Sort of follows my opinion of him

[Murl]

We could just wait 100 years.

 

 

The end game is looking like "F1" becomes irrelevant (disappears up its own whatsit) and some other racing series emerges as the premier.

 

How long will that take?

 

So the business model for CVC is to keep "F1" up there by whatever means (Bernie especially) until they either sell it, or it goes the way of the dinosaur. Maybe "F1" will die when Bernie dies. With the 100 year millstone to lug around it is hard to see any other course unfolding without Bernie.

[redreni]

Here is an article that outlines some of the contracts and contradictions (but it seems that the FIA-FOM contract may actually require 20 cars. Or not...maybe...the article makes it clear that this is a complete mess). 

 

Thanks. This is relevant to the question posed in the thread title. Saward gives no source for his claim that "The FOG and the teams are required to deliver 20 cars to the FIA", which appears to conflict with the much weaker statement in the floatation prospectus that "Formula 1" (whatever that means in this context) “must attempt to procure that at least 16 cars participate in the World Championship”. That latter stipulation has arguably been fulfilled already by the FIA, which recently invited tenders for the vacant grid slots.

 

I haven't seen anything that convinces me that the FIA has any meaningful means of redress against the commercial rights holder if grid numbers drop, no matter how few cars may enter. I can believe that the broadcasters get a rebate and that the event promoters could either negotiate themselves a discount (if they want to stay in Bernie's good books) or refuse to pay the balance of the hosting fee (if they don't) should the grid numbers fall below the relevant level as stipulated in their contract. But I cannot believe that this issue could be considered sufficient to render the commercial rights holder's 100 year lease void because, for one thing, it's the FIA and the commercial rights holder's joint responsibility to get sufficient entries.

 

The FIA controls the entry fees and, to some extent, the regulations (relevant to the cost of entering the Championship). FOM controls the distribution of revenues (relevant to the income streams of entrants to the Championship). The teams that sit on the Commission also have major input into the regulations, and it was the big teams that insisted on replacing the ancient V8s, so they also have a major responsibility (perhaps more so than the FIA) for the increased cost of engines and gearboxes for customers. It's the imbalance between costs and commercial rights income that deters potential new entrants, and although it's mostly Bernie's fault on this occasion, in principle this sort of situation could also arise as a result of actions of the FIA and/or the F1 Commission, so it seems unlikely that this would have been seen purely as a duty owed to the FIA by the commercial rights holder when the commercial rights agreement was drawn up.

[PeterGrahamQuill]

Have you got a source for that? (Not doubting you, but I don't think I've heard that before). And do we know if the commercial rights agreement specifies what remedy the FIA can seek should the number of cars fall below 16? And is the relevant number the number of cars that enter the Championship, or is the clause also triggered if fewer than 16 cars turn up for an event?

Posted this in another thread. If you wind down to the bottom there are links to what looks like pages from F1 contracts saying that 16 cars is the minimum they need:
http://www.forbes.co...administration/

[redreni]

Posted this in another thread. If you wind down to the bottom there are links to what looks like pages from F1 contracts saying that 16 cars is the minimum they need:
http://www.forbes.co...administration/

 

Interesting. So to satisfy its obligation to the FIA, FOG has to "attempt to procure that at least sixteen cars participate in the World Championship, provided that the FIA makes such regulatory changes as are necessary to enable this to happen" This doesn't say FOG has to succeed, it merely has to demonstrate that it has tried. And it doesn't say what happens if this clause is breached. And FOG could always just ask for a ridiculous rule change that they know the teams would block and then blame the FIA for not implementing it. Good luck enforcing that one.

 

And even the minimum promoter guarantee seems to be qualified, in that it's couched in terms of "reasonable endeavours" as opposed to a cast iron obligation (if you look at the terms of your mortgage, I doubt it will merely say you have to make "reasonable endeavours" to make the monthly repayments). It also gives FOA the alternative, if it can't ensure that 16 cars enter, to engage the provisions of Clause 10.4 of the Concorde Agreement. Is that the one concerning third cars? In which case, presumably this is to cover the scenario where Bernie has asked Ferrari and Mclaren and Red Bull to field third cars but the event occurs before the notice period for third cars has elapsed, so there are fewer than 16 cars available for the event?

[sblick]

So if Sauber, Force India, and Lotus really wanted to screw F1 they would go through preseason testing and the day before the cars get shipped to Australia declare bankruptcy. I guess Bernie could claim something on that, but then there would not be enough cars, and really no way to get enough cars to race causing incredible havoc on the contracts. Teams would be forced to race a third car possibly as part of their contract, if they could even race a third car in the first few weeks? If they couldn't than all the FOM contracts become null and void?

[Amphicar]

So if Sauber, Force India, and Lotus really wanted to screw F1 they would go through preseason testing and the day before the cars get shipped to Australia declare bankruptcy. I guess Bernie could claim something on that, but then there would not be enough cars, and really no way to get enough cars to race causing incredible havoc on the contracts. Teams would be forced to race a third car possibly as part of their contract, if they could even race a third car in the first few weeks? If they couldn't than all the FOM contracts become null and void?

No - read redreni's analysis in the post before yours for the explanation.

[redreni]

So if Sauber, Force India, and Lotus really wanted to screw F1 they would go through preseason testing and the day before the cars get shipped to Australia declare bankruptcy. I guess Bernie could claim something on that, but then there would not be enough cars, and really no way to get enough cars to race causing incredible havoc on the contracts. Teams would be forced to race a third car possibly as part of their contract, if they could even race a third car in the first few weeks? If they couldn't than all the FOM contracts become null and void?

 

It looks to me like the contracts are written so that if Bernie has asked the teams to run third cars and the event occurs during the teams' notice period, then the race promoters can't do anything about it if there are fewer than 16 cars, because Bernie would have fulfilled his obligation under the contract to do his best to either ensure at least 16 cars enter, or to ensure the provisions of Clause 10.4 of the Concorde Agreement are observed.

 

And, to get back to the thread topic, there doesn't seem to be anything in the umbrella agreement that we know about that says the FIA can just take back the commercial rights if there aren't 16 cars on the grid, because the commercial rights holder's obligation only extends as far as attempting to ensure at least 16 cars enter the championship, even then that is subject to the FIA changing the regulations as necessary to allow that to happen, and as far as we know even if the commercial rights holder did breach this clause, one breach of one clause of the agreement doesn't automatically lead to forfeiture of literally billions of pounds worth of commercial rights.

[grahamshevlin]

It looks to me like the contracts are written so that if Bernie has asked the teams to run third cars and the event occurs during the teams' notice period, then the race promoters can't do anything about it if there are fewer than 16 cars, because Bernie would have fulfilled his obligation under the contract to do his best to either ensure at least 16 cars enter, or to ensure the provisions of Clause 10.4 of the Concorde Agreement are observed.

 

And, to get back to the thread topic, there doesn't seem to be anything in the umbrella agreement that we know about that says the FIA can just take back the commercial rights if there aren't 16 cars on the grid, because the commercial rights holder's obligation only extends as far as attempting to ensure at least 16 cars enter the championship, even then that is subject to the FIA changing the regulations as necessary to allow that to happen, and as far as we know even if the commercial rights holder did breach this clause, one breach of one clause of the agreement doesn't automatically lead to forfeiture of literally billions of pounds worth of commercial rights.

I guess my skepticism here is simple...if your analysis is correct, how the hell did important contracts like this get through legal-eagle review and get signed by all parties, when there was no objective, clear statement in the contracts defining what constituted compliance with the contract terms (which would in turn define, in a mirror-image way, what "breach of contract" means)? I am not a lawyer, but I have seen a fair number of contracts and they tend to not contain weasel-words like "use best endeavours". They contain clauses that say clearly things like "supplier shall do XXX", with no wriggle room. 

Edited by grahamshevlin, 14 November 2014 - 22:27.

[Amphicar]

I guess my skepticism here is simple...if your analysis is correct, how the hell did important contracts like this get through legal-eagle review and get signed by all parties, when there was no objective, clear statement in the contracts defining what constituted compliance with the contract terms (which would in turn define, in a mirror-image way, what "breach of contract" means)? I am not a lawyer, but I have seen a fair number of contracts and they tend to not contain weasel-words like "use best endeavours". They contain clauses that say clearly things like "supplier shall do XXX", with no wriggle room.

On the contrary, contracts in the UK frequently contain the phrase "use best endeavours" - and sometimes the even looser "use reasonable endeavours": http://www.slaughter...they-mean-.aspx

[redreni]

On the contrary, contracts in the UK frequently contain the phrase "use best endeavours" - and sometimes the even looser "use reasonable endeavours": http://www.slaughter...they-mean-.aspx

 

That's interesting. According to this article the requirement to use "best endeavours" does not extend as far as doing anything prejudicial to one's own financial interests, and "reasonable endeavours", which is all FOA has to show to fulfill the minimum promoter guarantee, is even less stringent than that. So if Bernie cannot procure a decent grid without giving the small teams significantly more money, and he can show it's not in FOA's financial interests to do so, then it doesn't matter how small the grid gets, FOA is not in breach of its contracts with the event promoters, as long as it goes through the motions of taking whatever other measures, short of actually solving the problem, that it can take.

 

The wording of the contract with the FIA appears to be weaker still, in that all the commercial rights holder has to do is "attempt" to procure that 16 cars enter. So that doesn't even confer an expectation that they will do their best or that the attempt will be reasonable. This is the infamous 100-year deal, remember, that the FIA made with Bernie when Max was there, so....

Edited by redreni, 14 November 2014 - 23:37.

[Amphicar]

This is the infamous 100-year deal, remember, that the FIA made with Bernie when Max was there, so....

Indeed - and Max was a lawyer by profession and Bernie has signed more contracts than I've had hot dinners. They both knew exactly what they were doing and they didn't intend to give any hostages to fortune to the FIA.

[pdac]

Indeed - and Max was a lawyer by profession and Bernie has signed more contracts than I've had hot dinners. They both knew exactly what they were doing and they didn't intend to give any hostages to fortune to the FIA.

 

So there you have it. The FIA have sold the commercial rights for 100 years and so they'll just have to wait until that period has ended.

 

In mean time, whoever owns those rights are free to sell them on to anyone.

[Petroltorque]

It's an interesting argument since the structure that existed when the FIA sold the rights is very different to the structure that pertains now. I'm sure Ecclestone had the contracts written to watertight terms but the present situation could hardly be deemed to be in the best interest of the sport.

 Ecclestone has created a de facto anticompeteitive arrangement where he made bilateral agreements with the top 5 teams to sign with him at the expense of the remainder. In addition having a setup where those same top 5 teams then set the rules and regulations is no longer in the best interest of the sport. Previously under the Concorde agreement the smaller teams acted as a brake on the ambitions of the larger teams, a ploy that Moseley was keen to exploit. Now with the big outfits given free reign the sport is in constant war with value and interest waning. I'm afraid Ecclestone's judgement is too badly flawed to remain in post but CVC seem loathe to wield the axe.