Features - News Feature
SEPTEMBER 1, 1996
The political wranglings of 1996
BY JOE SAWARD
Silverstone was just a rehearsal. At Hockenheim two weeks later the FOCA facility went live, simultaneously producing five different TV feeds: a race channel, an incident-analysis feed, in-car footage, a pitlane camera output and a data channel. Combined they form the FOCA "supersignal", which is designed for the new digital TV stations which are now springing up around the world, offering interactive TV.
The Hockenheim weekend marked the launch of the world's first such service - DF1, a satellite channel anyone in Germany, Austria and Switzerland who was willing to splash out DM 880 (ú368) for the decoding device - plus a monthly subscription of DM 20 (ú8.36). For that one would receive 15 different channels plus access to the FOCA supersignal.
The technology involved in launching such a service is complicated and to have invested as Ecclestone did was a huge risk when development work started three years ago. There were no guarantees that the investment would pay off. German media magnate Leo Kirch had a similar vision, however, and was willing to take even bigger risks with his 49% partner in DF1, Rupert Murdoch of BSkyB.
In the weeks that followed the Hockenheim launch France's Canal + signed a 10-year deal to show the FOCA supersignal on a pay-per-view basis in 70 countries, beaming its signal all over Europe and into South America. Later Italy's Telepiu signed a similar agreement for the Italian market. Other deals are still being negotiated but there is little doubt that they could bring in hundreds of millions of dollars to F1 if viewers can be convinced to subscribe. All this new TV income will be in addition to the fees Ecclestone is charging traditional TV stations for the right to broadcast F1.
"Two or three years ago Mr Ecclestone made an enormous investment in digital television at a time when almost everyone was saying that he would lose every penny," says Mosley. "It is now looking as though digital TV is going to be a great success. That's good for him, because he took an enormous risk and may now be profiting from it. It is even better for the teams because although they took no risk at all they don't have to meet any of the costs involved."
Mosley also believes that free-over-air television will continue alongside pay-per-view, serious fans being willing to pay more to get access to the "supersignal".
Everyone involved in F1 agrees that Ecclestone has done a remarkable job with the TV coverage of Grand Prix racing but that success has brought its own problems. The political battles of 1996 were the result of that success.
Formula 1 racing has been defined since March 1981 by what is known as the Concorde Agreement. It is a contract between the teams and the FIA detailing how the sport is run and how the revenue is divided up. The FIA owns the commercial rights relating to the World Championship but these were sub-contracted to the Formula One Constructors' Association (FOCA). Later, because F1 team owners are too busy to sell TV rights, FOCA sub-contracted the sale of rights to Bernie Ecclestone's Formula One Promotions and Administration (FOPA).
The Concorde Agreements of 1982-86, 1987-1991 and 1992-1996 have served the sport well, maintaining stability and enabling Ecclestone to transform the sport into a multi-million dollar global business. The success has made Bernie richer and richer. In 1992 FOPA was revealed to be Britain's most profitable company, making a $22.5m profit on a turnover of $27m - an 80% profit ratio.
In 1993 Ecclestone was named as Britain's highest ever salary earner - with wages of $45m, a figure which he matched in 1994. The teams have gained along the way, but Ecclestone's worth has sky-rocketed.
Negotiations for the 1997-2001 Concorde Agreement began as long ago as 1993. For two years the talks went on - there were 22 different drafts - and gradually one team after another accepted the new Agreement. It offered better financial terms for the teams. By April 1995 nine teams had signed the Agreement. McLaren and Tyrrell continued to demand more. The talks dragged on and on. By holding out McLaren and Tyrrell hoped to force Mosley and Ecclestone to cut them a better deal.
In July Mosley wrote a letter to the teams warning that there was likely to be a period of "major confrontation" if they did not accept the terms being offered. At a meeting in Hockenheim a few days later he offered the teams the chance to withdraw their signatures. Frank Williams joined the rebels.
Just before the Hungarian Grand Prix in mid-August Mosley met the eight remaining signatory teams in London and revealed that they were going sign a new Concorde Agreement which would leave the rebels as outsiders. They could continue to race in F1 but they would lose their political power and would get a smaller share of the TV income.
With no-one to block new ideas the teams also agreed to a series of radical changes. On August 20 the FIA World Council met in Paris to discuss a fine imposed on World Rally Champion Colin McRae after an incident on the Argentine Rally. Mosley took the opportunity to present the new Concorde Agreement to the Council. Later there would be questions as to whether Mosley had the right to go directly to the World Council without first discussing the matter with the F1 Commission - on which Dennis and Williams were members - but the World Council did not seem to worry about such details. The new Concorde Agreement was voted through and made public.
The significant political changes allowed alteration to the F1 sporting and technical regulations with agreement of only 80% of the signatory teams. The membership of the F1 Commission - which is the most powerful political body in the sport - was changed with votes going to the five signatory teams which finished highest in the previous World Championship, plus a vote for the team which has completed in the most F1 World Championships (Ferrari).
In exchange the teams had to commit to take part in all the events for the duration of the five year agreement; they had to guarantee a minimum of 20 cars at every race; they had to agree not to compete in other single-seater formulae without FIA consent and had to accept that the names of the cars could not be changed for the duration of the Agreement.
The Agreement proposed that races take place over two days rather than the current three-day format with a 28-tyre restriction for the weekend. In an effort to cut costs the Agreement proposed banning testing anywhere in the week preceding a race or in the period between the last race of the season and December 1 and the FIA agreed that the F1 season would be limited to certain dates.
The new financial package abolished the complicated prize money structure and replaced it with a new system of dividing up the TV income. The teams would get roughly 50% of the TV income. Half of this would be divided equally between the signatory teams. The other 50% would be divided between all the competing teams with special weighting for historical results and performance.
"There is no question of the entrants being refused the right to race," explained Mosley. "All the Concorde Agreement does is to set the guidelines for dividing some of the income and to nominate who decides the regulations."
It was rather more than that. Three of F1's most famous and powerful teams found themselves without a political voice. There was no way of legally challenging the Agreement because it allowed for them to compete and become signatories if all the other signatories agree to let them.
They were taken by surprise by Mosley's tactics and as they closed ranks none would discuss publicly why they had not accepted the Agreement.
"It is inappropriate for me to share my knowledge of the subject," said McLaren's Ron Dennis just before the FIA bombshell. "I hope that the whole issue will remain within the teams, within the FIA and Bernie, within the group because I don't think it serves any function for the parties to air their views. It is far more constructive to find solutions to the areas of disagreement."
Although they would not say it, the rebels were fundamentally unhappy about the distribution of money within the sport. They were also worried about what would happen if the 65-year-old Ecclestone died or suddenly decided to retire. The root of the dispute, however, was money.
In 1993 at Magny-Cours Ron Dennis gave a hint of what was to come when he spoke of "carefully considered commercial changes that would spread the wealth. I am not advocating having a Robin Hood approach, but the wealth is, at the moment, too biased towards the promoters of the event. There is too much money going out of the sport. That won't change for several years. But it will change, in the future, somewhere."
The wealth to which Dennis was referring was not just from TV revenues. The teams were also losing out in other areas: the fees demanded by Ecclestone to hold races; the income from trackside advertising and from hospitality.
The increasing popularity of F1 in the late 1980s enabled Ecclestone to push up the fees payable to FOCA by organizers wishing to hold a race. These were not covered by the Concorde Agreement but had risen to as much as $10m per year for each race. Teams realized that with 16 races on the calendar Ecclestone could soon be pulling in $160m a year - none of which was going to the teams.
In order to secure a race organizers were also are being forced to sign over all their trackside advertising and hospitality rights to Ecclestone's ally Paddy McNally, who runs the Geneva-based Allsport Management company. McNally had been behind the development of the "Paddock Club" concept which has grown to such an extent that it raises around $5m a race - another $80m of annual income from which the teams received nothing. McNally also controls the sale of trackside advertising which has pulled in increasing amounts of money as TV coverage has grown. None of this money goes to the teams.
The team bosses were aware however that trackside advertising is about to undergo a revolution. For the last 12 months FOCA TV has been working quietly on "virtual advertising", a system which can electronically superimpose different logos on trackside hoardings, depending on the destination of the TV pictures. This means that anti-tobacco legislation can be overcome, some countries receiving tobacco billboards and others not. It means that advertisers can more easily target their audiences. It also means that every billboard at a Grand Prix can be sold many times over, multiplying the advertising income.
With all this money coming in - or likely to come in - the teams argued that receiving $5m each from TV revenue was not really enough when the sport could be generating half a billion dollars or more within the next few years.
After the World Council announcements it was inevitable that there would be compromises to be made and the teams met again at Ferrari's Maranello headquarters on the Thursday before the Italian GP. Before that meeting Ecclestone had met with Frank Williams - who represented the three rebel teams - to discuss a compromise which would enable them to become signatories to the new Concorde Agreement. Their discussions were presented to the other teams at Maranello and the resulting compromises were announced by Mosley at Monza. There would be three-day races - with a possible 17 events. The ban on testing was reduced.
The details disguised the real nature of the settlement. Peace had been made.
"All three teams will be part of the Concorde Agreement," said Ron Dennis at Monza. "It might be quickly or over a period of time, but it will be before the start of next season."
Were there winners and losers in the battle? Everyone involved seems to have made themselves richer. The rules have become easier to change. The big teams will be allowed back into the F1 club so stability will return but probably not before the new F1 Commission has made a few more decisions which the big teams would not accept.
The worries over the future have seemingly been settled with the FIA and the teams having the right to veto the choice of a new Commercial Rights Holder if Ecclestone disappears. The implication is that FOCA will floated as a public company and be run by professional managers.
If the rebel team bosses have lost political influence they will have to content themselves with the knowledge that there are still vast profits to be made if they develop their merchandising operations. The bigger and more famous the team, the more money it can make. British football teams have shown F1 the way and have become so attractive that some soccer clubs are now listed on the London Stock Exchange. This is probably the future for the teams.
The money-making machine is back on its track...