The FIA-FOA-EU war begins - with words...

JULY 5, 1999

The FIA-FOA-EU war begins - with words...

THE outgoing European Competition Commissioner Karel Van Miert has finally issued his long-awaited statement of objections detailing what he believes to be abuses of European Union law by the FIA and Bernie Ecclestone's companies FormulaÊOneÊAdministrationÊLtd., and International Sportsworld Communicators (ISC). These firms market - or used to market - the television rights to international motor racing events.Typically, Van Miert chose to leak the documents to the press before they had been received by intended recipients and this led to much speculation about the security of Bernie Ecclestone's recently-announced $1.4bn Eurobond issue.

A previous leak from the Commission is the subject of legal action between the FIA and the EU in the European Court of Justice in Luxembourg, with the international automobile federation claiming that it has suffered serious damage to its reputation.

The FIA said that the behavior was a further example of "conduct of a kind which was severely criticized by the Committee of Independent Experts established by the European Parliament to investigate maladministration by the European Commission". This resulted in the entire Commission being forced to resign in March. The incumbent commissioners have remained in place as former Italian Prime Minister Romano Prodi puts together a new team. Much will depend on who he names as the new Competition Commissioner. It is unlikely to be Van Miert as he has announced that he is retiring.

This is good news for Formula 1 as the Belgian has had a combative attitude towards the sport from the start of his investigations in May 1997 when the German TV station AETV complained that the FIA had abused its power by taking the TV rights for truck racing and giving it to ISC. The Commission says that it received a second complaint in November 1997 from the BPR organization which claimed that the FIA used its powers to put it out of business. This complaint was later withdrawn. Even with Van Miert out of the way, the F1 authorities will have to answer the accusations.

The inquiry concluded that the FIA abused its dominant position to restrict competition and that teams are forced to have FIA licenses which can be cancelled if they compete in rival championships. Ecclestone is accused of having concluded contracts which infringe EU competition law. According to the Commission, all the F1 TV contracts will have to be renegotiated if the views are confirmed. There could also be substantial fines, the maximum fine being 10% of the turnover of the company involved.

Whatever happens nothing is going to be settled overnight. In an aggressive statement the FIA said that it hoped that "a rational dialogue can be established with the new Commission", but if not then the disputes would have to be settled in the European courts "over the next three or four years".

Things will be further complicated by the fact that Bernie Ecclestone recently restructured his companies, transferring all the TV contracts to a new company called Formula One Management. If this organization is to be challenged there will need to be another EU investigation although, in all probability, the new company was set up to deal with new contracts so that the problems associated with FOA will be left behind. Ultimately Ecclestone may have to pay some fines related to FOA but this will probably not affect the business of FOM.

The dispute between the EU and the FIA looks likely to be more complicated as well as the organization is no longer based in the European Union and could withdraw F1 from the EU countries - something which individual European governments will not want to happen.

The combative FIA statement said that the EU will be "unable to find a single example of the FIA blocking another series, adding that the only complaint (from BPR) was a "dispute between partners in the BPR, two of whom wanted to run the FIAÊChampionship".

The governing body also rounded on the Commission for the allegation that it abusively acquires all TV rights to international motorsport events, saying that this "demonstrates a complete failure by the Commission to understand motorsport and television". The FIA pointed out that most motor racing receives no TV coverage at all and that it was "utterly ludicrous" to suggest that it forced F1 teams give up their TV rights because they had agreed to sell those rights in exchange for 47% of the gross TV income after lengthy negotiations over the Concorde Agreement.

It added that the accusation that it used licenses to force rival championships out of business was "an absurd allegation" as teams which want to compete elsewhere form other companies to do so. The FIA said that the regulations in question had never been used and that the Commission ignored an FIA offer to delete them. The FIA concluded that the EU attack will "not result in damage to F1".

Despite the bad publicity, the banks which have underwritten Ecclestone's $1.4bn Eurobond issue - which is based on income from TV rights - say that the risks from the EU investigation were assessed before the bond issue was made.

The FIA and Ecclestone have two months in which to respond to the allegations. By that time a new Competition Commissioner should have been appointed and F1 will know a little more about where it stands.

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