As has been extensively reported in the media, Formula One (F1) Chief Executive Bernie Ecclestone is charged by German prosecutors with paying a bribe to influence the sale of a stake in F1 during 2005. Dr. Péter Rippel-Szabó, an Associate with Bird & Bird, examines the potential consequences for the governance of F1, should the Munich court find Ecclestone guilty. As well as examining the background to Ecclestone’s trial, this article analyses previous EU case law relating to F1, and its relevance for future F1 stakeholders.

In 2006, the private equity firm CVC Capital Partners (CVC) bought shares in the F1 business. Twenty-five percent of the shares were sold by Bambino, Mr. Ecclestone's family's trust, while the remaining 75% were bought by a consortium consisting of JP Morgan, Lehman Brothers and BayernLB. Currently, CVC exercises control of the undertaking SLEC Holdings, the holding company of the F1 group of companies, via its ownership of shares of several intermediary companies[1]. Before the 2006 deal, BayernLB had a 47.2% stake in F1, making the German bank the biggest shareholder at the time. German prosecutors now believe that Mr. Ecclestone paid Gerhard Gribkowsky, who was at the time BayernLB’s Chief Risk Officer, a £26.2 million bribe in May 2005, so that Mr. Gribkowsky would undervalue the shares held by the German bank in F1 and facilitate the sale of those shares to a buyer acceptable to Mr. Ecclestone (i.e. CVC). Although Mr. Ecclestone won a related damages case brought by Constantin Medien[2] in the UK in February 2014, his fate will likely be decided in Munich. A first instance judgment is anticipated for September[3]. It is rumoured that even if Mr. Ecclestone were acquitted, CVC would relieve him of his duties. This could have a major impact on F1's future, as Mr. Ecclestone currently has day-to-day control of F1 and negotiates its most important deals. It is also speculated that Mr. Ecclestone, as he did in 2005, might procure third parties to buy CVC's stake in F1 in order to prevent his dismissal.

Considering these current developments, it is likely that F1 will welcome a new supremo and/or shareholder(s) in the foreseeable future. The new parties will likely face various legal issues when they buy shares in F1 or make business decisions concerning commercial contracts. This article briefly looks into the most important EU case law concerning F1, since some of the findings of those cases may also serve as guidance today.

If there were a sale of CVC's stake in F1, such a transaction might constitute acquisition of control within the meaning of the European Merger Regulation (‘Regulation’)[4], if the combined aggregate worldwide turnover of the undertakings concerned (i.e. CVC and/or the holding companies and the buyer) were to exceed the thresholds set out in the Regulation. In such a case, the European Commission decision on CVC’s purchase of F1 in 2006[5]provides a good starting point regarding the assessment of the relevant markets and the anti-competitive effects, especially if the potential buyer were to have any sports rights in its portfolio. The relevant product market for F1 can be the market for TV rights to major regular free-to-air motor sports events. As was stated in the CVC/SLEC decision, F1 is broadcast free-to-air. This is essential and irreplaceable for F1, since the involvement of manufacturers and sponsors is directly related to F1’s wide TV exposure. The relevant geographic markets tend to be national due to certain specific reasons, primarily regulatory regimes, language barriers or cultural factors. Although the Commission identified significant market overlap regarding TV rights for major sports events and TV rights for major regular free-to-air sports events in certain countries (Spain and Italy), it concluded that there is no (or only minor) overlap in the market of ‘regulatory issues[6],’ advertisement at circuits, motor sport teams (manufacturers) and circuits owners/local promoters. The major issue in CVC/SLEC was that CVC, as a result of the acquisition, would have had joint ownership of the TV rights to F1 and Moto GP. This could have led to an increase in CVC's bargaining power vis-á-vis broadcasters and media companies in Italy and Spain[7]. Additionally, CVC could have employed bundling strategies in other countries. Thus, if the new buyer holds any rights to or controls certain sports events, the joint ownership of such rights/control and rights to F1 must be carefully assessed from the perspective of possible anti-competitive effects.

There are also some important legal issues that should be kept in mind while running the F1's day-to-day operations. Most of these issues were outlined in a previous Commission investigation into F1[8]. The case concerned:

  • the dual (regulatory and commercial) role of Federation Internationale de l'Automobile (FIA), the international governing body of motoring organisations and motor car users; and
  • F1's commercial agreements.

The Commission concluded that FIA had abused its dominant position and restricted competition by putting unnecessary restrictions on promoters, circuit owners, vehicle manufacturers and drivers, as well as on certain provisions in the commercial agreements with broadcasters. The Commission also found that certain contractual provisions in F1 commercial agreements appeared to contravene the prohibition of agreements restricting competition. In 2001, the case was settled when the Commission and the parties agreed on some modifications to the F1 regulatory and contractual structure. The most important points are:

  • FIA undertook to enter into a 100-year agreement with a commercial rights holder, Formula One Management (FOM), for the marketing of FIA rights in relation to F1. Under the agreement FIA withdrew from all business activities in order to safeguard its independence and impartiality as a regulatory body of F1 and completely transferred all its broadcasting and commercial rights in F1 to FOM for a one-off fee. The 100-year agreement came into force at the start of 2011. The Commission also required that FIA be recognized in the contract as the sole regulator of F1 and that the contract does not contain any provision requiring FIA to favour F1 over other championships. Should this contract be renegotiated, as is wished by Jean Todt (president of the FIA), the parties must comply with these requirements.
  • Mr. Ecclestone, as CEO of F1, was required to relinquish his positions held at FIA in order to achieve a more complete separation between sporting and commercial matters and to increase transparency. Whatever happens in Munich, neither Mr. Ecclestone - nor his eventual successor - should hold any position at FIA, as this may also contravene the EU law.
  • If the current Concorde Agreement[9] runs out or is renegotiated, the parties concerned must especially omit provisions which would prevent F1 teams from participating in any other race, competition, exhibition or championship for open wheeler single seat cars, as this was regarded non-compliant with EU law.
    • The Grand Prix contracts between Formula One Association (FOA) and local promoters foresaw that no race for open wheeled cars other than F1 races may take place on the circuit. This was held to be incompatible with EU law and FOA unilaterally waived such rights.
    • Concerning media rights to F1, FOA undertook:
  • not to restrict broadcasters to broadcast other open wheeler race;
  • to limit the duration of these contracts to five and three years respectively; and
  • to invite broadcasters on a non-discriminatory basis to submit offers for F1 broadcasting rights.

In summary, although some time has passed since the above cases, they may prove to be a useful guide for new stakeholders when it comes to changes in personnel or the ownership structure of F1.