Should FIFA's fate worry F1?

Given that Formula 1 is punted as the world's largest continuous sporting block, and third only to the Olympic Games and football's World Cup when measured over four-year cycles, it was perhaps understandable that the scandal engulfing FIFA could be on the radar of motorsport's premier category and its governing body, the FIA.

Whether or not either metric is correct is another question, for figures published last week by England's Premier League show that the domestic football championship (albeit one with global reach) enjoys double the annual turnover of F1, with its 20 competitor clubs benefiting not only vastly more equitably but from substantially greater shares of a substantially larger pot.

That is, though, meat for a future column, particularly as FIA president Jean Todt was last Friday questioned in Moscow during Formula E's visit to Russia - a country whose 2018 World Cup is one of those linked to FIFA's bribery claims - whether he feared motoring's world body could be similarly affected, particularly with regard to F1.

Clearly the questioner held no knowledge of the (EU Commission-imposed) contractual separation of the FIA's regulatory powers and commercial activities of its global championships - which have been leased for varying periods of time to independent companies established for that purpose - and therefore FIA officials are unable to benefit from such underhand activities as are currently swamping FIFA.

Accordingly Todt was correct in his assertion that "there is no way that the FIA could have the same problems with corruption that FIFA are experiencing" for the simple reason that, unlike the IOC and FIFA, which promote their own events, FIA officials have no commercial powers.

The venue selection process is simple, and not a 'bid': promoters are granted dates on motorsport's various world championship schedules only after an exhaustive processes initiated by the respective commercial rights holders, with the FIA playing no role.

Only once promoter contracts exist does the FIA inscribe events on its calendars, and then only if venues comply with FIA safety, technical and facility standards. Thus, in the case of F1, the commercial rights holder (Formula One Management) identifies promoters and establishes their willingness and ability to stage grands prix, then agrees terms/duration/dates.

Promoter contracts of the type seen by this writer typically include the following clauses:

FOM agrees, subject to the terms of this agreement, to assign to the promoter during the term the right to: promote the event as an FIA Formula 1 World Championship Event; and designate the event an 'FIA Formula 1 World Championship Event'.


The Promoter agrees that the rights are limited to the event.

FOM also agrees to: endorse the event as part of the FIA Formula 1 World Championship; advertise the FIA Formula 1 World Championship in such manner as the commercial rights holder shall consider necessary with a view to maximising the reputation of the FIA Formula 1 World Championship and thus the event; and advise, assist and consult with the promoter in relation to the event in such manner as FOM shall consider necessary and/or appropriate.

Note: the term 'FIA' appears only as part of the championship designation, with the governing body having no commercial powers or contractual agreement with promoters - as opposed to FIFA and the IOC, which enter into such agreements with what are termed Local Organising Committees.

In the process of contracting promoters FOM adheres to agreements with teams to stage a certain number of events within specific territories (Europe, North/South America, etc). Thereafter promoters approach their local FIA-affiliated motorsport bodies for permits, with FOM then presenting its calendar to the FIA's World Motorsport Council for final approval and ratification only.

Not only does this process makes it impossible for FIA officials to benefit, but it explains championship clashes on FIA calendars - such as last weekend, when Montreal hosted F1 while Moscow staged Formula E and World Touring Car Championship rounds at different venues; or this weekend, when both Le Mans and Rally Sardinia are staged simultaneously - due to promoter preferences.

The FIA/commercial rights holder model provides arguably the best solution to the thorny problem of uncompromised commercialisation of global sport - provided bid processes are totally transparent, while the contract duration of an eventual 113 years approved by the previous FIA administration provides an abject lesson for other sporting genre.

In the case of the FIA the (relatively paltry) proceeds of that deal were invested in the (ring-fenced) FIA Foundation, a charity that operates totally autonomously within its charter. As detailed below, this financial structure left the FIA somewhat compromised for three years - but that is a matter of detail and execution stretching back almost two decades, rather than a conceptual flaw.

Indeed, according to this week's Economist the University of Michigan has proposed that FIFA and the IOC be split into for-profit and charitable arms, with the commercial rights to their events being auctioned off. However, the report goes one further: "[participants] could be paid handsomely", with earnings used to "fund non-profit organisations whose sole goal would be to promote the growth [of their sport] worldwide".

Here, though, F1 falls short, for the sport's annual proceeds disappear after CVC Capital Partners (and others of similar ilk) acquired the commercial rights for over a century. Thus participants and growth are so low on the list of beneficiaries that half the grid lives from race to race, with not a penny flowing into the promotion of global motorsport. Let that be a lesson for FIFA/IOC.

It is this structure that could, though, blow up into scandal of substantial proportions if Friday'sFinancial Times is on the money, for in a report jointly authored by its Lifestyle and Brussels desks - the contribution by the latter office is particular salient - the publication suggested that the EU Commission could be showing a more than a cursory interest in the commercial activities of F1.

The contents of the report, which four times referred to AUTOSPORT's revelation of F1's 2014 revenue distribution, are fundamentally no surprise, for this writer three years ago held all was not well with F1's revenues, nor with its (still formative) governance via a Strategy Group.

The Financial Times article delves into seveal areas, namely:

* How F1 first appeared on the radar of Margrethe Vestager, EU Competition Commissioner
* Substance of the potential complaint
* Whether sufficient substance exists to launch an investigation
* The powers vested in Brussels
* Whether F1's top teams are abusing their position
* Why F1 does not divide revenues more equitably
* Position of the FIA
* Position of FOM/Bernie Ecclestone, FOM CEO

The contents are fundamentally similar to the analyses made by this writer over the years, and thus require no further amplification. This December 2012 column includes links to and excerpts from the EU's directives on the FIA/FOM commercial rights deal, with the EU making clear that a Concorde Agreement needs to be in place to protect the positions of ALL teams, and that ALL participants should be involved in the regulatory process.

However, in Montreal, where F1 was when the Financial Times story broke, it was the penultimate point that grabbed most attention, and thus that paragraph is reprinted in its entirety:

Where is the sport's regulator in all this?

F1 is regulated by the Federation Internationale de l'Automobile, led by Jean Todt, a former Ferrari chief executive. But critics say the FIA is compromised by the fact that it has a commercial stake in FOM. This was crucial because the FIA in 2001 agreed with Mario Monti, then EU competition commissioner, not to take a commercial position. The FIA has denied any conflict of interest and said the Strategy Group does not decide on new rules or innovations.

Numerous publications recently alluded to a share held by the FIA, with some insinuating - asFinancial Times is - that the governing body potentially "sold out" its right to govern. However, a 'family tree' of F1's labyrinthine corporate structure clearly shows that the FIA has held a share in the commercial structure of the sport since at least 2006, when the EU approved the purchase of F1's commercial rights by CVC.

This document, never previously published, shows the governing body to hold a 'B' share in Delta Topco, FOM's ultimate holding company - and so it should, for it is, after all, the owner of the sport's rights, and has merely leased them to FOM's holding company. The share enables the FIA to maintain a watchful eye over its property, and, according to sources, was granted with full approval of the EU for that purpose.

CLICK ON PICTURE TO ENLARGE:

The (FIA) comment that "the Strategy Group does not decide on new rules or innovations" is, though, only partially correct, for a vote of the Strategy Group - on which sit FIA and FOM with six votes each, and six major teams with a voice apiece - could torpedo a proposed regulation change by preventing it from reaching the next stage, namely the F1 Commission, on which all teams sit, as do various other players.

The highest-profile recent casualty of the Group's voting powers was, ironically, a rule change the FIA itself had proposed, namely the introduction of a cost cap - which was voted against by the commercial rights holder and at least four of the six teams, and thus not carried to the F1 Commission...

That the FIA derives income from FOM after a deal was struck in the summer of 2013 has been pounced upon by various parties, but, again, this has historic roots: when the original (10-year) commercial rights deal was struck between FIA/FOM the contract provided for an annual fee paid to the former in order to administer the championship and the provision of vital services.

However, while appeasing the EU, the FIA extended the deal by 100 years, with insiders advising this writer in 2009 that the clause was omitted from the extension through "oversight".

Thus the FIA administered the championship for three years on an ex gratia basis - explaining why driver/team fines and cost of other services shot up dramatically in 2008 - before income was restored in the Concorde Implementation Agreement, a 'heads of agreement' that outlines the mutual obligations of both parties.

However, as the Financial Times has pointed out, the EU is awaiting an official complaint, and is unlikely to act before receiving one - which could come from teams, sponsors, fans or any other affected party. That said, where once the EU Commission may have declined to open an investigation on scheduling and congestion grounds (Google and Gazprom are currently under investigation), the FIFA scandal could just tip the balance.

And, who would have the most to lose? Well, FOM could be fined up to 10 per cent of its annual turnover (more than $1.6billion), but so could complicit teams such as Ferrari, Red Bull, McLaren and Mercedes if found to be in breach. Whether the 10 per cent would apply on the turnover of the team's parent companies only the Commissioner can decide.

One person familiar with EU workings earlier this week told this writer that "it seems the EU is no longer waiting for complaints, but is actively soliciting one. It is only a matter of time before it gets going".