An Ex-Racer, Ex-Team Owner, and now a business magnate. There are no words/phrases to describe Bernie Ecclestone, the man who has been instrumental in taking Formula 1 to a whole new level. He is much sought by the teams, as much he is hated by a large mob. At 82, age is clearly not on his side, but an apparent successor to the positions that he has undertaken, is unfortunately too tough to find. There are lots of things, that make him click. He is been under controversy for the last few months now (as some of his decisions are often misinterpreted), and there is so much of pressure on everyone to find a suitable replacement. It would really be a hard ride for whosoever replaces Bernie, But Will it be a blessing in disguise or Will it be the end of the road, for quite a few parties in the town?
Few weeks back, there were reports that, Sainsbury's CEO Justin King would be the person to replace Bernie Ecclestone. Mr. Bernie neither denied the rumors nor shed more light into the speculation.
"I've no idea whether the boss of a company like Sainsbury's could do my job. Maybe he could, " said Ecclestone.
That’s the only quote Bernie could afford at that point. Clearly, finding a successor to a business conglomerate would be tough. Ideally, situations would be as such that a individual closely associated with the person/business would take over or there would be a case of grooming of a special individual for the future. This case is rather unique, and also the point that we are speaking of something so lucrative makes it so interesting.
Bernie Ecclestone is the ‘F1 Supremo’ as most would call him, this person is the ultimate personality of Formula 1, there are lots of things that he and his companies have been doing in the sport. We are talking of things like television rights, administration and logistics are all a part of the responsibilities of Mr. Ecclestone and his companies. He is the president & CEO of Formula One Management, Formula One Administration, and Formula One Constructors Association. He tops the rich-list of representatives of the Formula 1 empire. His value is currently estimated to be worth £6bn. A figure quite higher than Dietrich Mateschitz who co founded Red Bull energy drink company, and also owns two teams on the grid, and Dietrich Mateschitz’s value is estimated at £5bn only.
It would be a hard ride for his successor to satisfy the teams, and take the sport to a new level.
Would it be a better idea, to split the roles that Bernie has undertaken?
Mr. Ecclestone has been instrumental in the FISA-FOCA war. FOCA(Formula One Constructors Association) was formed to advocate the role of (Private) Teams in the sport. FOCA was formed in 1974 with Sir Frank Williams, Colin Chapman, Teddy Mayer, Ken Tyrrell, and Max Mosley joining the stage with Bernie for a common cause. The battle between F1SA-FOCA brewed in the late 1970’s and early 1980’s due to a variety of reasons which included Financial Compensation, Managing the Regulations, F1SA behaviour of being biased to the manufacturer teams, and so on. Much of it was down to the fact that FOCA mostly consisted of private teams, while the F1SA Teams are mostly of big manufacturers who weren’t afraid to spend big in the sport. There was a time when FOCA initiated a breakaway series, “World Federation Of Motorsport”, which had to be suspended shortly due to the absence of big players. The FOCA-F1SA war took an ugly turn at San Marino Grand Prix in 1982 where the FOCA Teams boycotted the grand prix due to the reasons, that were already present, and also due to the disqualification of the FOCA cars that were fitted with the water cooled brakes. Although some of the FOCA Teams that initially agreed to boycott the race turned up for the event citing the ‘Sponsorship Obligations’, 1982 San Marino Grand Prix was a major breakout race in the history of the sport.
However, the fiasco between F1SA-FOCA resulted in the hastening of the concorde agreement, the original agreement ran until 1987, which was modified extensively in the later years of the sport. The concorde agreement saw FOCA gaining the rights to sign the TV contracts. This meant that Mr. Ecclestone had to form a separate body named FOPA (Formula One Promotions and Administrations). FOPA received the fees paid by promoters of the sport, which were distributed to the teams in form of prize money. FOPA also negotiated TV contracts, with the revenue shared between Teams, FOPA, and FIA. FOPA eventually transformed into FOM (Formula One Management). FIA awarded the commercial rights to Formula One Administration in 1995, however, several teams showed displeasure in this new concorde agreement which ran for a period of 14 years due to the fact that FOM managed Formula One Administration, and that FOM had exclusive rights to certain teams on the grid.
Holdings and Holders!
By this period, Mr. Ecclestone gained so much in the sport, and also contributed extensively. Formula One become a recognized brand. With the absence of concorde agreement, several teams took the championship races lightly in a bid to focus more on the non-championship races which were part of the team’s activities until 1983. With the presence of concorde agreement, the priorities of the teams changed drastically, with the championship races taking the number uno spot due to the increased gains of the teams. This led to more sponsors coming on board, the team’s finances increased, and with a guaranteed exhibition of major teams on the grid at a grand prix, more promoters came on-board, this resulted in the increased revenues for the sport.
By 1996-1997 seasons, the plan was for the flotation of the groups owned by Mr.Ecclestone. In a bid to make this easier, Mr. Ecclestone transferred his ownership rights to his wife, and also created SLEC holdings, which became the holding company of Formula One Group. Thus with the new ownership pattern, Mr. Bernie’s wife’s control over the sport accounted upto 40%. However things for flotation got delayed, infusion of funds came in from MGPE (Morgan Grenfell Private Equity) who acquired 12.34% of SLEC. Few months later, In February 2000, Hellman and Friedman purchased 37.5% of SLEC. Thus the ownership pattern of SLEC got diversified with Speed Investments holding the 50% share on SLEC. Speed Investments was the collaboration between Hellman and Friedman and MGPE. Just a month later, EM.TV, a German media, purchased the speed investments, with an option to buy further 25% over the period of next one year. The German Media company shelled out £1.1bn for the 50% stake. At this point of time, Mr. Ecclestone accounted for the remaining 50% of the control of the sport through his family holdings.
"This agreement represents the single most important deal in our company's history - it means we will be involved in the marketing of one of the most interesting and lucrative sports entertainment events in the world." - Thomas Haffa, chairman and founder of EM.TV
"I believe their involvement will add value to the company with their merchandising expertise and their go-ahead approach to business." - Mr. Bernie reacting to the deal of EM.TV
However, it wasn’t a pleasant affair for EM.TV who also acquired The Jim Henson Company around the same time for £435m. This acuqistion spree of EM.TV took a big dent in their finances, and created huge debts. In February 2000, Kirch Group agreed to rescue EM.TV and also decided to excersice another 25% stake in SLEC, which the EM.TV was eligible. But again, it wasn’t an easy ride for Kirch Group as well, they had to borrow €1.6 billion from three banks, namely, Bayerische Landesbank, Lehman Brothers and JPMorgan Chase. They quickly went into administration, which resulted in severe instability in the sport.
This was the time, when Mr. Ecclestone was predicted to have earned close to €2.5 billion during all the off loading of the shares that happened around the period. Mr. Ecclestone was still the major controller of the sport, due to the agreements that was in place, with all the concerned parties.
After the entire episode, many blamed Mr. Ecclestone for not ensuring the stability of the sport. GPWC Holdings was formed at this time, to protest against Kirch Group, while also demanding the better representation of the teams. While the finances of Mr. Ecclestone shot up, the parties associated with the sport were debt ridden.
As the Kirch Group entered administration, it was down to the banks to determine the future of the sport. These banks couldn’t use their rights, as they had to approach the European commision. Another of the Mr. Bernie’s family trust, Bambino Trust took over the rights of SLEC, FOA, and FOM. Again, a better representation of Mr. Bernie on his path to gain control over the sport.
In what became a publicly talked affair, Mr. Ecclestone was sued by those three banks in November 2004 for inappropriate control over the sport that Mr. Ecclestone enjoyed, despite the majority of the stake owned by the three banks. The court ruled in favour of the three banks, but the decision was appealed by Mr. Ecclestone.
This was a big turning point for Mr. Ecclestone who was a controlling figure of the sport for over thirty years. Although, it was widely speculated that Mr. Ecclestone has suffered a legal blow, the banks later revealed that they had no intention of removing Mr. Ecclestone from his position.
In November 2005, Mr. Ecclestone revealed that Bambino Holdings, and the shares of Bayerische Landesbank which accounted for 24% and 48% respectively in the SLEC Holdings were sold to CVC Capital Partners. Eventually CVC Capital Partners acquired the remaining shares of JPMorgan Chase, and Lehman Brothers thus leaving the complete control of the Formula One Group to Alpha Prema.
It has to be understood that Delta Topco Holdings controls SLEC. But then, Delta Topco Holding itself is controlled by several other shareholders through various other holdings like the CVC Capital. And, Formula One Group consists of several other subsidiaries, some of them are not affiliated to Delta Topco. GP2 Motorsport was acquired by CVC Capital in 2007, while the GP3 Series is run by GP2 Motorsport. The Trackside Advertising company AllSport Management is also owned by CVC. Thus CVC/Delta Topco owns various subsidiaries which looks after various parts of the sport including Commercial Rights, administration, and Promotion of Formula One.
In November 2011, reports emerged that Mr. Ecclestone paid £27million to a banker in Germany to stay silent over various deals that happened in and around 2005. It was said that one Mr. Gerhard Gribkowsky was paid the amount to facilitate the deal between his former employer BayernLB and CVC. Mr. Ecclestone denied the rumors stating that the money was paid to ensure that Mr. Gribkowsky does not throw false allegations over the deals with CVC, and that the money was paid as a result of blackmail, then as a bribe.
“I really did not have any alternative. I was under the impression he might have given some information to the Revenue in England which I did not know much about. If he had done and the Revenue had investigated and been successful it would have been extremely expensive. My fear was he would do something. I thought I could keep him peaceful and quiet and not do silly things” - Mr. Bernie Ecclestone
In June 2012, Mr. Gerhard Gribkowksy, was convicted of taking bribe from Mr. Ecclestone and his family trust, after he agreed to the charges. Mr. Ecclestone reacted to the conviction by stating that, Mr. Gerhard Gribkowksy might have made a desperate attempt to save himself from prison imprisonment. However the court which sentenced Mr. Gerhard Gribkowksy stated that Mr. Ecclestone might not have been a victim of blackmail, but rather a willing participant of the crime.
“I helped the people that own the circuit as it belongs to the trust, I helped them, told them the sort of hospital they should build and even the sort of car run-off areas they should build. Gribkowsky said I ran the trust and this is one example.” - Mr. Bernie Ecclestone
Mr. Ecclestone believed that HM Revenue Customs could take the issue seriously, and order him to pay the tax that he does not owe. HMRC has reopened the issue. Meanwhile the prosecutors in Germany still believe that Mr. Ecclestone and Mr. Gribkowsky played a part in the CVC acquisition of stake in SLEC.
It is such a complex world that Formula One is currently operating on, Mr. Bernie Ecclestone business interests have always remained a mystery. It’s safe to assume that Formula One is controlled by CVC but there are equal number of subsidiaries that are associated to Formula One Group but not to CVC as well.
There is no doubt that Formula One wouldn’t have made a rapid progress, if there wasn’t a man like Mr. Ecclestone. He tried his hand at everything, and eventually understood that he is an ideal business magnet. No doubt that he is money oriented, it worked for him in the early 1980’s until the late 1990’s. But of late, maybe he is more ‘greedy’ as some would call him. Some of his recent tactics are now questioned, by one and all. His inability to keep the traditional tracks in the season calendar, His decision to stick with Hermann Tilke for the construction of new tracks, His inability to tackle the financial recession which saw many manufacturer teams leaving Formula 1 in recent times are all criticized. We can add to the point that he is biased to certain drivers, and certain venues as some have suggested in the recent times. However the amount of contribution that he has done to Formula One is immense, From Safety of the sport to the global promotion, and the increased finances that the sport has witnessed are all due to his aggressive decisions.
Since we are in the eve of Bahrain Grand Prix, We can also speak about the fact that Force India wasn’t featured in the FOM feed of the Free Practice and Qualifying sessions last year. It was after an incident that affected the safety of Force India crew, who in turn took a decision to skip the Free Practice 2 session. This didn’t go well with Mr. Bernie Ecclestone who was furious at Force India’s decision to skip the practice. When asked about the absence of Force India from the FOM feed, Mr. Ecclestone gave a static reply that FOM feed focused on the drivers going for the pole, and not the drivers attempting to make it into Top 10. This turn of events didn’t please many fans who were vocal against Mr. Ecclestone and FOM for neglecting Force India from the FOM feed. This again is one such incident where Mr. Bernie’s authority in Formula One is misused either directly or indirectly. There are many incidents in the past where Mr. Ecclestone took a harsh/silly decision, if things didn’t go his way.
Whoever succeeds Mr. Bernie has a mammoth task up ahead. It is not sure who will replace Mr. Bernie and when it will happen. Although there have been several reports of specific persons replacing Mr. Bernie, it doesn’t look to happen in recent times. Mr. Ecclestone is now 82, and if a successor is not found in near future, the transition phase will be a very tough road ahead. It would be a hard task for a person to come in and start delivering without understanding what lies ahead or what his positions are exactly.
Some of the tasks that the successor to Mr. Bernie is required to do are ensuring the stability of the sport in the short term, and to lay a foundation for the long term. He/She would have to find a way to ensure that the traditional tracks make their way back into Formula 1 season. He/She shouldn’t be biased to any particular driver/team/circuit, and shouldn’t take decisions based on the revenue alone. He/She should ensure the seamless transition to the V6 Engines, and ensure there is way for more technology sharing between the roadcars, and Formula One. And lastly, To demystify the complicated structure that Formula One group operates on.
We would believe that the current business model, which was successful under Mr. Bernie Ecclestone would need a massive rethink for the future of the sport. Maybe FOM, and other affiliated groups of Formula One should be headed by multiple persons instead of an one man show that we witnessed for the last three decades.
Would an diversified administration ensure stability of the sport in the long run?
We believe so.