20/07/2010
NEWS STORY
 |
Over the past week reports have suggested that the FIA may lose money from Formula One from the end of the year. Now, Pitpass' business editor Chris Sylt, who authored the original report in the Express, explains exactly which contract is stopping and the impact it could have.
In a nutshell, due to a series of remarkable deals it signed with Bernie Ecclestone's Formula One Management (FOM) business, the FIA will not receive an annual fee for F1's commercial rights from 2011 as it has been receiving for the past 14 years.
The FIA ultimately owns the commercial rights to F1 and it first handed them directly to FOM in 1997 in a 14-year contract which expires at the end of this year. In return, the FIA received a fixed fee which increased annually according to inflation. Former FIA president Max Mosley confirmed to Sylt in 2005 that it receives just "€7m a year from FOM." It is one of the best deals Ecclestone has ever done and gives FOM a 13,550% return on investment since the rights generate annual revenue of €949m.
This contract was replaced with an even more remarkable deal signed in 2001 following a European Commission anti-competition investigation into F1. The EC was concerned that the FIA's relationship with FOM constituted a conflict of interest and in a bid to address this the federation proposed to sell the F1 rights to a promoter for 100 years. FOM won the tender and in 2001 it paid the FIA $313.7m to use the commercial rights to F1 until 2110. However, according to Mosley, the FIA moved this money into a motorsport charity to ensure that it was not "at risk if the FIA gets sued."
This puts the $313.7m out of the FIA's reach and the €7m it received every year under the previous contract will also cease next year. The money from the terminating contract represents around 15% of the FIA's €48m annual revenues. Covering this hole could lead to increased fees levied on competitors, members or licensees. An FIA spokesman confirms that "it is not the case [that there will be a hole in the FIA's 2010 budget]," however, he would not say how the FIA has plugged the gap.
Oddly, the spokesman adds that "the FIA does not comment on the detail of such matters but it would be incorrect to suggest that fees due to the FIA will not continue from 2011 onwards." The reason this sounds odd is that the replacement of the previous 14-year fee-paying contract with the appointment of a rightsholder for 100 years is how the FIA introduced the "separation of commercial and regulatory activities in motor sport," which the EC demanded.
Presumably the FIA spokesman is not referring to fees paid by FOM for its use of the commercial rights because, if he was, it could raise the question as to whether the commercial and regulatory activities are indeed separate.
Perhaps the best evidence that this is not the case is the fact that FOM has already shelled out over $300m to the FIA to use the F1 rights over the next 100 years so bearing in mind how savvy Bernie is, the chance of his company paying twice for the rights is pretty slim.