Formula One and Beyond

by Max Mosley

  The other problem was that we could only sell the rights we had with effect from 31 December 2010, when our original 1995 deal with Bernie expired. But back in 2000 it was difficult to predict what, if anything, the championship would consist of 11 years hence and, when it suited him, Bernie would mutter darkly about employing a scorched-earth policy towards the end of his contract.

  When we subsequently negotiated a 100-year deal for the rights with Bernie after our agreement with the European Commission, we were faced with the problem of settling a price with him. I didn’t want to do this myself because I knew people would say I was too close to him. I asked four of the main club presidents to do it instead – two lawyers (Rosario Alessi of the Automobile Club of Italy and Michel Boeri of the Monaco Automobile Club) and two businessmen (Otto Flimm, president of the German club, and John Large, his Australian sporting counterpart). The Italian and German clubs were both very large motoring organisations with millions of members.

  It was a strong team and they finally agreed a price of $300 million with Bernie. This was the original figure we had proposed for a ten-year extension but, even with a gain of 90 years, Bernie still tried to reduce it. His proposal was to defer payment for seven years, despite knowing perfectly well that we were unlikely to be so stupid not to grasp that a dollar in seven years is worth less than a dollar today, even with a bank guarantee (the difference, of course, being a function of interest rates). It was a perfect example of one of his most cherished principles: it’s always worth trying something unreasonable because sometimes people say yes. Our negotiating team agreed with me that his terms were unacceptable.

  Meanwhile, having been invited to bid for the 100-year deal, the car companies kept prevaricating. In May 2000 we told them there was going to be a proposal to the World Council meeting in Warsaw at the end of June 2000 that we accept Bernie’s $300 million. Cantarella asked us to postpone a decision until the autumn to give the car companies more time to consider, but when his request was discussed at the Warsaw meeting, the council decided to accept Bernie’s money rather than give the car companies four more months. There was no guarantee they would even make an offer in the autumn and it was resolved, as so often in the sport, that the bird in the hand was worth more than the one in the bush.

  After the council agreed, however, Bernie failed to complete because he was waiting to conclude his deal with German TV magnate Leo Kirch.

  Kirch had taken over EM.TV, a television company that had previously secured a major equity stake in Bernie’s holding company. It had acquired the rights to all manner of series, including the Muppets, and, at one point, the value of its shares was such that executives told the teams at an FIA dinner in Imola that their company was worth $16 billion. Shortly before EM.TV crashed a couple of years later, I saw an analyst’s report from a well-known international investment bank marking the shares as a strong buy.

  Although Kirch had taken over the company, I was told he needed another $1 billion or so to exercise the option to acquire control of Bernie’s business. Bernie, it seemed, was waiting for Kirch to find the $1 billion to complete the deal, and expected him then to contribute his 75 per cent share of our $300 million. In retrospect, I think Bernie (or his family trust) made a major mistake in ceding control. He would have been better off issuing bonds private equity-style and keeping a majority of the shares. It would have saved him from the wranglings of a board of directors including the unpleasant individuals who tried to undermine me in 2008 then later turned on him. But that was not obvious at the time and, anyway, was not my concern.

  The months passed without progress so in December 2000 I set up another meeting with Cantarella and invited him to reopen negotiations. I thought this would at the least put pressure on Bernie and perhaps even persuade him to complete his deal with us – notwithstanding that Kirch was prevaricating or could not raise the funds to exercise his option. Also, there was the possibility that the car companies might come up with a concrete offer now they’d had longer to consider it.

  Throughout, I was talking to our lawyers about our legal position in the event of signing a deal with someone other than Bernie. I liked my restaurant theory but the fact was that when we talked of the rights to the Formula One World Championship, what we actually owned was nebulous. The name of the championship and its regulations had always been ours, plus the right to fix the calendar, but we were aware that the latter could be disputed because the teams had given Bernie the right to make the contracts without which there could be no calendar. Provided the teams backed him, he would retain de facto control of the calendar, no matter what deal was in place. Moreover, Bernie had acquired the most valuable commercial rights relating to Formula One from the original owners – namely, the race promoters and the teams. Those rights had never belonged to the FIA, leaving us with the unresolved question: who owned what and what could the FIA actually offer to sell to the European car giants?

  Our lawyers from the big City firm Herbert Smith were not reassuring. They arranged for us to consult a top commercial Queen’s Counsel, together with a trademark expert who is now a leading intellectual property QC. Trademarks had been something I had dealt with myself at the Bar, so I understood the complexities. It was not just a question of who owned what rights but also who owned the commercial goodwill in Formula One, including the right to exploit the name itself and the associated trademarks. It would have been difficult to argue that this was us. The essence of commercial goodwill is business and, even if we could have asserted that the FIA had initiated and run the championship itself (as opposed to the underlying events) for many years before Bernie started to build up the commercial side, the FIA had never itself run Formula One as a business. We realised it would probably be argued that the FIA had only ever been the sporting regulator, with no business interest in the championship.

  Given his role in building the championship profile over the past three decades and running it as a profitable business throughout, there was a risk that the goodwill in the Formula One name (and hence commercial trademarks) belonged to Bernie. Reinforcing this argument was the fact that he had established a separate company to hold the commercial trademarks he used, as distinct from the FIA’s own championship logo. Nevertheless, from my point of view it was still the FIA’s championship, not Bernie’s.

  The QC advised us not to get into a legal dispute with him. The trademark expert agreed and added that there was a risk that the name ‘Formula One’ (and hence its variants ‘F1’ and ‘Formula 1’) could even be considered terra nullius – something that nobody owned and anyone could use.

  I didn’t tell Bernie any of this. I didn’t want to give him the satisfaction of pointing out that (except for the terra nullius point) this was what he, a non-lawyer, had been saying all along. Also, had he fully appreciated the strength of his position he would undoubtedly have tried to haggle over the $300 million that had been so laboriously negotiated by the four club presidents. At one of the meetings with Bernie and his lawyers, when we had refused to accept his demand to include the FIA’s copyright over the technical rules and the Sporting Code as part of the package he was buying, he rather pointedly asked what he was getting for his money. He said if we wouldn’t include these (which we never did) he was getting nothing because he already owned everything else.

  Then, a few weeks later, in March 2001, Kirch’s option was exercised and Bernie received his money. Detailed negotiations on a contract then took off in earnest. Our team of Mike Kingston and Melanie Johnson from Herbert Smith were on one side; Kirch’s lawyer, Dr Alexander Ritvay (from the German firm Noerr), Sasha Woodward-Hill from Bernie’s office and two partners from the English firm Addleshaw Goddard on the other. The lawyers were permanently in session at Herbert Smith’s offices in Paris for over a fortnight (breaking just once so that Sasha could get home to London overnight to feed her cat). The last 72 hours were almost continuous and particularly tense for our legal team; there were phone calls in the night on
make-or-break points, and twice I said our team should walk out if a particular one was not conceded.

  While I had a mandate to agree to extend the term to 100 years, it was important to ensure that the essential nature of the Formula One World Championship was fixed for the future by legal agreements. In particular, we insisted on veto rights to protect the Formula One values and format, its ownership and control – and to ensure continued media access for its hundreds of millions of fans worldwide. Our insistence on control over ownership and management apparently played a role in Kirch’s eventual collapse because our veto rights prevented him using Formula One as security for a loan. Bernie and Kirch strongly resisted our attempts to protect the FIA’s reversionary interest, but this is nevertheless included in the agreement. In the end we had a deal. It was lengthy and complex but we had done it.

  In April 2001 the Hundred Year Agreement was signed and we received $313.6 million. The figure had grown because, as far as I was concerned, we had agreed everything the previous summer, so I insisted that they pay interest. The contract secured our full control of the sporting aspects of Formula One and ensured our annual fee would increase with the cost of living. The contract would come into force when our existing one ended on 31 December 2010, or earlier if both sides agreed.

  By putting up the money that enabled the deal to complete, Kirch became the majority owner of Bernie’s business. But this made very little difference to us because both the original 15-year deal (which was still in force) and the new Hundred Year Agreement contained clauses that required our consent if Bernie were replaced or there was a change of management. Later, Kirch followed its subsidiary EM.TV into bankruptcy and its shares in Bernie’s business became the property of its major creditors – namely, their bankers. They eventually sold them on to CVC, a UK private equity firm that still holds many of them to this day.

  Several times after the agreement was signed, Bernie, Kirch’s banks and CVC initiated discussions with us to try to change the Hundred Year Agreement. They wanted to loosen or remove some of the FIA’s retained rights, to make their investment more marketable and therefore, presumably, more valuable. They also wanted to enact it immediately, without waiting until 2011. But when I said we, too, would like to make a few changes, or at least receive a consideration for accepting theirs, they would never agree. So in the end the Hundred Year Agreement did not begin until 1 January 2011, after the 15-year deal came to an end. I don’t think even Bernie will still be around when the Hundred Year Agreement ends on 31 December 2110.

  Back in 2001, once we had the money I proposed to the FIA General Assembly that we put it into a UK charitable foundation which could promote road safety and other charitable objectives both through the FIA member clubs and on its own account. Gratifyingly, the assembly agreed. I was worried that someone might propose that the money should simply be split between the clubs and an opportunity to do the work of the FIA on a much greater scale would be lost. Almost as soon as the new FIA Foundation received it, we changed half the money into euros, paying just over 84 US cents for each euro. That was pure luck but produced a big gain when the euro rose above parity with the dollar.

  Soon we had a fully functioning, well-endowed charity for safety work in motor sport as well as for road cars, paying for such things as crash-testing and safety belt campaigns. We were also able to cover safer roads, environmental research and other things we could never previously afford.

  David Ward came back from Brussels to run the FIA Foundation and its income has enabled it to spend about €10 million a year on things that matter. It is no exaggeration to say that the work its philanthropy has been able to fund has saved many thousands of lives over the past 14 years. Bernie always says we managed to sell him his own business and he only gave us the money for a quiet life. That claim is debatable but at least he has the satisfaction of knowing it has been very well spent.

  The Hundred Year Agreement was intended to replace our original 1995 contract with Bernie, which was due to run out at the end of 2010. Back in 2001, Formula One looked fragile and we knew we might see it disappear for any of a number of reasons. However unlikely, there was always the risk that the teams would get together and organise a breakaway championship, particularly if a rich entrepreneur were prepared to fund it, and there was no guarantee that public interest in Formula One would not decline or switch to some other form of motor sport. It was easy (and I think right) to take the decision to accept $313.6 million in 2001 rather than wait until 2011 when all of Bernie’s rights in Formula One were due to become ours. Even if the championship had prospered, the lawyers warned of debate and possibly lengthy legal disputes about what would actually be transferred to the FIA in 2011. The Hundred Year Agreement put an end to those concerns.

  More importantly, from a humanitarian point of view, we know that thousands of lives would never have been saved had we waited and not taken Bernie’s money in 2001. If we had known then what we know now – namely, that Formula One would survive and prosper – the decision might not have been so easy. It would then have been money versus lives, many lives. Had it been left to me, I would still have taken the money and started our foundation – even with hindsight. The certain knowledge that thousands of people all over the world are now walking around happily but would be dead or disabled had we not founded it in 2001 is, to me at least, what really matters.

  Whether Bernie deserved to become so rich from his 40-odd years working in Formula One is a question I am frequently asked. Any fair answer has to consider the historical context: when he started, Sports Prototypes were bigger than Formula One, and arguably the World Rally Championship was too. Either could have been built up commercially in the same fashion as Formula One had there been someone able and willing to risk their own money and do the work. Unfortunately, no one ever did. We endeavoured assiduously to seek a Formula One-style deal for the World Rally Championship, a goal that was part of our deal in 2001 with the European Commission. We got close (although for less money than Formula One) but never managed it. My personal view is that Formula One would today be in much the same state as the WRC and Sports Prototypes, and thus producing very little revenue for the FIA and the participating teams, had Bernie not been involved.

  Last time I checked, the FIA was continuing what began as my fruitless search for someone to do a Bernie in other categories of motor sport. I hope they succeed in finding some suitable entrepreneurs. The only certainty is that if someone were prepared to bring the same level of financial risk-taking, audacity, industry and intelligence to the World Rally Championship, long-distance racing, the World Touring Car Championship or even some completely new form of motor sport (for example, the FIA’s new Formula E introduced by my successor, Jean Todt) that Bernie brought to Formula One, they would have a good chance of ending up as rich as he is in 20 years’ time.

  21

  THE SPORT: FAR MORE THAN FORMULA ONE

  Only a week after being elected FISA president, I went to the 1991 Japanese Grand Prix. Japan had been instrumental in my election. It felt very strange suddenly being the person in charge and, even years later, I never really got used to it. But all my old acquaintances in the teams seemed pleased and the atmosphere was good. In Japan I told the press I intended to keep out of Formula One. It was well able to run itself, I said, and there was a great deal to do in the rest of motor sport. I had a meeting with the drivers and, among other things, expressed disquiet about wheel-to-wheel contact. Gerhard Berger came to see me afterwards and explained it was impossible to compete in modern Formula One without bumping wheels, which impressed upon me how out of touch I had become.

  After the race, Ayrton Senna admitted on TV that he had deliberately taken Prost off the previous year. This was something everyone suspected but had always been denied. My election, I think, made him feel less constrained, more free to be candid and criticise Balestre. But Ayrton’s team principal, Ron Dennis, was understandably alarmed because Balestre was still very power
ful. Although I was now head of the sport, it was only a commission of Balestre’s FIA and he could still try to withdraw Ayrton’s licence. Newly elected, I might still be too weak politically to defend him, quite apart from the fact that, however great the provocation, self-help of the kind he had indulged in was a serious breach of the rules. The risk to life was obvious. But Senna refused to retract. He said he was speaking the truth and saw no reason to censor himself just because Balestre might not like it.

  Ron asked me to talk to Ayrton. I invited him up to my suite and saw him alone. I told him that there are two kinds of people in sport: amateurs and professionals. An amateur does something because he feels like it; a professional does what is necessary – what he had just done was amateur. After thinking for a moment he said, ‘You are right,’ and his eyes started to well up. ‘But that bastard took my win away. Racing has been my life since I started karting at six years old and he robbed me of a Grand Prix win and possibly even the championship.’

  I told him I agreed. What had happened was completely unfair and was one of the reasons I stood against Balestre in the election, but he should not have exposed himself to sanctions, however strongly he felt. He should not needlessly risk his career. Ayrton was very smart and took my point – in the end, reason overcame emotion. We agreed some weasel words sufficient to avoid any danger of repercussions and he got the team to put out a statement. This was the first time I had sat down with Senna and talked to him.

  In my new role I now had the opportunity to take a closer look at American racing. It had developed almost entirely independently from motor sport in Europe and the rest of the world, partly because of the distances involved but mainly because the USA is so big it does not need the involvement of other countries to put on major events. To me, it was all quite alien, although some American specialities such as drag racing thrive in parts of Europe.