by Max Mosley
Governance of Formula One
The President proposed that the FIA also discuss with the teams the governance of Formula One. Currently there were elements which in his opinion could be enhanced. For example he felt that even if the World Council has been able to timely deal [sic] with issues that took place during race weekends or such as the McLaren/Ferrari case in 2007, possibly a separate judicial body2 may represent a more effective solution. There would, of course, be a right of appeal from such body to the International Court of Appeal.
This was agreed.
To me, it seemed obvious that the FIA had the right to look at the commercial terms of an agreement to which it was a party, even if it had no right to participate in any profit that might be made under it because of the deal with the European Commission. Our duty to supervise the sport plainly required that there should be nothing grossly unfair which could distort the championship. Suppose, for example, Bernie decided to give all the money to one team? Surely we could and should object to that? We never received the promised red-line version.
Bernie sought to reinforce his position by holding a meeting of the teams to discuss costs in the absence of the FIA. He called Luca di Montezemolo, the Ferrari chairman, and suggested all the teams should meet in Maranello. Bernie took Donald Mackenzie from CVC with him, as well as some of the UK-based team principals, and they all travelled together in one of Bernie’s jets. The meeting did not go entirely according to plan: after a short discussion, Luca explained that no other sport lets the promoter take half the total income. He then turned to Bernie and Donald, thanked them for coming and said the teams now wanted to continue their discussions on their own. Bernie was so surprised by this that he phoned me as they were leaving (we were now back in contact) and said he and Donald had just been thrown out of the meeting. It certainly shocked him – such a thing had previously been unthinkable – and it meant he could no longer rely on the teams as a power base. What with them saying he was taking too much money out of Formula One and the FIA asking to look at the proposed financial schedule to the Concorde Agreement (which the teams had apparently accepted), Bernie must have felt a bit beleaguered.
But for me, everything for the previous three months had been coloured by the News of the World story, much more detail of which comes later. In the immediate aftermath of the publication, a number of people behaved very badly. Some were insidiously disloyal; others brazenly exploited an opportunity to get rid of someone they disliked. But three of the most significant team bosses, Jean Todt, Frank Williams and Dietrich Mateschitz, the owner of Red Bull, were supportive. After Jean had shown such loyalty over my personal difficulties, forcing a cost cap through with or without Ferrari did not feel right and the story essentially put a stop to my 2008 cost-reduction plans.
As predicted, the economic crisis developed during the 2008 season, culminating in a full-blown financial panic when Lehman Brothers collapsed in September. Faced with falling car sales, Honda announced their withdrawal from Formula One at the end of the 2008 season, Toyota and BMW followed a year later. Toyota left Formula One with the distinction of having spent more money per championship point than any team in history. Its representative in meetings with the FIA was someone called John Howett, who was always very critical of what I was trying to do. He was reputedly an expert on MOT testing but he seemed to me to be out of his depth in Formula One.
With the financial crisis and imminent withdrawal of manufacturers, there was a genuine danger too few teams would survive to maintain the credibility of Formula One. Indeed, even some of the remaining teams were rumoured to be in financial difficulty, a crisis I tried to address at another meeting with them in Monaco in December 2008. Once again, it was agreed that costs had to come down and some ideas, all of which involved technical restrictions, were put forward. I was both surprised and frustrated – they had acknowledged the previous January that we could not cut costs by technical restrictions alone, but still they returned to the same old facile ‘solution’ despite the global financial crisis. I reiterated that piecemeal reform was no answer: we needed a concrete figure for maximum permissible expenditure, together with foolproof methods for checking that no one was breaching the agreed limit. We knew this was possible because the procedures for monitoring had already been agreed by Tony Purnell’s expert group.
But we were stuck in an impasse and I could make no progress. The teams refused to meet FIA representatives, saying they wanted to deal with cost reduction internally, without us. I knew this wouldn’t work: rules, not informal agreements, are the only way to suppress the teams’ natural instinct to seek competitive advantage. In February 2009 I had a one-to-one meeting with Luca di Montezemolo. In response to my concern that we would lose more of the car manufacturers because of the financial crisis, he tried to assuage me by promising to obtain letters from the CEOs of the competing car companies guaranteeing their continued participation in the championship.
It did not take long to discover that Luca could not deliver on his promise – he could not even obtain a guarantee from Fiat, of which he was then still chairman (although the real boss was Sergio Marchionne). Without those guarantees of participation, Formula One was in serious danger, not mitigated by Luca’s assurances that the remaining teams would run three cars if more manufacturers pulled out. He could not even produce guarantees for that, so with no new teams and a real likelihood that others would follow Honda’s example (as indeed happened when Toyota and BMW left at the end of that year), we might soon be left with 14 cars or fewer.
I felt I could not just sit idly by amid this complacency and naked self-interest and watch them sleepwalk towards possible disaster. After much consultation and with the agreement of the World Council at two separate meetings, I proposed some very radical new rules to reduce costs and allow new teams to enter. These included allowing teams that agreed to run within a specified cost cap (and submit to the necessary rigorous checks) to have technical advantages to bring their performance up to a level close from that of the top teams. This would have been no different from allowing GP2 teams to make up numbers, something we would have had to do (and for which there were precedents in the 1950s and 1960s) if several Formula One teams had folded, but the speed differential would have been smaller than with GP2, thus reducing the risks.
Apart from maintaining full grids and giving us better competition, this would have demonstrated the important point that, when viewed from the grandstands or on television, there was no visible difference between a $60 to $70 million team and one spending $300 to $400 million.
We knew, of course, that the top-spending teams would not agree. A Formula One with an open approach to technology but strictly limited expenditure was anathema to them. They were used to throwing money at problems and competing on an equal basis with just two or three other big-budget teams. The last thing they wanted was an attack on the status quo that provided for more teams with the same resources in a sport where engineering excellence rather than money was decisive.
Sure enough, they bitterly attacked the proposal, saying this first phase would lead to two-tier racing. In reality, they already had two- or even three-tier racing because the smaller teams had insufficient money to compete with them. FOTA announced that the proposals were ‘dictatorship’ and an example of my ‘autocratic’ style. However, publishing the rules and allowing the minimum 20-day period required by the International Sporting Code before the opening of entries, at last brought FOTA to the negotiating table. They knew we had received upwards of 20 applications from new teams wanting to compete under the proposed new rules. After detailed investigation of the applicants, we eventually selected three.
I met the teams at Heathrow on 15 May, although my personal situation (my son Alexander had been found dead ten days earlier) was making things very difficult for me. It was soon clear that the main teams had not come to negotiate or discuss but intended simply to dictate terms. When I raised the question of a cost cap (fundament
al to our plans and the reason we had applications from new teams for the first time in many years), John Howett tried but failed to lead a walkout. Apparently, they had agreed beforehand they would leave the meeting if I raised the question of a cost cap, but it was obvious the walkout plan was childish and no one else stood up.
I kept my temper (just) but I took the gloves off with Briatore, to the point where he accused me of being rude. He was right but I felt it merited. I thought he had ambitions to take over Formula One and I believed this was why he seemed to be encouraging dissent, while I was simply trying to solve a problem. Meanwhile, the atmosphere deteriorated further when I was passed a note from our lawyers announcing that Ferrari had launched legal proceedings against the FIA in Paris, something that, until then, the Ferrari representative had failed to mention. It was not a productive meeting.
Predictably, the French courts threw out Ferrari’s legal challenge and we had another meeting in Monaco a week later, on 22 May. This time, FOTA were prepared to talk. They asked for three things: clear rules of governance, stable regulations and a more gradual reduction in costs. This seemed entirely reasonable and I agreed. I offered to reintroduce the governance and stability provisions of the old Concorde Agreement (which had expired 18 months previously, on 31 December 2007) in order to cover the first two points, and to discuss their ideas for a more gradual cost reduction in detail for the third.
When the deadline for entries was reached on 29 May, eight FOTA teams submitted ‘conditional entries’, effectively saying that they would enter only if their preconditions were met. But Williams entered without seeking to impose preconditions, explaining that they had a legal obligation to do so because of their sponsorship contracts and that not entering was anyway unthinkable given their 30 years of competing in Formula One. FOTA then decided to ‘expel’ Williams, an indication of how emotional and irrational things had become.
The conditions attached to the eight entries purported to reject outright the published 2010 rules. Under the International Sporting Code, the FIA had until 12 June to accept or reject entries. On 11 June, we had yet another meeting with FOTA in London. This time everything was agreed except the mechanism for the cost cap. Given that the target figures for their and our cost caps (or ‘resource restriction agreement’, as they preferred to call it) were virtually the same, we agreed to put our respective financial experts together the following Monday to finalise the methodology.
We understood Ferrari’s reluctance to publish figures but saw no real difficulty because all the detail of the FIA method for checking and enforcing the cost cap had been worked out by Tony Purnell’s expert group in the first half of 2008, with only Ferrari dissenting. We were also happy for the teams to self-certify, with outside auditors involved only if there was genuine suspicion of cheating. We also planned to offer a very substantial reward to any whistle-blower who brought us evidence of illegitimate spending by a team.
No sooner had this been agreed than elements within FOTA that were not present at the London meeting rejected the agreement. The following Monday our financial experts were confronted with a blank refusal to discuss any of the FIA cost-cap provisions, notwithstanding the 2008 arrangements agreed by the CFOs of all the teams in Tony Purnell’s group. The teams later prepared their own so-called ‘resource restriction agreement’ and announced they would police it themselves. It soon failed for the very obvious reason that only an independent body can adequately police such a thing.
After effectively breaking off negotiations (which I had thought were beginning to go quite well) the teams announced their breakaway series a few days later during the 2009 British Grand Prix. The media were very excited but I was completely confident. I jokingly called the leaders ‘loonies’, which caused great offence – because, I suspect, it was so near the truth. For the same reasons that the 2005 breakaway would never have worked, I was quite sure this one was fatuous too. The teams could make a fuss, beat their chests and hold press conferences for several months, but any attempt to carry out their threats would collapse as the 2010 season approached.
It all got very emotional. Even teams that wanted to reduce costs said they should do it themselves and not involve the FIA, while the very rich teams were opposed because it would erode their competitive advantage. They knew a team-run system was bound to fail, allowing them to maintain the gap between themselves and the teams with less money. It seemed strange to me that the smaller ones had not spotted what was going on, but it’s very easy to get swept along when everyone is being emotional. Luca was also distracting them by focusing on the percentage of Formula One income Bernie paid them instead of the massively wasteful way the richest teams spent it.
I still think Flavio, who was nominally leading the teams, had his own ambitions within FOTA and perhaps for Formula One generally. He may even have thought this was an opportunity to take over Formula One but, unusually for him, Bernie seemed blind to what Flavio was up to. And in my view Flavio, in turn, was managed by Luca.
In one acrimonious meeting I told Toyota’s John Howett he would find his P45 (an employee’s leaving document) on the fax machine one morning. Later that year Toyota did indeed shut down its Formula One team. But my problem was that I, too, wanted out. Having postponed my resignation in 2005 because of Jean Todt’s new job at Ferrari, there was no way I was going to stand for election again when my mandate expired in November 2009. Indeed, everything was by now in place. In January 2009, I had met Jean at Le Bourget airport and told him I was determined to stop at the end of the year. I asked him to confirm our understanding that he would definitely stand for the FIA presidency the following November. He confirmed that he would and I promised to back him. I had also told the senior FIA staff in January 2009 that I was not going to stand for election again. I had even amended my Who’s Who entry back in April to show 2009 as the last year of my FIA presidency.
Yet if I wanted to prove my point about a breakaway, I would have to stand for re-election. It had been made clear to me within the FIA that I would be re-elected if I stood again. Jean Todt would probably have been quite happy to wait until I could finally quit later in 2010 but, although I was entirely confident the breakaway would have been over by February 2010 at the latest, to stand again would have put back my plans by another year. And central to my personal plans was my desire to give News International, the publishers of the News of the World, my undivided attention. I had already waited more than a year.
Although I was convinced the smaller teams were being very badly treated financially, my sympathy for them had been ground down by their apparent support for the proposed breakaway. After all, I had gone out of my way to try to improve their situation, even in my last year when I could (and probably should) have just taken it easy and let things ride, but they had chosen to back the big teams that were effectively ripping them off. If they were not prepared themselves to stand up to the richer teams, or at least refrain from supporting them against the FIA, there was not a lot of point in my giving up another year to fight their battles for them.
As explained in chapter 26, despite their emotional objections to the way Formula One was being run, the breakaway teams would have had no choice but to submit their sporting and technical rules to the FIA and accept its system of stewards and Court of Appeal. In essence, it would have been back to square one under the FIA, but without Bernie’s money. As reality dawned over the winter and the more excitable team principals calmed down or left, I was quite certain all would have been back to normal for the 2010 season. Even so, I was not prepared to put my personal plans on hold for another year just to prove that point.
I don’t think CVC, the private equity group that now owned Bernie’s company, ever truly understood any of this or, if they did, their bankers certainly didn’t. As a result, the teams’ announcement of a breakaway seemed to cause something close to panic within CVC. As Donald Mackenzie, its co-founder and co-chairman, said later when giving evidence in Bernie’s Constant
in Medien case,3 they were impressed and alarmed by the teams’ apparent anger. Also, as is clear from that judgment, CVC and the banks were obsessed with the Concorde Agreement, even more than I realised at the time. It was a classic case of everyone focusing on something relatively unimportant and missing the main point.
In retrospect, it’s strange that, as far as I can remember, no one from CVC or the banks ever sat down with me or anyone in the FIA and asked for a detailed explanation of how the sport was governed. It was extraordinary because, after all, we were the governing body. I think they believed that Bernie ran Formula One and presumably they felt talking to him was sufficient. He probably encouraged that view, and it was true as far as the race contracts and small day-to-day things like passes went, but when push came to shove, it was the FIA that held the power and made the decisions. It was a lesson I learned in the FOCA–FISA war and others should have taken on board before Indianapolis in 2005.
That the teams could induce something close to panic in CVC surprised me. Donald Mackenzie had been calm, even stoic, when earlier breakaway threats had been made, but the world financial crisis seemingly had put them under pressure. It was rumoured that several of their businesses were in temporary difficulties and their bankers were worried. To stabilise Formula One, at least in the eyes of their banks, they needed a new Concorde Agreement to be signed without delay.
To the outside world, and particularly in high-finance circles, the Concorde Agreement had achieved almost mythical status. It was seen as the glue that held Formula One together. Fundamentally, this was nonsense. All the Concorde Agreement really did was tie the FIA’s hands when it wanted to make changes to the Formula One rules. It also set out the commercial terms for the teams. Tying the FIA’s hands and fixing the money had, after all, been our principal objectives when FOCA first negotiated the Concorde Agreement with the FIA back in 1981.
