- With Christian Sylt
Deal done, Bernie Ecclestone ousted.
Formula One's new owners say they want a "fresh start" but the sport's governing body stands to make millions from this takeover and some MPs have serious questions about the way the deal was scrutinised by the regulator.
Damian Collins MP is Chair of parliament's Culture Media and Sport Committee. He has been a fierce critic of FIFA and now has concerns about the conduct of F1's governing body, the FIA.
Collins told ITV News that the FIA's 1% stake in Formula One and the $80 million is it set to receive after approval Liberty's takeover last week amount to a "severe conflict of interest".
He has written to the European Commissioner for Competition, Margrethe Vestager, to ask her to investigate.
"It is not a reflection of on Liberty's ambition for F1 or wether they are adequate as an owner", he said. "It's a question of whether the FIA discharged its duties responsibly".
The FIA's World Motor Sport Council unanimously approved the sale of Formula One by CVC Capital Partners to Liberty Media last week.
On Tuesday the new boss of Formula One, Chase Carey, told ITV News he is comfortable with the fact that the FIA is in line to receive money after waving the deal though, and denies it amounts to a conflict of interest.
"My experience of them is a handful of months", said Mr Carey. "They regulate the sport in a fair and even-handed way".
Liberty's acquisition was also approved by all of the relevant completion authorities including by the Competition and Markets Authority (CMA) in Britain.
The journalist who uncovered the FIA stake says Liberty did not disclose it during the takeover process.
- Christian Sylt explains the background:
The 1% stake may also be in breach of an agreement the FIA made with the European Commission (EC) in 2001. It followed a two-year EC investigation into claims that the FIA favoured F1 and prevented competitors from starting a rival series. The commercial rights to F1 are ultimately owned by the FIA but to distance itself from the series it sold them for $313.6m for a period of 100 years beginning in 2011.
This pacified the EC which released a statement in October 2001 saying that "the FIA agreed to modify its rules to bring them into line with EU law...The modifications introduced by FIA will ensure that: - The role of FIA will be limited to that of a sports regulator, with no commercial conflicts of interest...To prevent conflicts of interest, FIA has sold all its rights in the FIA Formula One World Championship."
Fast forward 12 years and things were very different. In July 2013 the FIA was offered a golden opportunity when it paid $458,197.34 for a 1% stake in F1’s parent company Delta Topco, which was controlled by the private equity firm CVC. Although it paid a pittance for the stake the FIA was informed that it was worth $70m at the time. The stake came with a crucial catch – it could only be cashed in when CVC sells up and in order for this to happen the FIA has to give its approval.
CVC had originally planned to exit F1 by listing the business on the Singapore stock exchange in 2012 and according to F1’s contracts, a flotation would not have required the FIA’s approval.
However, these plans effectively got the red light when F1’s then-boss Bernie Ecclestone was indicted in Germany for allegedly paying a bribe to steer the sale of F1 to CVC. Two years later the case was settled with the judge saying that "prosecution of the defendant due to bribery is not probable." By then CVC had changed its direction and ended up selling its shares to a private buyer which required the FIA’s consent.
It has a right of approval over a sale of F1 because the rights to the sport ultimately belong to it and will return to it in 2110. The need to give its consent allows the FIA to ensure that F1 stays in safe hands in the meantime.
It is important to stress that there is no suggestion that Liberty wouldn’t pass muster. Nevertheless, Liberty’s filings with America’s stock market regulator the Securities & Exchange Commission (SEC) reveal that it didn’t make its first approach to CVC until September 2013 so when the FIA acquired its 1% stake several months earlier it could not have known for certain who would buy F1. What it did know is that if CVC decided to sell, rather than float, F1 it would have to give its approval to the sale and if it did it would make tens of millions of Pounds of profit.
This has fuelled claims that the FIA was in a conflict of interest as the sale of F1 needed approval from a regulator with a stake in the sport.
The 1% shareholding appears to fly in the face of the 2001 settlement with the EC. Last year, Max Mosley, the former president of the FIA who signed the settlement with the EC, told racing website Motorsport.com, "to my way of thinking, it’s a breach of the agreement with the European Commission."
If this is indeed the case it appears that the FIA broke its own Code of Ethics which states that "the FIA Parties and Third Parties may not perform their duties in situations involving an existing or potential conflict of interest."
In turn this could call into question the validity of a key warranty at the heart of Liberty’s takeover of F1. Each of the previous owners of F1, which includes the FIA, gave a guarantee that entering into the deal would not cause it to break "any deed, agreement or arrangement to which it is a party, under which it enjoys rights or by which it is bound."
Liberty’s shareholders were not made aware of this possible risk as it did not disclose in its filings with the SEC that the FIA was a shareholder in Delta Topco and therefore that Liberty would ultimately be paying the regulator which needed to give approval to its takeover.
The first time that this was disclosed publicly by the FIA was in a press release which it distributed last week after it had decided to approve the takeover.
It stated: "The FIA holds a one per cent shareholding in Delta Topco. As part of the sale by CVC to Liberty Media Corporation, and in line with the agreements between the FIA and the Formula One Group, the FIA will be dragged along in the sale process under the same conditions as CVC and all the other shareholders."
It is now $79.5m the richer.
Tonight a spokesperson from the Commission said it had yet to receive a complaint but pointed out that a 1% stake in a sport by a Federation doesn't automatically qualify as a breach of competition law.
We approached the FIA but they declined our offer of an interview and decided not to comment.