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EU investigation into Formula One moves closer

2017 F1 season

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An investigation into anti-competitive practices within Formula One is looking more likely following developments within the European Union.

The committee on economic and monetary affairs has approved an annual report on the European Commissions work on competitions. The report includes an amendment from the Labour MEP for the southeast of England, Anneliese Dodds, who has called from an “immediate investigation” into competition concerns within F1, according to The Times.

Dodds has previously called for “a full investigation of the anti-competitive practices in the sport and the way prize money is allocated to teams”. She drew attention to the plight of Manor which collapsed earlier this year, pointing out it was “the latest in a series of small teams experiencing financial difficulties at the same time as arrangements for receiving prize money for small teams differ substantially from those for larger teams”.

Force India and Sauber filed a complaint against F1 with the European Union in September 2015. Last September Force India deputy team principal confirmed they had supplied further information to the EU.

Formula One has come under scrutiny from the EU before. A settlement was reached in 2001 under which the sport’s commercial and regulatory roles were divided between Formula One Group and the FIA respectively.

However Dodds claims the recent sale of F1 to Liberty Media may have created a conflict of interest which violates that settlement.

“The sale of Formula One appears to have returned its regulatory body a return of $79.5m profit on a $500,000 investment in less than four years,” she said. “Given that this return was only payable if Formula 1 was sold to a new owner, and that they were the body that had to approve any sale, it looks extremely likely that the FIA have broken an agreement struck with the European Commission in 2001 regarding commercial conflict of interest.”

Dodds has also asked for “clarification on the agreement struck between Formula 1 and HM Revenue and Customs that allows them to pay an effective tax rate of under 2%”.

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Keith Collantine
Lifelong motor sport fan Keith set up RaceFans in 2005 - when it was originally called F1 Fanatic. Having previously worked as a motoring...

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  • 21 comments on “EU investigation into Formula One moves closer”

    1. Simple solution. Remove all EU races out of the calendar. That should make the investigation pointless. You don’t like it, leave it.

      1. That wouldn’t make any difference as this isn’t about where they race, it’s about the business terms between the teams and Formula One Group.

        At present most of the teams are based in the EU but as Britain is supposed to be leaving the EU that may not be the case for many of them in the future.

        On top of that we’re talking about business terms which were put in place by someone who is no longer in charge of the sport, and Liberty may change those terms when the teams’ deals are up for renewal in 2020.

        So exactly where we’re heading here I wouldn’t want to hazard a guess!

        1. In my view, an outcome could be:
          *a fine (I suppose Liberty would be liable but maybe they could sue CVC for the money)
          *redistribution of prize money from previous championships or compensation

          I don’t think Brexit should make a difference. In any case, it technically hasn’t happened yet. The complaint refers to an issue that existed pre-referendum. Even when the current government does get round to formally kicking off the process (article 50) it will take at least two years to leave, if not longer, during which time the UK will still be a member. So I hope there is plenty of time come to a fair conclusion on the complaint.

          On a related topic, I do generally wonder about the massive conflict of interest that the FIA faced in approving the change of hands of F1 given it’s payout based on its 1% ownership of F1. There is an interesting article in the economist on that.

      2. The deals that have led to the biased scale of payments we currently have in F1 deserve impartial review, regardless of the location of any F1 sanctioned event.

        The sport doesn’t appear to be too healthy at present.

        In my relatively uninformed opinion, the whole thing stinks and needs looking into.

        1. Agreed.

          In this case, the “informed” opinions are too often biased/bought.

          And because it stinks, it probably won’t be looked into properly.

      3. Also, the FIA (who organises F1 and is the organisation suspected of breaching the 2001 settlement by taking the shares and then selling them) was and remains French. Even if it decamped to Switzerland and the USA, France would be entitled to fines and back taxes.

    2. I hope this has positive outcome for smaller teams and really nails the “privilege” treatment meted out to some larger teams.

    3. Back in 01 it meant bad news for f1 and it’s fans. Now what will this mean? Is it good? Is it more bad news? Worse than what ended up being CVC and bureaucratic f1, worse only the end of f1.

      1. This will ultimately lead to good, will make the liberty kept in check

      2. Ferrari have already stated they won’t negotiate any new deals now meaning they keep their extra money. If the EU say it’s illegal, they won’t have a choice.

      3. Mostly it meant bad news because of how the settlement was achieved – by not solving the problems that caused the case to be put forward in the first place. This time, there would hopefully be a serious stab at fixing the problem instead of waiting for the complainant(s) to go bust.

    4. The sale of Formula One appears to have returned its regulatory body a return of $79.5m profit on a $500,000 investment in less than four years…this return was only payable if Formula 1 was sold to a new owner

      While it looks as though there is a $79.5M profit, a profit implies money left in one’s hand after all the expenses have been paid, but we don’t know if that is the case. The FIA held a 1% shareholding of Delta Topco (the company that owns F1), so their share of the $8B sale price was $80M. It maybe this money was used to pay some takeover expenses. Apparently the EU have to also give their approval for Liberty Media’s takeover to proceed. I wasn’t able to find out how much that approval costs, nor who pays it. It could be the costs to the EU’s Commission come out of the FIA’s 1% shareholding of Delta Topco. Also, one would expect some sort of semi-impartial report to have been produced that was used to justify to the World Motor Sport Council that the sale of Delta Topco met their legal requirements, and again, we don’t know who paid for that report.

      http://fortune.com/2016/09/08/liberty-media-formula-one-racing/
      https://www.formula1.com/en/latest/headlines/2017/1/liberty-media_s-f1-takeover-given-fia-approval.html

      1. As far as I am aware, that approval has already been given @drycrust. And it does not cost anything apart from the people you pay to prepare the documents requested to submit the deal for approval.

        Overall, I think that the EU would at this point have been most likely to just give some advice on what changes to make in the whole deal to solve worries that are on the table (as part of the approval).

        1. Also, they typically only answer questions based on the questions asked. In this sort of situation, the questions would have been about not abusing a monopoly situation, rather than on separating commercial and regulatory interests (which is not an issue most corporate buyouts would need to worry about).

    5. Might be interesting when they get round to it in 2023 or thereabouts.

      1. If the EU exists as we know it in 2023.

    6. It is simply beyond comprehension that an official regulatory body (The FIA ) has been allowed by it’s principals to derive income from commercial involvement within F1. I know of no other significant
      parallel in any major sport. You can, it seems, be poacher and game-keeper in F1 at one and
      same time. And the result of these thoroughly irregular ( illegal ?) stitch-ups is that quality, honesty
      and fair-dealing become a sick joke. Time to pull the house down and watch the rats scatter. Then start again with a clean sheet of paper and an all-new system.

      1. @loen It is illegal. The EU already has ruled commerciaI interest of the FIA in F1 as such 20 years ago. This ruling let to the sale of the commercial side of F1 to Bernie Ecclestone for a 100 years, which he in turn sold to the CVC.

        I never understood why Jean Todt wanted a stake in the commercial part back. Hereby also relinquishing regulatory powers to the F1 Strategy Group. He must have been desperate for the money it generated over the years.

    7. Joe Saward knows which side the bread lands. His take on this had me laughing!!

    8. If anything the sale of the remaining lease of the commercial rights could well help regularise the situation.
      Many felt that the F1 strategy group violated the first EU Commission requirements and the purchase of shares in the Rights holder by the FIA was the smoking gun. However the shares have been sold and the new structure has not yet been revealed.
      Liberty should have no say in making the rules. These should be devised by the original two major working groups which existed before the F1SG came into being.
      However there is strong opinion that this whole current story is a load of tosh which has been devised by the usual few and picked up by the internet trawlers instead of doing the proper investigative work.

      1. It would only have regularised the situation if FIA had lost all control over the commercial rights, had earned nothing from the deal, and FOM/Liberty had been barred from having any regulatory involvement.

        The story is a serious one, which has been in the works for years and preparations for which have been going on since last millenium.

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