The Engine of Change - European Automobile Manufacturers Association may start new automobile racing events

Auto Racing Digest, Sept, 2001 by Dan Knutson

After years of friction with Formula One, the ACEA is threatening to manufacture a new series

IF YOU WANT SOMETHING DONE right, it's said that you have to do it yourself. In Formula One, however, the powers-that-be have different opinions on the "right way" to handle the series (although they all seem to agree that the best thing for everyone happens to be the best thing for themselves). So, in a move that grabbed headlines around the world--on both the sports pages and the financial pages--five Formula One engine manufacturers announced a desire to create their own F1 series, to do it themselves.

"As a result of recent developments--and in the best interest of motor sports--it has been unanimously agreed to set up a joint company, the purpose of which will be to establish, as soon as possible, a new open-wheel, single-seat racing car series," says Paolo Cantarella, chairman of both the European Automobile Manufacturers Association (ACEA) and Fiat. "It's quite simple, really. We constructors are the protagonists in Formula One. We provide the raw material for the sporting event and the spectacle, and we wish to be able to run things more directly, with greater overall guarantees."

It could just prove to be saber-rattling, but even if a rival series doesn't come to fruition--and it's likely that it won't--the manufacturers won't stand being pushed around any longer. When they claim their interests are being compromised they, pardon the pun, mean business.

And the business of Formula One is huge. Manufacturers annually invest hundreds of millions of dollars in the sport and are anxious to protect those interests. "We want Formula One--together with its entire heritage--to continue with order, technological development, clarity of rules, and maximum visibility," says Cantarella. "It's going to take a long time, but we are starting to work now on our own Formula One series, one that will be increasingly avant garde on both a sporting and technological level."

Members of the ACEA include Fiat--which has close ties to Ferrari--Renault, DaimlerChrysler, Ford (which owns Jaguar), and BMW. All five are heavily involved in F1, and all five have been trying to gain a bigger share in the ownership of the commercial and TV rights of the series. In short, they want a greater say in how the sport is actually run.

Whatever happens, nothing can change until 2008. F1 is governed by the Concorde Agreement, and the current agreement--which has been signed by owners, manufacturers, and all of the sport's major players--is in effect until 2007.

"I understand why the engine manufacturers want to do this," says Bobby Rahal, the CEO of the Ford-owned Jaguar F1 team. "This is an extremely expensive sport, and they have to get a return. Some nice comments about brand image and all that aren't enough. There has to be some hard financial return. When you invest that much money in a sport, you become very protective of it, and they are concerned about not having a voice in how it is run."

That lack of voice was highlighted when F1 czar Bernie Ecclestone decided to sell a substantial potion of F1's long-term commercial and TV rights to a pair of German media companies, Kirch and EM.TV, in a move opposed by the manufacturers. Currently F1 is available on free-to-air TV in most markets. The ACEA is terrified that Kirch will make F1 a pay-per-view series, a move that would make money for the media company but, if there was an accompanying drop in viewers, would be devastating to the manufacturers.

It is Ecclestone, however, who is credited with making F1 an international phenomenon. Beginning in the 1970s, he organized the teams into a bargaining and marketing force and made F1 the most watched sport in the world, not counting quadrennial events such as the Olympic Games or World Cup Soccer. (Each of its Grand Prix races attract roughly 350 million viewers.)

Over the years Ecclestone has steadily acquired the TV and commercial rights to F1, and in a recent deal his holding company, SLEC (the initials honor his wife, Slavica Ecclestone), bought the TV rights from the F1's sanctioning body, the International Automobile Federation (FIA), for the next 100 years--all the way through 2110.

Now 70, Ecclestone has begun to consider retirement and make moves to place F1 in what he feels are good hands. Last year, he sold 50% of SLEC for $1.6 billion to EM.TV (which, incidentally, also holds the European rights to the Muppets.) Shortly after, EM.TV saw its share prices tumble. In order to survive, EM.TV was expected to have to sell its holdings in SLEC back to Ecclestone--until Kirch entered the picture, acquiring the 25% of SLEC (at a cost of 81 billion) that EM.TV had optioned in its original deal.

After the deal is finalized, Kirch would own 75% of F1's commercial rights--much to the ACEA's dismay. To make matters worse, the engine manufacturers also wanted to buy a chunk of SLEC. It was when the manufacturers realized they missed their chance that they instead announced their desire to create a rival series.