Posted August 28, 2012 by f1nut in General Posts

Thoughts: What’s up with F1’s Concorde Agreement?

During the F1 season break, apart from re-reading the Michael Schumacher books in my collection, I’ve also been trying to find out a bit more on what has been circulated online about the 7th instalment of the super secret Concorde Agreement which governs the commercial rights relationships between the FIA, the F1 teams and Bernie Ecclestone’s Formula One Management Group/Delta Topco/CVC Capital. The agreement itself is named after where it was first negotiated at FIA’s HQ at Place de la Concorde, Paris rather than anything to do with Bernie and gang on a Concorde airplane.

For an entree, Forrest Bond’s release of a re-created version of the 1997 Concorde Agreement is an illuminating read. According to Bond, the 1997 agreement was between the FIA, manufacturers (Ferrari, Benetton, Minardi and Sauber) and FOCA constructor teams (the other teams). Schedule 10 is the best “chapter”. If its correct, the teams shared 47% of TV broadcast rights revenue and shared prize money based on an allocation of qualifying results (20%), race results (45%) and constructors points (17.5%) and the top 10 teams in previous 2 half seasons (17.5%).

Assuming the basic framework of the 1997 Concorde Agreement is still intact and has been incrementally modified over time – its interesting to speculate on what might be in the new one.

So what do we know about the new agreement? From what I can find from various media ‘reports’:

  • teams need to commit up to 2020
  • teams will be getting sign on cash bonuses and their share of prizemoney (which is currently pegged at 47% of F1 net profits with Ferrari getting an extra 2.5%, so around $680m in 2011) goes up around 60% and Ferrari gets an extra 5%, teams can only exit if their prizemoney falls substantially although Ferrari can bail due to any change of control or profits drop 25% in 2 years.
  • added financial incentives for the top 3 performing teams with extra % of the prizemoney. With an IPO in the pipeline, I’m sure some spare scrip or options can be shared around too.
  • no team name changes
  • teams can buy competitor’s car from previous season

One obvious issue is the composition of the board of future F1 corporation. Once they get a 30% free float away on the SGX, CVC’s cedes control to the board – the makeup of the board and the voting blocks will be important. It looks like Red Bull, Ferrari and McLaren have 1 seat each, Nestle’s Peter Brabeck-Letmathe will be chairman, while Bernie and his executive team will no doubt fill a couple of seats. The media have been agitating over whether Mercedes AMG will or won’t sign due to Mercedes being reportedly unhappy with the terms being offered. This invites a lot of speculation. The German media have also been reporting that the FIA hasn’t signed and Nikki Lauda has been acting as middleman for Mercedes to negotiate with Bernie? The better question might be whether the Daimler board will sign off on the budget for another few seasons as a F1 manufacturer or just an engine supplier beyond 2013? Also, it seems like Bernie is not a big fan of team names changes, so if Mercedes want to re-badge the team or downscale their involvement, do they get penalized under the new Concorde agreement terms? Will Ross Brawn do another MBO and buy back the team again for £1? If the FIA haven’t signed yet, what have the teams signed? A letter of intent? Why does the FIA need to sign? Didn’t FIA and FOM already sign new deal for commercial rights to F1? Or do the teams want transparency to the FOM and FIA relationship?

On the regulations side of things, it also looks like the Concorde Agreement will be further shaped by the 2014 engine regulations and whatever binding resource restriction agreement or arrangement that the teams can agree to.

Based on the latest media coverage and speculation, the new Concorde Agreement looks like it might blow out the race calendar to 24 races provided the top 3 teams from the last 4 seasons agree to any new races beyond the current 20 race maximum or if more than 60% of races are outside of Europe or US. The 1997 Agreement was capped to 16 races a season and the current agreement needs the teams to agree if there are more than 17 races subject to a maximum of 20 races. The current race sanction fee asking price (unless you are Monaco) seems to be around $25m – Singapore & Abu Dhabi look like they are premium payers at $27m, the new Austin Texas GP is around $25m.  Sitting in the wings are more fees potentially from New Jersey, Socchi, London GP and even Turkey (via Bernie’s takeover of Istanbul Park Organizasyon AS). F1 is increasingly looking more and more like an investment bank or toll operator than a sports promoter…

We all know the  IPO was postponed, although if the markets settle down I can see it happening later this year or before the start of the 2013 season. I can’t wait for the F1 listing prospectus…it may even be worthy of a proper book review…