01 October 2015

F1 Teams launch complaint against Ecclestone’s Formula One Group

The Sauber and Force India F1 teams have submitted a formal complaint to the European Commission (Commission) that the way in which Bernie Ecclestone’s company, the Formula One Group, runs the sport is in contravention of EU competition law.

The complaint hinges upon the preferential treatment that the Ferrari, Mercedes, McLaren, Red Bull and Williams teams (the Big Five) receive in relation to payments and governance under bilateral contracts they signed in 2012 with the Formula One Group.

Traditionally, a team receives two payments for a F1 race: one for its participation and one for its finishing position. However, the complaint alleges that each of the Big Five receives an additional bonus of between $10m and $100m per team, meaning that even if a smaller team wins the race, it will still receive less money than the Big Five. This impacts upon the smaller teams' ability to compete on the F1 track as the Big Five have “vastly more to spend on technology, development, research and equipment, creating an ever-wider performance gap and, effectively, pre-determining the outcome of the world championships”.

Another aspect of the complaint is that the Big Five have a guaranteed seat on the F1’s strategy group along with the next highest scoring team of that year (which is currently Force India). The strategy group, which also includes Formula One Management and the F1 regulator Fédération Internationale de l’Automobile, makes key decisions on technology, regulation and car design. The complaint alleges that these decisions are made in the interests of the Big Five and that the strategy group provides the Big Five with advance access to technological developments.

In competition terms, the complaint alleges that these practices are “unfair and unlawful" and result from the Formula One Group’s dominant position in the F1 market and its failure to uphold its “special responsibility” as a monopolist. In addition, the complaint states that the bilateral agreements with the Big Five constitute restrictive business practices. There are, however, no cartel allegations in the complaint.

The complaint should be no surprise to the industry: two smaller UK-based F1 teams, Caterham and Marussia, were forced into administration last year due to financial difficulties and Anneliese Dodds, a UK MEP, wrote to the European Commissioner in July raising similar issues. Now that a formal complaint has been submitted, the European Commissioner must decide whether the case merits a full investigation. This may hinder the plans of CVC, the Formula One Group's controlling shareholder, to float F1 on the stock exchange or sell its stake to an interested US-Qatari buyer.

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