Pole Position – Tension over possible F1 sale exposes rifts between FIA and category owners

The cars of the 2023 Formula 1 season have not even been presented and the climate has already heated up in the category, with public threats involving the category’s regulatory body, the International Automobile Federation, and its rights holder commercials, Liberty Media. All because of the disclosure of an alleged proposal by Saudi Arabian sovereign wealth fund to buy the category.

The article on the Saudi interest was published by the business-focused site Bloomberg and talks about a 20 billion dollar proposal (equivalent to more than 100 billion reais) that would have been rejected by Liberty Media. The American firm bought the commercial rights to Formula 1 in 2016 in a $6 billion deal.

FIA President Mohammed Ben Sulayem soon went public to question the value of the deal on behalf of the entity. “Any prospective purchaser is advised to apply common sense and consider the greater good for the sport and come across as a clean sustainable plan, not just a load of cash. It is our duty to consider the future impact for the promoters, in relation to fees charged to receive evidence and commercial costs, or any impact this may have on fans.”

Liberty Media’s lawyers then sent a letter, which eventually became public, to the FIA ​​World Council stating that any unacceptable interference with the F1 market right could result in legal liability. That is, if the FIA ​​president’s statements devalue the sport, the entity will be prosecuted.

Understand who is responsible for what in Formula 1

It is no news that there is tension between the FIA ​​and Liberty Media, which has controlled the commercial rights of F1 for six years. They are the ones who close the contracts with the GP promoters, with the sponsors, with the television stations, they are responsible for the entire presence on social networks and for the F1TV application. They are the ones carrying the equipment. They are also the ones who pass on part of the profits to the teams, which are tied to Liberty through a contract called the Concorde Agreement, which runs until the end of 2025.

The FIA ​​is also a signatory to the pact and also receives from Liberty for being the governing body. It is up to them to manage the technical, financial and sporting regulations and also provide security services during the GPs (medical center and track marshals, etc.). Therefore, the F1 has the seal of the FIA.

This balance of power has always been a delicate point in F1 and this has been very clear since Liberty took over. Unlike CVC, Bernie Ecclestone’s company which previously had the commercial rights, the new owner has a much larger business in terms of employees and much larger, even acting in areas that would be FIA ​​functions.

A clear example occurred in the study of financial rules and techniques that debuted in recent years. Liberty, which had just taken over, created a technical office, directed by Ross Brawn, precisely for the creation of rules that would improve the disputes on the track. Those were years when Liberty began to question herself internally about the need to pay millions to the FIA ​​to do a job she could do internally. And also understand that Formula 1 could live without the seal of the federation, like the big North American categories, for example.

The president of the FIA ​​knows that the entity is weakened

Mohammed Ben Sulayem, elected president of the FIA ​​in December last year

Image: Twitter/Mohammed Ben Sulayem

Then Liberty understood that the bonds were stronger than it seemed, the investment would have been too high, and that initial idea was weakening (as well as that technical office, which has stopped growing).

At the same time, the FIA ​​had serious shortcomings. From the management of the 2021 drivers’ championship decision to the badly written rule that also confused the teams in Max Verstappen’s second championship at the Japanese GP, the examples are many and striking. At the same time, the entity has recorded a deficit (about $60 million) on its accounts in the post-pandemic period.

It is clear that the FIA’s position is weakened in every way and Ben Sulayem is doing everything to be as present as possible and test the power that the entity still has. Even if that means fighting over piercings and pre-approving political rallies. Even if it means talking about selling a product that isn’t yours.

It’s true that that too is complicated in F1. In the days of Max Mosley and Bernie Ecclestone, the FIA, chaired by Max, gave the commercial rights to Bernie’s company for 113 years, but retained the right of veto in the event of a sale. This right has never been used and is not complete, but the details are not known. This helps explain the response from Liberty’s lawyers.

But, after all, is F1 for sale?

This is perhaps the most interesting part of the story. Over the past year, Liberty has laid off much of its England-based staff and has been looking for ways to minimize travel as much as possible, even to cut costs. And since the beginning of the season, information was circulating in the paddock that they would offer the product to the Saudis and there was a resounding no.

This has never been confirmed or denied, just like the current 20 billion story. But it is quite plausible that this is already a counter-proposal. Liberty bought F1 from CVC in 2016 in a $6 billion deal.

But why would Americans be interested in getting rid of a product that broke profit records? The answer would be linked to the reduction of the operation. Liberty’s investment to grow the pie, especially in the internet part, which was surprisingly incipient in the Ecclestone era, has been quite high and the return has not followed. In the long run, this wouldn’t be sustainable, so it’s better to sell your product on the upside than waiting for a downside. And, at most, those who want to buy will end up overpaying.

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