Force India and Sauber's EU complaint

[santos]

Precisely Ben,

Which is all the more confusing as to why Force India and Sauber believe they have a case.

To my reading of EU law, Bernie can justify the income discrepancy by the outcome of X teams' participation. It's a business founded on providing profit(CVC).
In much the same way Football's (soccer) Real Madrid or Barcelona get a lions share of income from La Liga due to the fact most people sign up to watch them.
The threat of a break league from either Madrid or Barca renders La Liga moot.
It becomes a lame man's championship in the same way F1 would be without a Ferrari or perhaps a Mercedes or Mclaren. In other words, to the person who actually pays to watch, the value of what is bought decreases without their participation.

Obviously they feel they have something tangible, but I'm guessing Bernie's lawyers will have a field day.

That is all correct. But i wouldn't pay to see a championship with just Madrid anda Barça. Imagine F1 with just Ferrari, Williams, Mclaren and Mercedes... even with 3 or 4 cars per team. F1 needs a ballance. The bigger teams deserve more money, but the small ones maybe should get more then they do now. How the small teams can be competitive with just a fraction of what Ferrari earns? Mercedes and Red Bull can bring a new front wing every single GP. Manor, Sauber and Force India do not.

[Tim.Wright]

If you sign an illegal work contract for a 100 hours/week at 5€/hr you are perfectly within your rights to report it to the authorities.

Independent teams don't have a choice of whether to sign or not. They are F1 teams and if they don't race F1 they are all jobless. Its something most people forget.

F1 teams aren't FOM Employees, they are Independent companies who entered into a contractual obligation with another company.

You missed the point. I'm saying that contracts aren't above the law. If they are found to be breaching EU laws then the teams are right to appeal them.

[Nickel]

That is all correct. But i wouldn't pay to see a championship with just Madrid anda Barça. Imagine F1 with just Ferrari, Williams, Mclaren and Mercedes... even with 3 or 4 cars per team. F1 needs a ballance. The bigger teams deserve more money, but the small ones maybe should get more then they do now. How the small teams can be competitive with just a fraction of what Ferrari earns? Mercedes and Red Bull can bring a new front wing every single GP. Manor, Sauber and Force India do not.

Thinking about it... This may be terribly unpopular, but I could watch merc/McLaren/Ferrari/Williams/red bull/Renault with 4 car teams.

They say the only way to compare drivers is to their team mate, so I wouldn't mind having 3 comparison points instead of just one. I would also love if this helped do away with pay drivers.

Currently, I derive interest from the mid field in the form of team mate battles. I only loosely care where force India finish in the constructors championship, if it all. Therefore, I would be OK with tightening the field by reducing #of teams.

[efuloni]

I don't know what it's like in the EU, but here in the states, The concept of fair has no bearing on contract law. If you signed it, and it's not fraudulent or illegal, you are bound by it, even if it drives you into bankruptcy.

I'm not doubting you. You probably know better about the US legal sytem than I do, but are you really sure that the "clausula rebus sic stantibus" does not apply in US? Its even largely used in international law, I simply can't think of a west country that does not follows it with the pacta sunt servanda

Im not even saying that the rebus sic stantibus could be an argument for Sauber and FI, I'm only talking about your statement "your are bound by it, even if it drives you into bankruptcy"

[turbof1]

It's my understanding that the Concorde Agreement is actually a series of bilateral agreements between FOM and the teams. In other words, it establishes a marketplace in which the value of the Ferrari-FOM contract has nothing to do with the value of the Mercedes-FOM contract, which has nothing to do with the value of the McLaren-FOM contract, which has nothing to do with the value of the Red Bull-FOM contract, which has nothing to do with the value of the Williams-FOM contract, etc., etc.

So, how can there be a cartel when no more than two parties are bound to any particular agreement? What constitutes market suppression if there's never more than one potential customer (FOM)?

http://i.imgur.com/cpJ44Yr.jpg

It seems to me that Force India and Sauber think participation in F1 is somehow a fungible commodity, but it's not. Right or wrong, the participation of a select few will always be more valuable than that of the others.

You are thinking too literal. The Commission will try to look how the power over the market is divided. If it deems it uneven, it needs to be re-distributed. Even if there's no cartel, the EU can still deem the situation not handable. For instance, last year the Commission contemplated on forcing Google to split: http://www.wordstream.com/blog/ws/2014/ ... for-google
That did not pull through due settlements and the like, but the Commission has that power, despite not being a cartel.

There are no contracts either in cartels, just agreements to manipulate the market. Any piece of document signed by multiple parties will be deemed none-legal in such cases.

[bhall II]

You are thinking too literal...

I know, because it's literally a marketplace business model. We're talking about a system of vendors (teams) who offer products to a retailer (FOM), which are then sold at market value to customers (licensees in all forms). Because there are viable series all over the world in which they can participate if they so choose, no team is obliged to offer its services to FOM - though I highly doubt any of them pays comparable fees.

I'm just trying to see the legal side of it all.

In practice, and because I'm far from a supply-sider, I tend to think the best way to increase overall value, especially long-term, is to make everyone stronger, including end-users like us. Enhanced accessibility, i.e. free-to-air broadcasting/more affordable tickets, and a competitive grid attract fans; fans attract sponsors; sponsors attract diverse competitors; and diversity creates new markets. That's certainly more sustainable than the boom-and-bust trajectory the sport is currently following.

[turbof1]

You are thinking too literal...

I know, because it's literally a marketplace business model. We're talking about a system of vendors (teams) who offer products to a retailer (FOM), which are then sold at market value to customers (licensees in all forms). Because there are viable series all over the world in which they can participate if they so choose, no team is obliged to offer its services to FOM - though I highly doubt any of them pays comparable fees.

I'm just trying to see the legal side of it all.

In practice, and because I'm far from a supply-sider, I tend to think the best way to increase overall value, especially long-term, is to make everyone stronger, including end-users like us. Enhanced accessibility, i.e. free-to-air broadcasting/more affordable tickets, and a competitive grid attract fans; fans attract sponsors; sponsors attract diverse competitors; and diversity creates new markets. That's certainly more sustainable than the boom-and-bust trajectory the sport is currently following.

The Commission has a huge lot of power. Basically if it deems a market being manipulated, it can act. It deeming it gives it legal power. I would be glad to through some of my old notes from university if you'd like, we had a course called Business Legislation, in which this topic was a very big part of.

Infact, I think I sufficiently demonstrated my case with google. Google is in the position of having a monopoly and the Commission considered to force Google to fracture into indepentant identities. F1 is a monopsony: a monopoly of the demand, all controlled by the FOM. The FOM is then further a monopolist versus broadcasting and merchandising. The FOM being both a monopsonist and monopolist gives the Commission enough legal power already to consider taking action.

Not your usual market business model in any case, where you have 2 markets (one being artificially contructed as in where the teams sell their rights to the FOM), with one identity being monopsonist on one market, and monopolist on the other.

[notsofast]

Perhaps the issue is that FOM offers different terms to different teams (vendors) with those "historical" payments or whatever they are called. There appears to be no mechanism by which Sauber can deliver the same product to FOM on the same terms as Ferrari. It might be cleaner if FOM were to say, we will pay you X for each championship you've won in the past (because previous championships have commercial value to FOM). Instead, FOM seems to be saying, we will pay you X if your name is Ferrari. That's not a condition that any vendor can meet, except Ferrari.

[dans79]

Perhaps the issue is that FOM offers different terms to different teams (vendors) with those "historical" payments or whatever they are called. There appears to be no mechanism by which Sauber can deliver the same product to FOM on the same terms as Ferrari. It might be cleaner if FOM were to say, we will pay you X for each championship you've won in the past (because previous championships have commercial value to FOM).

Something like this is going on, because Merc is supposed to be getting more money this year, because they won the WCC last year and this year.

http://www.forbes.com/sites/csylt/2015/ ... r-money/2/

This deadline was passed last year and as Mercedes won the constructors’ championship it will benefit most from the uptick when the 2014 prize money is paid out during this year. It reflects Mr Wolff’s comment that “the agreement with the Commercial Rights Holder has provisions for significantly increased revenue flows based on sporting performance, some of which will be triggered in 2015 as a result of the team’s performance in 2014.”

So, essentially, the team’s increase in costs did not just represent investment in on-track success in 2014 but also secured bonus prize money payments for 2015 which offset last year’s loss. It explains why Mr Wolff says that “the financial results for the company were within the pre-defined parameters set by the shareholders.”

[bhall II]

Infact, I think I sufficiently demonstrated my case with google. Google is in the position of having a monopoly and the Commission considered to force Google to fracture into indepentant identities. F1 is a monopsony: a monopoly of the demand, all controlled by the FOM. The FOM is then further a monopolist versus broadcasting and merchandising. The FOM being both a monopsonist and monopolist gives the Commission enough legal power already to consider taking action.

Not your usual market business model in any case, where you have 2 markets (one being artificially contructed as in where the teams sell their rights to the FOM), with one identity being monopsonist on one market, and monopolist on the other.

Relative to the teams, which are vendors (sellers), in what way is FOM a monopoly? In other words, how can a buyer constitute a monopoly?

Sauber, for one, has previously sold its services elsewhere. What prevents that team from doing so again?



It seems to me that the teams who have a problem are those that haven't diversified and are solely reliant upon F1 activities for income. But, that's not FOM's problem.

Again, I'm just concerning myself with the law here. In principle, I think the teams should probably collectively control the sport's commercial rights under the aegis of a commissioner of sorts, because FOM's role as a negotiation intermediary is horribly outdated, and it's never been enough to justify collecting 35% of the sport's total revenue. That's a higher percentage than any individual team's share, and it's for what? FOM essentially collects money for collecting money.

[turbof1]

Relative to the teams, which are vendors (sellers), in what way is FOM a monopoly? In other words, how can a buyer constitute a monopoly?

The term is a monopsony. And yes it exists.

I don't believe there's enough specific material at the table for the moment to debate further. As you said, it's really vague how the Commission would tackle the legal side. All depends now what the Commission wants to do, which is fickle.

[bhall II]

I'm not really trying to debate the merits one way or the other. I also don't discount the potential applicability of the points you've made. Through a process of elimination, I suppose, I'm just trying to understand why Force India and Sauber seem to think they have an actionable complaint, because I don't see it. Based on what's been said publicly thus far, any attorney worth his/her salt will likely swat this down with ease.

Say what you will about Ecclestone and his machinations - I think he died 15-20 years ago, and what we now call Bernie Ecclestone is really just a vessel for Satan - but you can't say he's stupid. It defies credulity to believe his contracts aren't bulletproof. So maybe I'm looking for logic where none exists.

After Monisha Kaltenborn signed six drivers for this season and was somehow surprised after the inevitable lawsuits threatened the team's future, it became pretty clear to me that Sauber is now arguably the worst-run team in Formula One. And her cohort hasn't displayed the requisite business savvy to operate a lemonade stand, much less a top-level racing outfit.

[hollus]

I'm just trying to understand why Force India and Sauber seem to think they have an actionable complaint, because I don't see it. Based on what's been said publicly thus far, any attorney worth his/her salt will likely swat this down with ease.

I think whether the case has real substance is moot. They are not trying to kill F1, obviously. I don't think the point is winning the trial, law suit, case or whatever this would be called, but just hreratening with having it.
Do you have any idea how gigantically bureaucratic, nit-picky, detail oriented, and most importantly ssssllllooooowwwww the European (anything) Commission can be?
The treat here is not to force F1 to have a more equitable payment structure (or else leave Europe). The threat is to have the case accepted at all, and to have the situation smeared all over the news monthly for 5 years or so, with Bernie testifying, with team bosses testifying, with governments of all colors (and opposition parties of all colors) having a say in the matter in a very public venue.
I doubt any sort of resolution, decision or whatever would be reached before 2020, a time by when, hopefully, Bernie is no longer at the helm, most team bosses won't be there and possibly Sauber and Force India won't be there or will have changed hands.
I think the whole thing is just a "give us a better deal" or "go through years and years of ordeal" with threats of suspending races, newspapers talking of democracy and dictators (sounds familiar in a weekend between races in Russia and USA?), etc. It will cost everyone money and time, etc, etc. You get the idea.

That said, I personally think that they are trying to bully the wrong guy. This won't be pretty.

[bhall II]

I guess I never really considered the possibility that this is just grandstanding, because, as you've alluded, it's incredibly ill-advised to start an extrajudicial pissing contest if Bernie Ecclestone is your opponent. This is his bread and butter.

Ecclestone remains unconcerned, "and holds no ill feeling" toward Force India and Sauber in their bid to "compete on a more equal financial footing." Ecclestone said, "The bottom line is, what they [the teams] are saying is we're giving too much money to some people and not enough to the others. But all this was done whereby everybody knew what they would be getting and what would happen, and they all signed contracts which were very clear. They've had a change of heart I suppose, and I don't blame them, not at all."

Though it may very well be this way everywhere, it's definitely the case here in the US that any professed support between embattled entities usually portends the weaker entity's demise. It's tantamount to a kiss of death.

[Phil]

I guess I never really considered the possibility that this is just grandstanding, because, as you've alluded, it's incredibly ill-advised to start an extrajudicial pissing contest if Bernie Ecclestone is your opponent. This is his bread and butter.

Perhaps this displays the level of desperation some of these teams are facing...? It's easy to point fingers and pass judgement on how badly a team is supposedly run from the outside, but I think there is a point to be made that even those teams have a story and a context that put them into the unfortunate position they are in. At some point, we do have to ask ourselves how healthy this sport and competitive its environment is, not just by looking at the 'effects' but also at the 'cause'.