Formula 1 racing to solve old competition law issues

Competitiveness on and off the world’s most watched motorsports circuit remains the focus of its global audience

One of the most popular forms of motorsports in the world, Formula One began in 1950 but has gained wider traction over the past four years due to the popularity of Netflix. campaign to survive a program. The sport attracted a cumulative television audience of 1.55 billion in 2021 (up 4% from 2020), and in terms of follower growth, it was the fastest growing major sports league last year.

Amid this growing popularity, the sport still faces past competition law issues that have yet to be fully resolved. Will the increased interest help attract these elements and race them to the top of the antitrust enforcement agenda? Although there are no known ongoing investigations into competition law and Formula 1, the sport provides various areas of interest in its financial and sporting structures.

Historical record

Formula 1 has been in the spotlight on competition law previously. In 2014, the European Commission was pressured by Anneliese Dodds (a British member of the European Parliament), who asked the EU Competition Commissioner Margrethe Vestager to conduct an investigation. ‘Great concerns’ About the way Formula One was run. The Dodds were the first to officially come up with the idea that “Agreement between F1 and the European Union on competition” It has not been adhered to. At the time, smaller teams were feeling especially pressured by the uneven payments made by Formula One, with an estimated 60% of the $900 million the sport paid out to a subset of leading teams that includes McLaren, Ferrari, Red Bull, Mercedes and Williams ( who, as a group, also controlled a large part of the tournament’s decision-making).

This 2015 request came along with the “rebellion” of three smaller teams (Sauber, Force India and Lotus), which were believed to have given the commission a dossier of their complaint in June 2015. Letter from Force India, Sauber and Lotus, signed by Team Vice President Force India Bob Fernley, noted that the dominant group was A ‘Doubtful cartel’The one you control “Both the governance of Formula One and apparently the distribution of FOM [Formula One Management] funds”. Bernie Ecclestone, chief executive of Formula One Group (FOG), which rules the sport, has dismissed the allegations.

Later that same year, Force India and Sauber submitted a formal complaint to the commission, which focused on the unequal payments made by F1 and challenged its rule-making powers and prerogatives. The complaint alleged that “Unfair side payments put independent teams at a perpetual sporting and economic disadvantage.” And he argued that “By maintaining a permanent advantage for a select few teams, the sport has been seriously undermined”. The complainants claimed that FOG had taken a dominant position in the market for participation in F1 and the commercial exploitation of the sport’s rights. In addition, they claimed that FOG, as a dominant entity, is bound by ‘special responsibility’ to exercise its powers fairly and that its actions were indicative of an abuse of hegemony in contravention of Article 102 of the Treaty on the European Union (TFEU). The complaint stated that the network of bilateral agreements between FOG and each of the five teams (as noted above) that make up F1’s “strategic group” constituted a further breach of EU competition rules against restrictive business practices.

In January 2017, the European Parliament recommended that the Commission investigate Formula 1. Dodds, who has continued to be at the forefront of the campaign to investigate Formula 1, stated that it was important for the sport not to ‘become increasingly less competitive’citing issues that included prize money, tax rates and the recent sale of F1 to Liberty Media.

Ultimately, Force India and Sauber withdrew their complaint to the committee in January 2018. This came after the new owners, who had taken over Ecclestone, agreed to make changes to Formula One and its governance. A joint statement from the two teams stated that the approach of Liberty Media and its CEO Chase Carey was Bringing and clarifying a new culture of transparency to sports[d] Willingness to discuss fundamental issues such as the distribution of prize money,” while noting at the same time that “concerns that led to compliance are fully justified”.

New issues in the future?

Although there is no known active investigation by the commission or any other regulatory body regarding the operation of Formula 1, there are many aspects of the sport that are likely to raise competition law issues.

There are new rules outlining the terms that new teams can join in the Formula 1 competition. These were set out in the Concorde Agreement of January 2021, which will run until at least 2025. Although this agreement has not been fully publicized, some information has been disseminated through various channels, including Liberty Media’s annual 2021 report.

The agreement imposes entry fees on any new teams joining Formula 1. This is currently set at $200 million, which can be changed with the approval of existing teams and can also be increased in line with inflation. The money will be shared across the ten existing teams. These fees put a significant barrier to entry and are beneficial to teams already in the system, both in terms of potential finances and certainty. At the same time, fees make it difficult for new teams to join the competition. Since Formula One is a closed competition (ie there is no promotion or relegation system), higher entry fees may have the effect of capping the number of teams at 10, with new teams joining only when they are in a position to purchase an existing team. Although the details differ, this reflects the closed structure originally envisaged for the widely contested European League project, which is currently being litigated on competition law grounds before the European Court of Justice.

However, McLaren CEO Zak Brown defended the entry fee, as being worth paying a new team because of Franchise Value Growth In sports resulting in corporate acquisition “That’s £200m and then some later.” Brown and others have highlighted the uncomfortable situation in Formula 1 in the past where teams announced their intention to join Formula One only to step back before introducing any cars into competition. Before the cap was introduced, a deposit was required from the new team, which was subsequently repaid to the team over time; But this did not prevent the emergence of problems. No new teams have joined since the Concorde Agreement went into effect in early 2021 – and its long-term impact on competition in the sport remains to be seen.

Another potential area of ​​interest relates to bonuses being paid to teams. While some payments are based on a team’s final position in the constructors’ championship, others are paid regardless of the team’s success. Although these may not cause problems in competition law, it can be argued that they affect sporting competition in Formula 1 by offering an uneven playing field and helping more established teams retain their dominance over the rest of the field.

Osborne Clark comment

Formula One continues to entertain audiences around the world, and is growing in popularity in Europe, the United States and elsewhere. It seems likely that the sport will continue to change, not least as a result of the budget cap being introduced for 2021. The cap, set at $145 million for the 2021 season but reduced to $135 million by 2023, is designed to reduce the financial gap between the largest And the smallest difference on the network. In context, spending by Mercedes, Red Bull Racing and Ferrari has increased to more than $400 million annually, so the budget caps should have a huge impact in reducing the gap between the biggest and smallest spenders in Formula 1 and getting the race on a springboard. more competitive position.

However, the budget cap is unlikely to fully level the playing field, as it will not take into account spending on areas including driver salaries, engines and marketing, as well as pre-existing differences in facilities, infrastructure, knowledge and personnel. It is also questionable whether it can eliminate the differences in payments made to teams, despite reports that they are more equal than in previous Concorde agreements before 2021.

Formula 1’s competitiveness, both on and off the track, will continue to be of interest to fans around the world and must be of interest to those interested in sport and competition.

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