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Why there will be no change to F1 if the Concorde Agreement isn't signed

NEWS STORY
28/01/2013

We are now under seven weeks away from the start of the Formula One season and there is one crucial difference behind the scenes which separates 2013 from recent years. The Concorde Agreement, the contract which has been at the heart of F1 since it was first signed in 1981, expired at the end of last year and a new draft has not yet been agreed.

In years gone by it was thought that races could not go ahead if there was no Concorde. Some misguided sources still believe the lack of the Concorde would lead to significant change. One recent report suggested that without the contract, the FIA "could effectively lose control of its own championship." It even claimed that if the contract was not in place F1 would have to drop the FIA name from its title, so could not be known as the 'FIA Formula 1 World Championship'. Is this true or just rambling hearsay? Time for Pitpass' business editor Christian Sylt to explain.

Prior to the Concorde first being signed F1 races ran as ad hoc, almost amateur, events. Each team made separate deals with each event promoter and television coverage was sporadic since races could be cancelled at the last moment if there were not enough cars to fill the grid. Brabham team owner Bernie Ecclestone realised that F1 could generate significant income from television stations if its coverage was inconsistent. This would benefit the sport overall so he decided to focus his efforts on running F1 instead of Brabham.

"I had a decision to make: do I look after my team and let Formula One splutter along in a very amateurish way or do I look after Formula One. I couldn't do both jobs properly," says Ecclestone. He convinced the teams to sign a contract committing them to race and it was named after the location where it was signed - the FIA's headquarters on the Place de la Concorde in Paris.

Ecclestone took the contract to TV companies who could then guarantee coverage. His company Formula One Promotions and Administration (FOPA) negotiated the deals and took a share of the proceeds with the remainder going to the teams and the FIA. In addition to committing the teams to race, the Concorde determines how F1 is run from the location of races to the amount of prize money which is paid out. This has changed several times since 1981 and under the most recent Concorde the teams shared 47.5% of F1's underlying profits with Ferrari taking an additional 2.5% all to itself.

It is completely reasonable to say that modern day F1 literally wouldn't exist if it wasn't for the Concorde. However, that doesn't mean to say that the contract is still needed.

The Concorde is signed by the teams, the FIA and the sport's rightsholder the F1 Group, which is run by Ecclestone and controlled by private equity firm CVC. Ecclestone has spent the past year trying to negotiate a new contract, to run until the end of 2020, but it has still not been signed. Instead, he has agreed separate legally binding contracts with the teams which outline their financial terms and guarantee their participation in F1. These bilateral agreements are known as 'Team Agreements' and they have been entered into by the teams and F1's direct rightsholder Formula One World Championship as well as one of the F1 Group's intermediary holding companies SLEC Holdings.

Perhaps the best description of the significance of the Team Agreements can be found in the prospectus for the stalled flotation of F1 which was due to take place last year. The prospectus is an official F1 company document so its reliability cannot be questioned.

It states that under the Team Agreements, "Teams have agreed to participate in the World Championship from 1 January 2013 to 31 December 2020." Bearing this in mind, it is not surprising that Ecclestone recently said "it doesn't matter to me whether we have got the Concorde Agreement or not." The Team Agreements do the job for Ecclestone and he says that the hold-up with signing a new Concorde is coming from the FIA which sets F1's regulations.

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