In recent days Formula One fans have been deluged with videos of interviews with the sport's new American boss Chase Carey. In what can only be described as a PR offensive Carey has been talking about everything from prize money payments to the possibility of a Grand Prix in London. In a marked departure with F1's former regime, the interviews are laden with slick-sounding marketing waffle. All except one.
F1 reporters were satisfied with quizzing Carey on broad topics like how he plans to grow the sport and keep teams and tracks healthy. They are subjects which Carey can pontificate on and aren't challenging as he has no results to be judged on. It's hard to tell the measure of the man from this.
What is he like under pressure? How does he come across when dealing with something unexpected? Is he up to dealing with the irregular transactions that are commonplace in F1? Can he think on his feet? Just one interview gave insight into some of these issues.
It came from Joel Hills, business editor of ITV News, who pressed Carey on the thorny issue of the 1% stake that F1's governing body the FIA held in the sport's parent company Delta Topco until it sold the shares last week when it approved the sale of the business. Hills had clearly done his research and was aided by Christian Sylt who broke the news about the FIA's ownership of the 1% stake in the Guardian in 2013. Armed with his insight Hills took Carey to task and pursued it doggedly. The results speak for themselves.
To recap, the FIA bought the 1% stake in 2013 from Delta Topco, which was controlled by the investment firm CVC. The FIA paid just £293,096 ($458,197.34) for the stake but its decision-making body the Senate was informed that it was actually worth £46m ($54m) at the time. It came with a crucial catch – the stake could only be cashed in when CVC sold its shares in Delta Topco and in order for this to happen the FIA had to give its approval.
Last week the FIA approved the sale of Delta Topco to Liberty Media which paid £6bn ($8bn) for the company putting a £60m value on the 1% stake. As a result of giving the green light to the sale the FIA made a £59.7m profit whilst CVC pocketed £2.3bn in line with its 38.1% stake.
The matter came to light (http://www.pitpass.com/57336/European-Commission-urged-to-launch-probe-into-F1-sale) in September in a series of articles by Sylt for American business magazine Forbes and the Daily Telegraph. Perhaps unsurprisingly, commentators savaged the fact that F1's regulator was deciding whether to approve the sale of a sport which it had a stake in.
Charles Braithwaite, the highly respected sports lawyer at City firm Collyer Bristow, said "if the FIA approves the sale, people may question whether the approval was driven by the desire to get the multi-million sale proceeds from the sale of its share; despite the fact that the FIA is the governing body and regulator of Formula One and so one would expect it to be independent and to act in the interests of the sport rather than its own interests. Hence the potential conflict of interest; despite the FIA's own Code of Ethics requiring all FIA Parties (which includes the FIA itself) to endeavour to avoid any conflict of interest (Article 2.4)."
Tim Owen QC, a public and criminal lawyer at London's Matrix Chambers added that "no regulator exercising quasi-judicial powers can have a financial interest in the very subject matter it is supposed to be regulating as an independent, unbiased body."
Giving further explanation, Owen said "since a case in 1852 about a canal company where it emerged that the Lord Chancellor, Lord Cottenham, had presided over a case despite owning shares in the company, it's been a basic principle of English law that no Judge can sit in a case in which he has a direct financial interest in the outcome. Once a financial or proprietary interest is established, the risk of bias is presumed."
This isn't the only issue the FIA faces as the reason that it had no ownership of F1 before 2013 is that it sold the commercial rights to the sport for 100 years in 2001. It was part of the settlement of an investigation by the European Commission (EC) which was looking into claims that the FIA favoured F1. By selling the rights the FIA distanced itself from F1 and the EC closed the file.
In a statement the EC said that "the FIA agreed to modify its rules to bring them into line with EU law...The modifications introduced by FIA will ensure that: - The role of FIA will be limited to that of a sports regulator, with no commercial conflicts of interest...To prevent conflicts of interest, FIA has sold all its rights in the FIA Formula One World Championship."
The FIA's 1% shareholding appears to fly in the face of this and it is a view shared by none other than the man who agreed the settlement with the EC, former FIA president Max Mosley. Last year he said "to my way of thinking, it's a breach of the agreement with the European Commission."
Another sports lawyer, Kevin Carpenter, added that "taking that stake in the first place in September 2013 was a prima facie breach of the 2001 settlement made with the EU." It explains why the issue has stuck around and unless the FIA finds a way to turn back time and decline the stake it won't be going away.
It was addressed to the EC in September in a letter sent by Anneliese Dodds, Labour MEP for South East England. She said "the FIA has a duty to ensure the new owners of Formula One adhere to a ‘fit and proper persons test' before they approve a sale of the sport. Given that they can only cash their shares if they approve a sale, it appears a clear conflict of interest has arisen."
Rowland Jack, founder of sports governance consultancy, I Trust Sport, concurred and added it is clearly a conflict of interest for the FIA to have a stake in Formula 1 when deciding in its role as regulator whether or not to approve the sale." Tell that to Chase Carey.
Never mind the fact that as a result of approving the takeover, the FIA got £60m from Liberty and the only way it could make it was to approve the sale. Never mind the fact that a welter of lawyers and governance experts have poured scorn on the arrangement. Carey says he is perfectly comfortable with it but it's hard to understand why.
As the video of the News at Ten report shows, Carey looked deeply uncomfortable and flustered at having to address the matter. He had better get used to it because F1's landscape is littered with land mines like this. The 1% is just one of the huge numbers that Sylt has uncovered through his research over the past 15 years.
Carey's responses rest on his claim that he couldn't talk about the 1% stake because it isn't his "place to go back and, sort of, opine on things that were decided by other parties at other times." However, it's hard to see how he could avoid doing that given that he has taken over the driving seat of a business which has been trading for 40 years and has openly said that he will make changes to it. Part of that process is surely going over what has been decided by other parties at other times and trying to make improvements.
Carey's response may seem hard to follow for this reason but one thing that is for sure is he is adamant there was no conflict of interest for the FIA and he is perfectly happy with the situation. The following transcript of the interview shows that very clearly:
ITV: Do you agree that the stake amounts to a conflict of interest?
CC: No but I don't think realistically...I wasn't involved in it. I don't think it is my place to go back and, sort of, opine on things that were decided by other parties at other times and I wasn't here, I wasn't there and I wasn't involved.
ITV: I get that it's not actually a matter for Liberty in the sense that you didn't broker the deal.
CC: I don't know how it evolved. I wasn't part of the process through which it evolved so you are asking me to opine on something that I was really not a part of, party to.
ITV: OK. Do you feel at all uncomfortable with the idea that the FIA stands to make millions from approving this deal?
CC: No. They owned a percentage. They got a fair value for what they owned.
ITV: But they were the regulator. They are meant to be at arm's length from the sport and they stand to gain from approving the deal. Isn't that a conflict of interest?
CC: No. I think they have regulated the sport from what I have seen. My experience with them is a handful of months. They regulate the sport in a fair and even-handed way.
Some might well say that the new boss of F1 shouldn't be perfectly comfortable with the fact that the sale of the sport was approved by a regulator which owned a stake in it and made a £59.7m profit as a result.
Carey's view seems especially strange in light of the fact that it is far from uncommon for American sports to have regulations which prevent this kind of situation. Indeed, one example is Liberty Braves, the sister company to F1 which owns the Atlanta Braves Major League Baseball (MLB) team. MLB employees are forbidden from buying Liberty Braves stock and if anyone acquires more than 10% of it the consent of the MLB Commissioner is required.
If shares somehow do end up in the hands of MLB employees, or if someone gets more than 10% without the Commissioner's consent, then "such purported transfer will be null and void" according to the Liberty Braves' regulations.
It is perfectly true that Carey was not involved with the negotiations or approval of the 1% stake as it was long before his time in F1. However he is nevertheless chairman and chief executive of the company which the FIA had a stake in so as this deal comes under closer scrutiny he will be one of the men on the receiving end of more questions. Carey's evidence alone could prove useful as his colleague Greg Maffei, who runs Liberty itself, has said that the two were involved with the negotiations with the FIA.
"Chase Carey and I have met with the FIA, in particular, Jean Todt, the head of the FIA, several times and had good conversations with him. We're proceeding forward with the necessary processes they have for change of control, and I have every reason to believe we'll have a favorable outcome," said Maffei in November.
The next steps are now in the hands of the government as ITV supplied Sylt's research to Damian Collins, chairman of the House of Commons' powerful Select Committee for Culture, Media & Sport. Collins is known for being a strong advocate of good governance in sports with football and athletics being two of the ones he has concentrated his gaze on so far.
He told ITV that the FIA's 1% stake amounts to a "severe conflict of interest." He added that "We have seen far too many sports governing bodies really feeling that they can do what they think is best, regardless of the rules and I think it is clear that in sport, conflicts of interest should be avoided because that's when you see often the wrong decisions being made. That's not a reflection on Liberty's plans for Formula One or whether they are adequate as an owner but did the FIA discharge their duties responsibly? Were they conflicted, as it appears they were? And how was that allowed to happen?" These are questions which stand in need of answers and we may soon get them.
Interestingly, the FIA's Code of Ethics doesn't just apply to situations where there is an actual conflict of interest. It sets the bar a lot higher than that as Clause 2.2.2 states "the FIA Parties and Third Parties may not perform their duties in situations involving an existing or potential conflict of interest."
If this has been breached it could call into question the validity of a key warranty at the heart of Liberty's takeover of F1. Each of the previous owners of F1, including the FIA, gave a guarantee that neither entry into nor implementation of the transaction would cause it to break "any deed, agreement or arrangement... by which it is bound." Nevertheless, this warranty has not been declared invalid and it remains to be seen whether it would have prevented the takeover from proceeding even if it had been.
Ironically, Pitpass understands that Ecclestone didn't vote when the FIA approved the Liberty takeover as he considered it to be a conflict of interest due to his role as the then-boss of the sport. His admirable act is ironic because just days after Liberty's takeover was approved it removed him as chief executive which is what caused that conflict in the first place.
Mercedes team boss Toto Wolff is another man who is hot on the subject of conflict of interest famously selling his shares in Williams when he took over his role at a rival team and, more recently, dropping his management of Valtteri Bottas when he signed him up as a driver.
Both of these examples of conflict of interest were dealt with and are therefore no longer talking points whereas the FIA's 1% is still attracting attention as the involvement of Collins demonstrates. Time will tell what puts the brakes on it.