Brussels, 30 June 1999
Commission opens formal proceedings into Formula One and other international motor racing series
The European Commission has concluded a thorough investigation, prompted by a number of complaints, into the way international motor sports is organised and commercially exploited. The Commission has now formally told the Fédération Internationale de l'Automobile (FIA), the body in charge of international motor racing, that it considers the FIA to be abusing its dominant position and restricting competition. The Commission has sent the same statement of objections to two companies controlled by Mr Bernie Ecclestone: Formula One Administration Ltd (FOA), which sells the television rights to the Formula One championship, and International Sportsworld Communicators (ISC), which markets the broadcasting rights to a number of major international motor sport events. A statement of objections is a preliminary procedural document and not the Commission's final verdict on the case. One of the Commission's most significant conclusions is that many of the contracts concerning the commercial exploitation of international motor sports, particularly those involving broadcasters, were concluded on the basis of a situation unlawful under European Union (EU) competition law. These contracts would therefore have to be renegotiated if the Commission's initial view is ultimately confirmed. The Commissioner responsible for competition, Mr Karel Van Miert, stated: 'We have found evidence of serious infringements of EU competition rules, which could result in substantial fines.'
The Commission has primarily identified the following four competition problems:
1) The FIA uses its power to block series which compete with its own events
The FIA is the sole regulatory body of international motor racing in Europe. Any one wishing to take part in an international motor sports event authorised by the FIA is required to obtain a FIA license. This applies to track owners, vehicle manufacturers, organisers of motor sport events and drivers alike. Licence holders are only permitted to enter or organise events authorised by the FIA. Any licence holder found to ignore this prohibition can be stripped of his license. Losing the FIA licence would prevent the licensee from participating in almost all international motor sport events currently taking place in Europe.
One consequence of this is that participants are extremely reluctant to enter events which have not been authorised by the FIA. This is particularly problematic as the FIA is involved in the organisation and promotion of a number of events itself. This means that the FIA is able to control the access of the inputs, such as drivers or circuits, which are necessary for organisers or promoters who wish to stage a championship which could compete with one of FIAs own events.
2) The FIA has used this power to force a competing series out of the market
The problem described above is not a theoretical one: the Commission has found evidence which suggests that, in at least one case, the FIA abused this power to force a competing promoter, the GTR Organisation, out of the market. The FIA then replaced the GTR's series with a FIA championship (the FIA GT championship).
3) The FIA uses its power abusively to acquire all the television rights to international motor sports events
Television coverage is vital to the success of a motor sport event. This is because organisers and promoters rely heavily on sponsorship to finance their events. The Commission's investigation has shown that the level of sponsorship generated depends to a large extent on the television coverage a promoter or organiser can guarantee.
In 1995 the FIA introduced new rules under which it claimed the television rights to all the motor sport events it authorised. It then transferred these rights to International Sportsworld Communicators Ltd (ISC), a company controlled by one of FIA's vice-presidents, Mr Ecclestone. The introduction of these rules also meant that a promoter wishing to establish an international series was forced to assign the television rights for that series, whether it wished to or not, to a competing promotor, namely the FIA. Although the FIA changed these rules at the end of 1998 to limit their scope of application, the Commission considers that it has continued to abuse its power by acquiring the television rights, in this way, to championships incorporating the FIA name in their title.
These rules on television rights are not directly applicable to the Formula One championship, which is governed by an agreement between the FIA, FOA and the teams which participate in the Formula One championship known as the 'Concorde Agreement'. There are also separate agreements between FOA and the promoters of individual grand prix events. Whilst the 'institutional set-up' of Formula One may be different, the outcome is largely the same: the FIA uses its regulatory power to force participating teams to transfer to FIA any rights they may have in the broadcasting of the Formula One championship. The FIA then transfers these rights to FOA. The promoters' rights are taken directly by FOA which has been given the power by the FIA to determine who can and cannot be a promoter of a grand prix.
4) FOA and the FIA protect the Formula One championship from competition by tying up everything that is needed to stage a rival championship
The fourth problem the Commission has found concerns the agreements, some of which the FIA is party to, between FOA and the various broadcasters, promoters and the teams which are involved in the Formula One championship. The Commission takes the view that the terms of these agreements increase the difficulties, which are already substantial, for those who wish to stage a series which can compete with the Formula One championship:
The statement of objections also makes clear that under EU law the FIA and FOA can be required not only to terminate their restrictive agreements or their abusive conduct, but also the lasting effects on competition of their infringements. The Commission takes the view that as the FIA abusively acquired the broadcasting rights to international motor sports events it could not validly assign these rights to FOA and ISC. Consequently, FOA and ISC were not in a position to conclude legally enforceable contracts with broadcasters giving them all the rights which FIA claimed to have.
The statement of objections lists in detail the Commission's allegations against the FIA, FOA and ISC and the Commission's contention on how they infringed Articles 81 and 82 of the EC Treaty. It also refers specifically to the agreements assessed in the course of the investigation. The statement of objections is no prejudgement of the three addressees but a legal act opening the procedure under EU procedural rules.(1) All three addressee companies now have full rights of defence: they have the opportunity to reply to the Commission's charges in writing within two months of getting access to the Commission's file. They may also produce evidence of their own and supporting statements from third parties. Finally, the FIA, FOA and ISC may request an oral hearing attended by complainants and representatives of the anti-trust authorities of all EU Member States.
Based on all the above elements the Commission will decide whether a prohibition decision is necessary and whether a fine is justified.(2) The FIA, FOA and ISC may then challenge a Commission decision, possibly imposing a fine, before the European courts in Luxembourg.
The Commission received a first notification of FIA rules in July 1994. The notification only briefly touched upon the commercial parts of motor sport events. Instead it focused on the safety and sporting aspects of international motor racing.
In 1995, the FIA adopted its broadcasting resolutions (Article 24 of the International Sporting Code and the associated general prescription Article 27) which entered into force in 1996. These provisions stated that the television rights of all international motor racing championships were the property of FIA.
In May 1997 the Commission received the first formal complaint about how the FIA acquired broadcasting rights to international motor sport events. The complainant was AETV, a German television production company specialising in the marketing of international motor sport championships such as the European truck racing championship. AETV argued that the FIA had used its power to seize total control of the broadcasting of international motor sports for its benefit and the benefit of Mr Ecclestone through the use of the broadcasting resolutions. As a result, AETV had lost the right to market the broadcasting rights of this championship in favour of ISC.
In September 1997, three months after AETV lodged its complaint, the FIA notified its rules on the ownership of broadcasting rights. The same month, another notification concerning the Formula One World Championship was made by the FIA and FOA.(3)
In October 1997, the FIA submitted a supplementary notification concerning a commercial agreement made between the FIA and ISC regarding the marketing of television rights to certain FIA international championships like the European truck racing championship.
In November 1997, the Commission received a second formal complaint. The complainant was the BPR organisation (later to become known as the GTR), a company involved in the organisation of an international series for Grand Tourism. The BPR/GTR claimed that the FIA had used its regulatory power to force it out of the market. This complaint was withdrawn following a financial settlement.
AETV and the BPR/GTR's formal complaints triggered an in-depth investigation. The Commission concluded that the FIA's safety and sporting rules could not be examined in isolation from its broadcasting rules and its commercial agreements with Mr Ecclestone's companies (i.e. FOA for the exploitation of the broadcasting rights of Formula One and ISC for some other international motor racing championships).
On 19 December 1997, just two months after the notification of the broadcasting rules, the Commission's Directorate-General for Competition (DG IV) outlined its main preliminary competition concerns identified under both Articles 85 and Article 86 of the EC Treaty (now Articles 81 and 82 respectively). DG IV sent these so-called warning letters to the FIA as well as to FOA and ISC, with which the FIA has concluded long term contracts (14 years duration) for the exploitation of the broadcasting rights. The addressees had an opportunity to submit in writing their observations and proposals for amendments, which they did until March 1997.
In May 1998 the FIA lodged an application with the Court of First Instance claiming damages for non-contractual liability against the Commission. The case is still pending.
On 27 August 1998 the 'Concorde Agreement' was again changed and notified to the Commission. In November 1998 the FIA again changed its rules governing broadcasting so as to claim the television rights to championships incorporating the FIA name only.
(2) The amount of the fine is set in accordance with the Commissions Guidelines on the method of setting fines (OJ No. C 9 of 14.1.1998, p. 3, also available on the above-mentioned Internet site). The amount depends on the evaluation of all circumstances of the case, e.g. type, gravity and duration of the offences. The size of the company also plays a role. Furthermore, other aggravating and moderating circumstances must be taken into account. The amount of the fine is independent of the companys turnover. However, the amount shall never exceed 10% of the companys turnover in the full financial year preceding the year in which the Commission takes its decision.
(3) Descriptions of the FIAs internal rules and of the notified agreements for the organisation and operation of the FIA Formula One World Championship and the exploitation of television rights were published in O.J. No. C 361 of 27 November 1997 at pages 5 and 7 respectively.