Formula One boss embroiled in more controversy

Formula One boss Bernie Ecclestone ushered team managers into his trailer at the Indianapolis Motor Speedway. Nearby, mechanics tended to an array of million-dollar racing cars.

It was 10 a.m. on a June day in 2005 as fans filed into their seats for the U.S. Grand Prix. Two days earlier, a Michelin & Cie.-made tire on Toyota team driver Ralf Schumacher’s car had burst on turn 13 and the auto smashed into a wall at 175 miles per hour, Bloomberg Markets magazine reports in its December issue.

The tiremaker said it couldn’t rule out more accidents.

As the managers gathered around, Ecclestone called Max Mosley, president of Formula One’s ruling body, the Federation Internationale de l’Automobile, or FIA, at home in Monaco in a last-minute attempt to persuade him to alter the racetrack layout so the grand prix could proceed smoothly.

Mosley was unmoved, according to Paul Stoddart, then owner of the now-defunct Minardi team, who was in the trailer. He wouldn’t change the rules.

With the 1 p.m. start nearing, the crowd swelling toward 120,000 and a public relations disaster looming, Ecclestone lost his temper and swore at Mosley, by Stoddart’s account. As if on cue, irate fans hurled beer cans onto the racetrack after 14 of the 20 cars withdrew from the race.

“It’s the first time in all the years I’ve known Bernie when he hasn’t been in control,” Stoddart says.

For his part, Ecclestone now says Mosley was “probably right” to stop the race because the FIA president could have faced a murder charge if another crash on the same turn caused a fatality.

Total control has been the hallmark of Ecclestone’s three-decade reign over the world’s most profitable and popular auto- racing series.

As CEO of London-based Formula One Management Ltd. — or simply “F1 Supremo” as the papers style him — Ecclestone transformed a niche series largely confined to Europe into a complexly structured, $4 billion commercial enterprise that brings in sales of $1 billion a year, stages races in 18 countries and attracts about 50 million TV viewers on an average race Sunday.

These days, Ecclestone is struggling to keep his grip on the business.

At 81, he’s under pressure on several fronts. Prosecutors in Germany have named him as a Beschuldigter, or suspect, in a bribery case linked to the sale of Formula One six years ago. Ecclestone, who hasn’t been charged, testified in a Munich court Tuesday.

In addition, race teams such as Ferrari and McLaren, which complain that Ecclestone is failing to keep Formula One up with the times, are considering putting on a breakaway series that would weaken F1. The teams’ contractual obligations, including staying in F1, expire after 2012.

The greatest threat of all to Ecclestone’s dominance could come from a looming takeover bid.

Rupert Murdoch’s News Corp. and the Agnelli family’s Exor SpA want to buy the 63.4 percent of Formula One owned by London- based buyout firm CVC Capital Partners Ltd. through its Jersey, Channel Islands-based holding company Delta Topco Ltd.

The would-be buyers are pushing ahead despite News Corp.’s run-ins with U.K. authorities over a phone-hacking scandal involving one of its newspapers, according to two people with knowledge of the situation.

CVC, which manages $44 billion, has invested in Formula One and 53 other companies, including luggage maker Samsonite International SA and Spanish road-toll operator Abertis Infraestructuras SA.

CVC executives declined to comment on the Formula One takeover interest, referring calls to Ecclestone, who owns a 5.3-percent stake in F1. He says it would take a “bloody enormous” bid for CVC to sell.

“We’ve been building it — more audience, more income,” Ecclestone says. Ultimately, he says, CVC Managing Director Donald Mackenzie will decide. “He’s the guy who will turn the lights on and off,” Ecclestone says. “I have very few shares, so it’s nothing to do with me.”

Under CVC’s ownership, Ecclestone says he has retained complete autonomy over management even without the full control of the commercial rights he had in the late 1990s.

All the same, his holding is now smaller than that of his former wife Slavica. The mother of his daughters Tamara, 27, and Petra, 23, controls 8.5 percent of the business through a family trust, Bambino Holdings Ltd.

Slavica, a 6-foot-2-inch Croatian who stands a foot taller than Ecclestone, was granted a divorce in the U.K. in an out-of-court settlement in 2009 after 24 years of marriage. Among several other owners, the administrators of Lehman Brothers Holdings Inc., which went bankrupt in 2008, control 15.3 percent of F1.

The son of a fisherman, Bernard Charles Ecclestone was born into the Great Depression in Suffolk, England.

During World War II, he used money earned delivering newspapers to buy buns to sell at school for a 25 percent profit, according to "No Angel: The Secret Life of Bernie Ecclestone" by Tom Bower. Ecclestone left school at 16 and built up a secondhand motorbike and car business in south London.

Ecclestone came to Formula One at age 28 in an era when race cars were not plastered with sponsor logos and the drivers included a Spanish marquis and a Thai prince. He bought two cars from the England-based Connaught Engineering team and in a brief stint as a driver failed to qualify for the Monaco Grand Prix.

After buying three-time champion Jack Brabham’s team in 1971, Ecclestone went on to lead the organization that represented the racing outfits, then called the Formula One Constructors Association, and in 1981 won control of the sport’s television rights from the FIA.

That was Ecclestone’s key commercial insight, one that would set an example for the English Premier League in soccer: to see that Formula One’s future lay in selling TV rights.

By then, his first marriage, to telephone operator Ivy Bamford, had ended in divorce. Ecclestone met Slavica, his second wife, at the 1982 Italian Grand Prix in Monza, where she was working as a model. They married in 1985.

By that time, Ecclestone was well on his way to becoming one of Britain’s richest men. In 2004, he would sell what was at the time London’s most expensive residence to steel magnate Lakshmi Mittal for $90 million.

In 1993, Ecclestone helped install Mosley, then his legal adviser, as FIA president. Two years later, he acquired F1’s commercial rights, including television rights, from FIA for 15 years. He later extended the agreement until 2110.

From 1999 to 2001, he sold off 75 percent of the business for a combined $2 billion to Morgan Grenfell Private Equity Ltd., Hellman & Friedman LLC and Leo Kirch’s German media group. Following heart surgery in 1999, Ecclestone says, he transferred 25 percent to the family trust to mitigate his heirs’ inheritance tax liabilities.

Through it all, Ecclestone survived a number of hazards, including the collapse of Kirch’s empire in 2002 — eventually brokering a deal for CVC to buy the Formula One business from Kirch creditor Bayerische Landesbank — and a breakaway threat by race teams in 2005.

Today, more than half a century after Ecclestone’s first foray into Formula One, questions about his future have overtaken talk of his past successes.

The teams he once ruled grumble that his business model is outdated, prizing TV rights, which bring in about $500 million a year, over promoting an Internet presence that could attract a new fan base.

By not aggressively promoting the series in markets such as China and the U.S., where Formula One is less popular than elsewhere, Ecclestone is failing to attract new audiences, says Martin Whitmarsh, McLaren Racing Ltd. CEO and chairman of the Formula One Teams Association.

“The way F1 is consumed is going to change over the next few years,” Williams team Chairman Adam Parr said during a question-and-answer session with fans in June. “It’s time we challenge him.”

In addition to TV rights, F1 revenue comes from fees charged to race promoters — often the cities or countries where the circuits are located.

Those fees amounted to $535 million in 2010, according to London-based industry monitor Formula Money. The teams, which get about half of the $1 billion in total annual revenue, feel shortchanged by Ecclestone, says Mark Jenkins, a professor of business strategy at England’s Cranfield University.

“Let’s be clear: We’re poorly paid,” says Vijay Mallya, the billionaire owner of the Force India F1 team, as he holds court in the team trailer across the water from his 312-foot yacht Indian Empress at the European Grand Prix in Valencia in June.

The chairman of Bangalore-based United Breweries Holdings Ltd., which controls liquor, beer and airline companies, says he’s delving into his personal fortune to keep his Force India team going. A holding company Mallya co-owns bankrolled Force India’s $63 million loss in 2009, according to team filings.

“Many of the teams feel that in a sense he stole the business from them,” Jenkins says of Ecclestone. “They were the show, and he effectively appropriated that show.”

While Ecclestone rejects such accusations, saying he took financial risks when teams didn’t, there’s talk once again among some teams of a breakaway series. In 2005, Ecclestone promised Ferrari an annual $50 million sweetener to sign new Formula One terms, thereby dividing a rebel group of teams that were plotting secession, according to Bower’s biography.

Ecclestone scoffs at the new threat. Formula One is hardly unknown, he says, slipping into a playful sarcasm. “We’re known worldwide, so I suppose we must have done something right.” He derides the idea that teams have a real chance to mount a breakaway or unseat him. “I don’t know where they meet — probably Starbucks or somewhere,” he says. “These are nice coffee chats.”

Bower says Formula One is definitely a healthy business. “It’s an amazing moneymaking machine,” he says.

The series generated earnings before interest, taxes, depreciation and amortization of $428 million in 2009, according to filings by Delta 3 UK, a unit of Formula One holding company Delta Topco Ltd.

CVC sealed the deal after borrowing $2.5 billion in 2005 to acquire Bayerische Landesbank’s 48-percent holding and most of the Ecclestone family’s 25-percent stake. As part of the transaction, Ecclestone re-acquired a 5.3-percent stake.

Former FIA President Mosley says quick thinking has kept Ecclestone in a dominant position. “If he went into a revolving door behind you, he would come out in front,” Mosley says.

Nonetheless, Ecclestone’s hand is weaker than it used to be. His one-time ally Mosley stepped down as FIA president in 2009, and Ecclestone doesn’t have the same rapport with his successor, former Ferrari team boss Jean Todt, Jenkins says.

On another front, German prosecutors said earlier this year they were investigating suspicions that Ecclestone bribed former Bayerische Landesbank risk manager Gerhard Gribkowsky in the sale of Formula One to CVC. “A bribe?” Ecclestone says. “You shouldn’t believe all you read, you know.”

Ecclestone said he was interviewed by prosecutors in April. He declined to comment further.

Gribkowsky has been charged with breach of trust, accepting bribes and tax evasion. Rainer Bruessow, Gribkowsky’s lawyer in the case, which went on trial in October, says the allegations against his client are “manufactured and very far-fetched.”

CVC said in a statement that it isn’t aware of a payment to Gribkowsky in relation to the buyout.

As vulnerable as Ecclestone is, Formula One suitor News Corp. is embroiled in a phone-hacking scandal in the U.K. that has caused it to shut down the News of the World newspaper, which has admitted accessing the voice mail accounts of celebrities and others.

The U.K. sideshow is diverting News Corp.’s attention away from its F1 bid, says Tim Westcott, an analyst for media consulting firm IHS Screen Digest in London.

A person familiar with the situation counters that the bid was very much alive as of mid-October. That individual says News Corp. Deputy Chief Operating Officer James Murdoch, the 39-year- old son of CEO Rupert, and Exor chief executive John Elkann, 35, are actively courting racing-team owners and working on a 5- to 10-year business plan for Formula One.

News Corp., whose pay-television channels already air Formula One races in Germany and the U.S., faces another obstacle, Westcott says: It would have to agree to a raft of conditions to assure European Union regulators that it’s not going to monopolize the television rights. Alice Macandrew, a spokeswoman for News Corp. in London, declined to comment, as did Exor spokesman Richard Holloway.

Today, Ecclestone continues to run Formula One from a glass-fronted building he bought in 1985.

He’s usually in his office overlooking London’s Hyde Park by 9 a.m., sometimes lunches not far away in Knightsbridge at the restaurant in the Emporio Armani store and shuns nightlife unless it’s to turn out for a party hosted by his high-spending socialite daughters. In August, Petra’s wedding featured live performances by the Black Eyed Peas.

Ecclestone conducts business with a mobile phone, whose ring tone is from the soundtrack of The Good, the Bad and the Ugly, and jets to races in his own Dassault Falcon 7X. According to Bower, he travels with a briefcase full of cash. “If I do, it’s my own money,” Ecclestone says.

As the mid-morning sun beats down on the Valencia race circuit in June, Ecclestone sits at a desk in an air-conditioned mobile office. Soundproofing turns the roar of cars speeding around city streets at 180 miles per hour during a practice session into a hum.

Ecclestone says he’s still the best person to run F1. “I travel all over the world, and when I shake hands with people they know a deal’s a deal, and that gives me a lot of credibility,” he says. “It takes a lot to build that up.”

With others threatening to take the wheel from him, he doesn’t rule out simply pulling over and retiring. “I could just walk out,” he says.

What he won’t do, he says, is help new owners find a successor: “That would be like Frank Sinatra looking for another singer.”

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