Force India and Sauber's EU complaint

[bhall II]

Does anyone know the exact legal basis for the complaint that's been submitted to the EU competitions commission? The closest thing I can find is this...

Article 101

(ex Article 81 TEC)

1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:

[...]

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

[...]

...and it doesn't seem applicable, because neither Force India nor Sauber are competing against FOM for anything. It would be more accurate to say the teams all compete against one another in a sort of "participation market" that sells appearances at F1 grands prix. Since there's only ever one customer for those services - FOM - how is the existence of similar/dissimilar conditions even possible?

Kaltenborn's comments read like those of someone who operates on the assumption that participation in F1 is somehow guaranteed...

When it is said we knew what we were signing into it, we knew there were some preferential terms, but the entire scope or scale of all these privileges, actually we only recently became aware of it through the media. And the second point, which is actually more important, is that it is besides the point if we knew it or not.

You have to have seen what situation our two teams were in – you get an offer and either you take it or leave it. That is your choice. So you sign it knowing what you sign or you have the choice to leave Formula 1, which is no choice. So that is why we come back to saying, we hope the commission will look at it, and say, why these unfair terms – in our view – were put into place.

As a matter of principle, I think most people agree that F1 revenues should be more equitably disbursed. But, what is the legal justification for actually requiring it?

[mep]

I think the point is that some teams get a lot of money independent of their championship position. This means that the money distribution favours these teams, which is not allowed.

[bhall II]

What I'm trying to understand is how/why that's not allowed according to the law. If the teams are essentially leasing their services to FOM for a prescribed period of time, what specifically prohibits those whose services are deemed more valuable, for whatever reason, from extracting that value?

[dans79]

it's not illegal, Sauber & FI knew about it when the signed the contracts, their main gripe is the amount, and that they didn't really have a choice. The entire thing is complete BS as far as I'm concerned, as it will never hold up in court. They signed a contract, end of story.

[Tim.Wright]

What I'm trying to understand is how/why that's not allowed according to the law.

Same here.

From a commercial point of view, the teams are all worth different amounts and this is set by external marketing forces. You can't force Manor to be commercially equal in worth to Ferrari because it just isn't. In accordance with this, the commercial arrangements rightly reflect the commercial value of each individual team. In the same way that different football players command different salaries.

The problem in F1 is that the income from the commercial arrangements with FOM are practically the only money keeping the teams AND moreover its a sport in which success is heavily dependent on budget. Its not like tennis where large amounts of prize money for a certain player will have no effect on their subsequent performances. In F1 the commercial payout has a massive influence on the team's development for the next season's car and therefore their potential to realise any competitive advantage in the future.

So what makes commercial sense for FOM is actually an extremely uneven, anti-competitive playing field for the teams.

It shouldn't be too hard to demonstrate what's needed in terms of resources to move up the grid and if this number is significantly less than the payouts from FOM then you have a good grounds for an anti-competition case.

It's not black and white, but the there is significant evidence available to suggest that the issue should be looked into.

[Tim.Wright]

it's not illegal, Sauber & FI knew about it when the signed the contracts, their main gripe is the amount, and that they didn't really have a choice. The entire thing is complete BS as far as I'm concerned, as it will never hold up in court. They signed a contract, end of story.

Signing a contract does not wave your rights to a fair trading environment.

If you sign an illegal work contract for a 100 hours/week at 5€/hr you are perfectly within your rights to report it to the authorities.

Independent teams don't have a choice of whether to sign or not. They are F1 teams and if they don't race F1 they are all jobless. Its something most people forget.

[iotar__]

If European Union would seriously punish F1 after disadvantaged teams' complaint it would have to dissolve itself five seconds later. It works based on similar premises:
- law decided by and in favour of selected members,
- unequal forced rules for others in participation in costs and profits - just like Force India and Sauber in F1
- short term profits approach, no long term thinking and responsibilities,
- very fluid approach to legislation, a lot of tailor made technical directives (economy)
- very fluid approach to refereeing, equal and more equal in every aspect
- the complete alternative reality when it comes to media coverage of actual events by co-dependent pseudo journalists (e.i Greece)

A bit more specific points :
- From D. Ricken's article in AS, the whole procedure will take a lot of time, '17-'18 earliest(?)
- IMO at the moment it's more of an image problem connected to sale of F1.

- even bigger IMO. it can only work if some bigger fish wants a piece of a pie (unlikely) - just like FIFA situation now. They "realised" now that 2006 World Cup was chosen using bribes? Are you kidding me, after 9 years? Speaking of bribes - in F1 they are called perfectly legal transactions as long as you pay 100 million of compensation.

[dans79]

If you sign an illegal work contract for a 100 hours/week at 5€/hr you are perfectly within your rights to report it to the authorities.

Independent teams don't have a choice of whether to sign or not. They are F1 teams and if they don't race F1 they are all jobless. Its something most people forget.

F1 teams aren't FOM Employees, they are Independent companies who entered into a contractual obligation with another company.

[efuloni]

it's not illegal, Sauber & FI knew about it when the signed the contracts, their main gripe is the amount, and that they didn't really have a choice. The entire thing is complete BS as far as I'm concerned, as it will never hold up in court. They signed a contract, end of story.

Your idea makes some sense, but this theory of 'hard clauses' and absolute pacta sunt servanda was flexibilized the past decades in kind of the whole world. There's no such thing as "you signed it, so you can't complain." As someone said: if you prove that the contract is illegal, unfair, or that new events made it overwhelming for you, for example, you can get a contract review in court.

Im not talking about any specific juridic system. Im talking about the law as human science, so what I said applies to most of the world.

[dans79]

Your idea makes some sense, but this theory of 'hard clauses' and absolute pacta sunt servanda was flexibilized the past decades in kind of the whole world. There's no such thing as "you signed it, so you can't complain." As someone said: if you prove that the contract is illegal, unfair, or that new events made it overwhelming for you, for example, you can get a contract review in court.

Im not talking about any specific juridic system. Im talking about the law as human science, so what I said applies to most of the world.

I don't know what it's like in the EU, but here in the states, The concept of fair has no bearing on contract law. If you signed it, and it's not fraudulent or illegal, you are bound by it, even if it drives you into bankruptcy.

[Just_a_fan]

There is a concept of unfair contract terms in English Law - indeed there is legislation covering such things. Not sure about European Law but wouldn't be surprised if there is.

[mrluke]

There is a wealth of case law on contract terms being deemed unenforceable.

Being deemed to have executed a contract under duress can be enough to deem it void but that doesn't really help the teams as that would result the contract being cancelled rather than renegotiated in their favour.

[turbof1]

The EU commission has been known to crack down on cartels. Although a cartel usually means 2 or more entreprises fixing market prices, it has a broader definition then that. The FOM and the top teams who get an extra slice of the money as historic constructor, may be viewed as a cartel.

Who is in which camp, sauber and for instance ferrari being competitors but the FOM being partner, is irrelevant for the Commission. The emphasis is on competition limitations, and the Commission is very punishing on that front.

Bhall, you put emphasis on 101 (d), while 101 (b) also looks useable:

(b) limit or control production, markets, technical development, or investment;

Limit markets. Again, we have to step out of our usual definition of markets being supply and demand. This has been formulated like that as a catch-all rule. An unfair distribution of the price money could be viewed as limiting the competition and as an extent the market.

[bhall II]

It's my understanding that the Concorde Agreement is actually a series of bilateral agreements between FOM and the teams. In other words, it establishes a marketplace in which the value of the Ferrari-FOM contract has nothing to do with the value of the Mercedes-FOM contract, which has nothing to do with the value of the McLaren-FOM contract, which has nothing to do with the value of the Red Bull-FOM contract, which has nothing to do with the value of the Williams-FOM contract, etc., etc.

So, how can there be a cartel when no more than two parties are bound to any particular agreement? What constitutes market suppression if there's never more than one potential customer (FOM)?



It seems to me that Force India and Sauber think participation in F1 is somehow a fungible commodity, but it's not. Right or wrong, the participation of a select few will always be more valuable than that of the others.

[FoxHound]

Precisely Ben,

Which is all the more confusing as to why Force India and Sauber believe they have a case.

To my reading of EU law, Bernie can justify the income discrepancy by the outcome of X teams' participation. It's a business founded on providing profit(CVC).
In much the same way Football's (soccer) Real Madrid or Barcelona get a lions share of income from La Liga due to the fact most people sign up to watch them.
The threat of a break league from either Madrid or Barca renders La Liga moot.
It becomes a lame man's championship in the same way F1 would be without a Ferrari or perhaps a Mercedes or Mclaren. In other words, to the person who actually pays to watch, the value of what is bought decreases without their participation.

Obviously they feel they have something tangible, but I'm guessing Bernie's lawyers will have a field day.