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Analysis: F1 could risk EU lawsuit with entry fee increase

As rumours of F1 teams looking to increase the entry fee for prospective teams grow, RacingNews365.com's Editorial Director, Dieter Rencken, takes a look at the potential consequences of such a move.

Suggestions from certain quarters have it that Formula 1’s anti-dilution fee for new teams could increase three-fold to $600m prove - if anything - how fragmented the sport is over the issue. As outlined here almost a month ago, some team figures told RacingNews365.com that they feared the $200m clause in the Concorde Agreement would be considered anti-competitive by EU authorities if reported.

Would tripling it suddenly make it legal? Doubtful.

Apart from that, the new teams Expressions of Interest process outlined by the FIA makes clear that teams could enter in 2025, thus within the 2021-2025 Concorde Agreement which specifies a $200m fee. To change any of Concorde clauses requires unanimity which, given said nervousness in certain quarters, is unlikely to be realised. If anything, concerns are likely to increase – as could the focus of EU authorities. While the fee is ‘justified’ by its proponents as being a ‘franchise fee’, it is actually anything but: A franchise fee is paid by an entity (franchisee) to the holder of whatever intellectual property (the franchisor) for the right to use said goods or services. The McDonalds franchise provides a perfect example: a new restaurant (franchisee) pays McDonalds (the franchisor) an agreed fee to buy into its menus, branding, reputation, etc., - with all fees accruing to the franchisor, but not in compensation to existing Big M outlets. Just imagine if ten McD restaurants clubbed together to prevent an 11th (or 12th) franchise joining the fray to prevent loss of business. Using the same example, certain F1 teams are attempting to hoodwink the media by suggesting that the anti-dilution fee is, in fact, a franchise fee, demanding that new entrants pay THEM (as franchisees) compensation for perceived loss of business – yet, crucially, not a single dime of the $200m goes to F1 commercial rights holder Liberty Media (the de facto franchisor) for IP rights as per the McD example. Thus, their arguments are arguably anti-competitive by stifling competition through both strengthening existing teams and weakening any newcomer(s). Only a very brave lawyer would defend this before the EU in this regard – particularly as Brussels has form when it comes to dealing with US-based behemoths such as Facebook, Amazon, Microsoft, Apple and Google. Then, the crux of EU anti-competitive law is whether EU consumers (fans) are disadvantaged by business activities conducted within the EU – whether these entities are EU registered or not. Again, look no further than the above FANGS – as they are historically known - for proof that domicile is not the criterion. Would EU fans be disadvantaged by only having 20 rather than 24 cars on the grid? Arguably so…

The irony is that the teams are suddenly crowing about the global successes of F1 as though they had driven these and are thus entitled to compensation from newcomers, yet when they were all offered preferential shares back in early 2017 - before Liberty listed F1 on NASDAQ - to a team they turned down options handed them on a plate. But for their collective myopia they would have tripled their money in five years. Take the last team to join F1, namely Haas which joined as 11th team at a time when F1 paid prize monies down to tenth place: by finishing eight in its maiden year the team effectively pushed Manor out of the money and off the grid. Yet, for three years team principal Guenther Steiner crowed that F1 grids would have been down to 18 cars had Haas not joined - yet now they are amongst the most vociferous opponents of new teams! There is another angle to this: The 2021-2025 Concorde Agreement is contingent upon teams signing up to FIA regulations, including the budget cap – which in its first year resulted in $70m savings for teams such as Mercedes, which before the cap battled to pocket a dime without parent company subsidies. Thus, teams benefit from savings made possible by the cap, yet hope to slice anything up to $600m between them.

Are you listening, Brussels?

The bottom line is that this matter, which first reared its head back in January, has suddenly been regurgitated during testing by certain individuals. The FIA’s Expression of Interest process for new teams has attracted around four applicants, and all it would need is for one of them call an anti-trust lawyer with a brief to open this can of worms. Don’t estimate the persuasive powers of a $200m saving, let alone $600m As for Liberty: there are currently calls in the USA for Ticketmaster, in which Liberty Media is the largest single shareholder via its Ticketmaster subsidiary, to be investigated on anti-trust grounds. The last thing F1’s (listed) parent company needs is investigations on both sides of the Atlantic...

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