First someone blows a whistle, and then a supervisor pushes aside a partition screen for a moment. A Mercedes limousine glides out from behind the screen. A man with a mane of whitish-gray hair, so short that he can hardly see over the dashboard, is sitting in the passenger seat. The car stops. It's a Saturday morning, and Bernie Ecclestone has reached his place of work: the Formula One paddock.
Ecclestone has spent more than half of his life in this racing circus, turning it into a big business in the process. Now, at 80, he still travels with the teams to events in places like China, the Arab world and the United States. Ecclestone is still the man who gets things done, and he is firmly convinced that without him Formula One would descend into chaos.
After getting out of the Mercedes, he steps into a vehicle that looks like a tour bus, with covered wheels and tinted windows. It's Ecclestone's mobile office. He won't leave the bus again before lunch, and why should he? Everyone comes to him. Politicians, businessmen, world champions and team captains wait, like schoolchildren outside the principal's office, until the sliding door opens and a liver-spotted hand waves in the next person.
"Five minutes," says Ecclestone, spreading his fingers. The visitors' section in the middle of the bus consists of two padded benches, not exactly a very comfortable spot. Ecclestone hates wasting time and money. He sits on the edge of one of the benches and shows only a hint of a smile on his face.
Five minutes. The clock is running.
'It Isn't For Sale'
Would it be a good thing if Formula One were sold? "It isn't for sale," Ecclestone says quietly. But there are prospective buyers, aren't there? "It isn't for sale. It's an academic question. Buckingham Palace isn't for sale, either, even though I'd like to have it."
When this man agrees to be asked questions, which happens rarely, he likes to answer them with his own questions, insinuations or statements of sheer optimism. He always says the same thing: Let's just leave Formula One where it's best off -- in my hands.
But nowadays the multibillionaire finds himself fighting more than ever to protect his empire, which is being attacked from two sides.
On the one hand, the racing teams are demanding more money and threatening, once again, to launch their own series. On the other hand, two prospective buyers want to take over the marketing of Formula One: Rupert Murdoch's media conglomerate and Exor, an investment company owned by the Agnelli family.
Motorsport teams like Ferrari, Mercedes-Benz, McLaren and Red Bull invest many millions of euros in the sport every year. They develop the cars and pay drivers, mechanics and support teams. Without them, there wouldn't be a single car behind the starting line. But when it comes to the distribution of the revenues from television rights, advertising, VIP hospitality and the fees each racetrack pays for the privilege of hosting Formula One, most of the money goes elsewhere.
Currently, the teams receive only half of the profits. The rest goes to a company called Delta Topco and to its subsidiaries (see graphic), which handle the organization and marketing of Formula One. The owners of Delta Topco -- financial investor CVC Capital Partners, banks and Ecclestone and his family -- are the real beneficiaries from the global racing circus. The 500 million TV viewers in Japan, China, South America, Europe and the Middle East are almost completely in the dark about the large deals being made, which are often handled using tax havens. The business behind motorsport events is worth billions, and it's one of the biggest secrets around -- until now.
Looking into 'Formula Money'
Christian Sylt, a former Ecclestone employee and Formula One expert for many years, offers insights into these business deals. He has just published the latest edition of the "Formula Money" report, in which he traces the financial transactions associated with Formula One. The upshot of Sylt's extensive research is that, for the companies in the Formula One group, the ratios of revenues, expenditures and profits are about as spectacular as in the drug trade.
According to the study, the financial holding company Delta Topco and its subsidiaries made $1.493 billion (€1.06 billion) in revenues last year.
In return, Delta markets the racing series. Its approximately 300 employees negotiate contracts with television networks, racetracks and sponsors. They manage the transport of racecars and equipment to the venues. Using about 30 cameras, they film all events. According to Sylt's calculations, all of this activity generates costs of $325 million.
That leaves $1.168 billion in earnings before taxes and depreciation, making Formula One's profit margin a spectacular 78 percent. (For comparison, carmakers like Daimler usually have profit margins of around 8 percent.) Formula One distributes half of its earnings to the racing teams, while the owners keep the other half.
Ecclestone and CVC were unwilling to confirm Sylt's figures. Duncan Llowarch, Ecclestone's financial expert, told SPIEGEL that the Formula One Group was "not involved" in the preparation of the report and therefore "cannot provide" any information or numbers in this regard.
A Formula One insider says that the numbers in the report are based on estimates and extrapolations -- and that they are not unrealistic.
The money is often funneled through companies headquartered on the Channel island of Jersey, a place of great discretion and low taxes. According to the study, a number of companies in the Formula One empire that are based in England have taken out large loans at 15 percent interest from the subsidiaries in Jersey. As a result, the companies in Jersey post high earnings, which are only subject to the Channel island's low tax rates. In return, profits are reduced for the companies registered in Great Britain, which pay higher taxes.
Ecclestone and CVC were also unwilling to comment on this issue. According to a Formula One insider, the financial setup is legal and has been approved by the British tax authorities.
This may be true. But there can be no doubt anymore that Formula One is something of a license to print money for Ecclestone and the investment company CVC.
It's still unclear what financial investor CVC will end up doing. Its managers have already had an initial meeting with potential buyers Rupert Murdoch and John Elkann, a member of the Agnelli family. If CVC were to sell its 63 percent share of the Formula One marketing company in the near future, the investors would likely collect up to $3.4 billion after all outstanding loans have been paid off. This means that their original investment would have more than doubled within five years.
Ecclestone already cashed in years ago, collecting several billion dollars.
Convinced of His Own Worth
For Ecclestone, money is merely a gauge of whether he has done his job well. And he would be the last person to doubt that this is the case. Without him, Formula One would not exist in its current form. Without him, it would hardly have developed into a billion-dollar business. And the 80-year-old is convinced that without him everything would fall apart again.
Who else could bring together the teams, the racetracks, the sponsors and the TV networks, which all pursue their own, different interests, in such a way as to produce a gigantic sporting event and an equally massive business?
Ecclestone is unwilling to comment on how many billions he has made to date. "I never discuss last night or money," he says.
Ecclestone's Early Years
The story of Formula One is the story of Bernard Charles Ecclestone. He spent his childhood in a London suburb. Money was tight in his parents' household. When Bernard was 11, he delivered newspapers in the mornings before school. He used the money he earned to buy sandwiches, which he then sold for a profit during lunch break. A small and delicate boy, he paid other boys to defend him and his money against potential attacks by older boys.
Ecclestone left school at the age of 16. He spent his free time working on motorcycles and riding in races. Most of all, however, he bought and sold spare parts. He later entered the car business and bought his first dealership.
Rumors that Ecclestone was manipulating the odometers to make old cars seem newer did nothing to slow down his business. He also developed his talent as a gambler, going to casinos and betting on horse and greyhound races.
He became friends with the racecar driver Jochen Rindt in 1965. Ecclestone was soon handling Rindt's contracts and accompanying him to Formula One races. He was so enthusiastic about motorsport by then that he offered to buy the Brabham racing team from Ron Tauranac.
Tauranac wanted 130,000 British pounds for the team, and because he believed that he had reached an agreement with Ecclestone, he started spending heavily in anticipation of the money he expected to make soon. When it came time to sign the contract, Ecclestone said that the team was only worth 100,000 pounds, and that Tauranac could back out of the deal if he didn't like it. But it was too late for that.
As the owner of a racing team, Ecclestone soon realized how amateurish much of the organization of Formula One had been until then. The team owners were usually "petrol heads" with little understanding of money.
Each team owner was negotiating his own appearance fees with the individual tracks. Ecclestone suggested that one person should negotiate on behalf of all the teams. In addition, this person would organize the shipping of the cars to the tracks, which would reduce costs for everyone. It was clear that Ecclestone was the man for the job, and it was also clear that he wasn't about to do it for free.
Instead, he charged a 2 percent fee. It became the foundation of an entrepreneurial career that culminated in Ecclestone controlling the entire Formula One business and becoming a multibillionaire.
Many details of his rise to prominence have now been revealed in British author Tom Bower's recently published, painstakingly researched biography, "No Angel: The Secret Life of Bernie Ecclestone." The relentlessness with which Ecclestone built his business is particularly clear in Bower's book. The track owners quickly realized that they were no longer dealing with a pack of amateurs more enthusiastic about the sport than business, but with a professional.
For example, Ecclestone demanded that the operators of the Formula One racetrack in Canada pay a $350,000 appearance fee for the teams by a certain date. When the money did not arrive in time, Ecclestone cancelled the race. The Canadians quickly offered to pay the money Ecclestone had asked for in the first place. But Ecclestone turned them down. There was no Formula One event in Canada in 1975. Ecclestone wanted to teach the Canadian organizers a lesson.
Start of the Concorde Agreements
He recognized early on that television broadcasts could turn into a business. In the contracts with the tracks, he stipulated that the Formula One Constructors' Association (FOCA) was entitled to the rights to all televised images. Ecclestone was the president of FOCA.
But he still needed the approval of a second organization to secure the valuable TV rights, the Fédération Internationale de l'Automobile (FIA). It establishes the racing regulations on behalf of the teams and was long a counterweight to FOCA and Ecclestone.
In 1981, Ecclestone signed the first so-called Concorde agreement in a hotel on Place de la Concorde in Paris. Under the agreement, the FIA pledged the television rights to Formula One for four years to Ecclestone's FOCA. Also under this new agreement, the commission that Ecclestone was to be paid for his services was doubled from 4 to 8 percent of revenues.
He had already secured an additional source of income for himself. Ecclestone developed his own TV production company and had the races filmed with 30 cameras. With each new Concorde agreement, his share of the broadcast rights went up. By 1992, he was paid 23 percent of revenues, and his share eventually went up to 53 percent. At that point, the racing teams were only getting 47 percent.
Ecclestone earned 54.9 million British pounds in 1995, making him one of the best-paid managers worldwide. But even this income was small change compared with the sums the Formula One boss would collect in another deal.
It was an upcoming heart operation that prompted Ecclestone to reorganize his financial circumstances. He wanted to ensure that his then wife Slavica would not pay any inheritance tax in the event that he did not survive the surgery.
Using a complex financial transaction, Formula One marketing was transferred to SLEC Holdings, a company named after Slavica Ecclestone. A foundation and two trustees were also involved. In the end, Slavica, a former Croatian model, could control certain assets but had no influence whatsoever on business affairs, which were to be managed by the trustees.
When the first reports on the transfer of 2.5 billion pounds in assets appeared in March 1997, the racing teams were shocked. Apparently they had had no idea that Formula One marketing could be worth so much money.
Some accused Ecclestone of having stolen the racing series from the teams. But if that was the case, it was a theft that apparently did not violate any laws or contracts. Ecclestone had taken what the teams had voluntarily allowed him to have. The FIA had transferred the marketing rights to the racing series to Ecclestone, and the teams had accepted the distribution of profits. Where then was the theft?
According to Bower's biography, Ecclestone told the teams that "I can float without you and without giving you any shares." In the end, nothing came of the initial public offering plans. But Robin Saunders, the then representative of the German bank WestLB in London, gave Ecclestone a clever idea on how to make money with his business without losing his influence.
The Formula One company took out a loan and paid Ecclestone $1 billion. Then Ecclestone sold 75 percent of the company in several steps, collecting a total of $2.37 billion. It was a win-win situation for Ecclestone, who had earned a total of $3.37 billion and still owned 25 percent of the Formula One marketing company.
More importantly, he had negotiated with the buyers of the 75 percent stake that the Formula One marketing company would first have to repay the $1 billion loan from the profits of the coming years before paying dividends.
But Ecclestone's coup became truly brilliant as a result of the circumstance that the buyers of the 75 percent majority had almost no say in the Formula One company. The contracts stipulated that the new majority owners could appoint a representative to the management board. Bambino Holdings, owned by the Ecclestone family, appointed a trustee. Ecclestone, as the third person on the company's board, had a majority together with the trustee. Formula One remained what it was: a Bernie Ecclestone company.
The enormous deal drew the attention of banks and private equity funds to the Formula One business, which seemed to offer huge returns without substantial risks.
Future earnings were already more or less set. Contracts with teams, sponsors, racetracks and TV networks generally last for several years. The costs of transport, filming, catering and the like are predictable. As long as someone like Ecclestone could keep the many players in the global racing circus together, profits seemed almost inevitable.
'We Are Fobbed Off with Peanuts'
These conditions also convinced the Luxembourg financial investor CVC Capital Partners, which acquired 63 percent of Formula One in several steps. CVC, one of Europe's largest investment companies, holds shares in 56 companies worldwide, with total revenues of about $120 billion.
The investor, which had already acquired Dorna, the marketer of the motorcycle world championship, was also familiar with the economic aspect of sports events.
The financial investor paid $1.7 billion for its shares in the central Formula One marketing company, now called Delta Topco. CVC paid another $700 million for other subsidiaries of the motorsport group. The investment would prove to be one of the most profitable CVC had ever made.
The new owner used little of its own equity, instead borrowing money on a large scale. It's an approach that promises to maximize profits, provided the new acquisition produces enough revenue to at least service interest payments and repayments.
This has been the case with Formula One until now. In good years, there is even a hefty sum in the triple-digit millions left over for the owners. CVC can make even more money by selling its shares. In that case, it is likely to at least double its investment.
Vexed by the Cash Machine
If there is one person who has been vexed by the miraculous Formula One cash machine over the years, it is Ferrari CEO Luca di Montezemolo. Ferrari influences the racing series more than any other team. With Michael Schumacher and other drivers, it has often won the world championship.
Montezemolo refuses to accept the fact that Ecclestone makes so much money with the series. "It can't be that the main players have lost control over Formula One," Montezemolo said early on, "and that a single person, Ecclestone, collects the lion's share of revenues while we are fobbed off with peanuts."
The carmakers were already preparing to establish their own racing series in 2005. They intended to take over the business upon expiration of the then Concorde agreement, which committed them to Ecclestone's marketing company until the end of 2007.
But the Formula One boss destroyed the group of insurgents with something far more effective than dynamite: money. Ecclestone offered Ferrari a special bonus if the Italian cult brand agreed to remain part of Formula One.
Competitors speculate that Ferrari received more than €100 million. And after the Italians had defected, the other teams also signed a new Concorde agreement, which commits them to Ecclestone until 2012 and now guarantees them 50 percent of revenues.
But now, one-and-a-half years before the agreement expires, Montezemolo is demanding a new distribution of revenues. The teams, he says, should get 80 percent and the marketers only 20 percent of revenues. If his demands are not met, says the Italian, "things will come to a standstill without us."
The Mercedes-Benz, McLaren, Red Bull and Ferrari teams are once again discussing whether to develop their own racing series after all. This would allow them to regulate the distribution of profits themselves after 2012.
The plan is apparently a negotiating tactic with which the teams hope to achieve a higher percentage of profits. The teams are also dissatisfied with Ecclestone because, in their view, he still charges far too little for the television rights and has not developed any new revenue sources, like the Internet. And they finally want to put an end to Bernie's absolute rule. "Formula One doesn't need a dictator anymore," says Montezemolo.
But the situation has changed once again, now that Murdoch and the Agnelli family's financial holding company Exor have shown an interest in investing in the Formula One marketing company. Sooner or later, CVC will cash in and sell its shares.
Then the new majority owners will have to decide how to handle Ecclestone. They will also have to negotiate with the teams over the distribution of profits. It is unlikely to get any easier, and conflicts of interest will be hard to avoid.
For instance, Murdoch's media company will certainly want to pay as little as possible for the Formula One television rights. But as a partner in the marketing firm, the Australian-American media giant would have to negotiate the highest possible prices for the TV rights.
For a savvy businessman like Ecclestone, this configuration offers good opportunities to cause divisions among his adversaries, which explains why he takes a relaxed approach to the attack from Ferrari and its allies. The teams have often tried to wrest the business from him. All they got was a bigger share of the profits.
"They think they've got me by the balls," Ecclestone famously said on one such occasion, before adding: "Their hands aren't big enough."