F1 faces investigation into anti-competitive practices

Mercedes' Formula One driver Lewis Hamilton leads the pack during the Abu Dhabi Grand Prix.
Mercedes' Formula One driver Lewis Hamilton leads the pack during the Abu Dhabi Grand Prix.PHOTO: REUTERS

LONDON • The European Parliament is to back calls for an immediate investigation into anti-competitive behaviour in Formula One.

Areas of concern that have been raised by Members of the European Parliament (MEP) are the unfair allocation of prize money that harms the smaller teams, an alleged conflict of interest over the recent sale of the sport to Liberty Media and the sport's tax arrangements in Britain.

Each year the parliament produces a competition report, which reviews the European Commission's work on competition issues and makes recommendations as to which it should focus on.

Anneliese Dodds, Labour MEP for the south-east of England, added an amendment to this year's document, which says that the parliament "calls for an immediate investigation into competition concerns arising from the Formula One motorsport industry".

Should the commission investigate and there are any findings of anti-competitive behaviour, then it can issue a fine of up to 10 per cent of the company's annual turnover. Formula One Group has a turnover of about £1.35 billion (S$2.4 billion).

If illegal state aid is found to have been given in the form of tax breaks, then the amount of tax avoided would have to be paid to the British government.

The first issue raised by Dodds is that the bigger teams get more money, no matter where they finish in the standings, leaving the smaller teams to struggle financially. They also have influence over decisions made that affect the sport as a whole.

  • $2.4b 

    The Formula One Group's annual turnover. The group stands to be fined up to 10 per cent of that, potentially $240 million, if found guilty of anti-competitive behaviour.

Manor Racing collapsed last month after they were unable to find a buyer. They said they had struggled to find investment after being knocked to last place in the constructors' championship in the penultimate race of last season, costing them millions in prize money.

Mercedes, Ferrari, McLaren, Williams and Red Bull, all receive extra prize money simply for being more established than their competitors. Ferrari get the most for being the oldest team on the grid.

These five teams also sit with the commercial rights holder and the International Automobile Federation (FIA), motor sport's governing body, on F1's strategy group.

The next area of concern is the "significant conflict of interest" over the recent sale of the sport to Liberty Media. The FIA made almost £80 million profit after it approved the sale. The Paris-based FIA is a regulator and should therefore be impartial.

In 2013, the FIA was offered a 1 per cent stake in the sport's parent company for just US$458,197 (S$650,121), although it was believed to be worth US$70 million.

The catch was that the stake in the company could be cashed in only when CVC, the previous owner, sold F1 - a deal that the FIA would have to approve. After the sale of the company to Liberty, the FIA realised a profit of US$79.5 million.

The final "serious concern", Dodds says, is the agreement with Her Majesty's Revenue and Customs that allowed the sport to pay an effective tax rate of just 2 per cent.

"We must ensure that we don't allow a sport loved by 500 million fans to become increasingly less competitive," she said.

THE TIMES, LONDON

A version of this article appeared in the print edition of The Straits Times on February 15, 2017, with the headline 'F1 faces investigation into anti-competitive practices'. Print Edition | Subscribe