Liberty Media’s takeover of Formula 1 is facing a potential roadblock after a senior European politician has written to anti-trust authorities asking them “to step in and investigate” an alleged conflict of interest at the heart of the deal. The concern surrounds auto racing’s governing body the Fédération Internationale de l’Automobile (FIA) and, in particular, its 1 percent stake in F1’s parent company Delta Topco. In 2013, the company, which is controlled by the investment fund CVC, sold the 1 percent stake to the FIA for the bargain-basement price of $458,197. The 1 percent is now worth $44 million, but it came with a catch -- it can only be cashed in when CVC sells its 38.1 percent stake in Delta Topco, and in order for the sale to go ahead the FIA’s consent is required. In summary, if the FIA approves the sale of F1 it will make a $43.5 million profit, and this has fuelled the suggestion that it is a conflict of interest. The concern comes from British politician Anneliese Dodds, who has been looking into allegations of anti-competition in F1 for two years since the collapse of the Marussia and Caterham F1 teams, which were both based in her region. Letters from Dodds to Margrethe Vestager, the European Commissioner for Competition, fueled a formal complaint to the European Commission (EC) last year from Force India and Sauber. Their worry is that F1’s prize money and decision-making bodies are biased toward the top performers, and it is believed that the EC recently wrote to key stakeholders in what is seen as a precursor to an investigation following the teams’ complaint. Now the EC has even more reason to put F1 under its microscope, which is the last thing Liberty needs. This is because the EC’s approval is also required for the sale to go ahead.

As if that wasn’t enough, the difficulty for the FIA is compounded by an agreement it made with the EC in 2001 following a previous anti-trust investigation into F1. The EC claimed that the FIA favored F1 but released a statement in 2001 saying that it had closed the file after “the FIA agreed to modify its rules to bring them into line with EU law. ...The modifications introduced by FIA will ensure that the role of FIA will be limited to that of a sports regulator, with no commercial conflicts of interest. ...To prevent conflicts of interest, FIA has sold all its rights in the FIA Formula 1 World Championship.”

Dodds says that “under the agreement the FIA struck with the Commission in 2001 it clearly stated that it would not retain its commercial interests, yet in 2013 it purchased a 1 percent stake for a cut price of £213,000 and now stands to earn tens of millions of pounds from selling it just three years later. The European Commission needs to step in and investigate whether this conflict of interest breaks the agreement from 2001 before approving any sale of the sport.”

In a letter seen by Autoweek and sent to Vestager on Sept. 20, Dodds adds that “the FIA agreed to remove itself from all commercial interest in order to avoid a conflict of interest in the sport. It would seem that holding a stake in the sport the FIA regulates may lead to an eventual conflict of interest. ...The FIA has a duty to ensure the new owners of Formula 1 adhere to a ‘fit and proper persons test’ before they approve a sale of the sport. Given that they can only cash their £33M shares if they approve a sale, it appears a clear conflict of interest has arisen from their actions.”

The letter adds “I would also like your assurance that this very clear conflict of interest will be properly scrutinized before any deal is sanctioned -- especially if the deal is sanctioned on the merits of the FIA being satisfied with the sale.”

Summing up the problem, Dodds says, “it is unacceptable that a regulator of any industry should be allowed to benefit financially from sanctioning the sale of one of the companies it regulates.”

The FIA’s consent is required to ensure that F1 doesn’t fall into the wrong hands, and there is no suggestion that Liberty would not fit the bill. Nevertheless, the reward for cashing in the 1 percent stake could be an incentive for the FIA to approve a buyer, and this fuels the risk of bias even if there actually isn’t any.

As sports lawyer Charles Braithwaite says, “if the FIA approves the sale, people may question whether the approval was driven by the desire to get the multi-million sale proceeds from the sale of its share; despite the fact that the FIA is the governing body and regulator of Formula 1, and so one would expect it to be independent and to act in the interests of the sport rather than its own interests. Hence the potential conflict of interest; and despite the FIA’s own Code of Ethics requiring all FIA Parties (which includes the FIA itself) to endeavor to avoid any conflict of interest (Article 2.4).”

Tim Owen, a public and criminal lawyer at London’s Matrix chambers, adds that “no regulator exercising quasi-judicial powers can have a financial interest in the very subject matter it is supposed to be regulating as an independent, unbiased body. ...Once a financial or proprietary interest is established, the risk of bias is presumed.”

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