Scandal tosses a wrench into Formula One's engine

Share

While FIFA, soccer's governing body, is dealing with one of the biggest scandals in its history, another multibillion-dollar global sport -- Formula One -- is proving that it too is no slouch on the dubious behaviour front.

F1 is not in great shape. The dozen racing teams are in open revolt over revenue sharing, the Bahrain grand prix has been cancelled and the future ownership of F1 is in doubt. CVC Capital Partners, F1's majority owner, has been sending out covert signals that it wants out and various names, including Rupert Murdoch, the Agnelli family of Fiat and Ferrari fame and Mexico's Carlos Slim, the world's richest businessman, have been mentioned as possible buyers.

If F1 did not have enough problems, Bernie Ecclestone, F1's octogenarian supremo, finds himself getting sucked into a German corporate corruption case that threatens to put a dark cloud over the entire sport.

The case centres on one Gerhard Gribkowsky, 53, the former German bank executive who was arrested in January for allegedly accepting a $50-million (U.S.) kickback on the 2006 sale of F1 to Britain's CVC, one of the world's largest private equity firms. Since then, Mr. Gribkowsky has been locked in a Munich prison on suspicion of tax evasion, corruption, fraud and breach of trust toward his former employer, BayernLB, a German regional bank.

German state prosecutors are investigating allegations that Mr. Ecclestone may have paid the kickback to Mr. Gribkowsky, who had arranged the sale of BayernLB's 47 per cent stake in SLEC, F1's former parent company, to CVC in 2006. CVC also bought the stakes held by JP Morgan, Lehman Bros. and the Ecclestone family trusts. The total price came to $1.7-billion.

In April, Mr. Ecclestone admitted he was co-operating with the investigation. In a statement, he said he was "confident that when the full facts have been established, I will be exonerated of blame for any wrongdoing."

According to various reports, including one from The Times of London, payments of $50-million were transferred to Mr. Gribkowsky from companies in Mauritius and the British Virgin Islands in 2006 and 2007. It is not known who controls the companies. Investigators would like to know if the payments came from Mr. Ecclestone through his family trusts.

Media reports present all sort of theories to explain the payments. One suggests that the money was paid to the German banker to ensure that CVC would emerge as the buyer and keep Mr. Ecclestone on the payroll (in fact, CVC did keep him as F1's boss). Another says the banker demanded the money as a form of blackmail; unless the amounts were paid, he would reveal some curious details about Mr. Ecclestone's business and tax dealings. Still another theory suggests that Mr. Gribkowsky took the payments in exchange for undervaluing his bank's stake in SLEC.

CVC reportedly has no knowledge of the fees.

Mr. Ecclestone, F1 and CVC do not need the bad publicity surrounding the case, especially now. At 80, Mr. Ecclestone, the man who is credited with turning F1 into a global phenomenon, with the biggest TV audience of any sport, is close to gearing down his career and does not want to exit with a scandal over his head. F1 does not want its name mentioned in connection with a corruption case and CVC, which would like a fat return on its F1 investment, knows gruesome headlines will only make a successful sale harder won.

German state prosecutors have until July 5 to decide whether Mr. Gribkowsky is to be charged formally.