F1: Legislative hurdle for Liberty takeover?

Liberty Media's recent $4.4 billion takeover of Formula 1's commercial rights could face a European Commission investigation over an alleged conflict of interest.

Liberty announced earlier this month that it is on course to complete its takeover of current F1 rights owner Delta Topco in 2017, subject to anti-trust approval, a Liberty shareholder vote, and approval from the FIA.

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The potential hurdle lies in the fact that the FIA also owns a 1 percent stake in Delta Topco, which it has agreed to sell at a substantial profit: According to UK paper The Telegraph, it purchased the shares for just over $450,000 in 2013; they are now worth $44m.

Liberty's acquisition of F1's commercial rights can only go ahead with FIA approval, and it is this scenario – a regulatory body needing to approve a sale from which it stands to make a $43.5m profit – that has prompted British politician Anneliese Dodds to write to Margrethe Vestager, the European Commissioner for Competition, requesting that the alleged conflict be investigated.

The letter, dated September 20, 2016 and reprinted in full by Forbes, reads in part:

"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 ...

"I would also like 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."

While there is no reason to believe that Liberty would fail to pass a "fit and proper persons test," the question remains over whether the prospective financial reward might have incentivized the FIA to approve the deal. As such, the conflict of interest issue would have arisen regardless of who the buyer was, as long as the FIA stood to profit from the agreement.

Sports lawyer Charlies Braithwaite told Forbes:

"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; 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)."

The problem is made more complicated by an agreement that the FIA struck with the European Commission following an anti-trust investigation into F1 in 2001. Back then, the EC determined that the FIA favored F1 over its other championships, but closed the investigation after the FIA agreed to limit its role to that of regulatory body, with no commercial interest. Accordingly, it sold its shares in F1's commercial rights to Delta Topco subsidiary SLEC at the time, but later acquired the 1% stake that is now at the center of the potential inquiry.

Bernie Ecclestone told The Guardian in 2013 that he offered the 1% stake to the FIA in exchange for a new commercial agreement running through to 2020, which he hoped would open the door for F1's floatation on the Singapore stock exchange. The floatation plans did not go ahead.

According to Forbes, the alleged conflict is unlikely to jeopardize the deal ultimately being finalized, although it is possible that the FIA could withhold approval of the sale until the contractual mess is untangled to remove any perception that it could be motivated by self-interest.