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Deloitte Advised F1 Regulator To Boost Monitoring Of The Use Of Its Grants

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A report by consultancy firm Deloitte last year recommended the “strengthening of the monitoring of the use of grants” which have been awarded to motoring organisations around the world since 2014 by Formula One auto racing’s regulator the Fédération Internationale de l’Automobile (FIA).

The development is revealed on page 75 of the FIA’s 2016 Activity Report which can be found on the following link. It states that the FIA asked Deloitte to produce a compliance analysis of its activities and this contained a number of recommendations which ultimately led to changes being made to its regulations in December last year.

The FIA is most famous for being the regulator of F1 which is owned by Liberty Media Corporation and is listed on the Nasdaq with the ticker FWONK. However, its functions stretch far beyond that.

Founded in 1904 and based in France, the FIA is the governing body for world motor sport and is the federation of the world’s leading motoring organisations. It comprises 245 motoring and motor sport clubs across 143 countries. Some members represent both motor sport and everyday motorists but each country is only allowed to have one motor sport club. It is known as an Autorité Sportive Nationale (ASN), meaning National Sporting Authority. In 2014 the FIA gave the green light to a fund which helps them.

Page 23 of the FIA’s 2014 ASN Development Manual on the following link, reveals that “a new source of funding is available from the FIA from 2014 coming from Concorde monies. This fund is dedicated to developing motor sport and helping to strengthen ASNs.”

The fund is known as the Sport Grant Programme and the tab marked ‘WHAT IS THE SPORT GRANT PROGRAMME?’ on its website states that “the FIA Sport Grant Programme was established in 2014 with funds from the Concorde Agreement as a new source of funding for National Sporting Authorities (ASNs).” So what exactly is the Concorde Agreement that is referred to in these sources?

In a nutshell, the Concorde Agreement is F1’s governance contract and it is signed by the FIA and the Commercial Rights Holder of the series, Formula One World Championship limited which is registered in the United Kingdom as the following link shows.

The version of the contract currently in force, known as the Concorde Implementation Agreement, was executed on 22 July 2013. It commits both the FIA and the CRH until the end of 2020 with a renewal on substantially the same terms envisaged for the following decade.

The Concorde Implementation Agreement boosted the annual regulatory fees paid by the CRH to the FIA which was originally fixed in 2001 when the former was granted an exclusive license to F1’s commercial rights by the latter for 100 years.

Reflecting this, page A-8 of the following filing from Liberty states that “Under the 100-Year Agreements entered into by Formula 1 and the FIA in 2001, Formula 1 was granted an exclusive license with respect to all of the commercial rights to the World Championship, including its trademarks, in exchange for a significant one-time fee of $313.6 million in 2001 and annual escalating regulatory fees to the FIA.”

The following link to an FIA report from September 2013 adds that “the framework for the implementation of the 2013 Concorde Agreement has now come into force. This agreement provides the FIA with significantly improved financial means to pursue its regulatory missions and to reflect the enhanced role undertaken by the FIA in motor sport.”

So the Concorde Implementation Agreement boosted the regulatory fees paid by Formula One’s Commercial Rights Holder to the FIA and official documents reveal what it did with this money from the sport.

The following link to an FIA newsletter, dated 25 June 2014, includes an interview with its president Jean Todt who outlined his plan “to construct an ambitious development policy for ASNs, similar to what is being done by other international sporting federations.” The newsletter adds that Mr Todt said “the key to this development would be the careful allocation of the funding made available by the F1 Concorde Agreement and funds from the 100-year rights issue of F1 that are now available.” Enter the Sport Grant Programme.

The page about the Sport Grant Programme on the FIA’s website was altered in September 2017 but the previous version can be seen here on the Internet Archive. It says of the Sport Grant Programme that “a new source of funding is available from the FIA from 2014 coming from Concorde monies.”

The current page on the FIA website adds that “the FIA Sport Grant Programme started in 2014 with the aim to develop motor sport and help to strengthen the ASNs. The Programme is overseen by the Sport Funding Commission (SFC), previously known as the Funding Review Commission. The Commission is composed of high-level representatives of the FIA and the World Motor Sport Council from around the world, and decides on projects to be awarded funding with Senate approval.”

In summary, the SFC assesses applications and it is composed of high level representatives from the FIA and its decision-making body the World Motor Sport Council. It decides on projects to be awarded funding and, according to page 23 of the ASN Development Manual, it has established key performance indicators to ensure that the money is spent to grow motor sport. All SFC funding recommendations are then subject to verification by another FIA decision-making body, the Senate.

There is no suggestion that the projects which receive funding are illegitimate or that the application process is improper in any way. As it is the FIA which pays out the grants, obviously neither F1 nor the teams or drivers play a part in the application process. Testimony to this, the FIA goes to great lengths to outline the hoops that applicants have to jump through.

The grants cover four areas: safety, social responsibility, motor sport development and ASN structure and management. Clubs can only apply for a grant in one of these categories each year with the maximum amount of funding coming to $60,000 (€50,000) as shown on the FIA website.

The tab marked ‘HOW WILL THE GRANT FUNDING BE PAID TO MY CLUB?’ on the Sport Grant Programme website reveals that grants are paid in three instalments. The first, representing 40% of the total, is given on signing of the agreement. The second instalment, which also comes to 40%, is paid on approval of an interim report when half of the project is under-way. The remaining 20% is paid on approval of the completion report at the end of the project. So how much has been paid out?

According to this FIA report, from the inaugural year of the scheme “a total of 52 projects making a total of €2,121,083 [$2.5 million] will be distributed in 2014 under the FIA Sport Grants Programme.”

Two years later it had accelerated. Page 44 of the FIA’s 2016 Activity Report says that “of the 90 applications, 72 were recommended for approval, with the Senate approving all of the proposed applications. The distribution of funding has now begun. The FIA Sport Grant Programme funding of €3,130,757 [$3.7 million] is just part of an overall allocation to the ASNs from the Sport Development Fund, with a total of €3.75m [$4.5 million] benefiting the ASNs via the grants programme, as well as Sport Regional Congresses, Sport Conference and Global Training Programme.”

Page 74 of the Activity Report shows the part this plays in the FIA’s finances as “expenditure in 2015 amounted to € 103.4m, an increase of 22.4%.” It adds that the FIA had “resources of €114.9m, an increase of 6.4% on the previous year. Some 40% of the total is derived from Formula One activities, primarily from compensation received through the FIA's fulfilment of its responsibilities as an international sporting federation within the championship.”

Accordingly, it states on page 75 of the Activity Report that “as a non-governmental organisation in charge of regulating a world leading sport, the FIA paces great store in the maintenance of its integrity, in the safeguarding of its operation against the threat of bribery and corruption and in guaranteeing legal compliance. As such, in 2015, the FIA requested a compliance analysis of its activities in this regard by international consultants Deloitte. This analysis, which took place between January and March of 2016, aimed to evaluate the Federation's performance and to recommend best practices that might be adopted to further guard against corruption.”

The Activity Report adds that Deloitte’s report about this was first presented to the Senate in April 2016 and noted that the FIA had implemented mechanisms to improve its compliance policy including the formation of an ethics committee, creating a conflict of interest declaration form, appointing four independent members at the Senate and the existence of grant review committees.

However, the Activity Report adds on page 75 that although Deloitte recognised the threat of corruption was diminished, it “noted that residual risks remain.”

Accordingly, Deloitte’s analysis put forward a number of recommendations and the Activity Report says that in September 2016 they were reviewed by the FIA’s Statute Review Commission which proposed detailed measures of implementation. They went through approval stages and proposed changes to the FIA regulations were then ratified at its General Assembly meeting in December last year.

So what were the recommendations that Deloitte proposed to the FIA to deal with the “residual risks” that it had identified? The Activity Report states that one includes strengthening of the monitoring of the use of grants awarded by the FIA. Time will tell what next year's report reveals.

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