Why did the Formula One deal crash?

Motor racing fans will know, having spent a frustrating Saturday afternoon watching a hastily scheduled movie instead of their Formula One heroes, that the legal battle between ITV Sport and Bernie Ecclestone, president of the Formula One Constructors Association, is far from over.

Despite paying out £72m in a five-year deal for the broadcasting rights to Formula One, ITV was prevented from televising the French Grand Prix's qualifying session on 26 June.

The French fiasco is not the only problem to have beset ITV's coverage since it secured the broadcasting rights back in 1996.

For the first race of this season the ITV crew was barred from its trackside studio in Melbourne and forced into temporary headquarters until Ecclestone granted it a last-minute reprieve. At the same event, there was conflict over the number of cameras ITV was allowed in the pit and paddock areas at the circuit.

ITV has also complained and even threatened legal action against Ecclestone over the number of in-car camera views available to it compared with Ecclestone's digital operation, Foca TV.

It is speculated that the point-blank refusal by Ecclestone to allow ITV to show the qualifying sessions of the French Grand Prix arose because when ITV negotiated the deal in 1996, it assumed, rather than specified in the contracts, that it would be receiving the same package as that enjoyed by the BBC.

But it did not, and Ecclestone was quoted in the 28 June issue of the Sunday Express as saying: “They have dragged their feet for two years. I have allowed them to show qualifying and have other shows, but I owe it to my company to sort it out.”

Legal experts are surprised at ITV's apparent naivety. “It is surprising because you would expect ITV to know what they are doing,” says Felicity Reeve, a partner in Bird & Bird's company department and sports group.

An ITV spokesperson accepts that the company was naive, admitting: “live qualifying coverage did not form part of the original contract”, but adds that it is now “trying to resolve the matter”.

So how did ITV, when dealing with such costly and important rights, get itself in to this predicament?

One pivotal reason is that the competition to secure broadcast rights for major sporting events is intense. Rights holders and broadcasters often deal with these rights on the basis of a short-form contract or heads of agreement which allow the parties quickly to set down the core rights, even if this is only in non-binding form, leaving the detail to be resolved later.

“Usually, broadcasters find that they have enough purchasing power and muscle to resolve any problems that do arise,” says Reeve.

“In the current case, however, Ecclestone may be putting the squeeze on traditional analogue broadcasters in order to give more favourable rights of access to his digital broadcast service,” she says.

ITV was desperately keen to secure the rights to Formula One. Although the short form agreement caters for situations where speed is vital, ITV's negotiations were conducted especially quickly.

“There were only two or three weeks between the first conversations and signing off the deal,” says ITV's spokesperson. Such negotiations normally take much longer, often up to several months. With such speed the obvious danger is that omissions are made.

As recently as five years ago, says Jonathan Higton, a partner at sports law specialists Townleys and an expert in sports rights acquisition, it was not uncommon for a contract to be signed off without even passing through the hands of a lawyer.

“Most of the stuff on Grandstand- aside from the major sports, football, cricket and tennis – the business is still done on the shake of a hand,” he says.

One reason for this, he explains, is that the world of sports law is small, despite its sexy profile, and there are only a limited number of players and a limited amount of work.

Brann says particular care has to be taken when negotiating with Ecclestone, who has a reputation for finding cracks and exploiting them.

“Bernie Ecclestone is famed for pulling out a contract and saying, 'where does it say you can do this?'” says another lawyer who has dealt with Ecclestone in the past.

With the pressure on to sign deals quickly and with all the chips seemingly on the organiser's side, what can lawyers acting for broadcasters do?

Because of the inherent dangers of short form agreements one leading sports lawyer recently bucked the trend and took the opposite approach. His broadcaster client refused to sign off on a deal until all the details had been finalised.

This, he says, proved “terrifically persuasive”, because it is easier for a lawyer to delay proceedings than an organiser whose sporting event is running close to deadline.

Those who have successfully negotiated the sports sponsorship minefield argue that the most important thing is to know the sport, its structures and, crucially, the changing media climate.

Andrew Brann, head of business affairs at Channel 4 and the man responsible for the rapidly prepared but nevertheless successful negotiations with the English Cricket Board, says the most important element for lawyers is to anticipate the changing market. “It is about understanding the sport and the structure of the sports bodies,” he says.

Whereas currently the issue is pay-versus-free TV, in the future it will be interactive TV and websites, he believes.

ITV's problems with Ecclestone highlight the complexities of broadcasting licensing, particularly when the sector has existed for so long on the basis of informal agreements and hastily written contracts.

Ecclestone is expanding his own digital TV interests which may make the next round of negotiations even more complex. As Reeve puts it: “When his commercial goal becomes different to theirs, if you haven't got the contract rights bolted down the cracks start to appear.”

With these developments and more and more niche media interests seeking a foothold, the ITV/Formula 1 fight may prove to be a turning point as lawyers start to advise clients to look far more closely at the small print – indeed, to make sure there is some small print.

Four pitfalls to avoid when negotiating broadcast agreements

Failure to recognise the distinction between broadcast rights (the right to make and transmit recordings of an event) and the underlying coverage rights (the right of access and to key facilities required to produce the recording). A broadcaster might secure the exclusive right to broadcast coverage of a football match but fail to secure a right of access to the stadium for its camera crew with the result that, while the event owner may not be in breach of contract, the broadcaster cannot produce any coverage to broadcast.

Failure to recognise the importance of technical detail in scoping the grant of rights properly. The lawyers must work closely with the commercial and technical people who know what is needed to produce broadcast-standard coverage of an event – for example, how many cameras are required, where should they be located, is an outside broadcast van required, what power is on hand, what about the satellite uplink?

Failure to appreciate what use the broadcaster wants to make of the coverage. Deferred coverage, highlight packages, video sales and clip licensing also have a value and the broadcaster may need to exploit these rights to recoup the rights fee. It is the lawyers' task to ask the right questions to elicit this information and ensure the broadcaster has all the rights it needs.

Failure to appreciate and advise the broadcaster about legal limitations on the granting of rights. The broadcaster needs to be aware that granting the “exclusive” right to produce coverage of an event may be meaningless if it is not backed by an undertaking from the event holder to take action to protect the rights granted to the broadcaster, for example, by ejecting other camera crews.

Felicity Reeve, partner, Bird & Bird