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"One On One” with Ernesto Bertarelli and the America’s Cup
by Cory E. Friedman (October 7, 2007)
“Uneasy lies the head that wears a crown.” -- Henry IV. Part II.
“Let me tell you about the very rich. They are different from you and me.” -- F. Scott Fitzgerald.
“Yes, they have more money.” -- Ernest Hemingway.
Imagine yourself with a problem. You are 42 years old and Forbes says you are the 76th richest person in the world with $8.8 billion from the sale of the business your dad passed on to you. You are an accomplished sailor and have run a team that has won the America’s Cup twice. The last time was extremely successful, although a little close for comfort. Your vision is to make the next Cup competition even better, with new bigger, faster boats – while, of course, winning again.
You expected that you would be basking in glory -- the toast of the sailing world. It hasn’t worked out that way. Sure, you did what you had to do, doesn’t everyone? Some people down under were sore when you hired the core of their team after a spat, including the Cup’s greatest helmsman, but you wound up sidelining him for the last Cup competition anyhow. Now they say you cut a few corners when you signed up a paper Spanish yacht club that had never run a race as the challenger of record, which then cut you a pretty sweet deal that allows you to call all the shots. Maybe you didn’t dot all the i’s or cross all the t’s. Everyone knows you can’t make the best omelet ever without breaking a few eggs.
You sure didn’t expect the whole sailing world to be on your case. Most of the main players are on the sidelines. The problem is that, in order to run the Cup and implement your vision, you have to win. If you make it unlikely that you will lose, the biggest players will continue to stay away. If you wind up with just ENTZ and the seven dwarfs challenging, you can’t build the vision. Even worse, the 11th richest guy, with $21.5 billion and climbing from a major business, is desperate to win this time and has not only hired the super-star you busted up with, but has dragged you into court, of all places, claiming you broke the rules. That lawsuit has sidelined the sponsors and you have announced that you may even have to postpone the next Cup. It looks like he will spend whatever it takes to beat you this time and not go down in sailing history as a three time loser. What do you do to turn this around?
One thing you can do is schedule meetings with everyone in the media you can and make your case. That’s how I came to be in the Model Room of the New York Yacht Club with Ernesto Bertarelli, Hamish Ross, Ed Baird, two other members of the Alinghi organization – and the Cup. The Alinghi group had met with the NYYC brass the day before. Sports Illustrated preceded me and the Christian Science Monitor followed. Another day was scheduled in San Francisco. Rather than asking canned questions and receiving canned answers, I cut to the chase and began a real give and take: I realize the structure of the Cup is unique, but the Cup has become a major business, how is it that you guys can’t find a business solution to the dispute and get on with building the Cup into a major franchise, the way that Bernie Ecclestone built Formula 1?
What emerged was anything but the battle of the billionaire egos the conventional wisdom has pigeon holed this dispute as. From what I have seen, it is the same product of bruised feelings and all too human responses that matrimonial lawyers see every day, because that’s what this, a marriage gone bad. The problem is that they cannot live together and they cannot live apart. The two parties just happen to have a lot of money to fuel the dispute.
EB honestly believes that what he is doing is best for the Cup. Bigger, faster boats, built to a simple, straightforward box rule, racing more frequently will bring back the glory and elegance of the J Boat era and build a fan base. The litigation has hamstrung everything. Clearly, EB cannot see a way to solve this problem, other than winning on October 22 before Justice Cahn, which will give Ellison no place to go except back into the fold.
Again and again I came back to the fact that litigation is never a sure thing and business people, who hate uncertainty, usually reach a settlement. For the record, EB is not buying it. He says that Ellison would rather blow up the Cup than lose again and that compromise would be giving in to blackmail. By not giving in he is safeguarding the Deed, so that future defenders will not be blackmailed. To say that he is not an Ellison fan is an understatement. He does not see how the Cup is a business like every other major sport. Although the sailors are making plenty of money, he is spending money out of his own pocket. Neither he, nor his marketing person, who comes from Formula 1, can see how to make the Cup into a long term business the way Bernie Ecclestone’s Premier Racing has used a 20 year TV contract to bring stability and prominence to Formula 1 – and riches to Bernie Ecclestone. I pointed out that Ecclestone stepped back from being a competitor to providing a lucrative framework that competitors embrace, but they cannot see how to get there.
As a result, EB is locked in the 33rd defense as a horizon and at war with Ellison. He spoke to Ellison as recently as last week and the conversation went nowhere. Brad has talked to Russell and the conversation, not surprisingly, as neither controls the purse strings, has gone nowhere. He asked me how much I thought Ellison was prepared to spend to avoid losing a third time. I threw out an impossibly large round number -- $1 billion. He looked me in eye and accepted that number. Clearly he believes that Ellison will spend whatever it takes. Even if you have $8 or $9 billion, that kind of money, with Russell at the helm, has to be something to think about. Certainly, EB’s emphasis on cost containment, including no two boat testing, could be seen as an attempt to blunt Ellison’s spending advantage.
I raised the issue of a mediator, which I knew had 2 ½ strikes against it simply because Oracle has pushed for mediation. EB dismissed mediation, based on his experience with a mediator in his dispute with Russell. He also argued that he cannot negotiate with Ellison because he has a contract with CNEV, but had not response to my suggestion that the solution is to get every interested party in one room and get it done. Repeated attempts to get back to a business solution went nowhere, as the only plan seems to be to convince the media to turn public perception around, which will put pressure on Ellison to accept the Protocol, or to win in court. There seems to be an undercurrent in the group that the sailing establishment, people like Jobson and Trinkle, have it in for them. I pointed out that it is pretty hard for the media to change public opinion and that a resolution that would appear fair to the sailing public would give Ellison no choice but to compete, which is good for everyone. EB did not see that as a solution. He sees Ellison accepting the Protocol as the only solution and does not seem to understand why he is painted as the bad guy or why anyone legitimately objects to the Protocol.
One can never tell what is really going through anyone’s mind or going on behind the scenes, but my initial impression when this litigation commenced that this was legal Kabuki for negotiation leverage is giving way to a suspicion that this is spinning out of control and blundering into the real thing – the Guns of August of the Cup. That suspicion has been heightened by GGYC’s latest motion papers, which take the litigation to a new level and will be covered in a coming report. GGYC is playing for keeps. On October 22 Justice Cahn may be deciding the future of the Cup.
As I was leaving, one of the two Alinghi reps who had not spoken (Ed Baird never did say anything, although you could see the wheels turning) asked me for a three word recommendation. Although I am not that big a fan of mediation, I told him my recommendation was mediation – this could be a win-win for everyone -- as long as the mediator is familiar with the law and the sailing – and is willing to tell the parties when they are full of it.