The Cup goes back to court

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Judge sides with BMW Oracle in a dispute on how the next regatta will be run

Judge sides with BMW Oracle in a dispute on how the next regatta will be run

Score this round for Larry Ellison in the battle of the billionaires over who is going to call the shots for the next America’s Cup.

A New York judge has ruled for Ellison’s BMW Oracle Racing syndicate in a dispute with Ernesto Bertarelli’s Swiss syndicate Alinghi — the reigning America’s Cup defender — over organizing the next Cup. Also, score the round for the Cup. As a result of the court decision, Ellison, Bertarelli and George W. Carmany III, chairman of the New York Yacht Club America’s Cup Committee, are putting their heads together to consider some long-term changes to bring the Cup into the 21st century and give it some predictability as both a commercial and sporting event, Bertarelli says in a Dec. 7 open letter.

Bertarelli wants the NYYC and Ellison, the challenger of record following the court decision, to consider these questions:

• Should the defender automatically be qualified for the final Cup match or should all teams start on an equal footing?

• Should the schedule of venues and regulations be announced several cycles in advance to allow planning and funding?

• Should there be a permanent Cup management authority representing the trustees as well as the competing teams?

“I spoke at length with Larry Ellison explaining our proposal, and I was pleased that he was very supportive of the principles in the proposed changes,” Bertarelli says.

Bertarelli says he wants to work toward transforming the Cup into a more predictable event without the drama and court antics and uncertainty over protocol changes that have dogged the 33rd Cup. “The uncertain format of the event [means] that teams — and the entire America’s Cup Community — [have] no future beyond the next Cup,” he says. “This leads to teams only surviving one cycle and the whole event needing to re-create itself every three to five years. This results in a substantial increase in costs and difficulty in securing long-term sponsors.”

In his Nov. 27 ruling, New York County Judge Herman Cahn agreed with the Golden Gate Yacht Club (GGYC) — BMW Oracle’s home club — that Club Nautico Espanol De Vela (CNEV) is an invalid challenger of record for the 33rd Cup because it

hasn’t run an annual regatta as required under the 1887 Deed of Gift governing Cup challenges. Organized just 13 days before issuing its challenge to defender Alinghi, CNEV argued that its articles of incorporation say that it plans to run annual regattas. The judge, however, said that isn’t what the Deed of Gift requires.

The Deed of Gift states that any organized yacht club “having for its annual regatta an ocean water course on the sea or an arm of the sea” is entitled to challenge for the America’s Cup. “That phrase is plainly understood to mean that [an annual regatta] is an ongoing activity; the activity has taken place and is continuing,” Cahn wrote. “It implies that the organization has had one or more [annual] regattas in the past, and will continue to have them in the future.” It also implies that the club has some expertise in running a regatta and is competent to negotiate terms of a challenge, Cahn wrote.

Cahn ruled that since CNEV doesn’t qualify as a challenger, GGYC, which challenged Alinghi 12 days after CNEV, now is challenger of record. And that left Bertarelli with a big decision: Should he accept GGYC’s challenge to race under the format stipulated in the Deed of Gift (a three-race series between BMW Oracle and Alinghi) or should he sit down with Ellison, along with other challengers that want to race for the 33rd Cup, and negotiate a conventional Cup format of challenger trials to choose who races against Alinghi?

Under the Deed of Gift, the challenger and defender can negotiate terms of the challenge, which in recent years has involved challenger trials. But if challenger and defender can’t agree on those terms, then the Deed of Gift stipulates a default three-race series between defender and challenger. The challenger must give the defender 10 months’ notice of the race dates and tell the defender what boat they will race. Ellison, as challenger of record, already has said that if he and Bertarelli can’t agree on a Cup protocol, he will meet Bertarelli next July 4 under the default three-race format in 90-foot multihulls.

But Ellison doesn’t really want to do that. He wants to sit down with Bertarelli and — representing all challengers — negotiate a Cup with challenger trials. BMW Oracle CEORussell Coutts says in a Nov. 27 press release that GGYC wants a “conventional America’s Cup regatta in Valencia [Spain] and is planning to speak with Alinghi as soon as possible to organize a meeting seeking a mutual consent challenge.”

American billionaire Ellison, whose syndicate was eliminated early in the 32nd Cup trials, is eager to race again. “He wants to get this [Cup] back on track as quickly as possible,” says BMW Oracle spokesperson Jane Eagleson, who spoke with Soundings from Valencia. He would accept the 90-foot monohull that Bertarelli’s America’s Cup Management wants for the next Cup boat, favors trials involving as many challengers as possible, and believes the Cup still can run in 2009.

Ellison and GGYC proposed using a nine-point compromise proposal that he and other challengers presented Bertarelli and his home yacht club, Société Nautique de Genève, Oct. 17 as a starting point for adopting a mutually acceptable format and protocol. In his Dec. 7 letter, Bertarelli says he would be “happy to compromise on some of the defender’s rights to achieve what is best for the event,” but he warns that if he and Ellison couldn’t come to some agreement about long-term changes he would just accept Ellison’s challenge of a three-race series in 90-foot multihulls.

Eagleson says BMW Oracle had spoken with other challengers after the court decision, and most are eager to start racing in April 2009, the original schedule proposed for the 33rd Cup. The syndicates think that’s doable, she says, “but we need to move very quickly.” Whether it will be possible to move that quickly on long-term changes to the Cup format and organization remains questionable.

Bertarelli, citing the turmoil and delays due to the BMW Oracle suit, had announced Nov. 11 that he was postponing the Cup indefinitely while the suit played out. Some had speculated that if Ellison lost the New York case and appealed, the 33rd Cup might not run until 2011. “The ongoing uncertainty around the conclusion of the New York court case brought by BMW Oracle Racing leaves the organizers no choice but to delay the event, as many indicators demonstrate a lack of viability to stage the event in 2009 to the same standards as the 32nd America’s Cup,” Bertarelli’s statement says.

Meanwhile, other challengers also are pressing Bertarelli for a 2009 Cup. London’s Daily Telegraph reported that Emirates Team New Zealand, which lost to Alinghi in the 32nd America’s Cup, has asked Bertarelli for compensation for postponing the next Cup because it had challenged for the 33rd Cup based on assurances from Bertarelli that the Cup would run in 2009. The Telegraph said Team New Zealand stands to lose $24.5 million if the Cup is postponed until 2010 and $38 million if it is delayed until 2011. Syndicate CEO Grant Dalton confirmed that it had filed a claim for compensation, and in a Dec. 1 statement says that all the challengers want a 2009 Cup and concur that the nine-point compromise is a sound basis for a mutually agreed protocol. “None of the nine points in this document can be construed as onerous for Alinghi,” Dalton says in that statement.

From Bertarelli’s perspective, this isn’t just about running a race, says Marcus Hutchinson, spokesman for Royal Thames Yacht Club’s TeamOrigin syndicate, one of seven challengers for the 33rd Cup. Hutchinson, who organized challenger trials for a decade before joining TeamOrigin, says Bertarelli is factoring in the Cup’s profitability and his own reputation for putting on a first-rate show as he decides what to do. He agrees that the challengers all want to race in 2009.

“That’s what they challenged for; it’s what they put their commercial programs together for; it’s what they hired their people for; it’s what they budgeted for,” he says.

But the 2007 America’s Cup was one of the most successful ever as a sporting event, as a spectator event and as a commercial event. America’s Cup Management, Bertarelli’s team of uber-managers who turned Europeans on to the Cup and made it a very profitable event, are “struggling with the concept of making the next event as big as 2007,” he says. “The whole thing has to be up and running by April 2009. It takes two or three years to organize an America’s Cup.”

A lot of money is at stake, and that’s an issue for every team except maybe Ellison’s, which can rely on his personal fortune, Hutchinson says. Bertarelli sees the Cup as much a commercial as a sporting event and is keenly attuned to the bottom line. Hutchinson says the last Cup turned an $80 million profit, 45 percent of which went to the defender, 10 percent to Bertarelli’s ACM, and the rest to the challengers.

There also are concerns about entries. Twelve challengers raced in the last Cup. With two weeks to the Dec. 15 entry deadline, there were just seven challengers, though Bertarelli had said two more might declare.

“From a technical point of view and sports point of view, [2009] is not a problem,” Hutchinson says. But “it is in [Bertarelli’s] interest commercially and from a show-business perspective” to wait and do a bang-up job organizing a real show like he did in 2007, he says.

The battle between Ellison and Bertarelli over organizing the 33rd America’s Cup began July 3 last year, the day Alinghi won the 32nd Cup and accepted a challenge from CNEV. GGYC alleged in its suit that Bertarelli’s club, SNG, orchestrated events by arranging a challenge by CNEV, which had been created for that purpose just a few days earlier; by making CNEV challenger of record representing all the challengers for the 33rd Cup; and by getting CNEV to agree to a protocol that puts virtually all decision-making and management into the hands of SNG and ACM.

Now that CNEV is out of the picture, it’s up to Bertarelli, Ellison and the trustee — NYYC — to work out a solution. It seems that sparks always fly around the America’s Cup, Hutchinson says. It “is a wonderful anachronism,” he says. “That’s what makes it attractive to some pretty big players. It’s always a hell of a show.”

Now it’s on to the next round.