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IMPORTANT: The RDG-CARS termination, the error of the CARS President and Board, and reform for CARS

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#1 ·
IMPORTANT: The RDG-CARS termination, the error of the CARS President and Board, and reform for CARS

To the shareholders in Canadian Rally:

I write to you as a competitor only and not representing any interest group.

The President of CARS (Terry Epp) and the Board of CARS (the elected representatives of the competitors in each of the five regions) committed a grave error at the end of last week that jeopardized rallying in Canada and from which it may not recover in the near future. The significance of this is enormous, it should not have happened, and it indicates to me, and I hope to you, that profound changes have to be made in the way rallying is run in Canada. I believe that it may cause me to lose my sponsors and not be able to continue racing.


BACKGROUND:

As you may know, the Rally Development Group (RDG) was formed early this year by Jud Buchanan and Keith Townsend to handle the business end of rallying in the country ? sponsor development, media relations, competitor relations, and so on. This had previously been the mandate of CARS through the Board of Directors and Terry Epp.

RDG came into being essentially because Subaru Canada, the most significant sponsor of the rally series in Canada, felt that its support had been taken for granted and that CARS was not doing its part to develop other co-sponsors of the series to take some of the burden. At the 2002 CARS Annual General Meeting (AGM) in Calgary they said that they would renew their sponsorship for one more year on the explicit condition that a cosponsor be found during 2003. When CARS did not do this, they gave the sponsorship money to RDG to be used as RDG saw fit in 2004. At the 2003 AGM in Montreal, Terry Epp and the Board arrived at the meeting with no sponsorship in place for 2004 and RDG arrived with Subaru?s mandate in hand.

The majority of the Board and President did not accept RDG and the arrangement with Subaru happily. They resisted the idea of a marketing group and thought that they could negotiate an independent deal with, first, Subaru, and then Yokohama.

By then end of the meeting only the intervention of the committee of event organizers broke the deadlock and a tense arrangement between CARS and RDG, with Subaru?s backing, was put in place for 2004.


THE CURRENT YEAR:

Throughout 2004 RDG did what I (and I believe all competitors) thought was an excellent job of marketing rally in Canada. We?ve seen newspaper coverage of an unprecedented scale, the TV shows have been excellent, and RDG was developing sponsors for 2005 and beyond. Tow funds have allowed more competitors to cross the country to make the series more national. The RDG webpage was very professional and I could send sponsors there to explain the series and follow its progress, which I could never say of the CARS page. In short, they were marketing rally in Canada better than it had ever been marketed before. They were running it as a business, but as a startup business in which they took a personal loss in the first year in order to build the business.

The RDG-CARS agreement that had been hammered out under the tense circumstances of the 2004 Montreal AGM contained a termination clause that would allow either party to terminate for non-performance of some substantial aspect of the agreement. The deadline for the termination provision was midnight on Nov. 12.


THE UNJUSTIFIED ACTION:

On Nov. 11, Terry got what he considered enough support from the board - and not everyone on the board participated in this process - to go to RDG and stipulate contract changes on the day before the termination clause deadline. The changes were significant and odd: a two-week termination notice provision (which is impracticable when working with sponsors who expect to be able to rely on RDG for at least the whole year), stipulated consultation with the CARS president (alone) for any sponsor negotiations (also highly burdensome), and a $2,500 licence fee per event to be paid by RDG to CARS. What any of these things was likely to achieve or how it addressed any perceived problems with RDG was not explained to anyone, including the certain board members who were not consulted.

As a lawyer who negotiates contracts every day I can tell you that these are highly onerous obligations to impose, for no apparent reason, at the last possible moment, and if I were a lawyer for RDG I would have advised them to consider, among other things, walking away.

RDG considered the obligations too onerous, and their unwillingness to capitulate led Terry, acting alone or with partial board support, to terminate the agreement with RDG at literally the 11th hour - half an hour before midnight of the termination deadline.


THE CONSEQUENCES:

Either Terry and the board members did not consider the consequences or they were monumentally blind to the significance of the termination.

In the first place, all goodwill with current sponsors and RDG itself is lost. Now, I don't think anyone saw RDG as a one-year startup - these relationships take time to build and all evidence indicated that RDG was doing as good a job as anyone could in similar circumstances. I see no negligence on their part.

Of course the most precious relationship has been with Subaru. We know from last January's AGM that Terry believes that CARS can convince Subaru to renew and that he can do it directly. But all evidence is to the contrary: Subaru appointed RDG as their agent for the sponsorship monies for a reason and that's how we (a) got here with RDG and (b) convinced Subaru that renewing was worthwhile even after the previous year which had been conditioned upon CARS getting co-sponsors of significance. That failed, so Subaru went to RDG. Now CARS has caused RDG to fail, and I will not be surprised if Subaru pulls out of title sponsorship.

I believe that Subaru has been very, very clear that it will not deal with CARS directly. If Terry and the board did not realize that (and, it appears, may still deny it) then we have to question the wisdom of those who do not see what was perfectly plain to everyone else at the last two AGMs: Subaru feels taken advantage of and will only deal with rally in Canada through more businesslike channels than they did previous to 2003. Further, they have lots of requests for their sponsorship dollars and must consider where to most effectively place them. If the placement is not effective or the relationship too difficult, then they can and will pull out.

If there is no title sponsor equivalent to Subaru, then there can be no television, and without that, the manufacturer rally teams (including Subaru?s own, and Suzuki?s) become less valuable and difficult to keep in the series. Without TV, I expect teams will pull out.

I and others at the front of the pack cannot make competing viable without TV and media for my sponsors, and at this crucial moment - while budgets are being done and decisions being made ? if I tell them that there is no TV I will have a harder time convincing them to support me. So I'm in a very bad position personally. Without a change, I won't be able to race.


WHAT HAPPENED?

So the way that I see it is this: essentially unilaterally, or perhaps with partial support of the Board, but for no apparent reason, Terry Epp has probably lost Subaru, lost whatever other sponsors RDG had been cultivating, and consequently removed a number of competitors from the field. Further, I understand that some of the Subaru money has traditionally been used by events to cover expenses ? without this, organizers will find it more difficult to make events viable, and entry fees may rise, affecting all competitors.

So corporate legitimacy and consequences aside, here's what really upsets me and what we must address: did anyone think of the competitors? Did Terry (and the partial board?) just not realize that his actions would take out not just individual competitors, but possibly entire teams? Early yesterday I emailed Terry to ask ?what I am supposed to do now?? but he has not responded.

Also, as a matter of corporate procedure and accountability, not involving the whole board in a meeting to discuss a very significant executive action is against the law of corporations. In a business it would normally lead to the removal of the director in question. Worse, it appears that Terry and at least some of the board are now participating in a reprehensible plot to solicit Subaru directly with the expectation of being turned down in order to shift blame away from themselves and onto Subaru and RDG, which is preposterous.

So I believe that something has to be done.


WHAT CAN WE DO?

First, I think that Terry Epp should resign or be removed as president for abusing his position as an officer elected by the Board that he did not properly consult.

Second, I think that the competitors in Canada should form a Competitors? Committee so that their interests can be articulated and protected at the national level. Technically, of course, the regional directors on the board are supposed to fill this role, but they have not done so on this occasion and I believe that a Competitors? Committee, mirroring the Organizers? Committee that currently exists, is an appropriate entity. Board members must be made accountable to their electorate.

Third, I think the by-laws of CARS should be revised to (a) increase the number of board members from five to seven, to include the President of the Organizers? Committee and the President of the Competitors? Committee, and (b) reform the process of electing a President to a more complete and democratic process that does not involve the outgoing president presenting himself to the Board at the end of the final Board meeting of the year, literally at the 11th hour on the night before the AGM, for reappointment.

Fourth, the tasks and paperwork associated with the CARS office in the Epp?s home should to the extent possible be contracted to a secretary or other entity. The Epps are paid an annual stipend for this. It has been suggested that the ASN itself might be an appropriate administrative office, and we can negotiate the fee. Otherwise there are others who I think might be willing to take this on.

All of the above is simple enough to achieve with respect to the bylaws and operating procedures of CARS ? it just requires the competitors and club presidents to use their voices.


IN CONCLUSION:

In summary, something has to change in CARS, from the parties who are running it, to the by-laws that require revision, to the lack of consultative process, to the unbusinesslike modus operandi. As a competitor and shareholder I feel absolutely cheated. If this were a corporation and I an investor, I would sue for management negligence, and CARS would become another Enron or Andersen with directors that misrepresented the business realities for their own interests.

What can we do right now about the departure of RDG and possibly Subaru? The first thing is to attempt to reform CARS along the lines above, or along lines that you might suggest. The second is to request in the most reasonable terms that RDG reconsider their position. The third is to tell Subaru that, unbelievably, CARS doesn't fairly represent the people who give the board its mandate, and that continuation is viable and wise.

Will this undo the very grim consequences of Terry?s actions on behalf of CARS last week? I sincerely hope so. I also hope also that we can move forward with a better organization and a stronger community. This is a terrific sport, and we need effective, businesslike people running it who both love it as a sport and know how to manage it.

As a competitor,
ACP

Please see related posting at http://www.specialstage.com/forum/cgi-bin/DCForumID4/680.html for announcement of a meeting at Tall Pines this weekend to found a Competitors? Committee.

See also the news item that has just been posted at www.insidetracknews.com - click on "Breaking News"
 
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#27 ·
CARS Official Response

INFORMATION BULLETIN #1

November 18, 2004

Subject: Termination of the CARS-RDG Marketing and Broadcast Rights Agreement and plans for the 2005 Canadian Rally Championship

A year ago, CARS entered into a five year marketing and broadcast rights agreement with Rally Development Group (RDG). Included in the wording of the agreement was a one time option to terminate the agreement at the end of the first year. The primary aim of the agreement was to secure long term commercial sponsorship stability for the Canadian Rally Championship. In addition, RDG had presented a very desirable program for both the development of the sport and its promotion.

During the first ten months of the agreement, three shortcomings in the agreement became more acute and a unanimous CARS Board decision was made to present to RDG with a request for changes to the agreement. The three changes CARS asked for concerned respectively, a shortcoming of the agreement, a means of improving the working relationship between RDG and CARS and, lastly, the financial stability of CARS. The rationale for the changes was as follows:

1. In the agreement, there was no protection for either CARS or RDG in case of failure of either party. CARS was exposed to possible legal difficulties if RDG were to fail or get in difficulty during the life of the contract and the assigned rights given to RDG could pass to others or be held beyond the reach of CARS. As well, RDG was exposed to fulfilling all financial commitments even if an event in the championship did not run. The wording of the first change was an attempt to address CARS?s issues and would have been expanded to address RDG exposure.

2. The second change was designed to relieve some of the strain that existed between CARS and RDG in the first year of the agreement. The change asked for increased communication, on a confidential and timely basis, on matters relating to sponsor negotiations and media campaigns.

3. The third change was an attempt to help put CARS on a secure financial path. During the first year of the agreement, CARS received approximately 2% of the total budget to which RDG was committed. CARS did not ask for new money to be added to the budget, but that already existing funds be reallocated from other aspects. The amount being asked for would bring the total payable to CARS to less than 5% of the total budget. CARS is currently operating in a very serious deficit position and to continue the agreement without a financial solution would result in the financial collapse of CARS before the end of the agreement.

The decision to exercise the option was made by majority vote when efforts to negotiate three changes to the agreement were rejected by RDG, at 7:15 pm. The rejection was without explanation and came twenty-four hours after RDG first received them. This was less than five hours before the option to terminate would expire and the agreement would have become binding on both parties for four years. Friday evening contact attempts by the CARS president went unanswered.

At 11:00 pm on Friday, November 12, 2004, CARS, with great reluctance, informed RDG that CARS wished to exercise its option to terminate the CARS-RDG Marketing and Broadcast Rights Agreement. Included in the notification of exercising the option to terminate was an offer to rescind the notification if a settlement of the three requested changes could be negotiated. All attempts on the morning of Saturday, November 13 to contact either principle of RDG were unsuccessful. Messages were left inviting RDG to contact the president. No response was received at any time over the weekend. Further attempts, including intercession by ASN Canada FIA and the chairman of the national organizers? committee on Sunday, November 14 similarly failed. Attempts to establish dialogue continued throughout both Monday and Tuesday, but RDG indicated, through others, they did not wish to reinstate the old agreement or become involved in a new agreement or anyone else concerning the 2005 CRC.

The decision to terminate the CARS-RDG Marketing and Broadcast Rights Agreement was a difficult one to make because of the desire of the entire CARS board to continue with the agreement to allow the good work started by RDG to continue to prosper in the four remaining years of the agreement. However, sometimes difficult decisions have to be made to protect the best interests of the sport.

Current Situation:

Even at this late hour, CARS is prepared to work with RDG if there were any possibility they wished to continue on the path they had started in 2004, but the way forward should reflect the best interests of all parties involved.

Plans for 2005:

CARS wishes to assure its member clubs and their members, organizers and competitors as well as its present sponsors that there will be a Canadian Rally Championship in 2005 and beyond. While we are still hopeful that the present situation can be rectified, the CARS board is committed to press forward to retain the present sponsorship of Subaru and seek other sponsor partners. One of the first acts in the coming days will be to establish a relationship with a marketing company with an eye to improving the commercial side of the sport. However, CARS will pursue all sponsor possibilities that present themselves in the immediate future.

(Because of the urgency of time, this document is being released in English. The French language document will follow as quickly as possible.)
 
#28 ·
RE: CARS Official Response

Geez, there goes Terry Epp, being all disciplined, diplomatic and introspective again!!!

Now that you have a response from the other side, you can see that there is more to this issue than meets the eye. RDG is shown to be not as perfect and innocent as was once suggested.

Since this black and white issue has been shown to be varying shades of gray all over the place, I suggest we stop the speculating and public discussions here, since that can only lead to more damage being done with potential sponsors.

And ACP, I do agree wholeheartedly with you that we need full accountability from everyone where this sport is concerned.
 
#29 ·
RE: IMPORTANT: The RDG-CARS termination, the

>Cars Reform -
>As it stands, there is an massive imbalance of power.
>Rallywest has had 31 drivers compete in the last 3 years, 28
>have driven events this year. We have an additional 15 cars
>in construction NOW, and issued 17 (yes, seventeen) new
>logbooks THIS YEAR.
>Because we 'all get along' we only have 4 clubs in Rally
>West, and as such 4 votes at the AGM.

Massive imbalance of power...

Yet another issue seen through the glasses of west vs. east?

I don't think any of what's going on has anything to do with the ebb & flow of rally participation in any given region.(and it will ebb - wait for the price of oil to drop...)

Terry, you can continue to be president but you've got to pack up the family and join the ranks of eastern refugees 'out west'

Robin
 
#30 ·
RE: IMPORTANT: The RDG-CARS termination, the

>Yet another issue seen through the glasses of west vs. east?

>Terry, you can continue to be president but you've got to
>pack up the family and join the ranks of eastern refugees
>'out west'

Robin,
I wasn't actually going after the Western Alienation thing here, and I'm offended that you'd bring that out. You are using a cheap trick to deflect and marginialise a real issue as just 'western whining.'

I was simply pointing out that regions that are active and cohesive enough to acomplish growth without splintering into a half dozen clubs have less of a voice at the CARS AGM. That's not right no matter where the region is! The voting power at the AGM should be somehow representitive of the stakeholders (Competitors, organisers and workers) in the sport. Right now it isn't!

That there is a tangible inequity for western competitors is an entirly different issue ... and one that seems easily dismissed by putting off as another 'west vs. east' gripe.
 
#31 ·
RE: IMPORTANT: The RDG-CARS termination, the

>>Yet another issue seen through the glasses of west vs. east?
>
>>Terry, you can continue to be president but you've got to
>>pack up the family and join the ranks of eastern refugees
>>'out west'
>
>Robin,
>I wasn't actually going after the Western Alienation thing
>here, and I'm offended that you'd bring that out. You are
>using a cheap trick to deflect and marginialise a real issue
>as just 'western whining.'
>
>I was simply pointing out that regions that are active and
>cohesive enough to acomplish growth without splintering into
>a half dozen clubs have less of a voice at the CARS AGM.
>That's not right no matter where the region is! The voting
>power at the AGM should be somehow representitive of the
>stakeholders (Competitors, organisers and workers) in the
>sport. Right now it isn't!
>
>That there is a tangible inequity for western competitors is
>an entirly different issue ... and one that seems easily
>dismissed by putting off as another 'west vs. east' gripe.

Keith,

I'm sorry you're offended. No cheap tricks here - simply an expression of dismay that what is shaping up to be an important issue of interaction between CARS and the membership is being reduced to an enumeration of how many cars are being built in your region.

It's great that you're active and cohesive. It's a simplification (and perhaps not-a-little offensive) to imply that the greater number of clubs elsewhere is an indication of less activity and a lack of cohesion (or splintering).

I completely agree that the decision-making regime should be representative of all of the stakeholders. I believe that what is being exposed here is not western-competitor alienation/inequity but competitor alienation and that we have an opportunity to do something about it before we start pitting regions against one-another: counter-productive.

Robin
 
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