Marussia’s financial position was exposed to the light of day this week and it was glimpse of the impact the global economy is having on Formula 1 teams—especially the small teams. Formula 1 has been relatively quiet on what the overall impact has been from TV revenue, advertising, sponsors and hospitality.
It doesn’t take too much divination to come to a conclusion about Formula 1. When the calendar expanded to far-flung locations such as Malaysia, Korea, India, Abu Dhabi, Bahrain, Singapore, China and turkey—the story was writing itself.
Through emerging markets, government subsidies, TV broadcast rights and a creative sanctioning fee escalator; Formula 1 has maintained a profitable revenue stream. With exotic locations comes risk and even through political strife, Formula 1 still managed to participate in grands prix while clashing parties screamed, “get your filthy hands off my desert”.
This week the news keeps exposing the shaking knees of Formula 1 as the Sliverstone circuit has posted the single biggest loss of any track in Formula 1 history. According to the Telegraph’s Christian Sylt, Silverstone posted a £54.4m loss in 2011. The P&L is right here.
Silverstone is owned by the British Racing Drivers Club (BRDC) and consists of over 800 members. BRDC chairman Stuart Rolt explained the loss by saying:
“2012 accounts [unlike previous years] reflects the offer made to acquire those assets rather than a future profit calculation”. He adds that the price paid by MEPC “is considerably less [by £20.4m] than the value ascribed to this land in our 2011 Balance Sheet”.
It was announced last month that the directors agreed to sell a lease on Silverstone along with 280 acres surrounding the track to the MEPC which is a property group owned by the BT pension fund. The recent revelations regarding the loss has caught the notice of some and threats of a revolt have surfaced with a group of members writing to Mr. Rolt saying:
“hear the details of the two deals BEFORE we vote on any resolutions, as if we are unhappy with them, we may not wish to support some of them, perhaps the appointment of auditors and directors”.
Long-time BRDC member and 30time world champion Sir Jackie Stewart said:
“I think [the BRDC] had their back to the wall to a large extent because they had to find that money as quickly as they could…or the bank would have been calling it in.”
“The point is that the Club is secure now”.
Turkey came and went as a venue to host Formula 1 while Korea is on the ropes and India has bowed out of the calendar for 2014 with intent to return in 2015. China has been rumored to be suffering along with Australia whose government subsidy is being scrutinized to see if the return on the investment is worth funding the Melbourne season opener.
Sochi, New Jersey, Austria and Mexico are slated for an appearance on the 2014 calendar but if the economy continues and losses mount, you can expect to see the venues constantly changing as Formula 1 marches forth seeking would-be financiers in the shape of governments, emerging markets seeking global legitimacy and risk-taking cavaliers with a need for speed.
If, reading into Sir Jackie’s comment, you can assume that he BRDC was looking to stabilize itself and the process of recording the offer instead of future profits was to appease banks and assuage any notes being called by lenders, then perhaps this is the only solution they had but that’s a lot of “goodwill” on anyone’s balance sheet to absorb.
The United Kingdom is the spiritual home of Formula 1 and it could be a difficult narrative about formula 1 if the host of the British Grand Prix is taking losses of this magnitude. With much of the on-event revenue that is generated at the circuits going to formula 1 Management, circuits will have to raise ticket prices or seek alternative methods of revenue generation.
Austin’s Circuit of the Americas is attempting to do just that with concerts, events, food and infusing the spirit of Austin into the race weekend. In the end, track economics have to work and Silverstone may have to get much more creative in their efforts because this is, after all, the home of Formula 1 and “As Falls Wichita, so Falls Wichita Falls”.