When dumping an F1 race is profitable

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If the Telegraph has their sums right, ditching the British Grand Prix may just be a money-making proposition for the BRDC’s Silverstone Circuit.

According to the report:

“while we would hate to lose the British GP, Silverstone will have a bright future without it”.  It has now come to light how bright this will be. The BRDC’s accounts state that “approximately half of annual revenue continues to be generated by a single event, the British GP”.  

This came to £27.5m in 2016 with the remainder generated by amateur events and other races. They will be retained and, unlike F1, are highly profitable. The BRDC announcement revealed that “by running the British GP we sustained net losses of £2.8m in 2015 and £4.8m in 2016”. 

This means that the cost of running the race came to £4.8m more than the £27.5m that it made in revenue.  It gives the British GP costs of £32.3m, with the BRDC’s non-F1 costs coming to £20.8m, as it had total expenses of £53.1m.

After dropping the Grand Prix, Silverstone will be left with £27.5m of revenue from events which are not connected to F1.  Deducting the £20.8m of costs that come with them yields a £6.7m operating profit, which gives a total of £46.9m over the seven years which were remaining on the BRDC’s F1 contract.

There is no doubt, like in the case of the Circuit of the Americas, the sanction fees are high and track economics have to work. The recent conversation about special deals for certain circuits and contract renewals as well as the circuit owners group meeting with new owners, Liberty Media, all add to a continuing challenge for the commercial rights holders.

F1 boss Chase Carey has a lot of work to do. Of course he’ll want to keep the British Grand Prix because he stated last year that keeping the iconic and old races in F1 was paramount and especially the European arm of F1.

He also has discussed adding more races in the US and that could be challenging if the USGP in Austin decides to bow out as well. I continue to hear rumors of a tenuous financial situation at COTA but again, those are unsubstantiated rumors. However, losing the only race in the US wouldn’t help in seeking to have two or more races here.

Perhaps the British GP can stay but maybe it won’t be at Silverstone and when this cropped up in the past, I was a tad surprised at how indifferent many of the British fans seemed to be about the race moving to a different circuit (the enviable position of having several great race tracks in your country no doubt). Perhaps Chase can work a deal with another circuit if Silverstone can’t come to an arrangement or perhaps F1 moves to a street race in London since F1 seems intent on adding more street circuits these days.

At some level, I wonder if there is blood in the water? Step back a bit and look at the last time F1 was sold to CVC. The investment group made the right move in keeping Bernie Ecclestone in charge and while he may have been difficult for them to manage at times, he did keep all four wheels on the car and circuits in line (paying big fees) and the teams on the grid and broadcasters paying.

When Liberty came in, they punted Ecclestone to the curb and for a host of reasons I can understand..including urinating on the bush to mark their spot as it were. However, all of those relationships were built over decades and Mr. E knew how to nuance them. All of that is gone now. There is no decades-long relationship and the teams are threatening to leave if Liberty makes a wrong move, the circuits are threatening to quit if fees aren’t lowered and fans are threatening to turn the TV off if racing isn’t improved and tickets prices aren’t lowered. All of this is making things a bit choppy on what was otherwise mild waters.

CVC knew this and for that reason, they retained Ecclestone to safeguard their investment. They wanted it to continue to generate the revenue it did. They chose not to shake it up, usher in a revolution or radically change the series.

There is little doubt in my mind, having seen the blowback from the hybrid engine regulation changes, that CVC knew Mr. E wouldn’t live forever and also they knew the regulations were set to change again soon so they bowed out. It is all a timing issue and Liberty came in just as everything was maturing to a delicate crescendo.

Liberty chose not to seek Ecclestone’s assistance in setting another regulation period for 5 years or batten down the broadcast and race contract hatches as it were. This means they will have some incredibly sensitive negotiations to engage in and I think the promoters, broadcasters, teams and sponsors all smell blood in the water. Chase is going to have to really work hard to get all these issues in hand and on the right path toward the next decade of F1….and without Silverstone as it seems.

Hat Tip: Telegraph

 

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Nigel
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Agreed, however I think there is even more forces at work here against Liberty Media. It is just my opinion, but I believe IndyCar is smelling blood on this one. With the awful HALO, a massively crushing financial structure, and political correctness forcing Prius engines on us and taking away our grid girls; this is IndyCar’s opportunity to take a real bite out of F1. The great British single seater team Carlin has got into IndyCar, and god forbid McLaren may as well, who knows who else may take the leap? I know Cosworth wants to build IndyCar an engine… Read more »

Tom Firth
Editor

Fair points but Cosworth will only enter Indycar if a manufacturer pays for it and that’s been “happening” since 2013.

sunny stivala
Guest
sunny stivala

“forces at work against Liberty” Who dares stand-up to such feared three amigos? Just google “liberty media braced for bumpy road ahead” click on the picture and see for yourself what they stand for.

meine
Member
meine
Carrizojim
Guest
Carrizojim

My problem with Indycar is that, like NASCAR, there is zero innovation and races are boring. Some F1 races are boring too. I’ve became a fan of Aussie Supercars, yes they’re all the same too, but the racing is outstanding. What makes F1 unique is the innovation and like Ferrari, if that goes, so do I.

Tom Firth
Editor

It might make the circuit itself profitable but what impact does it have on the local and national economy. Motorsport Valley (basically the area around Silverstone) and F1 teams directly contributed some 5000 jobs to the economy. The entire British Motorsport Industry in 2012 apparently created £9bn in turnover and employed upwards of 40,000 people. The government in a time of brexit uncertainty, perceived or otherwise doesn’t need highly skilled jobs leaving the country and companies it attracts into Motorsport valley through tax credits having further uncertainty. Not to mention the local economic impact on Northamptonshire and surrounding areas during… Read more »

Rapierman
Member
Rapierman

I have to agree. I think, at this point, the only possible solution is to lower F1’s revenue a bit by lowering the sanctioning fees and their expectations. I have no idea what Liberty was thinking when it hired a whole bunch of people. If they want it to be profitable, they have to make it profitable for everyone or it’s all gonna crash and burn. The sanctioning fees are the first step. Cutting out the waste is the second.

sunny stivala
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sunny stivala

The problem for LM “to settle to Silverstone demands” will mean they will have to settle to all the others demands.

Forrest
Guest
Forrest

Is the UK government anymore likely to subsidize, at least part of the promoter’s race fees now that BE isn’t involved with F1, or is that still a political non-starter?

sunny stivala
Guest
sunny stivala

Race promotors are not happy (FOPA) said that no contract will be renewed under existing financial conditions. We (FOPA) are talking about a reduction in hosting fee.
The lost sponsors like UBS and ALLIANZ downward financial trend is set to continue.