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British Grand Prix may be at risk says Ecclestone

NEWS STORY
12/05/2014

This month has not been a good one for Silverstone. Sure there was news that ticket sales for this year's British Grand Prix have been boosted by the success of Lewis Hamilton but a few days later it came to light that the British Racing Drivers' Club (BRDC), which owns Silverstone, has shelved its plan to sell the track. Now Formula One's boss Bernie Ecclestone has cast doubt on the future of its flagship race according to an article in Forbes magazine by Christian Sylt.

The BRDC has been trying to sell Silverstone for the past five years and it isn't surprising since the circuit made a £2.2m operating loss in 2012 and lost a further £1m the previous year. This is the asset that the BRDC has been left with as a result of the sale falling through.

"God only knows what is going on at Silverstone, it's quite incredible. This is the BRDC. That's the problem," says Ecclestone. "Who knows whether the race is at risk. We have come to an arrangement with them. I'm happy with that."

Last year Pitpass revealed that the BRDC had agreed to a sale and this was subsequently confirmed when it was announced that the property group MEPC had paid £32m for a 999-year lease on 280 acres of land surrounding the circuit. Instead of putting the money in the bank, the BRDC used it to pay back loans. The debt was taken out to fund construction of the new pit and paddock complex which opened in 2011 and helped Silverstone land a 17-year contract to host the British Grand Prix.

In other words, the sale to MEPC put the BRDC back on an even keel. Now it has to pay the fee for this year's British Grand Prix as the prospectus for the stalled stock market flotation of F1 states that race "fees are often due three months before the Event." That is around now since the British Grand Prix will take place on 6 July. The fee comes to around £13.7m and rises by 5% annually which is the special "arrangement" Ecclestone referred to. In contrast, most circuit fees increase by 10% annually and new races pay nearly three times as much as Silverstone.

The funds from a sale of Silverstone would have helped to offset the fee though the BRDC is remaining positive. In a letter sent to members earlier this week BRDC chairman John Grant said that "forecasts prepared by the management team as part of the sale process demonstrate that results should improve over the coming years, and we expect the business to be profitable before depreciation in 2014."

If this happens then it should clear up any doubt over the future of the British Grand Prix. However, if Silverstone makes another loss it isn't clear what source would be used to cover it.

As Forbes points out, although many millionaires and several billionaires are members of the BRDC its structure as a club has meant that the directors have historically not approached them for funding. The BRDC's 2012 accounts show that it had just £259,000 of cash in the bank so that's not going to go very far either.

An obvious source of funding to cover a loss would be more debt. However, it seems unlikely that this would be high on the BRDC's list of options given the lengths it has gone to in order to become debt free.

There is also the question of how much money could be borrowed given that security would need to be provided for a loan and the BRDC has sold off its most valuable asset – the land surrounding the track. Indeed, as the BRDC has spent years trying but failing to sell its remaining asset it would be somewhat ironic if it became the security for a new loan.

The reason for this is that the point of a loan security is that it can be seized by the bank if the borrower fails to repay the debt. The bank can then sell the security to try to recoup the money that it loaned. However, if an asset has failed to sell over five years then it raises the question of whether a bank would want it as a security.

Silverstone's purpose is locked as a "venue for car racing and related activities" in the BRDC Members' Charter but it remains to be seen whether this restriction would still apply if the club was no longer the owner. If not then a bank might be happy for it to be used as security safe in the knowledge that if it had to seize the track it could level it and develop the land for residential purposes which would make a great deal of money. The very threat of this would almost certainly force the UK government into finally funding the track.

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READERS COMMENTS

 

1. Posted by emcomments, 13/05/2014 11:03

"Whilst it is true the government has not given Silverstone money directly, it is not true that government money has not been spent ON Silverstone.
See http://www.e-comlaw.com/world-sports-law-report/article_template.asp?Contents=Yes&from=wslr&ID=619:
"The memorable television pictures of mile upon mile of stationary traffic and quagmire carparks resulted in the government spending £8 million on roads around Silverstone in 2002, with a further £20 million contributed by the Highways Agency. Caborn, also confirmed that £27 million was paid to the BRDC to run the grand prix until 2007. In addition, a spokesman for the Department of Culture, Media and Sport said that over £16 million was invested to support the industry in 2002."
"

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2. Posted by olddudders, 12/05/2014 18:37

"Governments invest in Wales to stop the locals setting fire to English-owned holiday cottages. F1 is a great big pig-trough, and not a penny of Government money should be provided.

Silverstone is a boring airfield circuit. The BRDC is obsessed with its monoposto past, and was happy to wrest the Grand Prix from Brands Hatch, which, as some will have noticed, goes up and down as well as along, thus challenging designers and drivers alike to a far greater extent. No Silverstone? No problem."

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3. Posted by Agent Smith, 12/05/2014 16:57 (moderated by an Adminstrator, 12/05/2014 18:25)

"This comment was removed by an administrator as it was judged to have broken the site's posting rules and etiquette."

Rating: Neutral (0)

4. Posted by Chris Balfe (editor), 12/05/2014 14:02 (moderated by an Adminstrator, 12/05/2014 14:06)

"This comment was removed by an administrator as it was judged to have broken the site's posting rules and etiquette."

Rating: Negative (-1)

5. Posted by Agent Smith, 12/05/2014 13:55 (moderated by an Adminstrator, 12/05/2014 18:25)

"This comment was removed by an administrator as it was judged to have broken the site's posting rules and etiquette."

Rating: Neutral (0)

6. Posted by Chris Balfe (editor), 12/05/2014 11:41 (moderated by an Adminstrator, 12/05/2014 18:25)

""I'm sure Christian 'Smythers' Sylt..."

Ah, the agenda is revealed.

Say no more."

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7. Posted by Agent Smith, 12/05/2014 11:32

"It is ironic that in on one turn people can make snidey comments about F1 races in irrelevant markets, empty grandstands in China, the 'loss' of wonderful racing circuits like Turkey from the calendar, the 'never going to happen' New Jersy GP, the constant threat than hangs over classic venues like Spa, and yet never once make the connection between the continual woes of these venues and the moving target that is FOM's (aka Bernie, although I'm sure Christian 'Smythers' Sylt will be able to write another article explaining to us all why 'legally' Bernie has nothing to do with any of this, and never has in his entire life) demands.

I'm minded of how irked PP writers were about the increased financial demands along with reduced benefits of the 'live timing' app. What F1 venues go through with Bernie is just the same thing scaled up - pay more and get less."

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8. Posted by Chris Balfe (editor), 12/05/2014 11:10 (moderated by an Adminstrator, 12/05/2014 18:25)

"@Next Door

The "arrangement" is that the increment as far as the BRDC is concerned is 5% each year whereas others pay 10%.

Our sources at the BRDC do not blame Ecclestone for the problems they blame a certain cabal within the club.

In terms of the deal with FOM for the Grand Prix the BRDC walked into it with its eyes wide open it was up to the BRDC to do the maths.

As for the deal which saw the BRDC selling the land surrounding the circuit...

Agent Smith clearly feels that the blame for the mess, and the subsequent threat to Silverstone, and thereby the British Grand Prix, lies with Ecclestone, it doesn't."

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9. Posted by NextDoor, 12/05/2014 11:03

"@Chris Balfe

What do you mean by:
'If you actually bother to read the piece you will see that this has absolutely nothing to do with Ecclestone.'?

We all know that Ecclestone is still the CEO of FOM which has exclusive rights to F1 races and he negotiated the deal with BRDC for Silverstone. You may be of the opinion that BRDC were misguided in their planning or even negligent in agreeing to the terms of that deal, but it seems the fees demanded by Ecclestone, especially that 5%pa escalator, are just too much for the profit that can be made at Silverstone (or at several other European races). So your rebuke of Agent Smith seems a little unfair, especially when the third paragraph of the article contains this quote from Ecclestone: 'We have come to an arrangement with them.'


"

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10. Posted by Chris Balfe (editor), 12/05/2014 9:58 (moderated by an Adminstrator, 12/05/2014 18:25)

"@ Agent Smith

If you actually bother to read the piece you will see that this has absolutely nothing to do with Ecclestone. He is merely opining that the BRDC is in trouble - which it most definitely is.

Our two sources - both BRDC members - not only tell us the BRDC is "bust" they also say the 'Wing' was a vanity project. Ecclestone wanted a new pit and paddock complex, he didn't ask for £30m to be spent on the Wing.

It would appear the BRDC has done a series of disastrous deals without thinking ahead - selling the land surrounding your property is hardly the wisest move."

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11. Posted by Agent Smith, 12/05/2014 9:52

"Here we go again! Despite the current financial climate, and under continuous pressure from Bernie, the BRDC has done an incredible job of getting Silverstone debt free. Don't expect any praise from the mop-headed one for this though - he sees the world as his cash cow, with no limits, and the latest criticism is intended purely to undermine the governance at Silverstone for his own selfish ends (when is it ever else thus?)."

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