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Liberty cites Brazil and lost sponsors for revenue downturn

NEWS STORY
04/03/2018

Confirming that revenue was down £8.7m ($12m) to £1.3bn ($1.8bn) last year, thereby reducing the prize pot by around 5% on 2016, Chase Carey cited a reduction in the hosting fee for the Brazilian Grand Prix and the loss of a couple of sponsors as the primary factors.

Liberty "discovered that, post our investment in Formula One, we had two significant sponsors that decided to not renew relationships with us in 2017 and a race in Brazil with adverse financial changes in the existing agreement that took effect in 2017. These issues adversely impacted 2017 revenue by a bit more than $50 million," he admitted.

Forbes confirmed the existence of the Brazil agreement, revealing that according to F1's filings it will continue for a further three years.

The filings state that "race promotion revenue decreased in the fourth quarter, primarily due to legacy contractual terms of one Grand Prix event, which provided for a one time material step down in the promotion fee effective after the 2016 season and carrying through the remaining term of the contract through 2020. This agreement was entered into by previous management and is atypical and not reflective of terms carried in F1's other promotion agreements".

While one accepts that this would indeed have impacted revenues surely proper due diligence would surely have revealed the situation surrounding the Interlagos event before Liberty made its move for F1 last January.

The 'lost' sponsors are understood to be banking giant UBS and German insurer Allianz, and with no new sponsors in the pipeline and the ongoing arrangement with Interlagos, the downward financial trend looks set to continue.

Indeed sponsorship has been an issue for the sport for some time, F1 having never fully recovered from the loss of tobacco. Whilst it was thought the Internet might lead to a sponsorship revolution, though this has happened to a certain extent, certainly in terms of online betting companies such as freebetting.co.uk, F1 has never benefitted to the same extent as football, Football Weeks being another good example.

While this year sees the return of France and Germany, the latter is only on a one-year deal, while having lost Malaysia last year, Silverstone also gave notice that unless an agreement can be found 2019 will mark the last time the British Grand Prix is held at the Northamptonshire venue.

Indeed, as (Silverstone owners) the British Racing Drivers' Club (BRDC) seek a deal with Formula One Management (FOM) that might save the event, it cannot be long before someone points to the deal that has been done with Brazil as an example that things can be worked out.

However, keen to point out that the Brazil deal was done under the sport's previous management, Chase Carey has made it clear that there will be no further deals for if FOM capitulates to one it must capitulate to all.

The annual hosting fee, most of which rise by 5% year on year, ranges from Monaco paying nothing to Abu Dhabi paying £54.2m ($75m), the average working out at around £22m ($30.4).

With around half the races paying more than the average, it is understandable that promoters are not happy and after meeting with FOM is January, a source close to the Formula One Promoters Association (FOPA) said: "It is very clear that every contract is different and it could be pointless to try to make a collective negotiation.

"What is clear however is that no contract will be renewed under the existing financial conditions. We are talking about a reduction in fee for sure."

Which would, of course, put a further squeeze on the sport.

"It is impossible to pay the kind of money that most of us pay," added the FOPA source. "So the overall gist is that it is too much for what the promoter is getting. Now, if the product improves, and it might easily in the next two or three years, it's a different story."

As for sponsors, in stark contrast to Liberty's chief executive Greg Maffei's claim in the wake of last January's buy-out, that "there is an enormous opportunity in areas like sponsorship in the short-term", Chase Carey admits the sport could be facing a few more years of hurt.

"It's not going to move in 12 months," he warned, "so I think this year is a step forward but 19 will be a step forward and 20 will be a step forward.

"It is probably something that is more a three year process than a 12 month process to get there... we're not going to be mature in the sponsorship area in 2020 but I think by 2020 we will be much closer to where we should be with what we have got."

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READERS COMMENTS

 

1. Posted by Simon in Adelaide, 06/03/2018 2:18

"@Canuck
There was a time in the UK where the GP alternated between Brands Hatch and Silverstone"

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2. Posted by Simon in Adelaide, 06/03/2018 2:15

"Remind me, where does Bernie live?"

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3. Posted by Canuck, 05/03/2018 16:45

"Why don't they offer the possibility of hosting every 2 years rather than every year. Let's say as an example Germany and Holland alternate hosting. In the US Miami and Las Vegas alternate seeing both would be street circuits."

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4. Posted by Pete, 05/03/2018 15:07

"Based on entertainment value, $0 is about right for Monaco!"

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5. Posted by Motorsport-fan, 05/03/2018 14:40

"I guess there will be no price reductions while it appears there are a number of new circuits wanting to join, not good news for Silverstone. "

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