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Analysis: The rise of the circuits

NEWS STORY
27/06/2011

They may not have created a fancy name for their unification but all of the most important Formula One circuits have finally grouped together. The straw which broke the camel's back was the teams' proposal to downsize the current V8 18,000rpm engines from 2014. The circuits say that this would affect engine sound and performance so much that it could drive away their customers - the spectators. It has galvanised the circuits and then some.

Unlike the Formula One Teams' Association (FOTA), the circuits have placed their authority in the hands of one man, Australian Grand Prix Corporation chairman Ron Walker. It immediately gives the circuits a voice and confirms their status as an F1 powerhouse. As Walker told Pitpass' business editor Christian Sylt, it is "the first time that the promoters have ever got together and opposed in 50 years."

Given that FOTA claims to have the fans' interests at heart, you would have thought that the teams would have showed extreme concern at the circuits' claim that their new engine would sound so bad that it could drive away fans. However, instead, one team source told Pitpass that "no-one in the paddock is taking what [Walker] said even remotely seriously." One has to wonder whether this statement in itself is serious, since the source presumably did not question literally everyone in the paddock, but it nevertheless reflects the teams' view of the circuits' concerns. It may not pay off in the long run.

According to Sylt's F1 trade guide Formula Money, the circuits pay a total of £356m ($568m) in race hosting fees to the sport's rights holder the F1 Group. It is the F1 Group's biggest source of revenue and represents around a third of all the money it receives annually. In return, the circuits get no share of the F1 Group's profit, nor any share of its revenue from broadcasting, trackside advertising or corporate hospitality. A few circuits are allowed to sell their own trackside advertising and corporate hospitality and pay a fee to the F1 Group for the privilege.

In contrast, the teams directly provide none of the F1 Group's major sources of revenue yet in return receive 50% of the company's profits.

On a business level it seems a little unbalanced to say the least and it is an issue which Sylt has raised before with F1 Group chief executive Bernie Ecclestone. The circuits could approach Ecclestone about getting a cut of the F1 Group's profits or they could approach the teams and demand a portion of their profit share. The latter move may be the most logical. Once you accept that the profit share paid to F1's stakeholders is 50%, which it is, then it is simply a question of who receives that money. At the moment the 50% only flows to the teams but is this really fair?

For years it has been said that the teams, not Ecclestone, are the ones who really put on the F1 show. Whilst it is true that with no teams, there is no F1 racing, it is also true that with no circuits, there is no F1 racing. Over the past five years F1 has lost numerous teams and gained several to replace them. It is a sad, but true, fact that the majority of teams on the grid can be replaced and the events of the past few years have demonstrated this. Big names BMW, Honda and Toyota exited F1 in 2009 yet few would argue that the spectacle has suffered - indeed 2010 was heralded by many as one of the most exciting in the sport's history.

However, whilst many teams can be replaced, there is literally only one Silverstone, only one Spa, only one Monaco, only one Monza. The list goes on. It is literally true that the circuits put on the F1 show and several are irreplaceable in many ways.

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