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Failure to renew races would cost F1 100m

NEWS STORY
04/03/2019

If the clock is ticking in terms of the June deadline by which time the various regulations for the sport in 2021 need to be agreed, alarm bells must surely be ringing already regarding the future of the British Grand Prix at Silverstone.

As it stands, the July 14 race at Silverstone is the last, with the circuit's owners, the British Racing Drivers' Club (BRDC) and Formula One Management (FOM) yet to come to an agreement.

However, Silverstone isn't the only circuit whose contract ends this year, for the races in Germany, Italy, Mexico and Spain are now in their final year.

Last week it was revealed that the sport lost 51.5m ($68m) in 2018, up from a 28m ($37m) loss in 2017 and a 35.6m ($47m) profit in 2016, and as Forbes reports, should these five races be lost from the calendar it would lose 98.8m ($130.9) in annual race fees.

The signs in Mexico are worrying, for the government will no longer provide funding for the race, and will instead divert the money to the construction of a controversial new railway.

With Silverstone having ended its contract having finally noticed the 'elephant in the room' in terms of the unsustainable ever increasing hosting fees, the president of the Automobile Club d'Italia, Angelo Sticchi Damiani, has expressed similar views, admitting that the Italian Grand Prix is "not sustainable in the long term", likewise the deputy mayor of Barcelona, who has said that "Formula One is not a priority".

Between a rock and a hard place, F1 is hardly in a position to offer special deals to the five promoters, for with an eye on those increasing losses, the powers-that-be are only too aware that offering a 'nice price' to one means similar deals will be demanded by the various other promoters.

Indeed, the majority of the current promoters have already expressed their unhappiness, the Formula One Promoters Association issuing a statement in January in which sixteen of the current twenty-one promoters raised a number of issues.

Along with feeling that it is not in the long term interest of the sport that fans lose free access to content and broadcasting, the promoters claimed a lack of clarity on new initiatives and a lack of engagement with promoters on their implementation.

However, one of the issues that most alarmed the sixteen signatories to the statement, was the fact that while they pay hosting fees which rise every year, and don't generally receive a slice of the income from broadcasting, official on-site corporate hospitality or advertising at their venues, the proposed race in Miami was to be run on a revenue sharing deal with the promoter not having to pay any hosting fees.

The promoters of the Russian and Mexican races were quick to distance themselves from the FOPA statement, while the Azerbaijan promoter insisted it had been misconstrued.

Of course, the attitude in Mexico will have change somewhat since the government pulled the plug, leaving Sergio Perez lamenting that this could mean the end of F1 in the country.

"We have contracts where 2019 is the last year and we have to either create a new agreement or go our separate ways," Chase Carey told investors in a conference call last week.

"There's nothing really unique to this that wasn't true last year," he added, omitting to mention the FOPA statement or the revenue sharing deal in Miami.

"We had a number of renewals last year, just as we had a number of renewals the year before," he insisted. "There are different issues to each one. That's the process we're engaged in now, with renewals for 2020, we'll always have three or four negotiations we'll have to go through.

"As we've gotten a few years under our belt I think we feel pretty good about the trajectory of the ability to continue to have a healthy business," he said. "We think there's room to add a bit to the race calendar. We have places all around the world that would like to add races, including not just new markets, but some traditional markets like western Europe."

Indeed, F1's governance contract allows for a schedule of up to 25 races each year, however, Ferrari, McLaren and Red Bull Racing jointly hold a special veto as they were the top three teams over the four seasons to 2012 when their contracts were being negotiated, and F1 company documents reveal that consent from the majority of these three teams is required "if there are more than 20 Events in a season".

While more races means more income, with the average annual hosting fee working out at around 22.9m ($30.4m), however it also means teams having to spend more on travel and racing, not to mention the added stress.

However, while Carey is confident that the sport can secure more races, back in 2017 commercial boss Sean Bratches was telling Autosport that "in the seven months I've been in this job I've probably had about 40 countries, cities, municipalities, principalities approach me about interest in hosting an F1 race".

Despite being approached by "40 countries, cities, municipalities and principalities", the fact is that to date only one new race has been signed, Vietnam, an event that even Bernie Ecclestone turned down.

Despite the generous revenue sharing offer Miami is looking increasingly unlikely, while the Danish finance minister gave a proposed street race in Copenhagen the red flag.

The good news for Chase and co however, is that should these five races fall from the calendar, the resultant 100m loss won't appear on the books until 2021.

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READERS COMMENTS

 

1. Posted by TokyoAussie, 06/03/2019 3:36

"I suspect the downfall (or shortfall, if you like) was unavoidable. CVC had already reached peak-greed with F1 and there was nowhere else for F1 to go but down. The return to a sustainable F1 series will undoubtedly result in Liberty losing profit.

If only those 5 venues with contracts running out this year would negotiate as a group...
Liberty would do anything to prevent that, of course, but if the promoters want sensible hosting fees, they must work together."

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2. Posted by Bill Hopgood, 04/03/2019 17:41

"Good point @GrahamG to look at what each vested interest wants out of F1.

I think the "model" is clearly broken where there has been a reliance on taxpayer money to prop up F1 through patriotism of hosting a race to "show off the country", or to show how modern and tolerant a country is so controversial events at home are hidden by distraction. Look, we have a Grand Prix, nothing to see here, move along...

F1 have a problem, even if a race shows up, it can't stay due to 5% year on year increase. The plan (assuming there is one) is to squeeze out as much dosh as possible from each country then move on to the next new victim. It is surprising that it has take so long for this to be woken up to however Malaysia I think was the tipping point and MotoGP the catalyst. Compared to MotoGP, F1 racing isn't that good.

I do not blame the current owners of F1 for the situation however they should have seen this coming and seem to have assumed that there is a lot of countries wanting to do a Baku and host races that F1 fans want to watch or that pay TV operators want to pay to broadcast. I sometimes wonder if in those F1 meetings who each of the attendees thinks is the smartest person in the room.

What to do do to fix this is another story and the options are to ditch circuits that the fans like for new ones or cut a new deal. Either way, it could be that revenue goes down as new circuits start lower, anticipating the annual increase and fans turn off if their favourite tracks go missing.

Personally, I think there will be a relaxing of the rules around trackside marketing and how much money the circuits can get for themselves offsetting some of the increase in fees.

Would such an arrangement work? Probably depends on each track and what the big sponsors say.

All in all, not a great situation for F1 to find itself in.


"

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3. Posted by GrahamG, 04/03/2019 13:47

"Until the train crash happens then nothing is going to change.
Let's think about what fans want - good racing - so how about tyres which are easy to use and last, less spending on pointless aero, races which have "value" - so not every week, but events which people look forward to. Free to air TV which will recruit new generations, the sport is disappearing from the mindset of most people, even diehard fans.
What do circuits (and teams) want - financial sustainability, not system which cascades money out of the motor racing environment. I'm also sure that teams are wondering about the effects of ever increasing numbers of races (spread even more widely) on staff and their families. Also how does this stack up with budget caps, teams must be starting to think of having two "shifts" of travelling staff to make life more sustainable, higher costs but better morale and performance."

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4. Posted by Burton, 04/03/2019 12:47

"Having quite correctly criticised Ecclestone and his predatory unsustainable model, you'd think they then would have the fortitude to change accordingly, and this is basically the area that matters most. Vultures the whole lot of them..."

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5. Posted by GarH, 04/03/2019 12:01

"What would Bernie do, I hear some ask.

Bernie knew what was coming after milking F1 for himself and CVC, so he got out while the going was good.
"

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6. Posted by GordonG47, 04/03/2019 11:21

""...Chase Carey told investors in a conference call last week," reading from his script provided by John Cleese."

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7. Posted by @R1Racing71, 04/03/2019 10:18

""The good news for Chase and co however, is that should these five races fall from the calendar, the resultant 100m loss won't appear on the books until 2021"
- Clever choice of words."

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8. Posted by Greg, 04/03/2019 10:00

"Another nail in the coffin maybe."

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