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New Silverstone deal to cost F1 50m?

NEWS STORY
17/07/2019

While the team bosses were delighted to see Silverstone agree a new deal F1 to continue hosting the British Grand Prix, they face a financial sting in the tail.

"It's great news that the British Grand Prix is secured here at the home of motorsport at Silverstone," said Red Bull boss, Christian Horner, following last Wednesday's announcement that the circuit's owners had a agreed a new five-year deal. "I think it's the right venue, it's a great track. I have so many great memories from here."

"I'm thrilled that Silverstone has got its place on the calendar long into the future," added Claire Williams. "It's absolutely what's right, we all love coming here."

"I think this is a great grand prix," enthused Zak Brown, "I'm very pleased we'll be coming back for at least another five years."

And so say all of us.

To recap, the future of the race was under serious threat because in 2017 the circuit's owners, the British Racing Drivers' Club (BRDC), activated a clause in their 17-year contract which meant that this year's race was the last.

As is ever the case in F1, the sticking point was money.

On signing the original 17-year deal, circuit bosses paid little heed to the 5% annual escalator feel, which drives up the cost year-on-year, irrespective of whether attendance figures go up.

Under the old deal, this year Silverstone was paying 17.9m but by the end of the original contract in 2026 this would have risen to 25.1m.

Though neither Formula One Management nor the BRDC is giving anything away, it is understood that the new deal will see Silverstone pay 100m for its five-year deal, a flat 20m a year.

While the 20m is an increase on what Silverstone was currently paying, over the course of the five years of the new deal that 20m appears to be a bargain, as with the escalator the fee would have increased year on year to 18.8m in 2020, 19.7m in 2021, 20.7m in 2022, 21.7m in 2023 and 22.8m in 2024. Then, under the old contract, there was 2025 (23.9m) and 2026 (25.1m).

As Forbes reports, as far as Formula One Management is concerned, the difference between the two deals is 52.7m ($66.3m).

If correct, the 20m annual fee is higher than anticipated, the Financial Times reporting in April that Silverstone "has offered 15m a year, according to people close to the talks".

However, a "well-placed source" told Forbes last week that "Silverstone actually settled on $17 million (13.5 million), not $25 million as has been reported", which would put the difference between the total payable to F1 under the previous contract and the new one at 85.2m ($107.2m).

"I don't know where this figure came from," said a spokesperson for Silverstone. "The only time a figure was mentioned in the press conference it was 100 million but that referred to the amount of investment that will go in to the Silverstone site over the next five years and was nothing to do with the contract."

The Silverstone issue was one of the first problems that F1's new owners had to deal with after buying the sport in early 2017, the BRDC activating the clause in its contract just months later.

This was somewhat ironic, for when buying the sport Liberty Media's filings highlighted that one of main strengths of the business was its "contracted revenue streams" which were driven by long-term agreements and escalators... the same escalators that drove Silverstone into the red.

Unlike most of other events on the F1 calendar, Silverstone receives no state assistance, and like most other events has to rely solely on ticket sale for its revenue as it receives little money from hospitality, nothing from broadcasting or even advertising within the venue over a GP weekend.

Shortly after the original deal was signed in 2009, we forecast that due to the escalator, ticket prices for the race would rise accordingly. Indeed, we forecast that those tickets costing 125 in 2009 then would rise to 150 by 2014 and 249 by the end of the contract in 2026.

"The figures reported bear no resemblance to the facts, or Silverstone's plans for the future," insisted a Silverstone spokesperson at the time. "They are speculative and unhelpful."

Indeed, the figures were speculative and unhelpful, for we underestimated the impact of the escalator, with the actual price rising to 170 in 2014.

Higher prices meant less fans through the gates, and even though the event remained one of the most popular on the calendar, since 2015 figures have dropped by 5.1%.

This in turn led to net losses of 51.3m ($64.5m) over the six years to the end of 2017, which is why the BRDC had to activate the clause in its contract.

"It is no longer financially viable for us to deliver the British Grand Prix under the terms of our current contract," said the BRDC's chairman John Grant.

"By running the British Grand Prix we sustained net losses of 2.8m ($3.5m) in 2015 and 4.8m ($6m) in 2016 – that's 7.6 million ($9.6m) over two years. We expect to lose a similar amount this year. To continue on this path is not only unsustainable, it would put at risk Silverstone, the home of British motor racing."

The statement revealed that Silverstone's "Promoter's Fee increases by 5% every year. This means that over the first eight years of the contract, the 5% escalator has increased the Fee from 11.5 million [$14.5 million] in 2010 to 16.2 million [$20.4 million] in 2017. By contrast, had this fee escalated in line with UK inflation (CPI), it would have increased to only 13.6 million [$17.1 million] - some 2.6m [$3.2 million] less. By 2026, the last year of the contract, the Promoter's Fee will have risen to 25m [$31.4 million].

"The cumulative effect is that, despite being the most popular weekend sporting event in the UK, the net revenue from ticket sales and hospitality at the British Grand Prix is not enough to cover the Grand Prix's share of Silverstone's overhead costs."

Admitting that his hope was "that an agreement can still be reached, so that we can ensure a sustainable and financially viable future for the British Grand Prix at Silverstone for many years to come", it appears that Grant got his way.

Whatever the exact financial terms of the deal, F1 has kept its options open by agreeing a 5-year deal rather than another long-term deal such as the 17-year agreement that had existed previously.

Five years allows the BRDC to carefully analyse the financial implications, whilst also giving FOM the time to try and sort out a race in London, a dream that still burns bright as Chase Carey confirmed last week after agreeing the new deal. "We have ongoing discussions with London and we look forward to continuing," he admitted.

Meanwhile, organisers in Germany, Italy, Mexico and Spain will be watching the situation with interest. All in the final years of their current deals, some may consider 'doing a Silverstone' and threatening to walk away should they not get the right deal. That said, the clock is ticking.

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READERS COMMENTS

 

1. Posted by PearBear, 26/07/2019 17:44

"If the Liberty Media numpties (Ross Brawn included) don't pull their collective fingers out and fix the current massive problems with Formula 1 causing huge attendance drops at races and losses of millions of TV viewers due to forcing people to go to pay TV, there won't be a Silverstone or anywhere else racing F1 cars in a few short years. I've been an avid fan for decades but I will never be able to go to a race again in my lifetime and It looks like this year will be the last I will be watching on TV as I can no longer afford PayTV. Well done Bernie Ecclestone and Liberty!"

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2. Posted by mickl, 18/07/2019 15:45

"@imejl99 yes, the figures that article is trying to push aren't really as good as it seems for Silverstone. The actual difference in a like for like deal, if the new one is 100m, is just 3.7m with the caveat that Silverstone will be paying 1.5m more for the 2020 and 2021 races that they would have in the first place.

When the interest value of that 1.5m is accounted for over the next 3 years, Liberty are looking a lot less than 3.7m lost in the same way the interest lost by Silverstone will eat into any savings on the new deal."

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3. Posted by imejl99, 17/07/2019 13:28

"Or issue could be presented with
New Silverstone deal to earn F1 100m?

Quote: As Forbes reports, as far as Formula One Management is concerned, the difference between the two deals is 52.7m ($66.3m).
Should read: As far as Formula One Management is concerned, the difference between the new deal and NO DEAL is 100m.

Not to mention that difference for 5 years is just 3.7m.
52.7 is with 2 extra years, 2025 & 2026.

Of course, all above applies if the 20m annual fee is correct.
But even if it is not, there is a 5 year deal vs no deal.
Imaginary projected old deal income serves well as a pile to unload on FOM and Liberty, undeservedly this time.

Not that I am a big fan of FOM or Liberty, but this article could well be written in different light, especially with Pitpass standard in mind. This, at least to me, sounds like gloat piece.

"

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