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The dilemma facing F1

NEWS STORY
15/04/2020

As the debate continues in terms of when the 2020 season might finally get underway and how many races might comprise the schedule, F1 has some harsh realities to consider.

While Chase Carey has said that there could still be a programme of 18 races, colleague, Ross Brawn went one better and said 19, though in order for it to be classified as a world championship there would need to be a minimum of just 8.

Though even 8 races would satisfy the majority of F1 fans already sick to death of the numerous virtual versions doing the rounds, the situation is extremely complicated.

Brawn, while admitting that the season will likely get underway in Europe, also said that some of the events - if not all - could take place behind closed doors.

Again, while fans would miss the smell and the sound (!) of the sport live, most would be happy to watch from the comfort of their couches... as long as there's some racing.

However, and with F1 there is always a however, there are some things that must be considered.

Writing for Forbes, Chris Sylt suggests that a calendar of just 8 races could still see as much as $530m (422m) flow into F1's coffers.

While it is fairly easy to average the amount of money the eight races might bring in from sponsorship, advertising and broadcast rights, the same cannot be said of hosting fees.

Race organizers, unlike most other sports, do not receive a cut of the broadcast rights for the event at their track, nor do they receive a cut of the money from trackside advertising, indeed, for the most part they receive only the income from ticket sales.

Now as we know, most - but not all, Britain and Brazil being good examples - receive government funding, which in some cases meets the full hosting fee.

With around 471 million TV viewers, F1 is among the most watched sports, and the $602.1m (480m) it brought in last year - an average of $28.7m (22.8m) a race - was the sport's second-biggest source of revenue.

If races are held behind closed doors, where exactly does the money come from? If there are no ticket sales how do organizers cover their costs?

It is "too early to know", one organizer tells Forbes.

One solution would be for F1 to pay organizers the money usually received from ticket sales, however, this would drive up F1's costs and thereby hit profits, which would be bad for F1 and the teams.

Alternatively, race organizers - where applicable - could use their government funding to cover their costs instead of paying a hosting fee, but once again this would hit F1 where it hurts.

According to Formula Money, whose data comes directly from the race organizers which are all independent sources, ticket sales worked out at around $673m (536m) last year, basically the same amount as the hosting fees.

Fact is, those governments that fund races are doing so for a reason and it has nothing to do with altruism. While there was a time when emerging nations wanted to be on the calendar in order to be recognised, nowadays it is more about driving tourism.

Though a lack of fans in the stands wouldn't necessarily be missed by the drivers - though Lewis would have nobody to thank in his post-race victory speech - or those watching on TV - it would have an impact on the hotels, restaurants, bars and shops that were expecting the fans to arrive in their thousands.

The average attendance at last year's races was 202,146, consequently, for promoters the idea of 'closed door' races is unthinkable.

Probably not for Bahrain or Abu Dhabi, after all the former paid an estimated $58m (46m) in 2011 even though the race was cancelled place due to civil unrest.

According to Forbes, despite being one of the nine events cancelled or postponed thus far, Bahrain has once again paid up without question or hesitation.

"Bahrain have paid already. I spoke to the Crown Prince," says a source.

Abu Dhabi would likely follow suit.

However, many of the other events' government funding is based on the economic impact said event has - the race at the Circuit of the Americas being a prime example - with no fans, thereby no money being spent in hotels, bars and restaurants, the only economic impact is negative.

Then again, a recent survey by the Stillman School of Business said that 72% of Americans will not attend sports games until a coronavirus vaccine is developed.

So, if we assume that F1 can put together a schedule of 8 races, the likelihood is that only two of them, let's say Bahrain and Abu Dhabi, could pay a hosting fee.

Averaging out the broadcast rights over the year - and let's not forget the broadcasters want at least 15 races - 8 races would bring in $277.4m (221m), while advertising and sponsorship would add a further $109.5m (87.2m).

In other words, those 8 events would bring in $530m (422.4m), as opposed to the $2bn (1.6bn) of 2019.

However, and again, there's a big however.

As we all know, the teams' single biggest source of income is the prize money, which is 68% of the sport's underlying profit.

Using the same ratio of prize money to revenue as 2019, that $530m would see the teams 'share' $265m (211m).

Share in inverted commas of course because it isn't simply divided up.

As we know, 48% is handed to Mercedes, Ferrari and Red Bull, while the remainder is split between the remaining seven. If the current system were used, the bottom-placed team would walk away with just $1.1m (876k) a race, on average.

Other than what should and shouldn't be included in the budget cap, another point which has the teams at one another's throats at present is how the prize money should be split post-2020, and while it is unlikely this will change anytime soon, even if they were each to receive the same share, were talking $26.5m, or $3.3m (2.6m) a race.

Imagine how well that would go down with Ferrari...

Were four of those 8 races to take place at Silverstone (groan) fair enough, but if we're talking Bahrain, Abu Dhabi, China or Singapore, teams could actually lose money by attending these events.

As long ago as January 2013, writing for Pitpass, Chris Sylt revealed that F1's contracts state that "the FIA is under an obligation to hold the World Championship" which might well explain why the Chase, Ross and Jean Todt are so intent on getting the F1 season underway, even to the extent that they don't appear to be singing from the same hymn sheet in terms of how many races there will be.

As for the numerous races at Silverstone, since the Northamptonshire circuit relies entirely on ticket sales to fund its hosting fee and running costs, the idea that F1 might have to waive the fee and actually pay them to host a race (or four) would be enough to have them rolling out the red carpet.

And finally, at a time the borders to many countries remain closed, and there is no genuine light at the end of the tunnel, let's not forget another vital aspect that many appear to have overlooked.

While some of F1's stars are currently filling the void by racing in the virtual world, should the 'return to work' call go out at a time many borders remain closed - remember, our heroes live in the likes Monaco, the UK, Finland, Switzerland and Toronto - what chance one or two being unable to attend.

Furthermore, with most having young families, how many will want to take such a risk until the global all-clear is given.

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READERS COMMENTS

 

1. Posted by itc, 16/04/2020 4:07

"I'd go further than Brighton Corgi.
Cancel this year -international travel won't be possible anyway.
Race this year's cars for at least next year and impose a total development freeze until after the first race of 2021, which would hopefully save the teams enough money for them to still be there next year and bring back their currently furloughed employees.
New spec cars only when the world returns to normal and everyone agrees on what the rules are.
"

Rating: Positive (3)     Rate comment: Positive | NegativeReport this comment

2. Posted by Anthony, 15/04/2020 18:38

"Excellent analysis, as always"

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3. Posted by BrightonCorgi, 15/04/2020 16:35

"Cancel the season and get on to the new spec cars in 2021... Let teams do unlimited testing on the new spec until a month before the first race."

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