Site logo

The stark reality facing F1

NEWS STORY
29/04/2020

Unlike a Grand Prix, there will be no chequered flag when the coronavirus is considered to be at an end. The reason for this is that while the authorities may announce that the real danger is passed, other than the fear of a second wave the fact is that it will be years before the world returns to normal, and that's not considering the financial implications.

As nations around the world consider easing their various restrictions, some appearing to have dealt with the crisis better than others, sudden flare-ups confirm the virus is far from beaten.

Consequently, while people will soon return to work, shops open and factories fire up, it will be some time before the rules on public gatherings are relaxed. After all, in the UK alone, a number of pre-lockdown sporting events, including the Cheltenham Festival, are said to have significantly increased the number of cases of the virus, particularly in the local communities.

So while there is talk of a number of races on F1's revised calendar needing to be held behind closed doors, the reality could be a lot worse, and that would not only be bad news for race fans wanting their live hit, it would be disastrous for the sport and the teams.

Yesterday, it was confirmed that following the decision of the French government to ban all sporting events until September, football's Ligue 1 and Ligue 2 have been cancelled, the cancellation of the former thereby throwing the Champions League into turmoil. Though it is the first major European league to be cancelled there will be others. After all, the clock is already ticking.

Should F1 get the season underway in Austria in July as planned, the sport will likely be one of the first international sports to blast off the grid.

While Chase, Ross and the gang will argue that it's for the fans, the reality is that it's for the money, after all it was under a week ago that Liberty Media reattributed "Live Nation interest and other assets and liabilities between the Formula One Group and the Liberty SiriusXM Group", effectively giving F1 some much-needed breathing space courtesy of the $1.4bn (1.1bn) in cash it freed up.

The move, according to Liberty CEO, Greg Maffei, "increases cash liquidity by approximately $1.4 billion", which can be used "for F1 in event of continued delay of season, including preserving health of ecosystem". It also "eliminates $1.3 billion of parent level debt" attributed to the F1 group and will leave sufficient cash "for opportunistic investments and acquisitions".

Despite the welcome addition of $1.4bn to the kitty, Maffei was keen to warn the teams that this didn't mean there was an open cheque-book on offer.

"We want to make sure that teams are solvent because they are part of what we need to race successfully in 2020, 2021, and beyond," he said. "We're not encouraging using our cash in an unwise fashion, but we're trying to balance the operating business and its current results against the operating results of our partners in the form of the teams, who do incur large costs."

Adding that the teams "still need to incur all their costs of running", he admitted: "It's a challenge. How do we do something that is beneficial for fans, but also doesn't have the teams bankrupting themselves?"

Interestingly, just days after that reattribution of Live Nation - of which Liberty Media owns 34.2% - it was revealed that Saudi Arabia’s sovereign wealth fund has taken a $500m (400m) stake in the troubled entertainment group, giving it a 5.7% holding.

While the purchase comes at a time the Saudi Public Investment Fund is lining up a 300m bid for Newcastle United football team, it's worth noting that last month F1 announced a long-term global sponsorship deal with Saudi Aramco (Aramco), the energy and chemicals giant.

Indeed, with the Saudis, along with the Russians and Chinese looking likely to move on any failing business that looks ripe for picking due to the pandemic, the words, 'join', 'the' and 'dots' spring to mind.

As previously reported, race hosting fees are the sport's second biggest source of income, and last year accounted for $602.1m (482m) of F1's $2 billion revenue.

The Guardian yesterday confirmed our earlier reports that F1 will need to "bankroll" the race at Silverstone, and probably a number of other events on any revised calendar.

While the likes of the race at the Red Bull-owned track at Spielberg will have its hosting fee waived, it is likely the energy drink manufacturer will meet the expense of hosting the first round of the season, if only for the prestige. Likewise, Bahrain and Abu Dhabi, where the governments will swallow any financial hit.

However, COTA, which relies on a subsidy in lieu of the tourist dollars the race generates, is unlikely to be able to go ahead if spectators are banned, likewise a number of other races.

"If you run races with no live audience, we'll obviously have lower profitability, maybe even no profitability," said Greg Maffei.

Of course, we're talking about races behind closed doors this year, but there is every possibility that the various bans on public gatherings could extend into 2021 and beyond.

Indeed, according to Forbes, a recent survey by the Stillman School of Business revealed that 72% of Americans will not attend a sporting event again until a coronavirus vaccine has been developed.

With an eye on the Melbourne event, which was cancelled after just one team member tested positive for the virus, it is understandable that race promoters do not want to find themselves in a similar position.

In terms of a vaccine, Emma Walmsley, chief executive of British pharma giant GlaxoSmithKline, recently told the BBC that while vaccines can take a decade to develop and test, it is hoped that a vaccine for the coronavirus might be available in 18 months. On the other hand, Florida's surgeon general, Dr Scott Rivkees claims that a vaccine "is a while off", while England’s Chief Medical Officer, Chris Whitty recently admitted that the chance of a vaccine "any time in the next calendar year are incredibly small".

Furthermore, even when a vaccine is developed and tested, one can only imagine how long it will to take to vaccinate the population.

Alternatively, in a bid to prevent another Melbourne-type situation, one could test spectators, staff and team personnel on arrival at the circuits, but other than the sheer time this would take, it would need to happen on every day of the race weekend.

Furthermore, the test kits currently cost around $230 (180) for 10 which would work out at around $4.6m (3.6m) for the 200,000 spectators who, on average, attend the three days of a Grand Prix weekend. Then there's the time - thought to be around 15 minutes - to obtain the test result.

Also, diverting test kits away from the long-suffering public in order that a sporting event can go ahead would be a PR disaster for F1 and reflect on sponsors.

Finally, there's herd immunity which, according to the World Health Organization (WHO) does not actually guarantee protection as "there is currently no evidence that people who have recovered from COVID-19 and have antibodies are protected from a second infection".

In Britain alone, coronavirus cases have increased at an average rate of 3.8% every day over the past week, giving a daily average of 4,880 new cases.

Furthermore, there are people who have the virus but haven't been tested for it. In this case, the 'carrier' can spread the virus without even knowing they have it, unlike those who show the symptoms and subsequently test positive and are therefore isolated.

The figures indicate that the majority of people being infected by 'carriers' who don't have the symptoms and it is these people who would most likely attend events and unknowingly pass on the disease.

All this, of course, refers to people aiming to attend their home race, after all, it is going to be some time before the rules on international travel are eased.

In a worst case scenario, though, as previously mentioned, some events would not require compensation for the lack of ticket sales, F1 could still face a staggering bill, as, other than compensating for lost hosting fees ($602m/482m), F1 would need to meet costs of staging events, a la the "bankrolling" of Silverstone, thought to be around $528m (422m) in all and lost ticket sales of $673m (539m).

No spectators means no corporate hospitality, so that would mean another $100m (80m) in lost revenue, while other expenses, such as broadcasting the races, would simply compound the "lower profitability" of which Maffei spoke.

While in 2019, the teams enjoyed 68% ($1bn) of the sport's underlying profit as prize money, should that profit drop as low as $100m as anticipated it would see the teams share drop by a frightening 93% to $68m (54m).

Much as Chase and the gang want to see the cars back on track, it is equally vital that the fans begin arriving through the turnstiles.

Unfortunately, that is unlikely to happen for some time and despite that $1.4bn cash injection, with the teams understood to be receiving the same prize money they received in 2019, the kitty could begin to look worryingly bare in just over a year from now.

LATEST NEWS

more news >

RELATED ARTICLES

LATEST IMAGES

galleries >

  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images
  • Pitpass.com latest F1/Formula 1 images

POST A COMMENT

or Register for a Pitpass ID to have your say

Please note that all posts are reactively moderated and must adhere to the site's posting rules and etiquette.

Post your comment

READERS COMMENTS

 

1. Posted by Chris Roper, 03/05/2020 10:40

"@Steve W

"When the motoring world finally gets to being all electric, whatever are the Saudis going to do?"

Supply the Electricity - Deserts make excellent Solar Farms and fossil fuels will handle generation of peek demand or the extremely rare overcast days.

"

Rating: Neutral (0)     Rate comment: Positive | NegativeReport this comment

2. Posted by Steve W, 02/05/2020 9:35

"When the motoring world finally gets to being all electric, whatever are the Saudis going to do?"

Rating: Neutral (0)     Rate comment: Positive | NegativeReport this comment

3. Posted by Superbird70, 29/04/2020 16:55

"No one predicted this but some sports have reacted better than others. Formula E has a Race at Home Challenge. I would be happy if they just had all the F1 drivers compete in a Grand Prix Legends series just to keep in touch with the fans. Historic tracks, cars, and the sponsors could still advertise. Marlboro logos everywhere, takes me back."

Rating: Neutral (0)     Rate comment: Positive | NegativeReport this comment

4. Posted by mickl, 29/04/2020 16:37

"I am surprised no one has just written the year off and use that cash injection to help the teams that will need it ie lower rung teams, to get through this year and use this years losses to make a massive tax write off for the coming seasons. Maybe Chases is gettng anonymous phones calls from someone just laughing down the phone each day, that's been traced to somewhere in Brazil............."

Rating: Neutral (0)     Rate comment: Positive | NegativeReport this comment

5. Posted by Motorsport-fan, 29/04/2020 15:32

"Priorities have changed considerably and Formula One is nowhere near the top of anyones list, Mr Ecclestones view on cancelling the season was probably right. "

Rating: Positive (4)     Rate comment: Positive | NegativeReport this comment

6. Posted by alvarezh3, 29/04/2020 14:56

"Guenter Steiner thinks that not everybody has understood that there is a crisis. I tend to think that Maffei and Carey could be included in that thought.

I wonder if it's worth the time and effort to present the facts like this article has done, for it seems like the above mentioned individuals will still believe that formula one is flaunted in a different planet."

Rating: Neutral (0)     Rate comment: Positive | NegativeReport this comment

Share this page

X

Copyright © Pitpass 2002 - 2020. All rights reserved.

about us  |  advertise  |  contact  |  privacy & security  |  rss  |  terms