Formula 1, or so the romantic vision would have you believe, is being taken to new frontiers in order to truly globalise the sport. Formula 1, in reality, is going where the best money is on offer. It is a traditionalist’s nightmare as countries such as France no longer feature on the F1 calendar, being replaced by venues such as South Korea and Abu Dhabi. It is also a Formula 1 promoter’s nightmare; witness the recent debacle that surrounded the British Formula 1 Grand Prix. When it boils down to hard-nosed business reality, most of the traditional circuits are completely dispensable.
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Yet Formula 1, in its purpose-built new arenas, is still forced to pay homage to the ‘traditional’ followers of the sport in Europe. The sport is happy to take the actual event away from European venues, but it is forcing new venues to comply with the television timing demands of the European audience. Australia had to push the start time of its 2009 race back to 5 pm, finishing the race at dusk, in order that more viewers in Europe could tune in early on their Sunday morning. Singapore commences its race at 8 pm, again so that European audiences can tune in and enjoy the action whilst they consume their lunch. Abu Dhabi ran a day/night race for a more favourable television audience. Malaysia has had to push back the start time of its race too.
Whilst crowds are dwindling at the races right now, F1 is doing all that it can to maintain its television audience – in Europe.
Poor race attendances have been affecting many circuits in recent years. Terrible turnouts at Spa-Francorchamps are threatening one of the most exciting and oldest events on the calendar. The Australian Grand Prix in Melbourne, too, is suffering persistently lowering crowd numbers. The problem of empty seats has always been a problem in Turkey. Hockenheim has suffered badly, too, as the local government could not afford to step in and continue meeting the events’ losses.
As a result of the structure of the contracts that each promoter has with FOM and Ecclestone, most only make money from the sale of tickets. Hospitality and trackside advertising are run by the Formula One Group, through its dedicated arms Allsport Management and APM. Exceptions to this are the Grands Prix in Monaco, Brazil, Singapore and Australia, which all handle certain aspects of their hospitality and trackside advertising in exchange for an additional fee to the Formula One Group. At the Brazilian Grand Prix for example, International Promotions handles the delicate business of selling trackside signage to South American companies. Tamas Rohonyi, the man behind International Promotions, is also free to handle the hospitality areas of his races but uses a very similar model to Allsport’s successful Paddock Club.
The average cost for hosting a Formula 1 Grand Prix to the promoter is thought to be around US$31m. Monaco and Italy are the two ‘golden’ races that pay significantly below this figure in lieu of their importance to the sport, while Brazil pays significantly less than any of the other flyaway events. Britain, too, pays below the average, as does Spain and Hungary. Germany has been greatly assisted by the powers that be, too, in order to continue the running of their annual race.
There is a theme to these races – they are all older races that may struggle to afford the higher prices paid by newer venues. In the case of Monaco, for example, Bernie Ecclestone cannot simply remove the race from the calendar unless he absolutely has to. Monaco is the most glamorous race on the entire calendar and F1 needs Monaco arguably more than Monaco needs F1. As a result, Michel Boeri of ACM is probably the most influential race promoter out there in as much as it is he who can make the demands on Ecclestone, rather than the other way round. As such, it is safe to say that Boeri and Ecclestone haven’t always seen eye-to-eye.
Ecclestone much prefers the lucrative contracts of the East. CVC, the majority owner of Formula 1, has an almighty debt to service having secured loans of around US$2.5bn to secure a majority stake of the Formula One Group in its leveraged buy-out in March 2006. In order to secure the long-term future of the sport, Ecclestone has to keep the money coming in. The best way of doing this is by taking the sport to the locations that will pay the most. This year we have a 19 race calendar – more races than ever. Locations such as China, Bahrain, Abu Dhabi, Korea, Singapore, Malaysia and Valencia are paying the lions share of the franchise fees to the Formula One Group as they generate around US$310m per year of the combined franchise fees which generate some US$560m per annum. Other circuits receive more favourable terms. There is also the revenue generated through trackside hospitality and trackside signage to consider. This garners around US$385m each year. Thus Ecclestone is securing around US$945m every year.
To fund the races, many promoters rely upon assistance from their governments. The hosting of an F1 Grand Prix is not just about watching fast cars race around a track. It is about the international promotion of the country and/or city as an international destination. It is a vital tool in attracting tourism. The F1 races bring hundreds of thousands of people to each venue from around the world. For destinations such as Bahrain, Abu Dhabi, Singapore and Malaysia the hosting of an F1 race has assisted greatly in bringing people to the country as a result of the positive publicity generated through Formula 1. The only other truly global sporting platforms for such promotion are the soccer World Cup and the Olympic Games. They only come around once every four years whereas F1 comes to town once a year. It is this constant promotion on a global scale that attracts race promoters and governments to host a race. And pay a lot of money to do so.
Yet, if, for example, Bahrain spent US$40m each year on global advertising of the Kingdom it would not be as effective as their one weekend out of 52 each year hosting the F1 community. Formula 1 has put Bahrain on the map. It has given Bahrain the opportunity to showcase itself to the world. This is why the government is so happy to pour money into the event in its unstinting support of the BIC.
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Without government support, it is becoming nigh on impossible for venues to host a round of the F1 season. The British Grand Prix is one of the few remaining Grands Prix not to be supported by its government. Sure, Britain doesn’t really need the exposure in terms of submitting a vision of itself to the rest of the world. Yet the government has pumped millions upon millions into hosting the 2012 Olympic Games in London and into the bidding process to secure hosting rights of the 2018 soccer World Cup. Two events that are six years apart at a significantly greater cost to the taxpayer than hosting a Formula 1 race. Silverstone has been hosting F1 since 1950 and has had to fight very hard to retain its flagship event. Thankfully Bernie Ecclestone and the British Racing Drivers’ Club managed to come to an agreement that will see Silverstone pay £12m each year to the F1 coffers with a five per cent annual increment.
With the cost of hosting F1 rising each year, Ecclestone is doing his best to guarantee the future of the sport and assist CVC in making a tidy profit out of the sport. Only a select few venues are immune from being priced out of the market and new venues around the world are clamouring for the promotional platform of F1 to come to them. And they will pay.
The shift in F1 is perhaps best highlighted by comparing the 2010 calendar with the 2000 calendar. In 2000 there were 11 races in Europe, two in Asia, none in the Middle East, one in Australasia, one in South America and two in North America.
In 2010 there will be eight races in Europe, six in Asia (including Turkey), two in the Middle East, one in Australasia, one in South America and one in North America.
The money on offer by Asian and Middle Eastern race promoters dwarfs that on offer in countries such as France, Austria and San Marino, all of which have dropped off the radar since 2000. So long as Formula 1 has such titanic debts to service then we will continue to see F1 move away from its traditional venues.
The task of being a race promoter is, for most, very expensive and very difficult. It requires the full backing of the government financially and a state of the art circuit and facilities. Unfortunately, there is little room for sentiment and Formula 1 simply has to follow the money. That’s good news for promoters in Korea, debuting this year, and F1 hopefuls in locations such as Dubai, Qatar and Indonesia. It is bad news for promoters in France, Britain and Germany who have all struggled to meet the rising cost of F1.