Jump to content

Ecclestone Casts Doubt Over British GP. Interesting COTA parallels

Recommended Posts

Bernie Ecclestone Casts Doubt Over Future Of British Grand Prix. Long, but very interesting read (imho). As one of our followers put it, you could basically change Silverstone to COTA and most of the article would still be true. The end of the article reads like a plea for METF-esque state subsidy help to save the British GP.


Formula One’s chief executive Bernie Ecclestone has cast doubt over the future of the British Grand Prix due to uncertainty about the ownership of Silverstone, the historic race track in England which hosts the race.
Silverstone is owned by the British Racing Drivers’ Club (BRDC), a group of 850 senior motor racing figures which took over the lease of the track from Britain’s Royal Automobile Club in 1952. It sits on a former airfield and hosted the first round of the F1 world championship in 1950 which makes it one of the most historic tracks on the calendar.
Nevertheless, the BRDC has been trying to sell the track’s operating company Silverstone Circuits Limited (SCL) and lease its related land for the past five years. It isn’t surprising since SCL made a $3.6 million operating loss in 2012 and lost a further $1.5 million the previous year.
Earlier this week the BBRDC announced that the sale talks had collapsed and this has driven the doubt over the future of the British Grand Prix.
The BRDC has been down this road before. It did a similar deal in 2000 when marketing firm Interpublic took over management of Silverstone. The arrangement was short-lived, as Interpublic made huge losses on the deal, and it ended three years early in April 2004. The BRDC took back the management of the track and Mr Ecclestone was instrumental in helping it get a huge payout from the deal. It was used to build a business park surrounding Silverstone but Mr Ecclestone suggests it should have been kept in the bank.
“God only knows what is going on at Silverstone, it’s quite incredible,” he told Forbes. “This is the BRDC. That’s the problem. Years ago they could have sorted all that out. I got them out of a silly deal and got them 60 million in cash. Who knows whether the race is at risk. We have come to an arrangement with them. I’m happy with that.”
Although Silverstone hosts more than 50 motor races every year, the reason that the track loses money is largely due to the single F1 Grand Prix.
Race organisers generally do not get any revenue from F1’s television broadcasts or its corporate hospitality and advertising hoardings during a Grand Prix. Money from them goes to the rights holder the F1 Group leaving the circuits with ticket sales as their sole source of income from the series. This usually barely covers the annual hosting fee with running costs often funded by investment from governments.
The British Grand Prix is a rare exception as it gets no state subsidies. It means that the BRDC has to try to cover the running costs and hosting fee from ticket sales alone. This task is made all the more difficult by the fact that the hosting fee increases by an estimated 5% annually and this year comes to an estimated $23.1 million. This is the special “arrangement” Mr Ecclestone is referring to since F1 race fees rise to more than $60 million annually and usually increase by 10% every year.
Despite getting a good deal, the increasing hosting fee has still driven up the British Grand Prix ticket prices to become some of the most expensive in F1. They started at $244 (£145) in 2013 making them more expensive than even the cheapest tickets to the Monaco Grand Prix and the men’s final at Wimbledon.
The higher the ticket prices, the harder it is to fill the stands and cover the running costs and hosting fee for the race. It explains why the BRDC took the decision to try to distance itself from the track and, in turn, from the organisation of the British Grand Prix. The sale process began in 2009 when the members of the club gave the directors permission to sell a lease on the circuit and surrounding land rather than permission to sell it outright. The club then engaged accountancy firm PricewaterhouseCoopers to contact potential investors and it entered into exclusive talks with a preferred bidder.
The talks fell through and in May 2012 the BRDC announced it had opened discussions with other parties. In August last year it came to light that the talks had paid off as British newspaper the Independent revealed that a buyer had finally been found.
The BRDC confirmed the scoop in September and announced that property group MEPC had paid it $54 million (£32 million). In return MEPC got a 999-year lease on 280 acres of land surrounding the circuit including the business park which was funded with the money from Interpublic. The BRDC also said it had agreed terms to sell the lease on Silverstone itself and in November 2013 the Independent disclosed the details of this. Its report revealed that terms were agreed on 8 August 2013 when the BRDC signed a conditional binding agreement to sell its circuit business, Silverstone Circuits Ltd, along with a separate lease of the 467 acres of track-related land.
The deal put a price of just $16.9 million (£10 million) on Silverstone which stands in stark contrast to the construction cost of purpose-built F1 circuits. Circuit of the Americas in Austin, Texas, has hosted F1’s United States Grand Prix since 2012 and cost an estimated $400 million to build. Likewise, the facility in Abu Dhabi, which hosted its first F1 race in 2009, cost a total of $500 million. A new 3.5-mile track, which is set to rival Silverstone, is being built just 110 miles away in Wales and its management has forecast that it will cost $420 million (£250 million) to build.
The construction cost is one thing but the price obtained for a track on sale is another. The reason that Silverstone’s sale value was so low is common to all F1 tracks. Former BRDC chairman Stuart Rolt explained in a letter to club members last year that “the value of an asset that has a locked purpose as a business (in Silverstone’s case to be operated primarily as a motor racing circuit) is largely calculated from the profit that can be derived from it.” He adds “we made a net loss in the year…Our circuit assets value reflects this.”
Clause five of the BRDC Members’ Charter ensures that “the core operation and activity of the Circuits and immediately surrounding land to remain essentially as a venue for car racing and related activities.” Accordingly, the lease-holder could not convert Silverstone into a different business, such as a housing estate, so its price can only be based on its financial performance as a racing track. Bearing that in mind that Silverstone made a $3.6 million operating loss in 2012 it doesn’t sound too bad that the following year it had a $16.9 million sale price. However, in the end the BRDC could not even get that.
On Wednesday the BRDC announced that the sale of SCL and lease of the track-related land has fallen through. It is perhaps no surprise given that the asset on offer was a loss-making business. The announcement said that “the BRDC will now retain full ownership of SCL” and “as the authority granted by Members to the Board to secure a deal has now expired, no further agreements of this nature will be entered into without first communicating with Members.”
In 2012 Mr Rolt said that the purpose of the sale was “to completely separate on a financial level Silverstone from the BRDC for the period of the lease.” As the sale will not be taking place the BRDC is left with a loss-making track which is a potential liability and this has fuelled doubt over the future of the British Grand Prix.
The news about the brakes being put on the sale comes at a bad time. The prospectus for the stalled stock market flotation of F1 states that race “fees are often due three months before the Event” which is around now since the British Grand Prix will take place on 6 July. The funds from a sale of SCL and a lease of the related land would have helped to offset the $23.1 million race fee though the BRDC is nevertheless getting a boost from elsewhere.
British driver Lewis Hamilton is currently second in the F1 standings, up from fourth last year, and Silverstone’s chairman Neil England recently said that this has fuelled an increase in ticket sales. Mr England said he had some concerns early in the year but sales are now “pretty much in line with where we’d like them to be.”
In a letter sent to members earlier this week BRDC chairman John Grant added that “forecasts prepared by the management team as part of the sale process demonstrate that results should improve over the coming years, and we expect the business to be profitable before depreciation in 2014.” If this is what happens then it should clear up any doubt over the future of the British Grand Prix. However, if Silverstone makes another loss it isn’t clear what source would be used to cover it.
Although many millionaires and several billionaires are members of the BRDC its structure as a club has meant that the directors have historically not approached them for funding. The BRDC’s 2012 financial statements show that it had just $418,000 (£259,000) of cash reserves and they won’t be topped up with the money from MEPC. Instead of putting the money in the bank it is being used to clear debt which funded construction of a new pit and paddock complex. The facility opened in 2011 and helped Silverstone land a 17-year contract to host the British Grand Prix.
The BRDC can’t fall back on the Interpublic money either because that was used to fund construction of the business park which was leased to MEPC to clear the debt. If the BRDC had kept the Interpublic money in the bank it would have reduced the current uncertainty which explains Mr Ecclestone’s comment that “years ago they could have sorted all that out.”
An obvious source of funding to cover a loss would be more debt. However, it seems unlikely that this would be high on the BRDC’s list of options given the lengths it has gone to in order to become debt free.
There is also the question of how much money could be borrowed given that security would need to be provided for a loan and the BRDC has sold off its most valuable asset – the land surrounding the track. Indeed, as the BRDC has spent years trying but failing to sell its remaining asset – the track and related land – it would be ironic if it became the security for a new loan.
The reason for this is that the point of a loan security is that it can be seized by the bank if the borrower fails to repay the debt. The bank can then sell the security to try to recoup the money that it loaned. However, if an asset has failed to sell over five years then it raises the question of whether a bank would want it as a security.
That said, one of the biggest hurdles in the way of selling Silverstone could have been that the track is loss-making and this of course results from it being used as a race track. Silverstone’s purpose is locked as a “venue for car racing and related activities” in the BRDC Members’ Charter but it remains to be seen whether this restriction would still apply if the track had a new owner rather than a new lease-holder.
If the BRDC was no longer the owner then one wonders whether its Members’ Charter could still be enforced over Silverstone. If not, then a bank could threaten to level the track and develop the land for residential purposes which would make a great deal of money. Given Silverstone’s historic status within the motor racing industry such a threat would almost certainly force the government of the United Kingdom into finally giving state subsidies to the track. Not only could that secure Silverstone’s future but it would bring the British Grand Prix into line with the majority of the other races on the F1 calendar.
Perhaps F1’s biggest irony is that the British Grand Prix does not get any state funding despite it being the first-ever round of the F1 world championship and despite the F1 Group and the majority of the 11 teams being based in Britain. In contrast, the US Grand Prix gets around $25 million of funding every year from the state of Texas even though not a single F1 team is located in the country.
Even the new track which is being built in Wales has already received a $3.4 million (£2 million) grant from the Welsh government which itself is funded by the UK government. The project recently attracted criticism as it is asking for a further $84 million (£50 million) more from the government but has refused to name its investors.
Regardless of whether it gets $84 million, the $3.4 million that it has already received is more than the UK government gives to Silverstone which has been creating jobs and acting as a national flagship for the motor racing industry for decades. It is certainly not work in progress like the track in Wales.
Although the $3.4 million may not sound like a great deal in motor racing terms it alone could have gone a long way to covering the shortfall in Silverstone’s 2012 financial statements. Time will tell whether it has fared any better since then.
Link to comment
Share on other sites


This topic is now archived and is closed to further replies.

  • Create New...