Sunday, July 06, 2008

A British Grand Prix at Donington?

"I offered the BRDC the opportunity to renew their contract, but they felt they were not in a position to do so," said Bernie Ecclestone. "The British Grand Prix has been saved. If we had not done the deal...these people would not have agreed, and the British Grand Prix would have gone."

This, you might think, was Bernie speaking on Friday, as he announced that a new deal had been signed with Donington to host the British Grand Prix from 2010. If so, then you would be wrong, because this was Bernie speaking in the Spring of 1999, after announcing that a new deal had been signed with Brands Hatch to host the British Grand Prix from 2002.

The owners of Brands Hatch gave assurances that they had the finance and planning permission to complete the extensive construction work necessary to bring Brands Hatch up to Formula 1 standards. "There is no problem there," said Nicola Foulston, then CEO of Brands Hatch Leisure. "We have planning permission as a motor racing circuit and all we would be doing is precisely that. There is no change of use involved."

As it transpired, Brands Hatch didn't obtain the necessary planning permission. In possession of a contract which entitled them to host a Grand Prix, Brands Hatch Leisure were sold to a subsidiary of the US Interpublic Group in January of 2000, and Nicola Foulston departed, having pocketed $40 million. The US Interpublic Group then slowly discovered what is a well-known fact about the modern sport:

Hosting a Grand Prix is not a profit-making activity.

Bernie takes the revenue from the television rights and corporate hospitality, and charges each circuit a so-called 'sanctioning fee' for the right to host a Grand Prix. Back in 1999, the cost of hosting the British Grand Prix from 2002 onwards was £8 million a year initially, with 10% compound interest. One trusts it is no cheaper today. Making a profit from gate receipts alone is therefore a task which challenges most Grand Prix promoters. In fact, most Grands Prix around the world make a loss, and the races are generally subsidised by local and national governments. A Grand Prix is, in effect, an extremely effective advert for countries such as Malaysia, Bahrain, China and Abu Dhabi; a place in the Formula 1 World Championship calendar says 'We're a modern, commercial economy: invest and trade with us.'

Back in 2001, the Interpublic Group found that, not only did they have to pay Bernie's sanctioning fee, but because Brands Hatch was incapable of hosting the race, they also had to pay Silverstone $12 million a year to actually host the race on their behalf.

Donington, however, claim that they will invest £100 million over five years. They would certainly need to, because the Donington track does not meet current Formula 1 safety criteria, and the pits, paddock, media and corporate facilities also do not meet current Formula 1 standards. Given the difficulty of making a profit from hosting a Grand Prix, it is difficult to see where the money for this would come from. According to the statement issued by Donington on Friday, "funding for the massive redevelopment would be led by a private investor who is also a large shareholder in the company." According to a televised interview with joint Donington CEO Simon Gillett today, the money will be 'venture capital'.

If they can raise this money from gullible investors who fail to do due diligence, then good luck to them. But at the moment, all Donington have demonstrated is that they possess a contract to hold the British Grand Prix. That contract has a value, and it may be necessary for some other party to buy the contract from Donington (and Bernie), at a future date. The only thing which is guaranteed, is that Bernie will come out of it a winner.

1 comment:

AlpineOpossum said...

Five years they said? They have one and a half, and as far as I know, they haven't even got blueprints for the rennovtaion.