The latest financial results for Formula 1’s commercial rights holder show it may need a hefty boost to motor through the economic downturn.
F1’s revenues are mainly comprised of broadcasting rights and race hosting fees, which together raised £530 million for the sport’s UK parent company last year. But this was only a slight increase on the £410m the business made in 2006 over the nine-month period after it was purchased by finance firm CVC.
Revenues fell after the San Marino GP was dropped for ’07. It was the second year that a race had been dropped without being replaced and it hit the finances of Formula One Administration (FOA), which directly owns F1’s commercial rights.
FOA’s revenues grew by eight per cent year-on-year, way off the 25 per cent rise seen in its heyday between 2003-04. FOA grew despite losing a GP because the hosting fees for many circuits are believed to increase by 10 per cent annually. Although FOA’s underlying profits rose by seven per cent to £247m, F1 overall burned through this with debt repayments.
Delta 3, F1’s UK parent company, is sitting on £1.4 billion of debt which was lent by RBS and Lehman Brothers to fund CVC’s purchase of F1. In ’07 the company made a loss of £235m, partly down to £130m in interest payments on the loan. During the year it paid off just £47.4m of the loan itself, and at that rate it will take nearly 30 years to clear. But CVC may wish to sell the business, complete with the debt, before then.
This may not be easy, since F1’s governing body the FIA has a veto on change in the sport’s ownership. It’s been rumoured that the FIA may give CVC more flexibility to sell if it increases the teams’ share from 50 per cent of F1’s profits. But with the business failing to make a profit, this is the last thing it needs. If it fails to make debt repayments F1 would end up in the hands of the lending banks, as happened in 2002 when Kirch went bankrupt.
CVC doesn’t have to look far to see the dangers. In September Lehman Brothers filed for bankruptcy, and although this won’t change the fact that CVC has to pay back money lent by the bank, it has another problem. Lehman also owned a 16.8 per cent stake in F1’s ultimate holding company alongside CVC which was expected to snap up the shares at a discount.
Of the 18 races this year, two are big-bucks signings in the form of Valencia and Singapore. Together these are estimated to be paying FOA £42m. Next year a 20-race calendar is being mooted with the further addition of Abu Dhabi, which it is thought will pay a £25m annual fee. It’s a boost which could come at the right time for F1.
By Christian Sylt and Caroline Reid, authors of Formula Money which is available at www.formulamoney.com and costs £150