01 cover sbi 152.indd - FIFA/CIES International University Network

MOTORSPORT:
FORMULA ONE
“Hospitality revenues have been
dented by as much as 30 per cent
this year as sponsors and their clients
shied away from public displays of
excess. Nevertheless, F1 has a trick
or two under its bonnet to mitigate
the impact of this revenue loss.”
to the cuts made by most businesses. Indeed,
the sport’s employees are so productive that,
according to research by F1’s industry monitor
Formula Money, they each generate more revenue
than those at any company in the FTSE 100, the
International Olympic Committee, FIFA and
leading entertainment rights holders such as
Marvel and Nintendo.
One cost which F1 couldn’t keep down was
the amount of prize money paid to the 10 teams.
This accelerated 52.3 per cent to $521 million
under a new agreement which gives the teams 50
per cent of F1’s underlying profits. This doubled
their previous take from the sport and was a key
condition they demanded to prevent them from
leaving the sport.
It served its purpose as in August the teams
signed an extension to the Concorde Agreement,
the contract committing them to F1, until 2012.
The increased team payments sent Delta 3’s
operating profit down from $206 million in 2007
to $86.4 million last year.
The biggest risk to F1 of course comes from
the teams and their not quite annual threat to
quit the sport. In response to the question of
how he can prevent teams leaving F1 Ecclestone
bluntly says “you can’t. The manufacturers won’t
commit. Are they going to write that they commit
to race for seven years, or ten years, five years
They won’t. They don’t know what they’re going
to do next week,” adds Ecclestone.
The teams themselves have put in place a cost
reduction programme, due to be implemented
over the next few years. Ecclestone says that
“it’s not in the Concorde Agreement that’s been
signed...they’re doing it amongst themselves.”
One of the best indications of the outlook on
F1 is its debt price. When private equity firm
CVC bought F1’s commercial rights-holder in
2006 it used $2.8bn of debt from Royal Bank of
Scotland (RBS) and Lehman Brothers. This must
be paid back by 2014. That debt has since been
sold by the banks and the price of the debt gives
a good indication of the sport’s health. The better
the sport is perceived to be doing, the higher the
price of its debt.
After Honda pulled out the debt price
plummeted reaching a low of 48.7p in the Pound
at the end of March according to Markit Group,
which charts credit pricing. This level was lower
than the mean price on Markit’s iTraxx LevX
Index, a gauge of high-risk, high-yield loans
in Europe, which fell to a record low of 68p in
March over debt default concerns. However, the
signing of the Concorde Agreement boosted
F1’s debt price by 9.2p to 84.1p at the end of
August. Since then the debt price has
risen further hitting 90.8p at the
beginning of October - its highest
price in 12 months.
Clearly the scandal
surrounding Flavio Briatore,
which engulfed F1 in September, had
no impact on investor confidence in
the sport. In fact, it seems it may just
have had the opposite effect.
Why Well perhaps the
answer lies in the response,
back in 2005 to an FIA survey
of 93,000 fans. When asked,
amongst other questions,
‘what attributes are perceived
as essential to F1’ some 56
per cent of the surveyed fans
replied ‘intrigue’. No wonder
then that F1 has gone from
strength to strength.
Photos cour tesy of Netball Singapore, Lexus Cup (IMG) & Singapore Spor ts Council
SportBusiness International • No.152 • 12.09 55