THE MONTH-LONG break in Formula1 is almost ending and next weekend we shall see the F1 circus resume action (I mean go racing) at the world class Spa-Francorchamps circuit in Belgium. The month of August was a mandatory break for all Formula1 teams and personnel. Reason? Spend time off work and with families and of course reduce operating costs by shutting down the factory.
So while internationally the buzz in Formula1 was almost off, the Indian GP organizers chose this time to make noise about the first ever Indian Grand Prix. First, there was an announcement, which confirmed Airtel’s association with the Indian Grand Prix. The telecom major has taken up the ‘naming rights’ category as a sponsor, which means that this association will offer their brand global imagery and branding. Second, JPSI, the owners of the Buddh International Circuit, officially announced sale of the much awaited tickets for the Airtel Grand Prix of India.
The 3-day admission ticket price ranges from Rs. 2,500 to Rs. 35,000 and I do foresee a fully packed circuit in October. What the organizers should have done is issue a guide to buying tickets for the Indian F1 fan. This is the first time that most Indians are buying tickets to an F1 Grand Prix and they are bound to be clueless on what are the best stands to watch the GP from. However, do read my recommendations on my blog post: ‘Airtel Indian Grand Prix Tickets: Which Stand Is The Best’.
Deprived of on-track action, I switched my thoughts to the other important aspect of Formula1, its business. I spent time reading Formula Money reports, which shared a few interesting numbers on the sport. The last few years have been turbulent for the sport, which saw the exit of three important manufacturer teams, BMW, Toyota and Honda. How did this affect the sport? Globally too, recession was prevalent and again there were many sponsors who chose to exit the sport, how did this affect the business of Formula1? Here are my readings from the Formula Money reports.
2009 was when the three manufacturers exited the sport. However, 2010 saw the addition of three new F1 teams and also had Canada and South Korea added to the list of GP venues. Despite this, F1’s total revenue fell 6.2% to $ 4.4 billion. The drop was mainly due to BMW and Toyota’s exit, which were estimated to be spending around $ 746 million as their combined annual F1 budget. The two manufacturers were also estimated to have spent a whopping $ 2.4 billion on their F1 campaigns over 5 years before their exit from the sport. The loss of these manufacturers also meant a loss of 16 sponsors, including Panasonic, who paid Toyota $ 60 million in annual sponsorships. However, the impact of this loss was minimized by the new sponsors that were brought on board by the three new teams last season – HRT, Team Lotus and Virgin Racing.
The report also mentioned that brands were getting smarter with their sponsorship associations in Formula1 which led to a further increase in the gap in the financial conditions of the top performing teams and the others. In 2010, the top three teams accounted for more than half of the total sponsorship received by all teams. Ferrari remained the top team with 32.5% of total team sponsorships being attracted by the Italian marquee.
Formula1 ownership has been in the thick of all discussions and its current owners CVC partners, who own 63.4% of Formula1 have seen a net profit of $137 million in the last year. What is even more astonishing is that over CVC’s 5 years of ownership of the sport, they have netted a cool $ 773 million in profit.
One of F1’s biggest sources of revenue comes from trackside advertising and corporate hospitality at the races, which were calculated to be $ 423 million last year. This area of spends saw a significant drop since marketing and entertainment budgets were slashed by F1 teams / sponsors. TV revenues, which have always believed to be a big contributor to the sport’s overall revenue, contributed around $ 470 million last year.
Talking of TV revenues, the current split between the owners of the sport and the teams is 50%. During the renewal of the Concorde Agreement next year, the teams are expected to negotiate their share to 70%. As per Formula Money’s calculations, had the 70:30 split be applied to last year’s data, F1’s owners would have suffered an approx. $126 million loss. This also means that we should expect a lot of turbulence as we near the renewal of the much important Concorde Agreement in 2012.
