21/01/2009
NEWS STORY
Clearly F1 teams are facing tough times at the moment. The global downturn has hammered car companies and squeezed marketing budgets - the two lifelines that all F1 teams depend on. However, Formula One Management (FOM), F1's commercial rights-holder seems to be in decent shape.
True, F1 has $2.3bn of debt on its books but, unlike many businesses out there, it is managing to make its repayments. Crucially "F1 benefits from multi year contracts in all areas of the business, broadcasters, promoters and sponsors, so a downturn does not immediately lead to a fall in revenues," Nick Clarry, managing director of FOM's ultimate owner CVC recently told Pitpass' Chris Sylt.
In short this means that only around 15% of F1's contracts renew each year with multiple media and circuit bidders each time. In the current economic climate, the fewer the contracts which need re-negotiating the better so it is some surprise to read none other than FIA president Max Mosley saying that FOM's forecasts won't hold up.
"I cannot envisage that FOM's forecast earnings still hold in the economic crisis. Bernie will have problems with some organisers. If it gets too tight for the repayment of CVC's debt, it could certainly solve it with the financing banks. But I don't know the details," Mosley was recently quoted as saying in the German press. FOM's boss Bernie Ecclestone begs to differ.
"We have just signed that deal I did with LG. We've done the same with DHL. It's incredible that we are still getting them," Ecclestone told Sylt recently and it is rumoured that two further deals are in the works. "I do not see great suffering for everyone," Ecclestone added.
F1 has a very clever safety net under its bonnet. Its biggest cost is the payment of 50% of its profits to the F1 teams so, as Clarry explains, "in a worst case, where profits fall, the impact on the bottom line is lessened by a reduction of our largest cost item, which is the prize fund." Clearly FOM can afford to pay out 50% of its profits but it may struggle if the share increases. Yet another reason why the teams can forget about asking for more money.