01/02/2009
NEWS STORY
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The history of the British Grand Prix has more twists and turns than any circuit on F1's calendar. Every year it seems a ritual for the race to be put at risk and 2009 is no exception.
After last year's shock announcement of the event moving from Silverstone to Donington, it looked like the British GP had finally found some security last month when its new home got planning permission to make the changes necessary to host Formula One. However, news has come to light in the Express newspaper today, courtesy of Pitpass' business reporter Chris Sylt, revealing that the race now faces a financial hurdle. It has already become yet another casualty of the economic downturn.
Donington needs an estimated £40m of redevelopment work in order to bring the circuit up to scratch in time for its first British Grand Prix in 2010 but the downturn could put the brakes on it securing the necessary funding.
The 2007 accounts for the circuit's owner Donington Ventures, were signed off by its boss Simon Gillett on 21 January, and reveal that "the group is negotiating with financial providers and has at this stage not finalised facilities in connection with the development of the racetrack required to host the Formula 1 British Grand Prix from 2010." They add that "the current economic conditions create uncertainty particularly over (a) the level of demand for the group's services and (b) the availability of bank and other finance in the foreseeable future." Both could be crucial since Donington's plan is to get bank loans secured against the sales of over 6,000 seats to corporate customers.
With annual fees of around £5,000 a seat this would guarantee £30m a year from just 5-10% of the circuit's spectator capacity. Yet, even when the economy was in rude health it would have been tough to secure this level of corporate interest in a product which costs twice as much as a three-day ticket to the F1 Paddock Club for the British GP. In the current economic climate this plan seems fanciful to say the least. Donington's saving grace may be that the company involved with structuring the deal is ISG, which counts amongst its team a certain superstar banker called Robin Saunders who in 1999 helped the F1 Group's boss Bernie Ecclestone secure a $1.4bn bond secured on the sport's future revenues.
Donington needs this revenue stream not only to fund the redevelopment but also to pay an annual £18m fee to the F1 Group to host the race.
Ecclestone said earlier this month that Donington's work must be on track by September and added that "if it is not then we have four or five venues ready to stage a race." The implication is that he would scrap the race and instead give the calendar slot to a country which would pay even more than Donington. If this were to happen it would be the first time in F1's 60-year history that the British Grand Prix is missing from the calendar.
Sylt phoned Ecclestone about the latest development with Donington and he told him that "the government should lend them (Donington) the money... after all the money they have given to the Olympics." Ecclestone has strong views on this matter and recently told Sylt over drinks that he advised the Labour government's Olympics tsar Tessa Jowell to host the opening ceremony "underground… so nobody can see it because you ain't got enough money to do anything like the Chinese."
But whilst Bernie may be envious of all the taxpayers' money flooding the Olympics, it doesn't look like the government will spend the relatively tiny amount to secure the British GP. If Donington cannot bank on corporate guest spending then it is unclear as to where its money will come from.
Donington Ventures has already had a warm welcome to the world of F1 with a fair share of controversy. Its operating officer, Lee Gill, left last year without explanation, and experienced F1 PR advisors Sidhu and Simon also departed. The business is majority owned by software entrepreneur Gillett and property developer Paul White. Both are wealthy businessmen from the Midlands but neither is in wealth's super-league so you won't find their names on major rich lists.
Nevertheless, in 2007 White provided a £4m guarantee so that Donington Ventures could get a £16.3m bank loan. This doesn't bode well that Donington needed this funding even before it got the British GP since there is a chance that the race will make a loss. Grand Prix promoters' sole source of significant income comes from ticket sales and so many make a loss.
Despite the loan, Donington Ventures' cashflow was still short by £435,000 in 2007. Its bottom line was weighed down by goodwill impairment of £7.4m it incurred on buying the circuit during the year and this gave it an after-tax loss of £12.3m. Without this it would still have made a loss of £900,000 on turnover of £11.3m from events such as MotoGP and British touring cars. Remarkably Donington Ventures has just £28 in the bank and so clearly its resources are limited.
Worryingly the accounts say that "there is currently no binding commitment on the principal shareholder to continue to provide finance to the business," however they add that he has "indicated his willingness to continue to provide such financial support as the business requires to meet its financial obligations." Sylt says that Gillett expects to make an announcement in March about alternative sources of funding so the British GP's future may only become clearer then. Whatever the outcome it seems set for a rocky road.