28/04/2009
NEWS STORY
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Over the past few days Donington's bid to host the British Grand Prix in 2010 has suffered several severe setbacks. First it was revealed that the circuit's ultimate owner is suing the promoter, Donington Ventures Leisure (DVL) for unpaid rent. Then we learnt that DVL has not yet signed the agreement which gives planning permission for making the modifications needed to host the race. Today news has emerged that could explain the link between these blows to DVL and it comes from the unlikely mouth of F1's boss Bernie Ecclestone.
In one of his regular pub lunches with Pitpass' business editor Chris Sylt, Ecclestone revealed that DVL "had in the early days, all the funding put together, otherwise they wouldn't have started. I think because of (the recession), the banks have pulled back and left them in trouble."
DVL's bid to host the British GP depends on two forms of bank funding and if either were "pulled back", as Ecclestone says has happened, it could be fatal.
The first loan, which is at the core of its plan, is debt secured against the sales of over 6,000 seats to corporate customers. The idea is that banks would pay DVL upfront knowing that it would get the money back in from corporate hospitality sales. 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.
However, even when the economy was in good 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 prestigious F1 Paddock Club. In the current economic climate it would be no surprise if the banks had done a U-turn as Ecclestone suggests. The chance of DVL selling 6,000 hospitality tickets at £5,000 apiece is slim to say the least.
The second form of bank funding which DVL depends on is a £16.3m loan, and its latest accounts state that "the group should be able to operate within the level of its current banking facility and through continued financial support from the principal shareholder."
Software entrepreneur Simon Gillett and property developer Paul White majority own DVL. Both are wealthy businessmen from the Midlands but neither is in wealth's super-league. However, the accounts add that "there is currently no binding commitment on the principal shareholder to continue to provide finance to the business." In other words, if the company should hit trouble with the bank loan, there is no guarantee that the shareholders would have enough to support it and it could be curtains.
If DVL really has lost either of these forms of bank funding, as Ecclestone says, it may be no surprise that the company has not been able to pay its rent. Likewise, there is no point in signing the agreement which gives the circuit planning permission for its modifications if DVL has no money in place to pay for them.
The amount of money we are talking about is not small fry. DVL needs to raise £40m to redevelop the circuit and pay the annual £18m hosting fee to Ecclestone. In January DVL told Sylt that it would announce in March precise details of where its funding would come from, however, this deadline was missed. Of course Sylt asked DVL for comment on Ecclestone's comments about the banks pulling back and the company said it would get back to him but promptly missed the deadline for that too.
DVL does not seem to be in any position at all to fund the British GP from its own resources. In 2007 it made an after-tax loss of £12.3m and remarkably had just £28 in the bank at the end of the year.
Ecclestone revealed to Sylt that if Donington cannot host the British GP then it will simply be replaced by South Korea next year. He said that Formula One Management (FOM) has "got too many agreements in place." There are currently 17 races on F1's calendar and Ecclestone says that the teams "just about lived with 18." Next year South Korea will join and India will follow in 2011 leaving too many races according to Ecclestone… unless one departs.
He vehemently denied to Sylt that he would look for a replacement if Donington fails since there is no other suitable. Sylt tongue-in-cheek raised the possibility of returning to Brands Hatch and Ecclestone said "it would be nice if we could," before bluntly adding: "If there's no Donington, there's no British Grand Prix."
Over a coffee, Sylt put Ecclestone's comments to Damon Hill. As president of the BRDC, which owns Silverstone, Hill looks to be the only person who has a circuit in place which is able to stage the race. Ecclestone maintains that Silverstone is not up to scratch and he is adamant that "we cannot go back to Silverstone because nothing has changed there."
Hill responds that "we're not given a margin which is sufficiently strong to guarantee borrowing money to reinvest." Unlike most events, F1 race promoters don't get a share of TV or advertising revenues. Their sole source of income is from ticket sales and the British GP is one of a few which often breaks even or makes a small profit. This is quite an achievement given that the French GP has been dumped due to the downturn and Germany's event has made huge losses.
Hill adds that losing the British GP could dent F1 as a whole. "Most of the F1 teams are based in the UK so it's a very profitable race for them to come to. It has the highest ticket prices, so it's a very profitable event for FOM which obviously comes back to the teams and the debt holders." With F1 paying $270m in annual interest repayments on the loan which its owners took out to buy the sport, it needs all the money it can get. So losing a race with low costs for all concerned doesn't seem so sensible.
However, Ecclestone is sure to have done the sums and worked out that the £30m fee paid by Korea is £12m more than Donington has committed to and this more than outstrips any profits which the race may make. The impact on the sport as a whole from losing the British GP is a different matter and Hill points out that "it's got one of the best supported corporate hospitality outfits as well and one of the best TV audiences."
As a last resort, Hill throws down the gauntlet to the FIA and says that "you could argue that the promoters should be fairly treated by the FIA because without promoters and without circuits you can't have any races. So it's important that race venues are able to support themselves. So there is definitely a case to say that the FIA has responsibility to their licensed circuits and the promoters need to be protected."
Hill and the FIA may not have much time to act. Earlier this year Ecclestone said that Donington's redevelopment must be on-track by September, however, given the recent developments, its future may well be sealed long before then.