20/06/2011
NEWS STORY
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Last week the Telegraph reported that the British Racing Drivers' Club (BRDC), which owns the Silverstone circuit, moved from a £1.3m profit in 2009 to a £1.9m loss in 2010. This news was intriguing for a number of reasons and they all caught the attention of Pitpass' business editor Chris Sylt.
Interestingly, the BRDC's 2010 accounts have not yet been filed so presumably the financial results were given directly to the newspaper. The BRDC's chairman Stuart Rolt was quoted in the article so it would be logical to assume that he told the paper about the results.
Quite why the chairman of a company would want to give a newspaper a tip-off about falling profits is interesting in itself. It reminded Sylt of the Williams team since its chairman Adam Parr last year also tipped off a media outlet that the team's upcoming accounts would show a 13.8% fall in revenue with profit more than halving. As Pitpass wrote at the time, it is extremely useful to journalists like Sylt when the boss of a company gives a public tip-off to say that its annual accounts will soon be filed. It allows multiple newspaper articles to be written - one about the tip-off and another about the meat of the accounts when they are filed.
However, whilst it is useful for a journalist like Sylt one has got to wonder whether it is really sensible for the company which is filing the accounts. Given its recent financial performance, Williams isn't perhaps the best example to follow. It is certainly hard to see how Silverstone has benefited from the recent revelation.
The Telegraph article states that the reason for the fall in profits is that "sales for the Formula 1 race were affected by Silverstone securing the race only seven months before its scheduled date." It added that "the BRDC said profits fell because it had less than a year to sell tickets for the Formula 1 race and there has been an increase in costs from agreeing a new contract with Formula 1 to host the Grand Prix." This last point could be more than just a little bit important.
Sylt was surprised to say the least when he read the BRDC's claim that profits fell because it had less than a year to sell tickets for the F1 race. Sylt was in the media centre during the British Grand Prix race weekend last year and doesn't remember seeing too many empty seats in the grandstands. That view was reflected in a press release distributed after the race by Silverstone itself which said the following:
"Silverstone Managing Director Richard Phillips has hailed this year's event as one of best British Grand Prix in years, attracting near-capacity crowds of 115,000 on Sunday and record-equalling attendances of 85,000 and 105,000 for Practice on Friday and Qualifying on Saturday respectively."
Given that, by its own admission, Silverstone was at "near-capacity" on race day and had "record-equalling" attendance on Friday and Saturday, it seems hard to follow the claim that "sales for the Formula 1 race were affected by Silverstone securing the race only seven months before its scheduled date." If Silverstone was at near capacity with record-equalling attendance then it seems unlikely that ticket sales could have been the driving force behind the loss. So what could it have been? You don't have to look very hard to find out.
As Sylt writes in today's Independent, when Silverstone signed its 17-year deal with F1's boss Bernie Ecclestone in December 2009 it agreed to pay an estimated £11.6m, its highest-ever fee, for hosting the British Grand Prix. This prevented the race from being cancelled after Leicestershire's Donington circuit failed to honour its contract to host it. The key concession is that Silverstone's fee is believed to escalate by 5% annually instead of the 10% which is applied to most other F1 circuits.
Last year the British Grand Prix is believed to have had the highest attendance of all F1 races and, reflecting this, the Telegraph reported that Silverstone's revenues rose by 23% to £48.6m in 2010. Despite this, the BRDC still reported a £1.9m loss for the year. Rolt said he was "very pleased and encouraged" by the results.
This year Silverstone's fee for hosting the race will be 5% higher at around £12.2m and it will hit £18.9m in 2020 rising to £19.9m the following year.
Silverstone has to cover this cost from ticket sales alone since the sport's rights holder, which Ecclestone runs, takes all revenue from F1 broadcasting, trackside advertising and corporate hospitality. Conservative projections show that by 2020 the cheapest tickets to the British GP will cost £195, a 31% increase on the price this year, whilst the most expensive will sell for £475.
Silverstone is one of only two F1 circuits which receives no government funding and over the past four years it has made a profit as often as it has made a loss. In April 2010 it took out a £26m loan with Lloyds Banking Group to fuel development and last month it opened a new pit and paddock complex.
The BRDC has engaged the corporate finance arm of PricewaterhouseCoopers to secure new investors for future developments at the circuit which it is believed will include a hotel, new driver training facilities and a visitor attraction.
Sylt's conclusion is that what Silverstone really needs is a reduction in its F1 fee but that is far less likely to be forthcoming.