30/08/2011
NEWS STORY
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Contrary to many media reports doing the rounds at the weekend, Silverstone has not yet been sold. True, its owner, the British Racing Drivers' Club (BRDC) has been courting investors about buying a long lease on the circuit but, as Pitpass' business editor Christian Sylt reveals in the Independent, this process is still ongoing.
Before looking at the stage that the talks are currently at, it is worth casting our minds back to why the BRDC wants an investor in the first place. The origin of this story is the last-minute 17-year contract signed by Silverstone with F1's boss Bernie Ecclestone in December 2009. It prevented the British Grand Prix from being cancelled after Leicestershire's Donington circuit failed to honour its contract to host the race.
Silverstone committed to redevelopment to bring the circuit up to the standard of rival F1 venues. It has fuelled expansion with a £12.5m line of credit from Lloyds Banking Group and opened a state-of-the-art pit and paddock complex earlier this year. However, this isn't the biggest financial commitment which has come from Silverstone signing its F1 contract.
According to F1's industry monitor Formula Money, this year Silverstone is paying an annual fee of £12.2m to host the British GP. It rises by 5% annually and, as Pitpass reported in June, by 2020 this will come to a whopping £18.9m. Based on historic increases in ticket prices at Silverstone this would mean 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.
If ticket prices remain the same the BRDC could lose money and even now, right at the start of the contract, this is already happening. Despite a near capacity crowd for last year's race, the BRDC reported a £1.9m pre-tax loss for the year ending December 2010, down from a £1.3m pre-tax profit. It wants to put the brakes on this and one of the reasons that the BRDC wants outside investment is to reduce the club's risk and give it a stable and predictable revenue stream. That's not all.
Pitpass understands that the BRDC's directors informed the club's members in mid-August that the new leaseholder will have to invest in Silverstone and pay off debt incurred in developing the new pit and paddock complex. The Lloyds loan itself needs to be cleared in full by July 2015.
The deal sounds good news but as always there is a catch and in this case it could see Silverstone heading out of British hands.
In February this year the accountancy firm PricewaterhouseCoopers contacted a short list of potential investors including leisure businesses, sovereign wealth funds, high net worth individuals and real estate firms. It is believed that they proposed taking a lease of as much as 150 years on Silverstone.
A senior F1 source explains that "to do all the development, the BRDC have had to borrow a massive amount of money and, long-term, the club can't sustain that. So they want to take a lot of money for a very, very long lease from a substantial entity, perhaps a sovereign fund, which will continue development there."
Several entities expressed an interest in the lease and in mid-August the BRDC narrowed them down. The club entered into talks with just one of the bidders and Pitpass understands that the BRDC members have been informed that this exclusivity period is due to last well beyond the club's Annual General Meeting on Thursday.
This effectively scotches the rumours that a bid has already been accepted. Once the exclusivity period expires the BRDC will either close a deal with the preferred bidder or re-consider the offers from the others which expressed interest.
It is understood that the BRDC's directors have told members that they had interest in the lease despite the political trouble in the Middle East and the source confirms "the board has had a number of bids which were worthy of consideration." As Pitpass recently reported Ecclestone's family trust is not believed to be one of them despite rumours indicating this. Instead, the preferred bidder is believed to be Qatar Investment Authority (QIA), the owner of Harrods. Earlier this month QIA's real estate subsidiary, Qatari Diar, announced its involvement in a partnership which has paid £557m to manage the London Olympic Village after the 2012 Games and turn it into housing.
The Silverstone lease is expected to be worth up to £250m which will give a windfall to the BRDC's 850 members who include Lewis Hamilton, Jenson Button and Ecclestone himself. In 2005, Silverstone was valued at £61m but since then it has undergone considerable renovation work. Competition between bidders is believed to have pushed up the price further. It isn't as high as it may initially seem.
Land adjacent to the circuit is available for construction work and earlier this month the BRDC submitted a planning application which includes technology and business parks, three hotels, an educational campus and a motorsport museum. These additional facilities make the circuit a more attractive investment as they offer a buyer a way to make money other than through hosting F1. Silverstone declined to comment on the talks about investment but an announcement is expected once the exclusivity period ends.