21/04/2012
NEWS STORY
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At the end of 2009 Pitpass' business editor Christian Sylt wrote a story for the Telegraph which made an alarming prediction about ticket prices for the British Grand Prix. It predicted that fans would carry the cost of the deal signed between Silverstone's owner the British Racing Drivers Club (BRDC) and Formula One's boss Bernie Ecclestone to save the British GP after Donington failed to get funding to host the race. From 2010 the BRDC agreed to pay an estimated £12m annually to host the British GP with the fee reportedly escalating by 5% every year. It seemed like a good deal until it came to light that the Canadian GP had re-signed for an estimated £9.3m annually. Since F1 circuits generally don't share in the sport's trackside advertising or hospitality revenues, it is left to ticket sales alone to cover their costs.
Sylt's story was based on projections showing that by 2026, the last year of Silverstone's new race contract, the price of the cheapest three-day tickets, which only offer general admission and not a seat, will double to £250. Sylt covered the news on Pitpass complete with a table of data from his Formula Money F1 industry report showing just how much fans can expect to pay every year. This ruffled a few feathers but two years on we can now see just how true it was.
It is worth pointing out here that Sylt has been covering the business of F1 for the Telegraph for over seven years so it isn't like he is wet behind the ears. Likewise, the Telegraph is one of Britain's most venerable broadsheets and, as with any newspaper, an article has to be cleared by a section editor, sub-editor and the editor of the paper before it is allowed to go to press. In short, a paper like the Telegraph isn't likely to print nonsense.
That didn't stop Silverstone roundly denying the story and a spokesman for the circuit was quoted saying "the figures reported bear no resemblance to the facts, or Silverstone's plans for the future...They are speculative and unhelpful. Any increase in ticket prices would be in-line with the annual rate of inflation, or rises in VAT. Silverstone is looking at alternative ways to increase revenue from the British Grand Prix to help cover any increase in costs or fees."
Critics might say that Pitpass is biased because Sylt writes for us. Well, let's put his figures to the test. In 2009, our table predicted that by 2012 the cheapest tickets to the British GP would cost £141.22 with the most expensive having a price tag of £410.99. In fact, Silverstone's website reveals the grim reality which is even worse than Formula Money's estimates. It shows that this year the cheapest tickets actually cost £155 with the most expensive grandstands going for £420. Not only are these prices pretty close to the projections made three years ago but they are actually higher.
The upshot of the revelation that Formula Money's estimates are at worst slightly conservative is that in just five years from now fans can expect to pay around £175 just to get in to the three days of the British GP with the most expensive grandstand tickets going for an estimated £450. By the end of Silverstone's contract expect general admission to cost £250 with the top grandstand tickets coming to a whopping £530 each. Of course, the way that Silverstone is going, the tickets could end up costing even more than these projections. Recent developments at the circuit don't instil much confidence.
Over the past few years the BRDC committed to upgrading Silverstone and the first fruits of this multi-phase plan was the new pit and paddock complex which opened last year. With no support from the UK government, building the new complex took its toll on the BRDC. The Club's latest accounts are for the year ending 31 December 2010 and show that it burnt through its cash and secured debt from Lloyds Banking Group and Northamptonshire County Council to fund development. Its creditors more than doubled to £35.6m and its cash in the bank fell by £16.4m to £3.5m. These factors led to it having net current liabilities of £11.9m down from net current assets of £7.8m in 2009.
As a result of this, the BRDC accounts state that "the ability of the group to operate as a going concern is dependent upon the availability and timing of bank funding." So with the BRDC already relying on bank loans to keep its doors open, where will the money come from to continue its redevelopment project? In 2010 there were no net profits to invest as the BRDC made a £1m net loss with Silverstone Circuits, its subsidiary which runs the track, losing £600,000 after-tax.
The BRDC's preferred solution is to sell a long lease on Silverstone and land it owns around the circuit to an individual or company which will invest in the circuit and pay off the debt incurred to develop the pit and paddock complex. This process has not been straightforward.
In August last year, Pitpass revealed that the BRDC was in exclusive talks with a group from Qatar about taking over the lease but nothing has been heard about it since then. Last month it was reported that these talks had fallen through and it is not clear if previously-interested bidders would be prepared to enter into discussions again. It was suggested that an Anglo-American group, which allegedly has Richard Branson as a commercial partner, is prepared to step in but it is not clear how much truth there is behind this rumour.
What is for sure is that if the lease is not sold the most likely option for funding future development would be further bank debt. This would mean that the BRDC's interest payments would increase and, unless it could find "alternative ways to increase revenue from the British Grand Prix to help cover any increase in costs or fees" the ticket prices would also have to increase even more.