06/06/2012
NEWS STORY
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Over the past few months there has been an above average amount of business news about Formula One. Pretty much all of it, including several supposed exclusive stories, has been about the flotation of F1 - something which may never actually take place as it is currently on hold pending an up-turn in the world's stock markets. However, that doesn't mean to say that the brakes are also on other business news about F1 as shown by an article in today's Independent written by Pitpass' business editor Christian Sylt. The news in it is not gossip about something which may never come to pass, it is a revelation about a behind the scenes development which has already taken place and will forever change F1's political landscape. It has been long in the making.
Around a year ago Sylt broke the news that all of F1's circuits were threatening to pull out of the sport if the FIA went through with its plan to introduce environmentally friendly 1.6 litre four cylinder engines in 2014. The circuits were concerned that the new engines would sound so different to the current ones that they would drive spectators away. This would affect the race promoters more than anyone else.
The fees paid by the circuits to host F1 are the biggest source of revenue for its parent company Delta Topco and represent around a third of all the money it receives annually. However, in return, the circuits get no share of Delta Topco's profit, nor any share of its revenue from broadcasting, trackside advertising or corporate hospitality. A few circuits are allowed to sell their own trackside advertising and corporate hospitality and pay a fee to Delta Topco for doing so. So it is the race promoters who would carry all the losses if crowd numbers fall due to the cars' engine sound getting weaker.
Many commentators mocked the circuits' threat and said that they would never leave the sport. However Pitpass knew that they were deadly serious and were being steered by Ron Walker, the chairman of the Australian Grand Prix and one of the most savvy businessmen in F1 after his close friend, the sport's boss Bernie Ecclestone.
In an article entitled 'Analysis: The rise of the circuits' we explained in detail that the circuits hold a trump card which is one of the strongest in F1. It has often been said that if the teams ever really left F1 en masse, Ecclestone could fill their place by moving up outfits from the GP2 series which is owned by Delta Topco. This kind of feeder series could provide a ready supply of replacement teams if F1's management was prepared to let them in. As we wrote in our analysis a year ago, it would be much harder to replace the circuits if they left F1 en masse.
The reason for this is that, according to the following document, there aren't enough F1 standard Grade 1 homologated circuits available to host the sport if all of the current tracks pulled out. In fact, F1 would be restricted to running at Dubai, Fuji, Imola, Magny Cours, Mugello, Paul Ricard and the Red Bull Ring. No disrespect to any of these circuits but the line-up sounds more suited to GT racing than F1.
It may be no coincidence that just hours after the circuits threatened to pull out of F1 the FIA agreed to increase the specification of the 2014 engines to a six cylinder single turbo. The victory emboldened the circuits and after a year of negotiations they agreed to formally unite and have formed the Formula One Promoters Association (FOPA) as Sylt's article reveals.
FOPA was registered in Geneva on 18 May and is chaired by Walker. Its Articles of Association (the rules governing the company) state that FOPA has been set up to "promote better understanding of Formula One racing by media and the general public" and "encourage ticket sales by individual events."
Walker says that "circuits are not required to join FOPA, but merely use the association to lodge their proxies to vote on major issues affecting the sport." Together, they are a powerhouse.
Last year the circuits paid £330m for the right to hold F1 races and governments invest over £250m in them. It is worth it since F1's races attracted a combined 3.4m spectators last year and were watched on television by 515m viewers.
The formation of FOPA comes as F1 reaches a crossroads. The teams are currently negotiating a new F1 contract with Ecclestone, Delta Topco's biggest shareholder the private equity firm CVC, and the FIA. The Concorde Agreement sets out F1's technical regulations as well as the division of its profits. The circuits' desire to have a say in the technical regulations is the driving force behind their decision to form a union.
"The circuits are concerned by the constant changing of rules by the FIA which is confusing the fans and affecting ticket sales," says Walker. Silverstone's chairman Neil England adds "we have historically lacked a co-ordinated voice and the Formula One Promoters Association gives us the opportunity to have that. There are a number of matters of common interest and I think it is important that those are voiced...It is for the good of the sport if the promoters are speaking with one voice since others in the sport can then understand the promoters needs' and views' and take them into account when they are making their decisions." Engine noise is still at the top of his mind.
"As promoters we believe that the noise of the cars is a key part of the spectator experience and we are concerned with anything that might impact that," says England. The circuits are already lining up their next target as Walker adds "it has been mooted by the FIA that they also want to introduce a green hybrid engine with a sound instrument attached. This vote will eventually be defeated by the circuits."Again, we are sure that Walker is deadly serious.
The circuits' decision to unite was inspired by the teams who set up the Formula One Teams Association (FOTA) in 2008. However, unlike the circuits, the teams did this to try to apply pressure on Ecclestone and get a better commercial deal. FOTA's efforts led to the teams' take from F1 doubling to the 47.5% of the sport's profits that they currently receive.
In contrast, putting the brakes on the FIA's plans suits Ecclestone as much as the circuits since he had threatened to sue the governing body over the proposed engine regulations. The formation of FOPA further cements his power since Walker is one of his closest allies.
"The association will be used to promote F1 and support Bernie," he says adding that "any move by CVC to replace Bernie will be vigorously defended by the circuits as they regard him as the glue that holds the sport together." There is no indication that CVC wants to replace Ecclestone but it is understood to have a succession plan in place since he turns 82 this year.
Ecclestone says that the circuits have set up the association to try to convince the FIA to select them to sit on the Formula 1 Commission which proposes the sport's regulations. "They fancy themselves as the ones who want to sit on the new Commission when it is put together," he says adding "it started basically as a little bit of a joke about FOTA. Ron said to me why don't we have a FOTA."
Over the past 12 months FOTA lost a great deal of traction as Ferrari and Red Bull both left the association after a difference of opinion with the other members and it now only represents seven teams. The circuits are less likely to disagree since they do not directly compete with each other.
"It is very seldom that we meet, because we are all over the world," says Tamas Rohonyi, boss of the Brazilian Grand Prix. "Ron had this very brilliant idea that we should get together once a year to try to help each other and come up with ideas about how to make this difficult business a little easier." England adds that F1 should benefit from it because "promoters are such a key part of delivery of the sport. Without promoters there is no sport." That says it all.