The future of Formula One racing could change in the next few months. The Concorde Agreement, which governs the sport's teams (FOTA), regulatory body (FIA) and commercial rights holders (CVC/FOM), is due for renewal in 2012. The signs are strong that all three parties are very intent on gaining more ground and financial dividends from the new agreement and this is from a series that is rumoured to generate $500M in earnings per year.
At the head of the snake, FOTA, FIA and CVC/FOM will all be pulling at the threads and enlisting the heavy-weight services of attorneys and consultants in order to improve their positions and negotiate the best deal possible. Some have suggested the teams will walk away from Formula One if their demands are not met but that threat has been issued several times before with little purchase.
At the tail of the snake, the series continues to disburse these dividends from multiple sources of revenue. For simplicities sake, I want to focus on one source--the actual circuits and hosts/promoters of the actual races. With the United States Grand Prix slated for a return in 2012, it is no secret that $250M over a ten year period has been promised to CVC/FOM for the rights to host the race. It's been long rumoured that the annual fee can range between $20-35M for the privilege of hosting a Formula One race and while TV rights are big business, so is host nation sanctioning fees.
Former driver and world champion Damon Hill has offered his concern over the sustainability of local promoters of some of the series' most historic circuits. As the president of the BRDC (owners of the famous Silverstone circuit and home of the British Grand Prix), Hill has his concerns telling AUTOSPORT:
"I am concerned how promoted events survive with the demands of F1," Hill said. "I think F1 would do itself a lot of good if it thought about how circuits survive, and how promoted events survive, in what is really an important place in the world for this sport.
"I am not talking about places that have not had F1 races before; I am talking about places that have always had them. If you keep sucking out too much then eventually you break it."
His point, perfectly made, is that the historical circuits are there for many reasons and not just financial. While circuits such as Spa Francorchamps, Monza, Silverstone and Canada are currently on the calendar, their ability to pay the increasing sanctioning fees for the privilege of promoting and hosting the races could be untenable. Continually seeking more from the local promoters is only going to end in tears as the circuits will fade from the F1 calendar in favour of emerging markets willing to pay the large sanctioning fees and build a $250M+ facility to lend credibility to their political standing in the world. In the end, these nations are dipping into government funds to do so while the historic circuits do not always have that luxury (an intriguing notion that the USGP found a State-derived major events fund to tap).
In the end, you have to appreciate that CVC/FOM ring leader Bernie Ecclestone has created a series that many nations feel is a litmus test to political legitimacy but at what cost? Belgium isn't lacking legitimacy the world over and do not need the race to establish themselves as champions of an emerging market or human rights but most F1 fans would much rather see a race at Spa Francorchamps than Malaysia, Valencia, Abu Dhabi, Bahrain, Singapore, China, South Korea, India or even the United States.
The new circuits aren't holding the passion, attention and imagination for the F1 fans like Monza, Canada, Silverstone, Monaco, Spa Francorchamps, Nurburgring, Australia, Brazil or Japan. This isn't simply down to boorish, romantic notions of the old days either. The old circuits are better and produce more exciting racing than the purpose-built palaces of homogenized speed and VIP suites.
Realistically every great, historic race had to start somewhere and who is to say that the Circuit of the Americas in Austin Texas or the Buddh International Circuit in India can't become such a venue over time? What we have is the luxury of hindsight and a storied history at these circuits but Hill's criticism is still well-founded if not most germane to the upcoming Concorde Agreements.
How much earnings can the series deliver the teams, regulatory body and commercial rights holders? If Monza or Spa Francorchamps can't pay the increased fee, then someone will. The series only runs aground when there is no new nation willing to pay the exorbitant fees and it seems we haven't reached that point yet. An enterprising man named Tavo Hellmund found a state major events fund to tap in Texas. India's Jaypee Sports International seems to have tapped into government cash as well as South Korea with a joint-venture that includes the Jeollanam-do regional government.
In the end game, perhaps the bigger issue is that a tremendous amount of revenue is derived from sanctioning fees, sponsorships and most importantly television rights. The former list does not include the race-attending fans. The new circuits are replete with corporate suites and sponsor locations and Hill figures this is a mistake:
"There is a balance to find between the VIP level, the people who pay for the sport, the sponsors, but there is a point where you have to give the ordinary fan access to the sport and a feeling of getting repaid for their devotion.
"Football has had the same issue and, if you have stadia, a proportion has to go to affordable seating."
Where does this leave Formula One's future and the future of local promoters? I suspect it will be down to the highest bidder as always and that, as Hill points out, is a real shame. As Ecclestone might suggest, the series doesn't run on memories and the price is reflective of the opportunity it brings a nation as well as the quality of the product the world consumes. That's not a bad point to be made but is there a happy medium?
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