Could South Africa be listed on a future Formula One calendar? Sir Martin Sorrell, a highly influential member of the F1 board alongside Bernie Ecclestone and Donald Mackenzie, seems to think so. He says F1 needs to “mine” the likes of Asia, Latin America, Africa and the Middle East if it is to flourish in future.
By Graham Duxbury
He believes the BRICS countries (Brazil, Russia, India, China, South Africa) together with Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea and Vietnam are prime targets for F1 because the “next billion consumers” will come from these territories.
He predicts that F1 events in these countries will replace races in Europe, F1’s traditional heartland, where interest is waning, undermined by the challenges facing many European economies. F1 has to “go where the growth is”, according to Sir Martin.
There is little doubt that F1’s huge financial demands can no longer be met by race promotors without government support. In Europe, where government funding is limited, F1 is becoming increasingly out of reach. France no longer hosts a Grand Prix, neither does Holland, and both Italian and German rounds are experiencing financial difficulties and require government – or quasi-government – bailouts.
Perhaps Sir Martin hasn’t noticed, but the problems aren’t restricted to Europe. Let’s take the plight of the Indian Grand Prix as an example. First held in 2011 at the Buddh International Circuit (which is reported to have cost $314-million to build) the first race in a contracted five-year series purportedly cost $31,1-million in licensing fees to stage – as demanded by Ecclestone’s Formula One Management (FOM) group. The event sucked a further $19-million out of the budget for operating expenses, bringing the total costs to $47-million.
As far as revenue is concerned, the promoters could only recover $21-million, despite 95 000 fans turning up for the event. This figure dropped to $11,5-million in 2012, and was little better in 2013. Against the backdrop of escalations in Ecclestone’s license fees, said to be 10% year-on-year, and spiralling operating costs, there was little the promotors could do without massive government support but throw in the towel and renege on the last two scheduled races.
Bear in mind that FOM retains the revenue from TV rights and track-side sponsorships, leaving ticket sales as the only source of income for promotors. Moreover, they must also budget for a sizable marketing spend to promote their Grands Prix throughout the year. It can therefore take several years, at best, before a new circuit is in a position to recoup its outlay.
It’s a safe bet that similar scenarios played out at the Yeongam circuit in South Korea where it is believed the issue that took the race off the calendar after just four events was related to the payment of a ballooning licencing fee of around $40-million, part of a reported $264-million deal with FOM. A similar fate befell the Turkish GP, where government funds may have opened the door to F1 but were not sustainable.
Let’s consider the plight of race organisers at the new Baku circuit in Azerbaijan. They had to incur substantial infrastructure costs, not only in terms of the obvious temporary grandstands and pits/ hospitality complex, but also for the resurfacing of historic cobblestoned streets (which had to be returned to their original state after the event).
Optimistically, Baku organisers believe that the impact of increased tourism and direct visitor spending in restaurants, bars, hotels and shops will positively offset the many millions of dollars pumped into the race. Nevertheless, without obvious government subsidies, it would surely be difficult to justify its existence.
Unfortunately, the race has come at a bad time for energy-exporting Azerbaijan. The fall in the oil price has been devastating, resulted in the devaluation of the Caspian state’s currency, the manat.
A similar headache is probably being experienced by the organisers of the Bahrain GP at the Sakhir International circuit. The Gulf state – which made history by hosting the first F1 race in the Middle East in 2004 – reportedly needs an oil price of around $125 a barrel to balance its budget. Prices currently hover around $50 a barrel.
Nevertheless, unwavering government support for the event is not hidden, with organisers reportedly saying the GP has helped “put Bahrain on the map”. Will the money keep on flowing when support for this PR exercise for Bahrain’s tourism industry begins to falter?
Is Sir Martin’s optimism valid when viewed against this background? Obviously, he is hanging the future of F1 on two pegs – burgeoning consumer spending in developing countries and generous government backing from benign heads of state. It’s not easy to see countries like Bangladesh, Egypt or Pakistan falling into this category. What about South Africa?
Graham Duxbury is the MD of Duxbury Networking, Formula 1 commentator, South African champion and Daytona Speedway Hall of Fame inductee