Bernie Ecclestone is the ace dealmaker. His goal is always to get the best possible deal for his business, while at the same time making the people who are paying feel that they are getting a bargain. That is the perfect deal. Everyone wins – or at least they think they do. Often, when it comes to democratic governments, it is not about the sums of money involved, but rather the problem of how to present such things to the taxpayers. This is a problem that has constantly hounded the Australian GP in Melbourne where campaigners point out the rising costs, but fail to take into account the economic impact that the races have on the city.
There has been much talk in recent days of a Formula 1 return to Canada, which dropped off the F1 calendar this year because of financial disputes. The local government and the Montreal business community is keen to revive the event because they miss its economic impact. The F1 teams are also pushing FOM to revive the race and to find a venue for a United States GP to be twinned with the Canadian event, thus creating a more cost-effective trip to the North American continent.
Ecclestone himself is keen to make sure that F1 is in the right markets.
The problem has not been the desire for a race, but rather finding the right price so that everyone is happy. Ecclestone wanted $160m for a five year deal, Montreal wants to pay no more than $100m. Ecclestone’s deal would require an initial annual payment of $26m, with a 10% increase per year pushing it up to $38m per annum during the five years. This is pretty much the going rate for events at the moment, although some of the new races in Asia and the Middle East have paid more. He also wants guarantees from the government so that he will get the money if the promoter fails to deliver.
Montreal city authorities said that these demands are unreasonable. The cost of sport across the pond is much lower than in Europe. The Superbowl football game, for example, costs something in the region of $20m but the estimated return on the investment in direct spending is reckoned to be around $120m. So a Formula 1 race is at the top end of the scale although it is still nothing compared to an Olympic Games, which will cost a city billions because of the infrastructure demanded by the International Olympic Committee.
There have now been reports of Montreal being offered a much cheaper deal, which will cost the city only $75m. This would mean an annual payment starting at around $12m, rising to $17m by the end of the deal. This is around half the going rate and it is very surprising that FOM would even consider such figures. However, in order to get such a deal the Canadian authorities would also have to pay the debts from the previous contract. These could be in the region of $60m, so the resulting deal, while easier to present to the taxpayers, would still amount to around $130m for FOM. As the company generally asks for the fees for the first two years when the deal is signed and with the debts being settled up front as well it could mean an immediate payment of around $80m.
FOM is under pressure at the moment to deliver as much money as possible to its owners CVC, who are trying to clear a very large debt quickly. Cash-flow is an important element in this and so its may be that the Canadians will get lucky and will end up with a cheaper deal and FOM will get a big payment straight away – a win-win situation for all concerned.
And it will be hard for other races to argue that they should be allowed similar discounts.
Montreal officials say that they are still negotiating on the price of the deal, and that this involves not just the city but also provincial and national authorities, which will presumably be asked to help with the funding.
Is it known when will CVC stop paying their huge debt? I hope F1 doesn’t end up brutally murdered before they pay the full sum (e.g. no Spa, Monza, Interlagos, Suzuka).
I’d like to leave a comment but I’m on an enforced two week shut down.
[...] no such thing as a discount « Joe Saward’s Grand Prix Blog There’s no such thing as a discount « Joe Saward’s Grand Prix Blog Blogged with the Flock Browser Ta wiadomość została napisana przez lutbar, dnia 10 sierpień [...]
The IRL fee is US$1.5 mm per race, NASCAR US$5.5 to 6 mm.
I thought it was significant that talk of Montreal resurfaced immediately after the new Concorde was signed. My suspicion is that FOTA was able to negotiate a race in North America as part of the agreement, hence we witnessed Bernie announcing the return with Montreal seemingly caught completely off guard, denying that any negotiations had even taken place. Do you think there’s any validity to that theory, and that Bernie has been forced to cut a deal with Canada that he otherwise would not have done?
I really do hope Montreal comes back next year. It is one of the most underrated city’ in North America and I would certainly plan a trip to see a race there.
As for the U.S. getting a race; I just don’t see it happening. As much as I would love to get a U.S. Grand Prix back on the calendar, I just don’t see:
1) Any venue but Indy in the United States being able to hold a F1 race that is up to the standards of FOM and the FIA for the next few years;
2) Any way that Indy Motor Speedway would splurge for a race like Tony George did in the early 00′s;
3) That any local, state, or national government entity would splurge on a race like in Europe, the Middle East, or Asia in light of the deficits and priorities these American governmental bodies are facing;
4) That F1 manufacturers like Toyota and Mercedes Benz would splurge to cover the difference to have a race stateside. With Honda and BMW leaving the sport, that makes it just that much harder.
In my opinion, Bernie has blown it in North America. If he and the suits in New York were a tad bit less greedy and a bit more tactful, they could still have both races on the calendar for more then what he could possibly get now. Also the stains of 2002 and 2005 still haven’t left the American motorsports consciousness.
Most the motorsports people I talk to just don’t care to see F1 back. Even though I disagree, I don’t blame them. As one of my friends who I used to go to CART races with once said: “Why do you follow the professional wrestling of motorsports? You know who is going to win. You know that Mosley and Bernie are going to rig it.” I had really no comeback at the time (2005ish.) That encapsulates how many people over here still view the F1 establishment.
[...] There’s no such thing as a discount – Joe Saward’s Grand Prix Blog "There have now been reports of Montreal being offered a much cheaper deal, which will cost the city only $75m. This would mean an annual payment starting at around $12m, rising to $17m by the end of the deal. This is around half the going rate and it is very surprising that FOM would even consider such figures. However, in order to get such a deal the Canadian authorities would also have to pay the debts from the previous contract. These could be in the region of $60m, so the resulting deal, while easier to present to the taxpayers, would still amount to around $130m for FOM. As the company generally asks for the fees for the first two years when the deal is signed and with the debts being settled up front as well it could mean an immediate payment of around $80m." (tags: Montreal calendar circuits canadiangrandprix Canada fom bernieecclestone CVC money business) [...]
Thank You!
[...] There’s no such thing as a discount [...]
Hi Joe,
Great article, however I wanted to take you up on one point, you say
“This is a problem that has constantly hounded the Australian GP in Melbourne where campaigners point out the rising costs, but fail to take into account the economic impact that the races have on the city.”
I’m writing this as a Victorian tax payer who as been at the Australian GP 8 out of the last 9 years (I had a ticket this year but a family emergency kept me away
).
While I understand that you are using this example to illustrate that the cost of F1 is not as simple as it seems, I feel you have over-simplified the arguement that goes on in Melbourne each year.
The issue is not about the upfront cost without taking into account the econmoic impact that the race has on the city (Although this is what the state government would have you believe). It is a matter of questioning the value offered by the race.
There is no doubt that 15 years ago when Melbourne poached the race from Adelaide it offered exceptional value, however since then costs on FOM’s part have increased and crowds have dropped, as a result many question the value. Why are we paying more for an event that is attracting fewer spectators? Are we better investing this money elsewhere?
I must admit I wonder these things too. While my 4 days at Albert Park each year are amongst my favourite for the year I am beginning to wonder whether as a Tax payer I am really getting value for money. I’m not sure that the local economic impact is increasing at the same rate as the cost.
Just a few thoughts on an issue I have thought a lot about over last couple of years. – mick
[...] There’s no such thing as a discount « Joe Saward’s Grand Prix Blog Ecclestone wanted $160m for a five year deal, Montreal wants to pay no more than $100m. Ecclestone’s deal would require an initial annual payment of $26m, with a 10% increase per year pushing it up to $38m per annum during the five years. This is pretty much the going rate for events at the moment, although some of the new races in Asia and the Middle East have paid more. (tags: F1 Ecclestone Montreal, Canada, Money, Gebühren) [...]