F1 – Bernie Has an Idea

bernieOn the heels of the cost capping announcement from the FIA, a bright light bulb has appeared above Bernie Ecclestone’s head. He has thrown out the idea that the teams should pay back some of their 50% share of the commercial revenue to help circuits make their sanction fee payments to him.

Bernie works for CVC capital partners who is the current commercial rights holder, having bought those rights from Bernie. When they purchased the rights, they took out massive loans to pay off their investment and have pumped as much money as they could from the commercial rights back into their debt load.

With the faltering economy, the debt is becoming a very difficult thing to manage. The commercial rights holder collects money from TV contracts, circuit sanction fees, on track advertising and the F1 Paddock Club. The TV contracts are set in stone and the advertising is mostly already budgeted and paid for this year, but there is no guarantee that circuits will all be able to come up with the entire sanction fee, nor is the spicy $4000 dollar per seat Paddock Club revenue set.

With the downturn in the economy, venues are seeing lower ticket sales which forces them into larger operational losses which either have to be paid for out of the promoters pocket or by their respective government. As we have seen with Canada, if the payments aren’t made, then the GP gets the axe.

I doubt that this idea goes anywhere since the teams are still asking for more money from the commercial side to be invested back into the sport (i.e. their pockets), not into the debt. Currently F1 is operating without a new Concorde Agreement (which expired in 2007) but the teams have agreed to stick around until 2012 as long as Bernie gives them 50% of the commercial revenue. But without a binding contract, Bernie is trying all manner of things to make sure that the debt gets serviced.

The explosive rise in sanctioning fees and the move to Bahrain, Abu Dhabi, Singapore and Shanghai are all part of CVC’s need to increase sanctioning fees collected. The governments of these countries are more than willing to shell out millions to Bernie and build amazing temples to racing just so they can gain worldwide notoriety, investors and visitors.

The F1 teams have agreed to race 17 times per season. Negotiations with the teams have to be had for any races above and beyond that amount, which means the commercial rights holder has to shell out more cash which they are loathe to do. Ultimately, Canada was viewed as the 18th race this year and was forced off the schedule because they could not pay what Bernie was asking for since Bernie found a new favored son in Abu Dhabi. With new venues coming online in the next two years in South Korea and India, it is clear that the British GP will be the next casualty caused by Bernie’s drive to service the debt load. Where next Bernie? Will we lose Melbourne in 2011?

Ultimately, Bernie’s silly idea is hugely self serving (surprise!) and would only help him justify further increases in sanctioning fees in the midst of the worldwide economic downturn. It does make sense to pay the teams less since they are decreasing their budgets, but one has to wonder how Bernie can continue justifying his massive sanction fees in light of those budget decreases.

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