Silverstone seeks £13m lifeline

While the British Grand Prix is seen as Silverstone‘s jewel in the crown, it has come at a heavy cost.

Since 2012, the iconic British circuit, which is owned by the British Racing Drivers’ Club, has seen its losses mount to £51.3m, courtesy in no small part, by the hosting of the British Grand Prix.

The only track on the F1 calendar which receives no form of state funding, Silverstone has pulled the plug on the British Grand Prix from next season having exercised a clause in its original contract which would have seen the event continue at the track until 2027.

The move followed the admission in late 2016 from BRDC chairman John Grant that there was an ‘elephant in the room’, namely that in continuing to host the event, with hosting fees rising by 5% each year, the circuit faced a “potentially ruinous risk”.

The fee is paid to F1’s owners Liberty Media each year and increases by 5% annually. Initial forecasts by Pitpass as to how ticket prices would increase were initially dismissed though the estimates ultimately proved conservative, this year’s attendance down by 5.1% to 130,000.

While one would assume that ending the contract, though a disaster for British race fans, would be the end of the story as far as Silverstone is concerned, this couldn’t be further from the truth.

Usually, race fees are paid in advance of the event, however, the BRDC’s situation meant it is allowed to pay in arrears, an arrangement that began five years ago. As a result, even after next year’s final race, the BRDC will still have outstanding fees to pay and they must be cleared in 2019.

The Daily Telegraph, reveals that in a letter to its members, BRDC chairman John Grant has revealed that the club will have to pay “F1 following the ending of the deferred payment arrangement agreed five years ago for the annual promoter’s fee, which ends after the 2019 BGP (regardless of whether the BGP continues thereafter).”

He adds that the BRDC “planned to meet this payment from available cash, supplemented if necessary by bank borrowings.”

He admitted that the circuit itself could even be used as security for the loan as the accounts state: “the directors are confident that, based on the existence of valuable security in the form of the Silverstone circuit, agreement of an appropriate facility will be reached to allow the group to continue to meet its liabilities as they fall due.”

The BRDC’s accounts for the year-ending 31 December 2017 state that “discussions with potential lenders have commenced…and sensitised forecasts indicate a facility of between £10m to 13m will be required.”

Though discussions are in progress, auditors KPMG is concerned, stating that: “the group’s cash-flow forecasts indicate that it will require additional debt facilities in September 2019 in order to meet its obligations as they fall due, the amount of which, and the group’s ability to service and ultimately repay any such facility, is dependent on the substantial achievement of its forecasts. These circumstances constitute a material uncertainty that may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.”

Grant remains confident, saying that any borrowings “would be at a level comfortably within the group’s financial capacity” which has seen a “substantial improvement” over the past year. Indeed, revenue increased by 7% to £58.8m in 2017 giving the BRDC a pre-tax profit of £0.6m and increasing its cash balance from just £17,000 to £6.3m

However, Grant warns that it is “still a high-risk business because of the high fixed costs involved in maintaining and operating its circuit. The financial returns delivered in what has been a ‘good year’ operationally are barely adequate and, had we not terminated our current British Grand Prix contract as from the end of 2019, we would have remained exposed to the severe financial consequences of a ‘bad year’.”

So, while the UK taxman hands over cash to UK-based F1 teams, the so-called ‘Home of British Motorsport’ has to go to the trouble of raising the cash to pay for what currently appears to be the last British Grand Prix.