Formula One flags reset when coronavirus drags revenue

Formula One is “increasingly confident” that the elite auto racing competition will complete the season and aims to resume racing in July.

Chief Executive Chase Carey was upbeat on Monday despite organizers of the French Grand Prix canceling the June event due to France’s ban on major events.

“We are now increasingly confident with the progress of our plans to start our season this summer,” he said. “We are aiming for races to start in Europe until July, August and early September.”

The Texas media veteran was named by the American group Liberty Media, which acquired the Formula One Group in a $ 8 billion deal in 2017, with the goal of revitalizing the world racing series for this year, its 70 . °.

But the coronavirus threatens to hit hard. F1’s so-called primary revenue (broadcast deals, fees paid by racetrack promoters, and sponsorship / advertising deals) increased to $ 1.66 billion last year, accounting for most of its $ 2 billion total .

If F1 has just eight races this year, primary revenue could drop to $ 733.4 million, according to Morgan Stanley, while other revenue, primarily from its corporate hospitality business Paddock Club, could drop 40 percent from last year.

“They were beginning to change course. . . the pandemic occurred at the worst time, “said Steve Martin, global chief executive officer of M&C Saatchi Sport & Entertainment, a sponsorship and marketing agency.

For F1 executives, protecting their streaming deals, worth $ 760 million in 2019, according to Morgan Stanley, has become critical. At least 15 careers are required to fulfill those contracts, according to people briefed on the deals.

F1 said Monday it aims to start the season in Austria in early July and finish in Abu Dhabi in December, with the championship running at 15-18 races instead of 22. No fan will be able to attend the first few races, the Mr. Carey

To cut costs, F1 cut half of its 500 employees and cut executive pay by a fifth, with Carey taking a deeper cut and last week, Liberty Media announced measures to shuffle billions of dollars in assets and liabilities. among its businesses, including $ 1.4 bn in net cash for the F1 group.

Greg Maffei, president and CEO of Liberty Media, said the measures would strengthen F1’s balance sheet to cope with more disruptions and support teams. “If you run races without a live audience, obviously we will have lower profitability, even without profitability,” he said.

The measures also put F1 in a better position as it continues “fruitful discussions” with its lenders, Maffei said. In its annual report this month, Liberty Media said it was “aware” of the covenants that required F1 to ensure that its $ 2.9 billion bank debt did not grow to more than 8.25 times its earnings before interest, taxes, depreciation and amortization.

Analysts at Morgan Stanley have said F1 “can get a waiver for a nominal fee and get more time to re-comply once the races start again.” But they warned that “F1 faces unprecedented and previously unthinkable challenges in 2020.”

Promoters pay between $ 40 and $ 70 million to organize a race, but they will be forced to cushion the financial blow of the pandemic. Paying viewers are crucial to promoters (national governments or private investors) who absorb much of the initial cost of organizing a race in exchange for ticket revenue. But their ability to sell tickets may be limited by restrictions on mass gatherings.

Critics argue that Liberty Media has struggled to reinvent F1 after four decades under the leadership of Bernie Ecclestone, leaving him vulnerable.

Liberty Media had hoped to attract more sponsorship, although last year Carey acknowledged that the market had been “slower and probably more difficult than expected.” In March, F1 signed a long-term sponsorship deal with Saudi Aramco, the state oil company, but an impending global recession has led the companies to cut marketing budgets.

A bright spot under Liberty Media has been F1’s entry into electronic sports, allowing it to host virtual grand prizes during the lockdown. It’s a strategy that could help F1 draw beyond its aging fan base, which would fulfill its owner’s goal of attracting younger viewers.

But F1 continues to search for a solution to the lack of competition on the real track. Seven years have passed since a team outside of Mercedes, Ferrari and Red Bull, the constructors who far outperform the rest of the grid, have won a Grand Prix.

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