FORMULA 1’S RESILIENCE IN THE FACE OF
A GLOBAL PANDEMIC
provided a beacon of hope to sports fans around the world in 2020, as FOM, the FIA, teams and race promoters somehow pulled together a 17-race world championship in spite of the chaos wrought by COVID-19. This came at a cost, however, as at least £2.5billion in financial engineering took place to save the sport and its constituent teams from disaster.
It is worth reflecting upon the fact that F1 staged its 2020 series against a catastrophic backdrop in terms of the harm to human life and global economic disruption. By the end of the 2020 well over 88 million people had been infected by the virus, and 1.9 million died as a result. With global travel halted and lockdowns enforced, it has had a profound impact on the business world – international sport included, along with those who work in it.
Silverstone’s managing director Stuart Pringle is forthright in his explanation of the effects of COVID-19 on the home of the British motor racing. “It’s been disastrous, no other way of putting it,” he says, bluntly. “The country got locked down on 23 March. If that had happened on 23 October, just as we were going into a fallow winter period, life would have been very different. In fact, it took out our entire summer season, our (main) revenue earning, and we were effectively staring down the barrel of 18 months of consecutive winters.”
For Silverstone, months of uncertainty were followed by an agreement to host two grands prix, without spectators, requiring a very different kind of deal with F1.
“There were two elements to that challenge,” explains Pringle. “Number one was dealing with our customers, the fans. We had sold about 63,000 tickets up until early March when sales fell off a cliff. We had to manage the fans, not mess them around and yet take them on a journey which would give them confidence in us as a circuit asking them to take their booking for 2020 and transfer that to 2021.”
“The second part was sitting between the FIA and F1 on the one hand, and the UK government and health bodies on the other, trying to pick a path which would allow us to run races behind closed doors in a secure manner.”
F1 had the task of putting together a COVID-19 testing regime which would meet the standards required by governments and health authorities, a system which one insider described as “extensive and expensive”. Such was the price of ensuring that racing could take place – albeit with far fewer race personnel, officials and media travelling to events.
As F1 raced to put in place a revised schedule, elsewhere the effects of COVID-19 were hitting home. May’s announcement of a budget cap showed the degree to which stability and survivability had become a focus for all F1’s stakeholders. This was underlined by the speed with which the new, five-year Concorde Agreement was secured by August.
The automotive industry saw vehicle sales collapse, recover and collapse again as lockdowns came and went. A 25% reduction in global vehicles sales in 2020 compared with the peak of 2017 is anticipated. Some have ridden the storm remarkably well; others have been less fortunate.
Daimler had a good year considering how bad things appeared during the first quarter, even to the point where CEO Ola Källenius was able to report a record rise in sales in China – its largest single market – during the summer.
Renault, on the other hand, lost £6.7billion in the first half of the year, leaving incoming boss Luca de Meo with rather larger problems to resolve while still signing off on a recommitment to Formula 1 under the Alpine brand.
Honda announced its withdrawal from F1, just as it did amid the 2008 global financial crisis. This time Honda cited a need to refocus on environmental technologies, turning its back on racing at precisely the moment F1 and the FIA have set a course towards carbon neutrality by 2030. It came as no surprise to hear F1’s outgoing CEO Chase Carey tell investors he believed economic conditions within the car industry lay behind Honda’s decision.
While Red Bull and Alphatauri digested Honda’s bitter news, F1 witnessed three teams opting to sell shareholdings and a fourth transformed by the near collapse of Aston Martin.
The announcement that Daimler has reduced its stake in the dominant Mercedes team might seem like retrenchment in the face of the global downturn. In reality, the move to bring Sir Jim Ratcliffe’s INEOS chemicals business in as a one-third partner alongside chief executive Toto Wolff is a strategic move rather than one born out of necessity.
For the world champions, at least, 2020 produced a number of operational challenges but not the existential threats which created headlines elsewhere.
“IT’S BEEN DISASTROUS, NO OTHER WAY OF PUTTING IT, IT TOOK OUT OUR ENTIRE SUMMER SEASON, OUR (MAIN) REVENUE EARNING, AND WE WERE EFFECTIVELY STARING DOWN THE BARREL OF 18 MONTHS OF CONSECUTIVE WINTERS” STUART PRINGLE MANAGING DIRECTOR, SILVERSTONE
“WHEN THE PANDEMIC HIT, THESE WERE THE FINAL NAILS IN OUR COFFIN” CLAIRE WILLIAMS FORMER DEPUTY TEAM PRINCIPAL, WILLIAMS F1
The most notable was the decision by the Williams family to sell up, 43 years after Frank Williams and Patrick Head met at the Carlton Towers hotel in London’s Sloane Street, creating one of F1’s most successful teams.
May’s announcement of a ‘Strategic Review’ made it clear that a potential sale of the team was on the cards, a £13million loss in 2019 having focused minds on survival. The termination of Williams’ sponsorship agreement with ROKIT didn’t help and, when the pandemic hit, Claire Williams told the New York Times these “were the final nails in our coffin.”
The subsequent sale to Dorilton Capital, for £140million, can only be regarded as a success. The alternative does not bear thinking about. One suspects the Williams family was glad to have both a budget cap and more equitable Concorde Agreement to help woo new owners into buying a lossmaking team, albeit one with a fabulous heritage.
As Williams changed hands, longtime rival Mclaren was rocked by a series of unprecedented financial challenges caused by COVID-19. Chief among these was the collapse in sales at Mclaren Automotive during the first quarter of 2020. This resulted in a £133million loss, which forced the company into making over a quarter of its 4000 staff redundant.
Automotive had been the Group’s solid performer in 2019, producing profits of £265million against a combined loss of £89million between the F1 team and Applied Technologies business units. When car sales tanked, the Group was immediately in need of additional funding, £300million of which was provided by its shareholders in March, just as executive chairman Paul Walsh took the helm.
With car production halted from March until June, Mclaren’s woes deepened alongside an acknowledgement that new funding was needed to avoid a cash crisis in mid-july. Mclaren’s efforts to secure loans against company assets were then subject to a squabble with bondholders who maintained that the prestigious heritage car collection was already secured against an existing debt.
Ultimately a £150million loan from the National Bank of Bahrain came to the rescue. With the racing season recommencing in July and Mclaren Automotive witnessing a recovery in car sales during the third quarter, disaster was averted. Nevertheless, the company’s November 2020 results showed that, in the year to date, Mclaren’s Group revenues were 61% down on the same period in 2019…
The sale of up to one third of the Formula 1 team to MSP Sports Capital, announced in December, will have given the Group a further much-needed injection of capital. This transaction valued Mclaren’s racing business at £560million – four times the sale value of Williams – MSP putting in an initial £85million with a further £100million due by the end of 2022.
The effects of coronavirus on Mclaren Automotive’s sales mirrored the experience of F1’s other supercar brands, Ferrari and Aston Martin. Ferrari weathered the storm remarkably well, Maranello delivering 6440 cars to new owners in the first nine months of 2020, compared with 7755 during the same period in 2019.
While the prancing horse galloped on, Aston Martin stumbled, its share price plummeting as already weak sales began to stall in the wake of the pandemic. Lawrence Stroll’s buy-out of the company, announced in January, was a brave move as COVID-19 took hold, but he factored that into the deal. The consortium put together by the Canadian billionaire shored up Aston Martin’s finances, while a later deal has given engine and technology partner Daimler a 20% stake in the business. This will help ensure Aston Martin’s hybrid and fully electric future.
Stroll’s takeover sounded the death knell for Red Bull Racing’s Aston Martin deal, while his rebranding of Racing Point has been given added spice through the signing of Sebastian Vettel. Sergio Pérez’s victory in the penultimate race of the season helped Stroll end his year on a high: fourth in the constructors’ championship brought welcome prize money.
This, of course, flows from the profits F1 makes as the result of selling TV rights, sponsorship and events to race promoters. While the teams faced varying degrees of disruption, the leadership of Formula 1 found itself being tested to the full as Chase Carey, Ross Brawn and their lieutenants set about ensuring the very survival of the world championship.
Following the last-minute cancellation of the Australian GP, the original calendar was scrapped as F1 paused for four months, its teams advancing and extending their summer shutdown. There was much scepticism when Chase Carey announced in April that a reworked championship would start in Austria on 5 July with “15-18 races”. As things turned out, he was spot on.
Early ambitions to revisit Asia and include the American continent soon gave way to the impossibility of long-haul travel amid COVID-19. The subsequent decision to create a Eurocentric campaign, with Bahrain and Abu Dhabi providing a more familiar ending, was both pragmatic and cost effective.
Having back-to-back events in Austria, Britain and Bahrain was a straightforward call. To have races
at three different venues in Italy, revisit the Nürburgring and bring Formula 1 to Portugal’s Portimao circuit was innovative, effective and pleasing to fans.
In staging 17 events Formula 1 ensured that its media rights deals were fulfilled and that the championship’s sponsors could be billed, albeit for fewer events and in a smaller number of territories than originally planned. Corporate hospitality revenue was wiped out but, with freight costs localised to Europe and the Gulf, F1’s Londonbased management team worked a minor miracle in delivering a series which exceeded expectations.
To cope with the disruption Liberty undertook some financial engineering in April, reattributing the Live Nation events business from the Formula One Group to its Siriusxm digital media company, strengthening F1’s balance sheet to the tune of Us $1.5 billion.
Focus then shifted towards agreeing a budget cap, initially fixed at Us$145 million, reducing that to Us$135 million for 2023-24. That was followed by the successful conclusion of negotiations with teams over a new five-year Concorde Agreement.
Liberty also completed significant management changes during this most unpredictable of years. Commercial boss Sean Bratches returned to the US, incoming director of commercial partnerships Ben Pincus arrived from series sponsor Heineken, and Stefano Domenicali was named as Carey’s replacement starting this month.
With real racing halted in the spring, virtual racing came to the fore and represents a success for F1 in 2020. Esports boss Dr Julian Tan was initially asked to create a virtual replacement for the Chinese Grand Prix, but within weeks that task became rather more ambitious.
“We pulled together the concept of the Virtual Grands Prix in a matter of five days,” he says. “We wanted to put on the Virtual GPS because we felt a responsibility to our fans. There was a wider appreciation that our fans wanted to see our drivers race, and if they cannot see them race in the real world then they would still want to watch in a different way.”
As with many online businesses, F1’s Esports ambitions have fared well out of COVID-19, accelerating the shift towards virtual racing, including the participation of drivers such as Charles Leclerc, Lando Norris and George Russell. With over 30 million fans watching and 287,000 gamers attempting
IN STAGING 17 EVENTS F1 ENSURED THAT ITS MEDIA RIGHTS DEALS WERE FULFILLED AND THAT THE CHAMPIONSHIP’S SPONSORS COULD BE BILLED, ALBEIT FOR FEWER EVENTS AND IN A SMALLER NUMBER OF TERRITORIES THAN ORIGINALLY PLANNED
to qualify for F1’s Esports series, Liberty’s ambitions for more fan engagement have been accelerated in the midst of disruption.
There is no question, however, that the biggest challenge of all was to keep the real racing show on the road, generating the core revenues upon which F1 depends. As the effects of the pandemic began to choke travel and hospitality, the sport urgently looked for solutions. For those tasked with making it happen, the challenge was profound.
“It’s been a brutal experience,” says Nick Warren, director of Travel Places, a specialist sports travel agency with a client base across Formula 1. “It all started in Australia where the logistical process had to be reworked to get people home. We were fortunate to have a team on the ground in Melbourne and on call 24/7 to deal with it.”
Once the revised championship got under way the challenge shifted to helping move 2,500 F1, FIA and team personnel to 17 events across 12 countries in 24 weeks.
“Every day saw the picture change as we dealt with government restrictions and the ambiguity and uncertainty which came with them,” adds Warren. “Airlines were cancelling flights a week in advance, so while we were getting most people out to Austria and Hungary in chartered planes, you would then find the 20 to 30 people booked on scheduled flights were having them cancelled. We were constantly having to rework how we moved people from one place to the next, including whether there were options to drive across borders in order to access a particular airport.”
The Russian GP, tricky to get to at the best of times, proved to be particularly challenging, but on the upside the fleet of charter aircraft was expanded as mainstream airlines began to offer planes for hire. Finding hotels was made easier at races which boasted government support while at others, such as Austria, guest houses were coaxed to remain open.
That F1 managed to pull it together, adding fascinating venues and providing some exceptional racing despite Mercedes’ overall dominance, is a testimony to the work of suppliers like Travel Places together with F1’s in-house staff and the work of managers and logistics teams from Hinwil to Woking, Faenza to Milton Keynes.
While most of the world dealt with remote working, F1 navigated its way to providing six months of sporting entertainment. Most importantly of all, it found a way to survive in the midst of chaos.
“EVERY DAY SAW THE PICTURE CHANGE AS WE DEALT WITH GOVERNMENT RESTRICTIONS AND THE AMBIGUITY AND UNCERTAINTY WHICH CAME WITH THEM. AIRLINES WERE CANCELLING FLIGHTS A WEEK IN ADVANCE” NICK WARREN DIRECTOR, TRAVEL PLACES