A look at F1 in London

There is a break point coming up in the British GP contract, at which point either side can walk away from the deal, if they think that is the best course of action. The 17-year deal, signed in 2009, began in 2010, with a break clause after 10 years (thus after the 2019 race). In order for those involved to make suitable alternative arrangements, however, this break clause must be actioned in advance and it is believed that the window for doing this begins shortly and closes after the 2017 or 2018 race.

Both sides are considering what to do. The Formula One group, inevitably, wants more money because the current deal is worth only $23 million a year (with a five percent increase per year). Many other races are paying in excess of $40 million with a 10 percent increase per year. Silverstone also gets around half the money generated by hospitality, while other F1 promoters have to sign all of that over to the Formula One group when they agree to host an event.

The problem is that both sides need a British Grand Prix. Ecclestone because the teams insist upon a home race, and Silverstone because of the prestige such an event brings, which helps to drive other business. Having said that, Silverstone also knows that Ecclestone would struggle to find an alternative and that the halo effect of the F1 race would continue for a number of years before impacting on Silverstone’s reputation. Cancellation would however have an economic impact on the circuit and on the region.

Ecclestone knows that there is no permanent circuit able (or willing) to afford the upgrading work required and the race fees to host the British Grand Prix and it remains clear money is not going to come from the British government. There might be money from Europe, but then Britain is about to decide whether to leave the EU and so that is not going to happen for a while (if at all) and it is hard to argue the case for Silverstone to get European money when neither Northamptonshire, nor Buckinghamshire are deemed to be poor areas.

Bernie’s only choice therefore is to try to find someone to pay for a street circuit. The only city that could afford to do that is London, hence the stories that have been circulated about a possible London Grand Prix. 

Such an event is unlikely because of the bureaucratic hurdles, such as public enquiries, that could be thrown into the way by those opposed to the idea.
However there is an advantage in that a new law has been passed to allow local authorities to close roads in order to host motor races, without an Act of Parliament, as was previously the case.

This all probably explains why Bernie Ecclestone is thumping the drum about a race in Central London, but what is not clear is where the money could come from to pay for such a race. The city is not going to pay the fees for a race, but might be willing to pay for infrastructure work (which would be significant).

The fees would, at best, be a public-private partnership, along the lines of the model used in Singapore GP. The cost of the race is offset in Singapore by an additional tax on hotels, levied by the government. The remainder is funded by private investors, mainly Ong Beng Seng, who owns hotels, restaurants and fashion franchises in the city. Ong has similar holdings in London, including three hotels, the Four Seasons, Metropolitan and Halkin all around Hyde Park Corner. Another Singapore firm, glh, is the biggest hotel chain in London these days with a number of West End hotels, while Britain’s richest people, the Reuben Brothers, own The Grosvenor House. The Dorchester is owned by the Sultan of Brunei. Some of the landowners might kick in, on the basis that they will be able to charge higher rents as a result of the race. The Grosvenor Estate owns much of the land around Knightsbridge, while the Crown Estates own Regent Street and much of St James. This group was involved in the F1 street demonstration in 2004, but it is worth noting that the event was not repeated.

The obvious location for an event in  London would be Hyde Park itself. This can be rented from The Royal Parks organisation for big events, but F1 infrastructure would not be an easy fit for the venue. Putting together an alliance to pay for a race might be possible, but time and bureaucracy is not going to help, not to mention the fact that a lot of wealthy and highly-lawyered individuals are resident in the area and might choose to block such ideas – and you only need one of them.

The key question really is whether London needs a Grand Prix. Between 2009 and 2014 the number of visitors to London grew by 22.5 percent. It is reckoned by some to be the top tourist destination city in the world, with 17.4 million visitors in 2014. This generated $36 billion in revenues and 470,000 jobs. On the surface that means that London is doing just fine without F1. Hotel occupancy rates are 83 percent and the average room rate is $195 a night. However these figures come from before the Paris terrorist attacks and this year some key attractions are reporting falls in numbers of around eight percent. This is likely to be only a temporary drop.