In its latest report, Chase Carey who is the presenter of F1 reported losses of more than US $200 million in revenue in the first quarter of 2020.
The revenue is seriously affected
The commercial issue will also be a difficult problem for Carey and colleagues, especially agreements with each venue, donors, and other stakeholders. Money is an important factor when considering scheduling races in this year’s Formula One tournament because the first tournament needs to complete as many races as possible, including the ‘closed’ event.
We know that if the number of races is below the number of 15, F1 must begin to partially refund the TV units paid for the entire season. The same story will apply to major sponsors such as DHL or Heineken although it is unclear whether the contract between the two parties has any provisions related to this?
In the latest report, F1 announced losses of more than US $200 million in revenue in the first quarter of 2020. Accordingly, revenue dropped from the US $246 million in the same period in 2019 to just 39 million earlier this year, which includes the loss of a race in Australia and Bahrain. Although these events paid upfront fees this year, Formula One made it clear that they did not count that as revenue, similar to television deals and other sponsorships.
The main revenues include race organizing fees, broadcast contracts, and sponsorships, primarily for non-racing activities from $198 million to $13 million. Other revenue dropped from $48 million to $26 million. In addition, Formula One has tried to reduce operating costs to $43 million from $52 million, mainly because of transportation to Australia and the removal of employees as well as support from the new Government starting in April, should be included in the cost of the second quarter.
How does the F1 cost?
F1 wants to generate revenue in unusual times like the present, to be able to “feed” the tournament. However, 22 races in Formula One correspond to 22 different business models, some of which are somewhat similar, such as Abu Dhabi and Bahrain in the Middle East. Some events are managed by private companies, such as Silverstone, others by regional, regional, or national governments. Therefore, the negotiations will need to be adjusted to suit each specific case.
European races will probably only accept the agreement to pay a low organizing fee for Formula One because there will be many races without an audience otherwise there will be no reason why they decided to organize the F1 race in the condition that this whole. Events on another continent are a completely different matter for two reasons. The first is the cost to get to the venue and the second is that most of these are supported by the government if most of the races are used to advertise TV globally.
Shipping cost is a factor that cannot be overlooked. Seven Boeing 747 aircraft was filled with racing cars, spare parts, FIA / F1 equipment, along with two safety cars and two medical vehicles. Releasing them around the world would cost quite a bit, and that also explains why F1 wants to have a simple schedule in the order of Asia, the Americas, and the Middle East, radically reducing its logistics costs.
But also because of that, the “away from home” races often have high organizational fees and certainly, F1 wants to earn this fee. Moreover, there will be no room for all ‘candidates’ so wherever a ‘hooker’ is willing to spend a representative will have a great chance of being organized.
So which races are less likely to take place?
Canada had logistics problems when Gilles Villeneuve was a semi-permanent race track, and the weather around October-November was impossible for them to organize the race. Baku will also need to be notified at least 3 months in advance so that it can be prepared with 7,000 employees. Although fully supported by the government, they still need to confirm the exact organization time to get started.
However, above all, the biggest question is whether the race tracks are ready to be organized at this time. The restart of Formula One, or any other sport, is a testament to the normal return of life and brings a positive thing for everyone to enjoy. But in the minds of the race organizers, especially those closely linked to the government, they do not want to take too much risk in this sensitive time.
If they decide to organize the Formula One race, it means that they will put the people living around the race at risk of infection from outsiders. Even when the situation calms down, a “closure” event becomes feasible to organize, they will also find it inappropriate to do so. Chase Carey and his scheduling expert, Chloe Targett-Adams face an almost impossible task in the F1 tournament, when they have to put together “pieces” together as the situation changes day by day.
Everything can happen, even if the non-European routes become unrealistic, another location on the “old continent” will probably be considered to “fill” that gap. What Chase Carey and his colleagues are doing with the 2020 schedule is unprecedented and it will probably be difficult to reproduce in the future. Unchanged changes and unimaginable challenges are waiting for them to pass next time.