Fuji, Toyota, and the Future of Formula One

Autosport is reporting that the Fuji International Speedway will no longer host F1 after 2010 due to financial considerations. Read the whole story here, there would be no point in me plagiarizing it. Not that I would do such a thing, of course.

There are two aspects of the story that grab my attention.

The first is that Toyota owns the circuit, so its decision to pull the plug may give us a hint about the future of its F1 team. The company appears to be in a phase of heavy losses.

How can Toyota justify to its owners and workforce a continued investment in F1 racing, especially when they are not scoring wins and do not seem likely to?

I don't think they can and therefore I expect an announcement in due course.

The second aspect is the relevance to F1's current financial arrangements.

In normal business transactions, a venue makes a deal with an event promoter whereby revenues are shared on some equitable basis. That applies to all types of events from rock concerts to motor races.

The sources of revenue are mainly from tickets sold, television coverage, and stadium advertising, with a lesser stream from catering, franchises, etc. If the event is a big success, both partners make money, but if it flops they are both out of pocket.

Under the guidance of Bernie Ecclestone, F1 has a different financial model.

In F1 the venue has to pay Bernie's companies for the privilege of staging an F1 event. Various sums have been reported, but I believe it costs at least $20M. If not a single spectator paid for a ticket, the venue would still have to pay that fee.

Every penny of the income from television coverage goes to Ecclestone's companies, as does the money earned from track-side advertising. The venue's only significant revenue is from ticket sales, and that is precisely why Toyota is losing money on F1 at Fuji.

The venue has to sell all the tickets, and the tickets have to be expensive for the venue have a chance of breaking even. Bernie cannot lose; welcome to his world.

I suspect that Silverstone made a profit on the British GP, because the country has vast numbers of race fans who can pay the high ticket prices. Other venues, such as Istanbul, where the spectators are outnumbered by stray dogs, cannot possibly be profitable.

As the global recession bites deeper, and as business executives and politicians have to make tough choices, I harbor hopes that the whole dubious financial structure of F1 will come crashing down, and that a more equitable system will emerge.

Tickets at prices local people can afford, a fair share of television money for venues and teams—well, a man can dream.