Accelerating ticket prices
Formula One is not known for being cheap for fans. The sport’s cheapest tickets last year cost US$28 for an uncovered space of grass under the Malaysian sun watching the country’s Grand Prix. The prices rose up to a mighty US$1,205 for three-day grandstand seat at the Brazilian Grand Prix. At £125 for a general admission pass, with no seat, the British GP’s cheapest tickets are some of the most costly in F1. Anyone who thinks that the new agreement Silverstone signed with FOA will bring prices down is sorely mistaken. Under the new deal Silverstone’s fee will increase by half as much as it has previously been rising by, but the only way for the ticket prices is up and Silverstone’s cheapest passes are set to double in price.
According to recent research the prices of the cheapest tickets for the British Grand Prix are projected to double over the 17 years of the new deal. It would see fans paying £249 just for admission to the circuit without a seat (see box). As ever in F1 all you have to do is follow the money to find out the reason for this.
Under the new deal, which guarantees the race on F1’s calendar until 2026, Silverstone agreed to pay an estimated £12m annually with the fee reportedly escalating by 5 percent per year rather than 10 percent as is common with F1 race promotion contracts. It is a good deal for Silverstone but fans will still catch the brunt of it because F1 circuits have to cover the cost of the race hosting fee from ticket sales alone. FOA takes all revenue from trackside advertising and corporate hospitality which leads to circuits struggling to break even. It explains why Silverstone has made a loss as often as it has made a profit in the past four years.
When the new deal was signed the media started to speculate that ticket prices would have to rise to cover the fee but there was no suggestion of just how big an increase there would be. Until now.
According to the research by F1’s industry monitor Formula Money, the cheapest tickets to the British GP will rise 22.5 percent to just over £150 by 2014 – five years into Silverstone’s new contract. Ten years into the contract, the cheapest seats are projected to cost 50 percent more than they do now and by 2026 the research shows that their price will have doubled to £249. By then, the price of the most expensive seats is expected to have increased by £142 to £530 and the average ticket will cost £425. It seems to be a tough pill for Silverstone to swallow.
A Silverstone spokesman claimed that the projections “bear no resemblance to the facts, or Silverstone's plans for the future” and “any increase in ticket prices would be in-line with the annual rate of inflation, or rises in VAT.” However, since Silverstone’s spokesman did not bother to ask how the projections were calculated it isn’t surprising that its response is flawed.
To make its projections Formula Money took the highest and lowest ticket prices from the British GP over the past four years and worked out the average amount by which they had been increasing. This percentage increase was then halved and applied to the current highest, lowest and median ticket prices and projected forward for 17 years. Formula Money halved the percentage increase since the race hosting fee will increase by half the amount by which it has been rising over the past four years. The hosting fee is Silverstone’s biggest cost and accordingly its revenues have to increase to cover it.
So, in a nutshell, not only were Formula Money’s projections based on the rate of inflation and VAT in force, but they were also extremely generous towards Silverstone. It seems unlikely that over the next 17 years the ticket prices for the British GP will only rise by 50 percent of the rate by which they have been increasing over the past four years, however any increase beyond this rate could not be justified by the data. Crucially, if it wasn’t for the new deal the fans would be paying an even higher price.
The research shows that if Silverstone’s fee was increasing by 10 percent annually the average ticket price would be £692 by 2026 with the cheapest rising nearly four fold to £485 and the most expensive being £721. Accordingly the fans will make a hypothetical saving and so will Silverstone itself.
The lower escalation amount will lead to the circuit paying around £310m to host F1 for the next 17 years - £176.5m less than the total which would be due if the fee was rising by 10 percent. Despite the looming hike in ticket prices, the £12m fee to host the British GP is one of the lowest in the sport. Only Monaco and Monza pay less and the average hosting fee is £17m with Malaysia, believed to be the biggest-spending race, paying more than double Silverstone’s amount.
The big question is whether Silverstone has bitten off more than it can chew. After all, with increasing ticket prices the crowds are likely to fall which could then lead to more years of losses with little support to fall back on. Although the British GP attracted the biggest crowds of any F1 race last year, with 120,000 spectators turning up on Sunday, it is the only event on the calendar which has no government support.
Silverstone’s sole silver lining is that by 2026 one imagines that F1 will no longer be run by current boss Bernie Ecclestone and its new chief executive will presumably put Britain on the same status as Monza and Monaco which pay next to nothing to host their races. Ironically for a circuit which hosted the first round of the world championship in 1950, Silverstone may have to scrape through until 2026 to truly secure its status in F1 for good.