Worries about the future of Formula One in India refused to go away even as celebrations followed Sebastian Vettel’s victory at the third Indian Grand Prix here on Sunday. The win helped Vettel clinch his fourth Driver’s Championship title, but the question in most people’s minds was: will we witness a fourth Indian GP? Will F1 return to India in 2015?

Jaypee Sports International’s CEO Sameer Gaur is confident F1 will return and has said that the contract JPSI signed with the F1 organisation is for hosting five races. The Indian GP has not been included in the 2014 calendar and the race has been scrapped, at least as of yesterday.

Gaur claims that logistical issues were involved in hosting the race in October. F1’s chief Bernie Ecclestone (who was conspicuous by his absence at the event) has claimed that bureaucracy and politics are to blame. But the issues involved could be much more complex.

Corporate ownership

Much like most other popular sports worldwide, F1 is as much driven by passion as by profit. The F1 group has a complex corporate ownership structure much like any of the big conglomerates of the world. Veiled in secrecy, the ownership to the commercial rights of F1 is said to vest in the hands of a few individuals and a bunch of companies.

Earlier this year, CNN, quoting Formulamoney.com , said that the organisation is made up of multiple companies. “They invest in multiple jurisdictions — the UK, Jersey, Luxembourg, Switzerland — but the parent company of the group is called Delta Topco and they are based in Jersey, US.”

“Delta is 35.5 per cent owned by private equity firm CVC Capital Partners. The second biggest shareholder is an American company called Waddell and Reed with a share of about 20 per cent. The third biggest shareholder is Lehman Brothers with about 12 per cent. Bernie Ecclestone's family trust has 10 per cent and Ecclestone himself has around five per cent.”

The revenue generated by F1 is said to be close to $2 billion, of which 30 per cent comes from the fees that promoters like JPSI pay to host the race and the balance from what broadcasters pay to screen the sport. Trackside advertisers, series sponsors and corporate hospitality contribute the remaining 40 per cent of revenues (Source: CNN quoting Formulamoney.com ).

Revenue potential

The immense popularity of F1 has ensured that each of its constituents — constructors, sponsors, track promoters, and even governments and countries gets enough revenue or measurable benefit to continue to invest in it. Of course, brands have exited F1 due to the high sponsorship cost or lack of funding. So, what is in it for the constituents?

It is said that F1 owners share almost half the net earnings from the sport with the teams in the form of prize money, not equally but based on differing weightages. Teams and drivers are in it for winning; after all it is a competitive sport. But the drivers are also some of the most highly paid sportspersons in the world.

For the constructors and the team’s owner brands involved in putting the hi-tech F1 car together, there is a mix of commercial interests in the form of technology testing and development which eventually make it into road-going cars — paddle gear shifters and carbon-fibre are examples.

In addition to this, there is the intangible, but measurable benefit that these brands get from their association with the sport.

Brands such as Ferrari, Red Bull, Infiniti and Mercedes measure their exposure in the form of advertising value equivalent (AVE), which could run into nearly half a billion dollars.

Global brand awareness is the objective, especially in newer emerging markets where some of the brands either don’t currently have any presence or are underexposed. Speaking to Business Line , Andreas Sigl, Global Director of Infiniti Red Bull Racing, said “in 2011 our measured media value was $250 million, $339 million in 2012 and this season we just crossed $800 million in value.”

F1’s popularity and the exclusivity associated with hosting the race is strong, with viewership estimated to be over 500 million. That is a big draw even for countries and governments. Intangibles like tourism could get a boost. No wonder, many countries vie to host F1 races, despite the high costs and the economic slowdown.

Cost vs revenue

But the cost of hosting an F1 race is steep. In some cases, it can be more than $50 million. For the promoters (if they are privately-held companies), it is a challenge to recover the money when ticket sales start heading south. Sunday’s attendance at the Buddh International Circuit didn’t seem poor, but there’s no denying that it would be a worry for JPSI and the F1 management.

Gaur is perhaps confident that F1 will be back in 2015, but it is a decision that will be taken by F1’s top management. However, it will be disappointing for fans in India if F1 doesn’t return in 2015.

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