Why Silverstone has the upper hand over F1

The only surprise about the British Racing Drivers' Club's triggering of the break clause in its British Grand Prix contract with the Formula One Group was that folk were surprised that the club had done so.

Indeed, it would have been a massive shock had the ultimate owner of Silverstone failed to do so, for that would have been a surefire passport to bankruptcy for the club, circuit and grand prix.

Of course, the BRDC board could have delayed the announcement until after the race - FOG apparently made that offer without penalty - but postponing the inevitable would simply have caused question marks over an uncertain future to overshadow what turned out to be a fine event.

The fact of the matter is that the BRDC had absolutely no choice - so long and onerous had been the contract originally struck in 2009, at a time when Formula 1 was on an upward trajectory, one fuelled by manufacturers and fed by flush fans.

Back then Lewis Hamilton was the reigning champion and about to be deposed by another British hero, Jenson Button. Times were rosy for the BRDC and Silverstone.

Then-F1 tsar Bernie Ecclestone had seen off the breakaway threat and won the war against the manufacturers - or so he thought, for BMW, Renault and Toyota exited soon afterwards - and commercial rights holder CVC Capital Partners had not (yet) played havoc with F1's revenue structures, its regulatory process, or its format. Hang, the hybrid engine formula was being ironed out and Pirelli had not even tendered for tyres.

Silverstone also faced competition from Donington Park in the shape of wannabe promoter and circuit chief executive Simon Gillett, whose plans eventually turned (literally) to mud - but that lay in the future. Therefore signing a 17-year deal with a 5% escalator was a no-brainer, or so the number crunchers and BRDC board members thought at the time.

A break clause permitting the club to give two years' notice (ahead of the 2017 race) in order to exit post-2019 clinched the deal.

"It's not easy to enter into an agreement of this magnitude," said then-BRDC president Damon Hill at the time. "It's a big commitment.

"But the BRDC felt we wanted this relationship to continue, and we were prepared to back the negotiating team, with the level of risk satisfactory for the deal to go ahead."

It is, of course, all too easy to blame Hill, but he headed a committee of advisers and negotiators, many of whom were seasoned businessmen. For starters, the going escalator at the time was 7%, providing for a reduction of £60million over the full contract term; equally, the initial hosting fee of £12m was well under the norm back then, with Abu Dhabi, for example, shelling out double the British GP's fee at the time.

Did the BRDC negotiating team meet their match in (BRDC club member) Ecclestone? On the face of it, yes, but, had he foreseen how it would pan out he'd still be in charge of F1, plus the break clause (included at BRDC insistence) provided control of future negotiations, for FOG (now owned by Liberty Media) now understands that the BRDC hopes to host the event going forward, but not at any price.

The bottom line is that the British GP lost around £8m over the past two years, and such losses were not only set to continue, but escalate. While the circuit could cram a few more punters onto its stands, adding 5% per year to spectator numbers and ticket prices is a massive ask. On the flip side, retirement by Hamilton (or a move to a dud car, as per his sometime nemesis Fernando Alonso) would spell certain disaster for the circuit.

For proof of the last point, look no further than the thousands of bleached seats at Barcelona since Alonso ceased winning, or to Hockenheim, which plays to half empty stands every two years.

The question, then, is what happens to the oldest world championship grand prix on the calendar after 2019?

Option 1 is for FOG and BRDC to sit across a table, and hold productive discussions. True, FOG does not wish to back off or down for fear of setting a precedent within a year of taking control of F1's commercial rights; equally, the BRDC cannot afford to go higher - as it is, the club faces losing £10m over the final two years of the contract.

So both parties should enter into negotiations with an open mind during the off-season, with talk of Silverstone's "posturing" being left at the front door on the way in. If saving a club from certain liquidation is known "posturing" in USA-speak, one wonders what the alternative is called.

FOG needs the oldest race on the calendar; the BRDC needs to protect F1's heritage situated in the epicentre of F1 - six of the championship's seven British-based teams (of a total grid strength of 10) are based within an hour's drive of the circuit that hosted F1's very first championship round in 1950, while McLaren is two hours' away on a very busy day. Needs must, as the saying goes, as does heritage.

Did Liberty not undertake due diligence before acquiring control over F1's commercial rights? If so, then surely it knew the BRDC's trigger was likely, particularly given that FOG managing director Ross Brawn is listed as a BRDC member.

Indeed, surely the almost universal dissatisfaction with hosting fees would have come to light during the diligence process, for even the youngest event on the calendar, Baku, is considering invoking its break clause next year for 2020. The first to break ranks was Malaysia, shortly after Liberty took control.

Option two is provided by the British MotoGP business model: the Circuit of Wales holds the rights to the grand prix, but with the venue's construction delayed, perhaps now forever, CoW rents a 'turn-key' Silverstone circuit to stage its event.

The fee (allegedly £2m), includes Silverstone's full infrastructure, with CoW providing the weekend programme. In return CoW takes the gate - and reportedly breaks even off a Sunday crowd of 65,000 and average ticket prices of around £90. As with F1 and FOG, commercial rights holder Dorna retains all TV revenues, 'bridge and board' advertising income, and hospitality rights - so clearly the model works.

On that basis FOG could rent Silverstone and its infrastructure for a reasonable fee, host the race and pocket all proceeds, which would surely exceed the zero sum income FOG will collect from BRDC from 2020 onwards with no British GP. Plus, the oldest race on the calendar would be saved - in line with FOG's stated objective, and F1 would keep a race in its heartland.

This option would also serve to educate FOG first hand about the challenges facing F1 race promoters, much as proprietary McDonald's or KFC outlets enable their franchisors to grapple with real world issues.

Allegedly such a deal was proposed, but the rental offered was way south of what BRDC considers reasonable. One senses (too) much petulance (in both directions) is currently at play to make such a model work, but the closer the parties get to 2019, the closer they will get to agreeing reasonable fees for circuit and infrastructure, fees that reward both BRDC for its land ownership and FOG for its product.

Option three is for FOG to seek an alternate venue: and here CoW is currently out of bounds, as are Brands Hatch and all other British circuits, including Donington. By this reckoning it would need to be a bespoke permanent circuit - a daft idea given that Silverstone exists, with the only sticking point being the fee - or a street circuit. Step forward London, but only if the City Fathers wish to be well and truly scalped.

The F1 Live in London event staged last week ahead of the British Grand Prix was by all accounts - including personal experience - a success, but there exists a massive gulf between a short street demonstration showcasing 19 single cars travelling at relatively slow speeds, and full-on world championship grands prix for 20 drivers, some of whom occasionally display road rage tendencies.

Setting aside the (very real) question of traffic congestion before, during and after the event plus security, just consider the economics: Such a contract would need to run for at least 10 years simply to amortise the fixtures and fittings required for such an event - and, as Melbourne and Baku can attest, such costs run to tens of millions. Indeed, there exists a very good reason why Valencia failed to turn a profit from 2008-12.

Silverstone reported in excess of 100,000 paying spectators last Sunday, with the average ticket price estimated to run to £200. Forget the economics for the moment - there are other revenue streams - and simply focus on the first number: 100,000 people, of which around 70,000 were sat in stands, all able to watch proceedings.

Now consider a street circuit able to deliver such a spectacle, built from scratch, situated in one of the busiest cities on Mother Earth. Imagine the disruption; imagine the field days environmental factions - who contrived to get London's Formula E race banned - would have; imagine the compensation traders could claim; imagine the eventual cost: to showcase a sport with dwindling eyeballs in a city that already enjoys massive (over) exposure.

Various sources put the estimated build costs of a three-mile circuit (Monaco runs to a touch over two miles) at an initial £30m, and £10m per event thereafter. That includes barriers, temporary buildings, circuit ring and surfacing, but excludes costs of erecting stands, which run to '£20 per bum'. Do the maths: Amortised £3m build plus £10m annual build cost; 70k punters on stands at £20 each (£1.5m) equals £15m odd.

Factor in race-hosting fees of £15m - roughly Silverstone's current fee - and the number spirals to £30m even before promoter costs of £5m. Attract 100,000 fans split 30/70 general admission/grandstands, and the average ticket price pans out at £350 each, or almost double Silverstone's going rate - already among the highest on the championship trail.

Add in the costs of stringent inner-city security - so worried was London Mayor Sadiq Khan about terrorism threats during the F1 Live event that a publicity lock-down was imposed until 24 hours before it ran - and commuter disruption over the six-week build/tear-down period, and Silverstone's rental fee, even at three times the MotoGP rate, represents an absolute bargain.

For the record, Monaco's capacity is 50,000 payers, with an average ticket price of around £200. In London, a three-mile circuit would provide for an absolute maximum of two miles of spectator viewing area, or 7,500 yards assuming every inch of both sides of the track gets jam-packed. Assuming a 100k crowd, that equals 12.5 heads per yard, or a minimum number 20 rows per stand - at an average ticket price of £350!

The bottom line is that street races are not the bargain most perceive them to be - and work only where cities wish to present themselves to the world. In the cases of Singapore and Baku the strategy worked - being F1's first night race did much to raise the former's profile - whereas Valencia's strategy failed dismally. What, though, would London stand to gain from a grand prix that it does not already enjoy?

"The only legacy left after a street race," a race promoter told Autosport during the weekend, "is a fat invoice," with other parties with knowledge of such events nodding along wholeheartedly. "At least a permanent circuit can be used throughout the year for other categories and track days."

The fact remains is that, where Ecclestone held the aces back in 2009, they have now fallen squarely into Silverstone's lap - and if Liberty fails to accept that, the British Grand Prix is a goner. Already F1 has lost Malaysia, while Germany is shaky after 2018.

Will Britain be next to go? If so, don't blame the BRDC, which carried its mammoth losses without the government support enjoyed by other venues.