The future of Silverstone
OCTOBER 20, 2002
The Mole is not a great believer in investment (apart from Mrs Mole's little horde of gold in Zurich) but he does occasionally peruse the share prices in The Financial Times while waiting in the morning for his kedgeree to arrive from the kitchens. It was thus that he spotted a slight calamity for a company called Interpublic, the world's number two advertising agency. The share price had tumbled on Wall Street, losing more than a third of its value after a profit warning. The company, it said, was now worth a third of what it had been six months ago.
"Good Lord," said The Mole. "That's going to cause trouble at Silverstone."
"Yes dear," said Mrs Mole, engrossed as always in Nigel Dempster's gossip column.
The Mole finished his breakfast (the lime marmalade was exceptional) and then Oswald the chauffeur (his father was rather right wing) whisked The Mole up to town in a ministry car. On the way The Mole paused between crossword clues to consider the implications of what he had just read.
Yes, he thought, there will be changes ahead.
On his desk there was already a report. The Interpublic story was big news in the Motor Racing and Tinpot Dictator Department at Vauxhall Cross. The secretaries seemed rather nervous.
The Mole began reading the analysis put before him.
Interpublic, it said, is the company which owns Octagon and this was cited as being one of the reasons for the collapsing share price. The Octagon Motorsports unit had been the cause of some serious financial losses.
Octagon is a relatively new kid on the motor racing block. It was established in 1997 by the merger of a number of sports marketing companies. One of these was the Flammini Group and as things were reorganised this firm became known as Octagon Motorsports, one of eight divisions of the business (hence the Octagon name).
It was not until 1999 that Octagon really hit the headlines when it acquired Brands Hatch Leisure for £130m. This gave Octagon control of the major British motor racing circuits, with the exception of Silverstone, and the right to host the British Grand Prix at Brands Hatch. The problem was that Brands Hatch needed massive upgrading before Formula 1 would even look at the place and the local authorities were denying planning permission for the upgrading work for fear that racing cars would upset the local squirrel community.
In order to sidestep the problem Octagon pulled off what looked like a rather decent coup at the time by doing a deal with the British Racing Drivers' Club (which owns Silverstone) to lease that circuit for a 15 year period. Silverstone needed work and it was agreed that Octagon, the BRDC and Formula One Management would combine to each invest £13.5m to upgrade Silverstone over the five-year period between 2001 and 2006. This came after a disastrous British GP in April 2000 when no-one escaped without a decent coating of mud and the race was in danger of being thrown out of the Formula 1 World Championship.
The first phase of development went ahead as planned and the British government was convinced to speed up some roadworks to ensure that the access roads were up to scratch for this year's event.
It all went pretty well, despite a few rather churlish remarks by Bernie Ecclestone after he had an unfortunate interlude with a gateman at this year's race. No-one else complained much. The crowds went in and out without drama. All was well.
Or was it? The Mole's staff noted at the time that the traffic flow at Silverstone was probably as much to do with the fact that ticket sales were restricted to just 60,000 (rather than the normal 90,000) as it was to do with the new roads. This was a decision taken by Octagon to make absolutely certain that things went well. Octagon considered that it was worth cutting back on the numbers to make sure that there was no possibility of a traffic jam.
The Mole's researchers at the time concluded that even allowing for some fairly frightening price hikes, there was no way that the 60,000 crowd could generate enough income to allow the event to break even. The conclusion was that the costs of the upgrading work, of running the event and of paying the F1 teams to attend meant that the race was bound to make a substantial loss.
The first sign that this had been the case came in August when the circuit issued a most bizarre press release telling the world that the partners in the development of Silverstone were "continuing their efforts on dramatically improving facilities for the paying public" and waffled on about improved signage, better catering and retail facilities and modern toilets. Hidden away in the small print was the fact that the new pit and paddock complex, media centre and race control building was not going to be built before 2004.
The implication, although it was skillfully disguised, was that money was short and this belief was underlined a few days later when the axe went swinging through the management of Octagon and company boss "stepped down".
The scale of the problem popped up when Interpublic issued its second profit warning a few days ago. This was what had caused the share price to tumble. According to the official figures, Octagon Motorsports had made a loss of nearly £12m, largely related to the British Grand Prix. Interpublic's chief financial officer was quoted as saying that the company is "reassessing the composition and structure of our motor sports holdings."
And that was what started the alarm bells ringing in the SIS Building.
The Mole is a cynical fellow and as the BRDC already owns the Silverstone circuit the obvious thing to do if Octagon now decides that it wants to get out of motor racing is for the lease of Silverstone to be transferred to the third partner in the British Grand Prix business, Formula One Management, a company run and part-owned by a Mr Ecclestone of Knightsbridge. A man who has always wanted to get his hands on Silverstone.
"No problems then for the British Grand Prix in the future," said Number Two, The Mole's Deputy, gazing across the river to Pimlico.
"No," said The Mole. "I think everything is in order. I expect the British Grand Prix will start to make a profit as well."
"Indubitably" said Number Two, before disappearing off to continue work on his reports on the future of the Austrian and San Marino Grands Prix.
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