FINANCIAL PRESSURE SET TO HARRY F1 CIRCUS

There are only 10 days to go before the Formula One motor racing season begins, with the Australian Grand Prix in Melbourne. But pre-race nerves this year are afflicting the sport as a whole as much as the drivers themselves.

The pressure is coming from two sides. On the one, F1's biggest sponsors – notably struggling financial groups such as Royal Bank of Scotland and ING – are backing away from long-standing financial support in an attempt to cut costs and disassociate themselves from the sport's image of lavish spending.

On the other, income from ticket sales – reflected in the “hosting fees” F1 levies from race organisers – is declining as recession-hit motor racing fans stay at home.

Figures released this month show that the Belgian Grand Prix, which took place last September, made a loss of €3.8m ($4.9m) in 2008. It had an attendance of 52,000 for the race; 10,000 fewer spectators than in 2007. According to some reports, sales for the Australian Grand Prix are 15,000 lower than last year. Even the cheapest F1 tickets of the season – $31 apiece for the Malaysian Grand Prix, compared with an average across all races of $150 – are selling poorly, with sales in Malaysia down 20 per cent year-on-year.

Some GPs have even been dropped altogether, because the finances have stopped adding up. This year, there will be no races in France or in Canada, and Germany has said it can only continue if it is bailed out, although there will be a new one in the oil-rich state of Abu Dhabi.

F1's third big revenue stream, television rights, looks more secure, thanks to multi-year deals, although if more teams follow the example of Honda and pull out of the sport, TV interest could shrink, too.

It all adds up to a squeeze on profits for F1's ultimate owner, CVC, the private equity firm, making it tougher for the company to service its $2.7bn of debt.

CVC owns F1 via the holding company Delta Topco, run by billionaire Bernie Ecclestone. The business was acquired in 2006 in a leveraged buy-out backed by Lehman Brothers and RBS, which subsequently syndicated the debt to other investors.

Debt repayments at Delta Topco totalled $257m in 2007, compared with estimated revenues of $1.3bn.

It is unclear what impact that had on the bottom line of the business, which is Jersey-registered, but Delta 3, the biggest of Delta Topco's subsidiary holding companies, made a loss of $409m, after $230m of debt repayments. The debt matures in 2014.

Overall, some pundits estimate that F1's revenues this year could be down by 20 per cent or more.

In January, Max Mosley, president of F1's governing body, the Fédération Intenationale de l'Automobile (FIA), told a German magazine: “I cannot envisage that Formula One management's [undisclosed] forecast earnings still hold in the economic crisis.”

Some of the most dramatic declines will be in the money coming from commercial backers, particularly in the form of corporate hospitality.

F1's Paddock Club, a glitzy travelling circus of entertainment that provides clients with gourmet banquets, track tours and champagne buffets, costs an average $3,000 per person per day.

In recent years at the Australian GP, BMW has entertained up to 400 clients with its own grandstand and bar and restaurant area costing it close to £450,000 ($634,000). However, the company is axeing this entirely this year.

Fosters is also cutting its spending on the race. ING said its budget for the season would be cut by at least 40 per cent. And RBS will all but eliminate corporate hospitality. Such cutbacks threaten the whole profitability of the Paddock Club business model, given the vast overheads of transporting catering equipment around the world. One of F1's debt holders says: “Although this isn't the largest of F1's revenue streams, it is the most at risk.”

The two troubled banks are also axeing a combined $30m of trackside advertising