TV revenues and GP2 – show me the money…

I see many keep reading my initial posts on GP2 budgets, how the different teams make money and how their different strategies and positioning over the years has taken them to where they are now.  After a series of comments back and forth with Fletcher in previous posts, I think we need to dig a bit deeper and understand not only the “whys” but also the “why nots” – especially in relation to TV revenues.

What there is:

GP2 revenues come from 2 sources – though in most cases its only the first one:

1. Drivers -  Those who wish to sit in a GP2 car have to put up anywhere between €1 million and €1.3 million per season, plus any damages to the car.  In 2009, many drivers have signed for less than that (see post), but it is an exception that will right itself once the economic situation improves.
2. Team sponsors – If I’m not mistaken, only ART, Racing Engineering, Arden and Barwa Addax have one of these, so we can say they are pretty scarce in GP2 – not only in 2009 but generally in the category’s 5-year history.

What there should be:

As of today, GP2 team are basically limited to these 2 revenue sources.  Yes, some teams make some additional money serving A1 or Superleague teams, but that is not GP2.  If we compare this to an F1 income statement, we are missing one key line:  TV revenues.

Should CVC share some TV revenues with GP2 teams?   Yes, and here is why and roughly how much:

So with this simple calculation, we have added about €1.3 million to the top line of GP2 teams.   This is not money they should/should not get, but money they have earned, just like F1 teams earn their TV money by putting on a good show and having people watch.   Next to F1, 150 million people may seem like little, but it is a lot of people watching a single event every month during one or two days per weekend.

So why are there no TV revenues in GP2?  A couple of answers from my point of view:

• There is no “GP2 FOTA”: GP2 teams are not organized in any way.  They are there to race, period, and until today have not worried about this issue.  If they made even the slightest effort, they could probably get half of the estimated TV revenues per team, and we all know €650k would go a long, long way to help GP2 teams.
• Legacy:  Most GP2 teams are evolutions from F3000 or F3.  They are used to running in series where they have no significant TV coverage and where they make money the old fashion way… “earning” it through hard work and rich drivers.
• Ignorance:  The most basic of answers, is because no one has asked or has asked the right people.
• Resistance: I don’t think it’s that CVC does not care for GP2, but that they need to squeeze the most out of it.  And given the previous 3 points, CVC has little incentive to alter the status quo.

In conclusion, GP2 has earned TV money and GP2 could really use these revenues – not to make higher profits, but as a possible way to reduce the cost of a seat for drivers.  In this way, the budget for a GP2 seat could fall below €1 million, making the category more appealing and increasing its competiveness in the top-tier racing market.  Teams need to organize themselves, understand the value they are adding to their organizers and owners and map out a revenue-sharing scheme that improves the competitiveness and longevity of their category.

GP2 Main grid complete… for now

With 3 days to the season opener at Montmelo, we now know who will fill the 3 empty seats in GP2.   According to Italiaracing, enternal fill-in Giacomo Ricci will be at DPR and Trident will field Davide Rigon and Ricardo Teixeira.

Clearly, at least one seat in each of these 2 teams is a non-paying drive.  Both Ricci and Rigon have been filling in for these teams for the past several months, and both Herck (DPR) and Salvadori (Trident) prefer to field a money-losing car than risk the economic fine and the likely wrath of Bruno Michel.

David Price calls it quits

Last Thursday, Autosport reported that David Price sold his remaining 49% of DPR to André Herck (link).  My other solid source, Italiaracing, has not confirmed this, but I will trust it’s a valid story.

(c) www.davidpriceracing.com

Several comments from my side regarding this sale.

First, David Price is not walking away with a fistful of cash from this second sale.   Much like what happened to BCN Competicion, these “sales” have many angles and readings – some political, some financial.

The sale of the initial 51% to Herck last year was for a reported €1.8 million, reasonable figure for a GP2 team in early 2008 – at that time valued between €3.5 and €4.0 million.   But this time, as owner of 49% of DPR, Price also “owned” 49% of its troubles, translated into losses and debt stemming from the consistent lack of results on the track and its inability to attract well-paying drivers.

Herck, who is also believed to be doubting his future (and his son’s) in GP2, must have told Price he could “sell” his remaining stake for the value of the growing team debt.  Summarizing, Price walks away with his initial cash and basically values the team at the €1.8 million which he sold for initially, a price tag that DPR would never fetch on the open market today.  He renounces on a higher value but also on the risk from its debt obligations.  The valuation from Herck’s side is different, as he paid the €1.8 million and is now assuming all the debt, which could easily be in excess of €500k.  At a minimum value of €2.3 million, Herck must seriously trust he can either straighten out the team or he can hold out long enough to sell it once prices have gone up again.  Another (unlikely) alternative is that he has a buyer for all or part of DPR.

Second, the departure of David Price from DPR sinks the team further in the “image” standings.  Already one of the worst teams in terms of results and reputation, the fact that now it remains in the hands of a wealthy Monaco businessman who bought it for his son, does not help the team in the eyes of drivers and their managers.  Herck is a smart man, and he will have to quickly fill in this gap with a top-tier technical “brand name” that can elevate his team’s reputation.  A good number of ex-F1 race engineers are out there today, and Herck will probably scoop one up soon, both to fill in for Price’s departure as well as technical chief Andy Miller who also left the team.

Surely, a team with an empty seat in today’s racing market and whose only racing pedigree is no longer there, is not looking too good for survival.  André Herck must now pull a wealthy rabbit out of his magician’s hat to sustain a reasonably stable 2009 GP2 Main season, especially when considering DPR’s “paying” driver is his son Michael.

One race DPR is surely contesting in the leading pack is of the first GP2 team to run into life-threatening financial difficulties.  DPR and Trident are now neck to neck in this sad contest.

GP2 insider prediction: When & which GP2 teams will run out of money in ’09

Based on the earlier calculations of team incomes according to the drivers they had been able to sign, I have made a chart to illustrate at what point of the 2009 season will GP2 teams run out of cash.  To better explain I have made a couple of assumptions:

1- that the necessary budget for break-even is €1.8 million – spent linearly at €180k per race by every team

2- the 3 empty seats (as of April 24 – 2 at Trident and 1 at DPR) are filled by paid drivers with budgets of €500k

GP2 Asia has its Asian champ… perfect excuse to call it quits

Well, Bruno Michel must be happy with himself this week.  He has reached the target of having an Asian driver win the GP2 Asia Series, as Kamui Kobayashi took the title this weekend in Bahrain.   Just as a note, the next Asian driver was Sakon Yamamoto in 9th, and then Hamad Al Fardan in 20th.  Not much of a talent pool, especially when considering Kobayashi is the Toyota test driver and Yamamoto is an F1-refugee driving for ART.

More than happy, though, Bruno Michel should actually be relieved and it should make for the perfect excuse to end this ill-fated invention on a “high note” (I’m being generous, of course, but any reason isgood to kill GP2 Asia).

GP2 Asia … a lesson on how to destroy your clients

So we have reviewed the 2 wonderful GP2 Asia seasons, both for their irrelevance in the motor racing world in generating new talent or serious competition and for their destructive impact on team finances – for almost every team on the grid.

Some questions for the GP2 management (or GP2 Gods if you prefer):

• What is the objective of GP2 Asia?  The real one I mean, not the blah, blah, development, blah, blah, emerging markets, blah blah, off-season….. crap.  Are you trying to compete with anyone?  Does anyone ever, ever watch top-level racing during the F1 off-season?
• Does this GP2 “winter series” need to be in Asia?  If it’s of no interest for drivers in that region, doesn’t it make sense to race in Europe…  Even a Sudam GP2 would make more sense!
• Have you analyzed the impact of this category?  Impact in terms of media exposure (does anybody care, even the die-hard GP2 fans?), driver development and most importantly – team economics.
• Do you think GP2 Asia has enhanced or destroyed value for GP2 as a whole?   Trick question, but by any measurement, GP2 Asia has contributed to make a difficult 2009 season in Europe even more unstable and devastating for many teams.
• Do you listen to your “clients” (the GP2 teams)?  They are shouting for help and attention, but they are constantly ignored – powered by the arrogance of not admitting GP2 Asia should be terminated.
• The ultimate question…. Will GP2 Asia have a 2009-10 season?  Please say no…..

The devastating impact of GP2 Asia – part II

Though many questioned GP2 Asia for 2008-09 (current series), GP2 boss Bruno Michel and his team pushed on with what in hindsight reflects very little regard for the teams and their  survival.  Some (or maybe many) would venture to say that he wanted to see some teams go into financial difficulties, which they are suffering just as we get ready to start the 2009 GP2 Main season.

The economic turmoil was already upon us, and cancelling the season would have been a timely decision applauded by most and criticized by the ignorant few.  But…. the season started at the October Shanghai F1 GP with a ragtag lineup of new and old drivers – most of them paying little or no money to the bleeding GP2 teams that were contractually obligated to field 2 cars without exception or mercy.  Rumours had surfaced that Michel would allow teams to show up with 1 car at this exceptional time, but as many had suspected the short-term once again primed over the long-term.

The numbers and facts speak for themselves:

• Regarding driver rotation
• After 5 races, a total of 41 drivers have paraded through the GP2 Asia Series – representing a rotation of about 66%… not even club level karting sees these figures on a bad weekend.
• 11 drivers (27% of those that have paraded through here) have raced only 1 race!
• Only 15 drivers (37% of the total) have raced in every GP2 Asia race this season; this represents less than 60% of the 26 GP2 seats available… highly irregular for a serious racing category.
• Trident, a team in serious, serious difficulties has used an incredible 7 drivers and I would venture to say that several of them have raced for free:  Ricci, Rigon, Vallés.
• Even Arden has suffered the confusion of Dr. Marko at Red Bull’s objectives in GP2 Asia.  He has used 3 drivers in the Red Bull seat at Arden:  Mika Maki, Renger van der Zande and Edoardo Mortara.  Dr. Marko must be seriously wondering what the hell GP2 Asia is good for, a confusion that probably help cement his decision to leave GP2 in 2009 altogether.

The evolution of GP2 teams – Average position

GP2 teams have enjoyed very diverse fortunes since the category was launched in 2005.  So, which are the “best” teams?   To avoid subjective discussions, and base the answer on hard data, here is the average position in the team championship since 2005, as well as their “label” according to the 3 groups we created in an earlier post (stars, survivors or backmarkers):

The chart shows what we expected at the top and at the bottom, with some surprises – such as Arden and Piquet, which are higher that expected.  Both still live off their best seasons when Kovalainen (Arden) and Nelsinho (Piquet) were fighting for the GP2 title.In terms of economics, the chart helps illustrate one of our basic points about GP2 success:  if you are consistently successful on track, you will be financially viable.  Today, as illustrated in previous posts, all the teams in red are GP2 backmarkers and facing serious financial troubles.  As simple as this chart and its interpretation may seem, how come some teams are at the top and some at the bottom when they all started out on equal ground in 2005?

Where’s Red Bull in 2009?

Missing from the 2009 grid in the GP2 Main Series is sponsor Red Bull.  This Austrian energy drink giant has been present in the category since its inception in 2005, supporting drivers such as Scott Speed, Sebastien Buemi, Neel Jani, Adrian Zaugg and Michael Ammermuller.  Red Bull has also been the team sponsor for Arden since 2005, but  dropped out at the end of the previous season.

So, why does a firm such as Red Bull – so committed to sports (especially extreme ones), suddenly drop out of GP2?  They have successfully directly sent Speed and Buemi to F1, as well as indirectly supporting Heikki Kovalainen through its Arden sponsorship.  Their track record seems reasonably positive.

Many would probably guess that this withdrawal is a result of the current financial climate.  But with 2 F1 teams and a significant investment in racing at other (lower) levels, this does not sound coherent.

The only answer I can think of is Red Bull’s traditional philosophy of rotation and renovation.  Many team owners will agree with me that the program’s director, Dr. Helmut Marko, likes to switch regularly, regardless of the success or track record of the team.  Red Bull has been in GP2 since 2005 and possibly 2009 looked like a good time to get out.

The Red Bull Junior Team program may be undergoing some renovation itself, and is now focusing on F2 with 3 drivers (big mistake) and some emerging talent in F3 and Formula Renault.  The only exception is British F3 champ Jaime Alguersuari, who has elected to go to WSR and bypass GP2.  Let’s see if in 2010 drivers such as Brandon Hartley or Alguersuari could see themselves in a GP2 car with Red Bull backing.

Parente’s sponsors

Pictures emerging from Tuesday’s GP2 test at Montmeló show the ORT car driven by Alvaro Parente with some sponsorship:

- Energy drink Soccerade is prominent on the engine cover.  This Icelandic company already supported Alvaro’s 2008 season with Super Nova and continues.  I need to investigate the Portuguese/Brazilian link with this firm, since they have Parente’s fellow countryman Cristiano Ronaldo (aka CR7) as their brand ambassador.  Also, Felipe Massa’s drink bottle is sponsored by Soccerade…. not a coincidence.

- The Portimao circuit is now featured on the sidepods, both on Parente’s and  Karun Chandhok’s car.  ORT is based at Portimao, so it seems fitting that some sort of alliance comes out of their collective interests.

- Portuguese mobile operator TMN (Portugal Telecom) is just under the cockpit, and may be the Portuguese sponsor that Tiago Monteiro had promised.  By their location on the bodywork, it does not seem like a deal worth much money, though at this stage every little bit helps.

- The red triangle logo just below the cockpit belongs to Delta Cafes, a Portuguese distributor of coffee to restaurants and bars.  Again, the logo size points that it’s not a relevant sponsor, but at least more cash to support Parente’s season.

Maybe with this new blood in the team, Parente’s budget could help ORT approach breakeven for 2009.  Like I said before, Monteiro could be wishing he had waited to take over BCN Competición last November.