Protectionism is killing the British Grand Prix

Elsewhere on our blog today, Richard Teather has written a defence of Lewis Hamilton’s tax avoidance scheme, pointing out that the EU’s poorly-designed VAT system is primarily responsible for creating the situation in the first place. As a huge F1 fan (with a soft spot for Hamilton), I’m naturally more likely to come to his defence. But there’s another controversy in the world of British Formula 1, which came to prominence earlier this year, that I feel I can comment on with a more neutral perspective: the potential demise of the British Grand Prix.

In July, the owners of Silverstone circuit (which hosts the British GP) activated a break clause in their contract with the Formula One Group:

“It is not financially viable for us to deliver the British Grand Prix under the terms of our current contract,” said John Grant, chairman of the BRDC [Silverstone’s owners]. “We sustained losses of £2.8m in 2015 and £4.8m in 2016, and we expect to lose a similar amount this year. We have reached the tipping point where we can no longer let our passion for the sport rule our heads.”

The BRDC blame exorbitantly high fees charged by the Formula One Group, whose negotiating position with Silverstone is made more favourable due to the widespread use of government subsidies for tracks in other host countries. The 2017 season opener in Melbourne received around A$60,000,000 from Aussie taxpayers, with Singapore and Bahrain being two other high-profile examples of heavily state-subsidized Grands Prix. In many cases, newer races on the calendar function largely as vanity projects for governments who prioritize the prestige and glamour of an F1 race weekend above overall economic wellbeing.

Team principals like Red Bull’s Christian Horner have argued that Silverstone’s dire situation is largely the result of poor management decisions. It’s true that Silverstone does get comparatively favourable terms compared to many other venues (the 5% yearly fee escalator in their contract is comparatively low by F1 standards), but this is outweighed by the sheer size of subsidies given to other circuits by their respective governments. Silverstone’s ticket fees are some of the highest on the calendar, but despite consistently topping race attendance figures over recent years this has not been enough to make up for the absence of subsidies. Sadly, Formula One Group have little incentive to offer economically viable terms to circuits like Silverstone when they have an easy source of revenue from governments that don’t depend upon the signals of profit and loss.

So what’s the solution? It’s certainly not subsidizing the circuit. Subsidies might be good for TV viewers in other countries who aren't paying for them, but they certainly aren't good for taxpayers. I’ve been a devoted fan of Formula 1 since I was in primary school, but I’d rather see the British Grand Prix move to a different venue or exit the calendar entirely than force Brits who don’t share my love for the sport to pay for my enjoyment. If F1 wants to thrive in the long-run, British trade negotiators need to use Brexit as an opportunity need to make case for reducing Grand Prix subsidies in other countries as part of a wider strategy of supporting free trade. But even if this fails, maintaining a policy of unilateral free trade in motorsports is vital. Subsidizing the British Grand Prix would allow Formula One Group to reap the undeserved benefits of protectionism by charging higher fees to circuits, resulting in a ‘tit-for-tat’ ratcheting up of subsidies at the expense of taxpayers worldwide. I love my sport, but I love free markets more.