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Weekend debate: What impact will Brexit have on Formula 1?

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Weekend debate: What impact will Brexit have on Formula 1?
Jun 26, 2016, 8:26 PM

The UK is currently digesting the reality that 17m of its inhabitants voted to leave the European Union on Thursday.

The UK is currently digesting the reality that 17m of its inhabitants voted to leave the European Union on Thursday.

This means that the home of seven F1 teams, of F1 Management and CVC Capital Partners (the commercial rights holders of F1) may soon no longer be part of the EU and there is considerable doubt about what its relationship with Europe might look like in future.

So after some careful consideration and discussion, here are some thoughts on the likely impact on F1 from this momentous decision.

Boris Johnson

1. Will the UK actually leave the EU after all?

We have to start here as nothing changes until the trigger is actually pulled on the Article 50 exit process, which is part of the EU regulations.

There has been some doubt expressed about this since Thursday. The EU referendum was an advisory referendum; that means that unlike a recent UK referendum on electoral reform, its outcome was not tied to compulsory legislation following the vote. It would be very unpopular with the disaffected 17 million, who voted for Brexit, if the incoming Prime Minister, likely to be Brexit leader Boris Johnson (above after driving a Formula E car in London 2015), did not trigger the Article 50, which sets in motion an irreversible process to leave.

But experts here in the UK are suggesting that the three month period current PM David Cameron has proposed for finding his successor and the passing of the buck onto that new PM to trigger Article 50, leaves room for all sorts of political games.

It is quite possible, given the turmoil of the UK's main opposition Labour Party, that the new PM will call for a snap general election in the Autumn in order to establish a new government with a new mandate. At this point the UK will still be in the EU and the Article 50 will not have been invoked and in that process a number of options are on the table for getting an outcome without triggering Article 50 - a second referendum could be called, negotiations with the EU on a new deal could be initiated, and so on.

This is an F1 blog, not a political one, but suffice it to say that, as in F1, things are never quite as they may seem and until that Article 50 is triggered, nothing happens.

Silverstone F1

2. The Grands Prix events

Bernie Ecclestone has not been a fan of Europe for some time and has moved races away from their traditional heartland towards Asia, the Middle East and South America, which are clearly the markets of the future. The EU economy has been contracting and with it the local and government funds to pay for expensive race hosting contracts. I would expect that the German GP will not take place next year and it will depend on how much money the race at Hockenheim loses this year as to whether it reappears in its scheduled 2018 date.

Silverstone has a long contract, with break clauses, but its next move appears to be a sale to Jaguar Land Rover, with an inbuilt long lease to continue to run the race track as the home of British motorsport and to host races. JLR is a major investor in the UK car industry and is in a difficult position now; unlikely to want to invest further in the UK until the position becomes clear.

However, despite the best efforts of FOM, the audience for F1 on TV remains stubbornly Europe-centred. Currently over 60% of the F1 fan base is in Europe and that is why many long haul races start at odd times, to best suit the European TV schedules. If Europe is a busted flush in Ecclestone's eyes as a continent for hosting races, it is still the place where he can sell TV rights to the likes of Sky for hundreds of millions of pounds.

Speaking of pounds…

XPB.cc Christian Horner Bernie Ecclestone

3. The pound, its value and the effect on the teams

One of the happier outcomes for F1 teams based in the UK is that the pound has collapsed in value compared to the dollar - from 1.6 a few months ago to around 1.3 and likely to fall further. Economists are briefing that the Bank of England's strategy will be to let it float, rather than intervene, at least in the short term. The sport's default currency is the US dollar. So, for example, teams that were expecting a payment of $10m this week, would find that this translated to £7.7m in the bank, based on a rate of $1.3 to the pound, rather than £6.25m as it was in Spring. That's a significant amount of money to an F1 team and as the top teams are in line for $150m-plus of FOM income, plus sponsor income, the deflation of the pound is a game changer. They have to buy goods and services from Europe, Asia and the US, of course, so those will be more expensive, but the net gain will still be significant.

4. The teams and their employees

The most obvious question arising from the Brexit vote is, if the UK exits the EU and with it the free movement of workers, what happens to the European engineers and specialists working in teams' factories in the UK? Or to British engineers like James Allison and Jock Clear at Ferrari?

Employment lawyers are advising skilled EU workers in the UK to go ahead and fill in the 85 page application forms for indefinite leave to stay and residency, if they do not have them already. Some are even seeking UK citizenship.

There are at least two years to play with on this, after Article 50 has been triggered and as highly skilled specialist workers in a UK motorsport industry that is worth billions to the Treasury, it's unlikely that they would be asked to leave any time soon.

Monisha Kaltenborn Bob Fernley

5. The EU investigation into the F1 Strategy Group and F1 payments

EU competitions commissioner Margrethe Vestager is currently studying a formal complaint by Force India and Sauber into the way F1 is governed, especially from a financial point of view. So far there has not been notification that Vestager plans to investigate, as she is doing with Google and other companies active in the EU.

The FIA is based in Paris and Geneva; Paris is in the EU, Geneva is not. And if the UK drops out of the EU then those who distribute the money to teams, F1 Management and CVC, both based in London, will theoretically be outside her reach.

This is likely to be a talking point at next weekend's Austrian GP.
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