Formula One has revealed that it risks losing its estimated $33m hosting fee for the Chinese Grand Prix if the authorities in Shanghai give the red light to the race over the coronavirus outbreak.
The Chinese Grand Prix was due to take place in Shanghai in April but was postponed by F1 last week at the request of local event organiser, Juss Sports Group. Nasdaq-listed F1 said it is liaising with Juss and the authorities in China to try and reschedule the race.
However, it is widely believed that this will not be achievable due to F1’s tightly-packed schedule which sees it visiting more than 20 countries in eight months.
Crucially, it is unclear when Shanghai will be able to hold the race. The city is on lockdown as a result of the coronavirus which has infected 68,500 people in China and caused 1,665 deaths there since it first emerged in December.
The longer China takes to turn the corner, the higher the likelihood that its authorities will have to put the brakes on the Grand Prix and this is what could jeopardise F1’s fee.
Its company documents reveal that “cancellation of large-scale public events by a competent authority due to…outbreak of disease…could result in the loss of revenue under Formula 1’s commercial contracts.”
The reason for this is that the authorities have the power to issue force majeure certificates which absolve companies of their contractual obligations if they can’t be performed due to unforeseeable circumstances.
The Chinese government has already begun issuing these certificates and the dent they could make in F1’s fortunes is also revealed in its company documents.
They state that “if the cancellation of an Event is due to a force majeure event…the race promoter is not required to pay Formula 1 the race promotion fee for that Event.”
F1 declined to comment on whether outbreak of disease is listed as being a force majeure event in the Chinese Grand Prix contract.
‘Beyond reasonable control’
However Charles Braithwaite, partner at law firm Collyer Bristow, says:
“It would be pretty common to include outbreak of disease or similar such wording. Even if there wasn’t such a clear reference, it is pretty common for a definition of force majeure to include anything beyond the reasonable control of the relevant party – which would likely be deemed to include the coronavirus or at least the decision of the Chinese authorities to cancel the race because of the coronavirus.”
However Juss could still be in for a bumpy ride. It is understood that it has already paid F1 as the company documents state that fees for longhaul races “typically fall due three months before the relevant Event.”
So if F1 refused to return the money, or if disease was excluded from the contract but the authorities still claimed it was a force majeure, a court would have to decide on the matter.
F1’s contracts are governed by UK law but it remains to be seen whether the sport would want to take on the world’s fastest-growing economy.
F1 reportedly hopes to sign a second race in China so it may be particularly reluctant to head into a collision course with its authorities.