The relevant markets by ps94506

VIEWS: 20 PAGES: 48

									4            The relevant markets




Contents
                                                                                                                                                       Page

Introduction ...............................................................................................................................................67
Overview on market definition..................................................................................................................67
Motor-racing circuits.................................................................................................................................69
   Circuit location......................................................................................................................................69
   Circuit licences......................................................................................................................................70
   Operating costs......................................................................................................................................71
Structure of track-based motor sport .........................................................................................................72
   Introduction ...........................................................................................................................................72
   Structural relations between the industry participants...........................................................................72
Motorsport events......................................................................................................................................74
   BMP ......................................................................................................................................................74
   Competition between circuits for events ...............................................................................................75
   Capacity constraints and utilization.......................................................................................................76
Spectator demand for motorsport events ...................................................................................................77
   Levels of demand ..................................................................................................................................77
      Geographic markets for spectator events...........................................................................................78
   Pricing analysis for spectator events .....................................................................................................79
Participatory and corporate hospitality events...........................................................................................80
   Track hire and testing ............................................................................................................................80
   Club racing ............................................................................................................................................81
   Track days .............................................................................................................................................81
   Experience days.....................................................................................................................................85
   Race tuition at racing schools................................................................................................................86
   Corporate hospitality and corporate events ...........................................................................................86
   Provision of supplementary activities....................................................................................................86
Pricing analysis for participatory activities ...............................................................................................88
   Prices for participatory activities...........................................................................................................88
   Prices for circuit hire .............................................................................................................................88
   Cost of racing ........................................................................................................................................91
The UK motorsport industry and benefits of the merger...........................................................................92
Market definition.......................................................................................................................................93
   Introduction ...........................................................................................................................................93
   Final consumer demand.........................................................................................................................95
   Spectator events.....................................................................................................................................95
   Participatory events ...............................................................................................................................97
      Club racing ........................................................................................................................................97
      Testing...............................................................................................................................................98
      Track days .........................................................................................................................................98
      Driver tuition .....................................................................................................................................99
      Experience days.................................................................................................................................99
      Corporate events and hospitality .....................................................................................................100
   Segmentation between cars and bikes .................................................................................................100
   Upstream markets................................................................................................................................100
   Substitutability in supply.....................................................................................................................101
   Prestige circuits and circuit licences....................................................................................................102
   Summary .............................................................................................................................................103


                                                                             65
Competition between Silverstone and Octagon circuits ..........................................................................105
Market size and share ..............................................................................................................................109
  Market shares for the motorsport spectator market .............................................................................109
  Market shares for all upstream activities.............................................................................................110
Market entry ............................................................................................................................................111




                                                                            66
Introduction
    4.1. In this chapter, we consider the product and geographic markets that are relevant to the acqui-
sition of BRDC’s circuit-operating business by Octagon. Before the merger the parties overlapped in the
provision of licensed motor-racing circuits. Additionally, both parties were involved in BMP, a
motorsport promoter; the acquisition increases Octagon’s shareholding in this promoter. The functions of
promoters are explained in Appendix 4.4.

    4.2. It is important to note that the activities of UK motor-racing circuits extend beyond the staging
of motor races. Supplementary activities are the major source of revenue for most motor-racing circuits.
Such activities include the provision of the circuit for testing and practice by motor-racing teams and
clubs, the hire of the circuit to racing clubs to stage their own events and championships, operating
racing driving and riding schools, staging track days and experience days, and offering corporate
hospitality services. These activities are explained in paragraphs 4.61 to 4.92. To illustrate the impor-
tance of the various supplementary activities, the share of Octagon’s revenue in 2000 (including karting
at its Daytona Racetracks) arising from motorsport events was only [!] per cent; corporate enter-
tainment1 and catering was [!] per cent; karting [!] per cent; and largest of all, other circuit-hire
activities (such as racing schools and testing) was [!] per cent. Even if the karting activity is omitted,
the share of motorsport events in total revenue has fallen from [!] per cent in 1996 to [!] per cent in
2000. Octagon’s sources of revenue, split by circuit, are shown in Table 3.3.

    4.3. Octagon splits its activities for internal administration purposes into three areas: spectator
events (ie staging championship rounds for a paying audience), participatory events (where the cus-
tomers actually participate in activities), and corporate hospitality. We shall refer to these categories in
this chapter.

    4.4. This chapter presents an overview of the markets in which the enlarged Octagon is active by
virtue of its ownership or control of motor-racing circuits. We start by summarizing our findings on
market definition in paragraphs 4.5 to 4.11. The chapter then develops the necessary background infor-
mation and the reasons for our conclusions. We first describe the licensed circuits in the UK. We
consider the activities at circuits, first looking at motor sport, and then the participation and corporate
events staged at circuits. We then present an analysis of issues relevant to market definition and barriers
to entry.



Overview on market definition
    4.5. We present a summary of our conclusions on market definition to help set the context of the rest
of the chapter. In summary, we believe that the market can be characterized as follows:

    (a) There is a final consumer market (or downstream market) for motor sport, which can be divided
        into three segments:

         (i) spectator events;

         (ii) the track-hire market—participatory events involving enthusiasts and professionals using
              their own vehicles; and

         (iii) the experience market—participatory events involving one-off or occasional consumers who
               are provided with vehicles.

    (b) There are two upstream markets:

         (i) the promotion of spectator events; and


  1
    This category covers corporate hospitality (such as hospitality suites at major championships) and combinations of participatory
activities and catering.



                                                                67
          (ii) the provision of track time to the organizers of participatory events (examples of these
               intermediaries being TDOs and racing schools) and spectator events. The final consumers
               will see track time as an integral part of the package they buy (for example an experience
               day, or watching a club race) but that track time was purchased from the venue by the
               event organizer.

    4.6. These are represented in diagrammatic form below. Intermediaries buy circuit time and offer the
final consumer various activities. Promoters of major spectator events serve an organizational and
coordination role that involves interaction with the circuits, intermediaries (for example, organizing
clubs) and the final spectator market (see Appendix 4.4, paragraphs 5 to 9).

                                                 FIGURE 4.1

                   Diagrammatic representation of the relevant markets

                                                                Final consumer
                      Upstream markets                             market        Examples of activities


                                                                Track-hire       Track days
                                                                market           Testing

                                Intermediaries
                                                                Experience       Racing schools
                                                                market           Experience days
                                                                                 Corporate events
   Circuits

                                                                Spectator        International events
                                                                events           National championships
                                                                                 Club events (for both
                                                                                 spectators and
                                                                                 corporate hospitality)

                                  Promoters


 Source: CC.

     4.7. The segments of the final consumer market are shown on the right of Figure 4.1. This
segmentation is based on differences in demand behaviour. For participatory events, we distinguish
between enthusiasts, dedicated to the sport, and one-off non-enthusiasts (also described as ‘day
trippers’). Enthusiasts are unlikely to regard other activities as an adequate substitute for motor sport.
Non-enthusiast day trippers partake in one-off experiences, where they are provided with vehicles. There
is likely to be very little repeat custom from this group, and suppliers are exposed to competition from a
wider range of leisure activities. The segments are linked in a common market by close substitutability in
the supply of track access. There is also a distinction between the enthusiast element in the spectator
market, who will follow a range of events including less high-profile championships, and casual
spectators, who are likely to attend only high-profile international championship meetings (see para-
graphs 4.141 to 4.150).

    4.8. Recognized championships, which attract spectators, and the majority of club racing have to be
held on licensed circuits (see paragraph 4.154). We understand that virtually all testing also occurs at
licensed circuits. All circuit-based motor-racing schools and experience days are at licensed circuits
except one, the Jonathan Palmer-owned Palmersport ‘Motorsport Sensation’ (see paragraph 4.99).
Different kinds of experience days (for example, rallying, four-wheel drive, military vehicles) are held
off circuit, and some track days are held at unlicensed venues, but these account for a small proportion of
the total market (around 10 per cent) and we that heard such venues were regarded as a poor substitute
for licensed circuits by many final consumers (see paragraph 4.163). Therefore, although we recognize
that some parts of the final consumer market face competition from unlicensed venues, and indeed some
activities face competitive pressures from a wider leisure market, we believe that the relevant market is
centred on licensed circuits.

   4.9. The geographic extent of the different market segments varies. For spectator events, the geo-
graphic market can be national or international for certain high-profile events, but regional or local for


                                                     68
national championships or smaller events (see paragraph 4.150). Participatory experiences for enthusiasts
are likely to draw on a national catchment area, whereas activities for one-off customers are likely to
draw from a local or regional market. The fact that certain activities have limited catchment areas raises
concerns arising from the geographic distribution of circuits. In particular, we were concerned that the
merger might diminish competition for Brands Hatch. For many consumers in the South-East who live
close to the Brands Hatch circuit, the only other large circuit with a wide range of activities and high-
profile races within a reasonable travel time is Silverstone. Silverstone itself, by contrast, appears to face
competition from several circuits in the Midlands region. This is discussed in paragraphs 4.205 to 4.215.


    4.10. The segments of the final consumer market are summarized in Table 4.1, showing our
assessment of the characterization of most customers, the availability of substitute activities and other
sources of supply, and the geographic extent of the market.


TABLE 4.1 Segments of the final consumer market

      Market segment             Main type of consumer      Supply/demand substitutability   Geographic boundary

Spectator events (i)
International and major          One-off and enthusiast    Races only at licensed circuits   National or inter
  spectator events                                         Demand—other leisure activities    national for major
                                                                                              events, regional for
                                                                                              others
Domestic championships           Enthusiast                No, only licensed circuits        Regional/local

Participatory events involving
 enthusiasts and professionals (ii)
Track days                     Enthusiast                  Some unlicensed                   Regional/national
Racing clubs                   Enthusiast                  Championship must be at           Regional/national
                                                            licensed tracks
Testing                          Enthusiast                No, only licensed circuits        National

Participatory events involving
 one-off consumers (iii)
Experience days                  Mainly one-off non-       Supply—some alternative venues    Regional
                                 enthusiast                Demand—other leisure activities
Corporate participation days     One-off, non-enthusiast   Supply—some alternative venues    Regional
                                                           Demand—other leisure activities

 Source: CC.


  Notes:
  1. Most of the activities of racing schools are to service the experience-day market, and so racing schools are
considered under the heading of ‘experience days’. We draw a distinction between racing schools and race tuition,
where aspiring racing drivers attend a programme of serious race training.
  2. Corporate entertainment is considered as part of the spectator market.



    4.11. The reasoning behind these conclusions is explained in paragraphs 4.129 to 4.204.



Motor-racing circuits

Circuit location
    4.12. There are 18 licensed motor-racing circuits in the UK and one on the Isle of Man, and the
Stowe circuit at Silverstone is sometimes treated as a separate circuit in its own right. The location of
licensed motor-racing circuits in the British Isles is illustrated in Figure 4.2. Octagon circuits are marked
with squares except Silverstone, which is marked with a cross. Mondello Park, near Dublin, is shown
because it also stages some rounds of the British championships promoted by BMP.




                                                           69
    4.13. The circuits are described in Appendix 4.1 for the Octagon circuits, including Silverstone, and
Appendix 4.2 for circuits owned by other bodies, together with the owners and events staged. Facilities
for the operation of participatory activities are summarized in Table 4.9. First, we consider a classifi-
cation of circuits by the licences they hold and the events this entitles them to stage. Market shares for
circuits based on spectator numbers and spectator event revenues are reported in Table 4.13. Market
shares based on all activities (including circuit hire for participatory activities) are reported in
Table 4.14).


Circuit licences
   4.14. This inquiry is concerned with licensed motor-racing circuits. Circuits are licensed by the
sport’s governing bodies to stage competitive events. There are separate bodies for cars and motorbikes.
For cars these are the MSA in the UK and the FIA internationally. For bikes there are the ACU and the
MCRCB in the UK, and internationally the FIM (see Appendix 4.4).

    4.15. One way of categorizing motor-racing circuits is by the category of licence they hold. For
simplicity, we concentrate on MSA licences, although the ACU operates similar schemes. The MSA
issues only one grade of national licence, national A,1 but specific circuits may have particular
restrictions placed on their licence to limit the performance of vehicles to suit the safety of the circuit
concerned. The MSA told us that the assessment for national licences was based on health and safety
considerations alone. The FIA sanctions international licences (applications are made through the MSA)
needed for events classified as international-permit events. Circuits with FIA international licences are
able to stage major international car events. The FIA have a system of grading international circuits
according to the type of vehicle permitted to race. For example, higher performance vehicles require
larger run-off areas around the track. There are also regulatory requirements in respect of facilities such
as pit garages, medical centres and paddocks. The FIA grades are explained in Appendix 4.3. For grades
1 and 2, and sometimes 3, the FIA will inspect the circuit before the national authority can issue an
international licence. UK circuits and their MSA/FIA licences are listed in Table 4.2. The restrictions
applying to national A licences are listed in Appendix 4.3. We also note those circuits with licences to


  1
    The MSA handbook also refers to a national B circuit licence but the MSA told us that all licensed circuits in the UK held
national A licences.



                                                             70
stage major international motorbike races, such as the Motorcycle Grand Prix and World Superbikes. All
these circuits have ACU national licences.

TABLE 4.2 Licensed circuits in the UK

                           MSA national A          FIA international            FIM international
                              licence                   licence                      licence

Anglesey                      Restricted
Brands Hatch                    Yes                     Grade 2               FIM (not valid for
                                                                            Motorcycle Grand Prix)
Cadwell Park                  Restricted
Castle Combe                    Yes                      Grade 4
Croft                           Yes                      Grade 3
Donington                       Yes                      Grade 2                       FIM
Goodwood                      Restricted                 Grade 3
                                                       (restricted)
Kirkistown                    Restricted
Knockhill                       Yes                     Grade 4
Lydden                        Restricted
Mallory Park                    Yes
Oulton Park                     Yes                     Grade 3
Pembrey                         Yes
Rockingham                      Yes                     Pending
Silverstone
 (including Stowe)              Yes                     Grade 1
Snetterton                      Yes                     Grade 4
Three Sisters                 Restricted
Thruxton                        Yes

 Source: MSA.


 Note: Restrictions applicable to licences and the grades of FIA licence are explained in Appendix 4.3.

    4.16. The governing bodies also license venues for other branches of motor sport, such as karting,
sprint racing, drag racing and permanent rallycross sites. Some activities such as stock cars have their
own governing bodies. The MSA told us that it approved approximately 150 different venues, but only
the circuits named in Table 4.2 could stage competitive circuit races. We were told of some other venues
used for motorbike racing, such as the Isle of Man TT course, Darley Moor and Oliver’s Mount, and
several minor motorbike circuits.


Operating costs
    4.17. Motor-racing circuits require large areas of land for the tracks, associated buildings, spectator
facilities and parking. To operate driving schools and experience days (see paragraphs 4.85 to 4.90),
there is a need for vehicles, maintenance facilities and staff, and instructors. However, in general the
circuits face few additional costs when the track is hired, as responsibility for organization of an event
lies with the hiring party (for example, club or TDO). The circuit provides administration, security and
some of the medical facilities. In general, we would expect variable costs to be low and gross margins
high for most activities.1 Therefore, circuits will seek to exploit their assets as intensively as possible.
Octagon told us that, in order to run a track, an operator needed a minimum number of operational staff,
and then tried to fill the circuit with its own activities (for example, racing schools), and with other
people’s activities (such as track days and club events). However, Octagon estimated that fixed costs
accounted for approximately [!] per cent of overall costs, with variable costs somewhat higher at
[!] per cent. The proportionate size of fixed costs is high compared with most other industries.

    4.18. Facility requirements and safety regulations are frequently revised by motorsport governing
bodies. Hence there will often be requirements to improve pit facilities, medical centres, safety
protection, run-off areas etc. These requirements drive investment programmes that are essential if the
track is to stay open and continue to stage the same levels of motor sport.

   4.19. Octagon provided details of profit after tax and capital investment costs at Brands Hatch,
Cadwell Park, Oulton Park and Snetterton from 1997 to 2000. Capital investment was greater than profits


 1
  Net margins on particular activities are, of course, highly sensitive to how fixed costs are allocated.



                                                                  71
([!] per cent of profit after tax averaged across the four circuits): see Table 3.5. Some of the main items
of cost were a new pit complex at Snetterton to meet BTCC requirements, substantial investments at
Brands Hatch to keep its FIM licence for international motorbike events, and the building of new
corporate entertainment facilities at Oulton Park.


Structure of track-based motor sport

Introduction
   4.20. We now turn to consideration of the markets in which Octagon is active. We start with the
provision of motorsport events. In order to explain the structure of motor sport, it is necessary to consider
the main participants and the nature of the commercial relations between them. The main groups
involved are governing bodies, promoters, racing clubs, racing teams and circuits. Each of these is
described in detail in Appendix 4.4.

    4.21. Governing bodies regulate competitors, vehicles, motorsport events and clubs. They license
venues and register clubs, approve clubs as race organizers, approve technical regulations and issue
permits for individual events and championships. They arrange insurance in respect of legal liability for
all events authorized by a permit. In this report we use the word ‘promoter’ to mean a person or company
that is not a registered club but who promotes events or championships. Promoters of events are
authorized by the governing bodies (or their commercial subsidiaries) where they own the rights to
negotiate the commercial exploitation of events and championships. This includes selling the rights to
host rounds of these championships to venues. Racing clubs operate for the benefit of their members and
usually view themselves as not-for-profit organizations which exist to promote motor racing. Certain
clubs are licensed by governing bodies to organize race meetings and officiate at race events, and circuit
owners and promoters require a registered club to operate race events on licensed circuits.


Structural relations between the industry participants
    4.22. The relations between the various parties involved in motor sport can best be illustrated with
reference to the diagrams below. In Figure 4.3 we consider the position where there is no promoter
involved, as would occur in the case of a standard club race. In Figure 4.4 we consider the position where
a promoter is involved, as would occur in a major championship. Arrows indicate the flow of money
between various industry participants.

                                               FIGURE 4.3

                     Motorsport event: flow of money with no promoter


                                              Governing body




           Drivers                          Clubs




                                                    Circuits                Advertising of event




                                                Spectators

           Source: Octagon.

   4.23. Figure 4.3 illustrates in simplified form the flow of money between bodies in the motorsport
industry for low-profile motorsport events. The event is organized by a motor-racing club. It will pay a



                                                       72
permit fee to the appropriate governing body (to cover, for example, insurance). It will also pay the
circuit for the right to use its facilities. Drivers who choose to enter the event will pay a club membership
fee and an entry fee for the particular event. Clubs can sometimes derive revenue from a sponsor of a
championship, and many racing vehicles will also carry some sponsorship although the absolute value of
sponsorship at this level of racing is likely to be limited. Circuits usually have the right to retain gate
money from spectators (although sometimes the club will receive such money), and could undertake
local promotion and advertising of club events in order to attempt to attract spectators, although for most
club events attendance figures are very low and it may not be worthwhile to collect admission fees.


    4.24. Figure 4.4 shows the structure of the most significant transactions involved in major events
where a promoter is involved and governing bodies own the championship rights. Promoters will pay the
governing body for the rights to promote events. Promoters will also pay an approved racing club to
organize the event, while the club pays its event permit fee to the governing body. Circuits will pay a fee
for the right to stage the event, but they will retain gate money from paying spectators, and they may be
entitled to retain revenue from commercial sponsorship of the circuit or trackside advertising, if these are
not assigned to the event promoter. For some championships, intellectual property rights (for example,
for computer simulation games and television) can be significant, and will usually be received by a
championship promoter. In contrast to the position with most national events, the circuit may lose the
rights to revenue from programme sales, catering, hospitality and trade sites in favour of the promoter.
Racing teams that enter the championships will usually pay an entry fee to the championships promoters,
but there is likely to be prize money or other returns flowing back to the teams as well. Drivers may be
employed by the teams, but some may pay to race with the teams or bring personal sponsorship with
them. Sponsorship is the major source of revenue for motor-racing teams. Various sponsors will support
the teams, and others may sponsor the championship itself to the benefit of the promoter.


    4.25. The promoter will advertise the championship nationally, although an individual circuit may
also advertise its rounds in order to attract paying spectators. There may also be television coverage of
events negotiated by the promoter. Depending on the nature of the event, the promoter may be paid for
rights to screen events, or may have to pay to persuade a broadcaster to screen events. This may be
worthwhile in order to raise the profile of the championship and hence increase its attraction to sponsors
and spectators. The promoter will usually be responsible for television production; such costs are
significant and may exceed television revenues.


                                               FIGURE 4.4

                     Motorsport event: flow of money with a promoter
                                          Governing body


          Drivers

                                                           Clubs




        Race teams                           Promoters                     Television broadcast




         Sponsors                             Circuits                      Advertising of event




                                             Spectators


     Source: CC, based on Octagon.



                                                     73
Motorsport events
    4.26. There are a variety of championships, series and one-off motor-racing events organized in the
UK. Most of these are under the auspices of the relevant governing body. This is not a legal requirement
but governing bodies do not recognize events held outside their approval, and this limits their appeal to
participants. Circuits themselves are not authorized by the governing bodies to organize events.
Consequently staging an event requires the involvement of circuits, governing bodies, organizing clubs,
promoters and racing teams (and in some cases motor manufacturers).

    4.27. Motorsport events are described in detail in Appendix 4.5, where we distinguish between UK
national events (for example, national championships and one-off festivals), international events (for
example, international championships), and one particular international series, the FIA Formula One
championship (because of its relevance to this inquiry).



BMP
    4.28. The history, management structure, objectives and financial performance of BMP are
described in paragraphs 3.52 to 3.68, and issues relating to shareholder agreements and the allotment of
shares in Appendix 3.5. BMP is relevant to this inquiry because of its role as promoter of the three
largest domestic championships, and the fact that the acquisition of BRDC’s assets effectively gives
Octagon a majority of the voting shares in BMP. Consequently, there is an issue of vertical integration
between the supply of motor-racing circuits and the promotion of motor-racing events that we need to
examine. In addition to BMP, there is a vertical integration issue with regard to international promoters,
such as for World Superbikes where the promotion rights are owned by OWI, Octagon’s parent (see
paragraph 6.12).

    4.29. BMP’s creation was initiated by members of AMRCO, particularly BHL and Donington Park
Leisure. There was some perception that promoters (or governing bodies acting as promoters) had
previously not been effective, and that independent promoters took money out of the sport. The owners
of the circuits that hosted a round of a BMP championship were offered the opportunity to purchase one
redeemable share in BMP in respect of each round of the championship that its circuits host (see
Appendices 3.5 and 3.6). At the moment, seven circuit owners (representing 11 circuits) hold such
shares; shares have also been offered to Croft and Mondello Park. It is expected that shareholders will
have to make further payments for the rights to host rounds after three years.

    4.30. BMP holds the current rights to three championships: British Superbikes, the PowerTour and
the BTCC (together the ‘BMP championships’).1 There are currently 13 rounds of each of these cham-
pionships. All the rounds are organized as package events, with several supporting championships also
having races on the same day at the same circuit. BMP has created an organizing committee made up of
BARC, BRDC and the British Racing and Sports Car Club (BRSCC) to organize BMP events for which
BMP pays £[ ! ] a year. The individual championships are described in Appendix 4.6.

    4.31. BMP told us that its aims were to market events centrally, give consistent branding for the
three championships, bring certainty into motor sport, and encourage investment through collaboration
between UK (and potentially Irish) circuits. It derives its revenues from competitor entry fees, sponsor-
ship, television revenue and venue fees. Expenses include television production, prize money, organizing
fees, timing services and public relations.

    4.32. Several circuit owners told us that there were a number of advantages to having motorsport
promotion owned by the venues: race promotion could be centralized to realize economies of scale; the
circuits would make decisions that were in the long-term interests of the sport; and money from
promotional activities was retained in the sport and so could be used for circuit investment. Octagon also
told us that the circuits understood the sport, which enabled them to be better promoters than a new
entrant to the area.


  1
    As stated in Appendix 4.5, paragraph 2, there are in total around 320 domestic championships approved by the MSA, the ACU
and the MCRCB.



                                                             74
    4.33. BMP told us that it encouraged other circuits to join BMP provided they had appropriate
licences and could provide adequate facilities. The right to stage a round of the BMP championships rests
with the holders of the redeemable shares (although this does not guarantee the date on which the event
will be held year on year) and any others who have paid for the right. In each case the right lasts for three
years and depends on oral agreement (see Appendix 3.6). If new rounds were created, the allocation of
the new round would be for the board of BMP to decide. It may be to an existing shareholder or a new
circuit. However, the policy is that a fee would be payable for the right to stage a round, at a price to be
set by the board. BMP told us that as a matter of policy, simultaneously with the offer of the right to host
a round, a new circuit would be invited to become a member of BMP at a nominal additional cost. If the
appropriate governing body were to reduce the number of rounds in a particular BMP championship, the
BMP board would decide which venue would lose a round. We were told that in practice it would first
seek shareholder approval.

    4.34. Octagon told us that there were no plans for BMP to promote any series other than the three
existing championships. It said that BMP had been approached to help promote other series, but that it
had refused these requests. BMP said that this was due to concerns about their suitability and their
financial viability. Octagon said that it would be impossible for BMP to restrict access to circuits for
rival championships as BMP had no authority over the circuits in this regard. The circuits were
dependent on use of their tracks for many more events than the BMP ones, and there was no intention to
restrict such access.

    4.35. We were told by the British Superbikes series director of BMP that Octagon’s involvement in
BMP offered stability to British motor sport, through its investment in its own venues and its initiatives
with other venues to support and drive professionalism in the promotion of motorsport nationwide. In
this respect BMP had a unifying effect on the sport, encouraging strategic cooperation for a commer-
cially sustainable and profitable industry.

   4.36. Octagon argued that competition to obtain terrestrial television coverage for championships
was intense, both between motor-racing championships and against other sporting events. Television
coverage raised the profile of a championship and brought sponsorship money into it. Consequently,
promoters sometimes paid television broadcasters to provide coverage on cable and satellite channels.
We were told that the BBC paid £[ ! ] in 2001 for rights to televise the BTCC, but that BMP paid a
very much greater figure (around £[ ! ]) for the television production costs. Octagon said that there
was intense competition between industry participants and others for sponsorship and television
coverage.



Competition between circuits for events
   4.37. Octagon told us that, rather than being substitutes, different circuits were complementary in the
organization of existing UK championships.1 It said that, for a British championship to be successful,
rounds needed to be spread across a variety of circuits to make them attractive to competitors, sponsors
and manufacturers, and to obtain authorization from governing bodies to use a ‘British’ or ‘national’
championship tag. Thus promoters needed the continued participation of the various circuits for the
success of the championship. Octagon said that there was a limited reallocation of championship events
between circuits because most circuits capable of staging a round already did so.

    4.38. A sample of the venues used for the rounds of some championships is shown at Appendix 4.7.
This was prepared by DotEcon (an economic consultancy working for Octagon), which told us that these
championships were chosen at random. The data show that most championships spread their rounds
across a number of UK venues. It is also the case that individual circuits want to offer a variety of
championships. Brands Hatch and Donington are more frequent venues for championship rounds than
Silverstone, and 45 per cent of the championships listed do not have a round at Silverstone. Octagon
attributed this to capacity constraints at Silverstone (see Appendix 4.1, paragraph 7).


  1
    Octagon said that circuits were primarily competitors for events when championships were first being organized, as then each
would have an incentive to ensure it was on the list of venues. However, new championships were created and old ones dis-
continued every year.



                                                              75
   4.39. In terms of international events, Octagon said that there was competition between venues to
host events as none of the championships guaranteed rounds to particular countries and venues.
Consequently there was competition on a European or global basis for events that could be reallocated.

    4.40. Octagon argued that, as spectators came to see events rather than circuits, focusing on
competition for spectators between circuits was misleading. As an example it noted that attempts to sell
season tickets to particular circuits had been unsuccessful. Rockingham said that it did not think it would
be competing against the Formula One British Grand Prix for spectators for its CART race, as they were
sufficiently far apart in time (two months).

    4.41. We asked how the motorsport calendar was set. BMP told us that it acted as a vehicle to liaise
with governing bodies to coordinate the dates of the rounds of BMP events, having regard to other events
taking place. Octagon said that dates for domestic events were coordinated between organizing clubs and
the circuits. The BMP-promoted national championships were timetabled in order to avoid clashes, first
with international motor-racing events, and second, with regard to major national sporting events in other
sports such as the FA Cup final and the Grand National. Third, an attempt was made to avoid
geographical clashes so that major events did not occur at circuits in the same part of the country on the
same weekend. The calendar was then sent to the MCRCB and the MSA for assessment and approval.
The MSA told us that it had no role in scheduling championship meetings other than approving dates, but
it would not normally challenge either dates or venues. It would, however, encourage a championship to
have a wide geographic spread, with a reasonable period between rounds, and no clashes with other
major events. It said that it had only a limited amount of resources, such as rescue vehicles, doctors and
marshals, and so it sought to limit clashes, especially with the British Grand Prix.

    4.42. We were told that the number of rounds in a championship was a compromise between the
desire to achieve exposure and a wide spread of venues, and the financial costs and time available (given
that teams needed time between events to rebuild and upgrade vehicles). Thus teams and manufacturers
would not accept championships that involved rounds staged at all UK venues or in close succession.
Donington Park Leisure told us that the MCRCB decided to increase British Superbikes to 13 rounds in
2001 and instructed BMP to offer the additional race first to Croft because it had previously applied for a
round. The price was unacceptable to Croft, so Rockingham took it on. The MSA told us that it would
not try to determine where clubs held their championships rounds (apart from insisting that most of them
must be in the UK), and it had very little influence over the choice of circuits.


Capacity constraints and utilization
    4.43. Circuits may face local environmental and planning restrictions on the number of events that
can be held or the noise levels that are permitted: this applies, for example, to Castle Combe, Thruxton,
Brands Hatch, Oulton Park and Goodwood. Another constraint on capacity utilization is that club events
are nearly always held at weekends or bank holidays, as participants and, particularly, marshals and
officials (many of whom are unpaid volunteers) are unavailable in the week. All the clubs that we spoke
to agreed that it was not feasible to stage general club events midweek. Consequently circuit operators
will have only a very limited amount of spare capacity to attract events away from other circuits, indeed
operators are more likely to have to decide how to allocate scarce weekend track time between different
competing users.

    4.44. The Seven Fifty Motor Club Limited (750 Motor Club) told us that it was dependent on circuit
owners offering suitable dates to produce a balanced championship series of dates and venues. It
recognized that the circuits would seek to maximize the use of and revenue from their circuits.
Consequently the availability of dates would be restricted and not all circuits that they would wish to be
included in the calendar could be included.

     4.45. There is also a seasonal dimension to demand. In the winter there is very little racing and so
little associated testing. Octagon told us it therefore tried to promote participatory events at this time of
year, but participants were less keen when there was a risk of poor weather. Consequently, whereas
circuits can be operating near full capacity in the summer months, in the winter months there will be idle
days when the circuit remains unused through lack of demand.

    4.46. Octagon provided details of days devoted to track activity at its four circuits excluding
Silverstone. There are 1,460 circuit days available each year. Octagon showed that the proportion of idle
days increased from [!] per cent in 1995 to [!] per cent in 1997, but has since fallen sharply, reaching


                                                     76
[!] per cent in 2000. Capacity utilization is anticipated to continue to improve in 2001. Capacity
utilization at Silverstone and the effects on capacity of staging the Formula One British Grand Prix are
discussed in Appendix 4.1.


Spectator demand for motorsport events

Levels of demand
   4.47. The level of consumer (spectator) demand for motorsport events is shown in Mintel 20011
based on data from motor-racing circuits, showing admissions and event revenue. These are shown in
Figure 4.5.

                                                FIGURE 4.5

                         Motorsport admissions and revenue, 1995 to 2000

                2,050                                                                             50
                2,000                                                                             45
                1,950                                                                             40
                1,900                                                                             35
                1,850                                                                             30




                                                                                                       £ million
         ’000




                1,800                                                                             25
                1,750                                                                             20
                1,700                                                                             15
                1,650                                                                             10
                1,600                                                                             5
                1,550                                                                             0
                          1995       1996        1997           1998         1999      2000

                                            Admissions (’000)    Revenue (£ million)


            Source: Mintel 2001.

    4.48. The market grew steadily until 1998/99 when attendances began to level off, although
revenues were still climbing. The picture in 2000 is complicated by the poor performance of the Formula
One British Grand Prix (see paragraph 4.218). It is therefore difficult to discern longer-run trends in
these data. Donington Park Leisure told us that its perception was that the market on the car side was
stagnant, due to the decline in the popularity of the dominant domestic series, the BTCC. This has been a
big crowd-puller, but it has suffered recently as many manufacturers have withdrawn from the
championship. On the other hand, the popularity of motorbike racing, particularly Superbikes, has
increased.

    4.49. One factor that influences spectator numbers is the success of British competitors. Although
the popularity of Formula One also varies with the success of British competitors, this is not reflected in
recent attendances at the British Grand Prix, as it is usually sold out. Octagon told us that it had an
incentive to promote the success of British competitors to stimulate interest; for example, it had through
BMP sponsored Neil Hodgson, the 2000 British Superbikes champion.

    4.50. Octagon provided us with attendance figures at the events now promoted by BMP for the
period 1998 (before the formation of BMP) to 2001. These figures, which are set out in Appendix 4.6,
show increasing spectator numbers for British Superbikes and falling numbers for the BTCC, but much
higher attendances for both these events than for the PowerTour. Octagon said that circuits typically
achieved very low attendances on other UK championships, as these were not popular with the general
public.


 1
  See footnote to paragraph 2.102.



                                                      77
    4.51. Mintel 2001 records consumers’ expenditure (largely admission tickets) on different motor-
sport events, including the BTCC and British Superbikes, but not PowerTour. It notes that the BTCC and
British Superbikes, as a proportion of total UK consumer expenditure on motorsport events, accounted
for 15 per cent and 20 per cent respectively in 2000 (£4.6 million and £6 million), compared with 21 per
cent and 19 per cent in 1998 (£6.5 million and £6 million), and 24 per cent and 18 per cent respectively
in 1996 (£5.6 million and £4.2 million). The percentage shares in 2000 are also increased by the
unusually low takings for the Formula One British Grand Prix.


    4.52. Attendances at events are affected by the weather: bad weather deters spectators and hence
circuits seek to maximize advance sales by offering discounts. Ticket revenue accounts for around 86 per
cent of event revenue; programme sales (9 per cent) and catering (5 per cent) account for the rest.1 Mintel
2001 suggests that spectators will assess the value for money of a race meeting against alternative
activities in a wider leisure market, including spectator sports and other leisure activities (see paragraphs
4.143 to 4.146 for discussion of this issue).



Geographic markets for spectator events

    4.53. Octagon said that, with the exception of international events, customers tended to come from a
limited catchment area. Other circuits had similar views. The MSA said that there was a small hard core
of fans who would travel anywhere to watch particular events but generally circuits drew on local
markets. Octagon provided two analyses of its own customer databases. First, it presented an analysis of
the origin of spectators for three events held at Silverstone in 2000: a round each of the BTCC and
PowerTour, and a well-attended historical festival. Table 4.3 records the distance from the circuit to the
spectator’s home address. On this basis, Octagon told us that rounds of national championships drew
their spectators predominantly from within a 100-mile radius. Around 80 per cent of customers came
from this distance, and a very large proportion (around 95 per cent) came from within 150 miles.


TABLE 4.3 Distance from home to Silverstone circuit for event spectators

                                   Cumulative percentage

  Miles’     BTCC         Historic Festival     PowerTour
 radius    11.6.2000         23.7.2000          8.10.2000

   <50          45                30                 37
 <100           82                69                 81
 <150           96                91                 97
 <200           99                96                 99
 <300          100                98                100
 <400          100                99                100
<1,000         100               100                100

 Source: Octagon.




    4.54. Second, DotEcon submitted a more detailed analysis drawing on the home postcodes of
spectators to all events at Silverstone and Brands Hatch. This is reported in Appendix 4.8 and shows
catchment areas accounting for 80 per cent of customers. As well as travel distance, the analysis reports
the travel time taken based on average road speeds for each class of road following the optimal route
between home and circuit.2 The catchment area for the Formula One Grand Prix at Silverstone is slightly
larger than the area for other events. These distances and travel times are larger than the boundaries
previously suggested: a 135-mile radius around Silverstone includes much of the population of England,
including London, the Midlands and parts of the Manchester and Merseyside conurbations. We estimated
the total population in this area at just over 39 million, about 71 per cent of the population of Great
Britain (based on the 1991 census of the usually-resident population). As this radius accounts for only
80 per cent of customers, this analysis does not show strong local market effects.


 1
  Figures for 2000 based on survey of circuit event revenues (Mintel 2001).
 2
  The boundary of the furthest distance that can be reached from a point in a given travel time is called an isochrone.



                                                                78
TABLE 4.4 Travel time and distance for 80 per cent of spectators at Brands Hatch and Silverstone

                                                  All    Formula
                                                events    One

Travel distance (miles)        Brands Hatch        150
                               Silverstone         135    140

Travel time (minutes)          Brands Hatch        160
                               Silverstone         160    165
 Source: DotEcon.




    4.55. Octagon said that rounds of international championships might draw spectators from the whole
of the UK, and certain individual events (such as Goodwood’s two events) could also have a very large
or even national catchment. The historic event at Silverstone appears to have a larger catchment area than
the BTCC and PowerTour events.



Pricing analysis for spectator events
    4.56. We now address how prices for spectator events have developed. Admission prices for
Formula One have risen rapidly in recent years, much more so than for national events, due to the growth
in popularity of this branch of motor sport. Mintel 2001 reports that the price for a basic adult race day
admission ticket for the British Grand Prix was £65 in 1996, £80 in 1998, and £95 in 2001.


    4.57. Octagon told us that ticket prices were set in relation to all other sporting events and that the
intensity of competition in the market for spectators for national championships could be seen from the
trend in Brands Hatch ticket prices, which had either dropped or been held in recent years (see
Table 4.5). This was true in 2001, but prices for World and British Superbikes had increased in 1999 and
2000. The price of admission to the Motorcycle Grand Prix at Donington was £30 in 1996, fell to £28 in
1998 but has now returned to £30.


TABLE 4.5 Price of adult advance ticket at Brands Hatch

                                                   £

      Event               1999      2000      2001

World Superbikes          25         28       28
BTCC                      20         20       15
British Superbikes        18         20       15

 Source: Octagon.




    4.58. Octagon argued that, as variable costs were low, any loss of customers would immediately be
reflected in profits and so prices would have to be set not to deter marginal customers. Price rises will
raise aggregate revenues if customers are insensitive to prices (price-inelastic demand), such as may
occur if there are a significant proportion of die-hard motorsport fans. Circuits cannot easily discriminate
between enthusiasts and casual spectators, however, so if the numbers of such die-hard fans are small,
lowering prices to attract marginal, casual spectators could be a more profitable strategy than raising
them.


    4.59. We looked at how the prices of admission varied between different circuits. As a basis for
comparison, we considered advance ticket prices for race days at rounds of the BTCC, PowerTour and
British Superbikes.



                                                         79
TABLE 4.6 Admission prices for events (adult race day admission bought in advance), 2001

                                                    £

                                            British
   Circuit       BTCC      PowerTour      Superbikes

Brands Hatch       15          15             15
Cadwell Park        -           -             15
Castle Combe        -          16              -
Croft              17          17              -
Donington          20          17             23
Knockhill          20          17             20
Mallory Park        -           -             20
Oulton Park        15          15             15
Rockingham          -          15             15
Silverstone        15          15             15
Snetterton         15          15             15
Thruxton           16          13             14

 Source: CC, based on information provided by circuits.




    4.60. Table 4.6 suggests that there is not in general a wide variation in prices between circuits. The
largest and most famous circuits do not appear to charge higher prices than other, less well-known
circuits.


Participatory and corporate hospitality events
    4.61. A distinction is drawn by Octagon between revenue from spectator events (where revenue is
derived mainly from spectator admissions) and other activities. Nearly all circuits now have supple-
mentary activities to utilize their facilities more consistently, and these often account for the bulk of
circuit revenue.

    4.62. Participatory activities can be considered under the following headings: track hire and testing,
club racing, track days, experience days, and race tuition at racing schools. We describe each of these in
turn.


Track hire and testing
    4.63. Racing teams may hire tracks in order to undertake testing sessions. This may be for exclusive
use, or several teams may combine to hire a circuit together. Clubs may also hire the circuits for their
members to conduct testing, or circuits may offer open testing days. Safety restrictions limit the number
of vehicles on a circuit at any one time and ensure that they are not of too dissimilar speeds. Circuits may
also be hired for a great variety of other purposes, such as for advertising and filming, manufacturer
promotions, product launches and testing.

    4.64. The tracks that can be used for testing may be restricted by the regulations of the relevant
championship. For example, competitors may not be able to test at a track shortly before a round is
staged there, or competitors may only be allowed to use circuits possessing a particular grade of licence.
The regulations applying to Formula One testing are very strict. Testing may occur only at a circuit
licensed for Formula One and with all the appropriate facilities (for example, a medivac helicopter) in
place, and which is not staging a Grand Prix that year, with the exception of the venues for the British,
French, Italian and Spanish Grands Prix. However, the safety conditions are so onerous that usually only
a Grand Prix venue itself is licensed to Formula One standards and so can support testing (Silverstone is
the only approved venue in the UK), and so the four venues named above are heavily used for testing.
Because many Formula One teams are based in the UK, Formula One testing accounts for a sizeable
proportion of track use at Silverstone. Formula One teams will also travel to circuits abroad for testing, to
experience different conditions and with the likelihood of better weather.

    4.65. Testing sessions are sometimes offered by clubs to their members, where the club will hire a
circuit. Major teams also usually book test sessions direct with the circuit.



                                                          80
Club racing
    4.66. In contrast to the position with major championships, circuits often receive very little spectator
revenue from staging club races: effectively the clubs hire the circuit in order to stage races, and the
circuits may not bother to charge admission. Clubs usually charge competitors entry fees to cover the
cost of circuit hire.

    4.67. A survey by the Motorsport Industry Association (MIA, a trade association for motorsport
firms) entitled The National Survey of Motorsport Engineering and Services 20001 (the MIA 2000
survey) found that the average age of motorsport participants was 40, and that they were drawn equally
from socio-economic groups AB and C1C2, with very little participation from groups D and E. On
average, survey respondents had spent 47 per cent of their leisure time on motorsport-related activities in
the previous 12 months (more for those aged under 35); most of this time was spent preparing for
competition rather than actually competing at venues. On average, MSA licence-holders had competed in
seven events in the previous 12 months, and had travelled a total of 2,466 miles to compete in motorsport
events (355 miles per event). Estimated expenditure per participant on motor sport during the previous
12 months was £7,517, giving an average event cost of £1,074. Overall, 60 per cent of expenditure was
self financed and 40 per cent came from sponsorship, although 38 per cent of respondents did not receive
any sponsorship. Of respondents whose competition licence had lapsed or was about to lapse, just under
10 per cent blamed the cost of race entry for non-renewal.

    4.68. Whereas it was stressed that championships needed a wide geographic spread of circuits, we
were also told that, as motor sport was a one-day activity, participants usually wished to be able to travel
to and from an event on the same day. Therefore the location of circuits could be an issue, depending on
proximity to centres of population. The Bentley Drivers Club Limited (Bentley Club) said that there were
only eight major circuits located conveniently for the main centres of population.

    4.69. It was put to us that certain motor-racing clubs served a particular role in encouraging and
supporting the development of motor sport, primarily through feeding promising young drivers into the
higher echelons of the sport. The Bentley Club said that both the competitor and the volunteer enthusiast
required a sizeable network of smaller events at which they could build up their skills and experience,
which was necessary for them to progress up their respective ladders. BRDC aimed to encourage such
drivers and had offered sponsorship to particular individuals. The BRDC McLaren Autosport Young
Drivers Award was presented to the driver displaying most potential in a two-day test, and was worth
£50,000 to the winner, while the BRDC Young Drivers Initiative provided annual sums to drivers aged
20 to 28. Planned expenditure on this scheme was £250,000 for 2001. BRDC had also subsidized circuit-
hire costs for certain clubs and events (see paragraph 4.112). Octagon, too, recognized that there were
such clubs and championships that contributed to the health of the sport. It named the following five
racing clubs as operating a substantial programme for ‘feeder racing’: the BRSCC, BARC, the British
Motorcycle Racing Club, the 750 Motor Club and the New Era Motorcycle Club. Each had a consider-
able influx of young drivers/riders who wished to progress, and the races that these clubs organized
reflected this.


Track days
    4.70. At track days, circuits are opened to members of the public to drive their own vehicles around
a circuit. The drivers are subject to safety restrictions and racing is forbidden. Track days are often
organized for particular classes and types of vehicles, and in any case, participants are usually divided
into groups of similar speed and experience for safety reasons.

    4.71. Track days are usually organized by independent TDOs, who hire the circuit for the day and
then sell places to the public. The TDO provides on-the-day briefings and organization and is responsible
for ensuring that participants obey safety measures.

    4.72. In addition to licensed circuits, track days are also held at various unlicensed venues such as
disused airfields and vehicle test tracks. Examples include airfields at Bentwaters, Binbrook,
Bruntingthorpe, Crail, Elvington and Oakington, and unlicensed circuits at Bedford Autodrome and


 1
  February 2001.



                                                    81
Llandow. Prices for events at unlicensed venues tend to be lower. We were told that there were likely to
be fewer safety regulations and fewer or no marshals, and that sessions might not be graded by speed and
ability (although, as the number of participants might be lower, each driver might have more time on
track). One TDO’s web site advises that, as airfield tracks are usually marked out with cones on a large
open space, these venues are ideal for beginners, but that experienced track-day customers would prefer
circuit-based events. The desirable, good-quality venues that we were told about were all licensed
circuits.



    4.73. Some circuits have their own in-house TDO. In Octagon’s case the relevant division operates
under the name On Track. On Track organizes track days at a variety of circuits (not just Octagon ones)
mainly in the UK but sometimes elsewhere in Europe. It can also provide instructors and vehicles for
participants. There is a £195 charge to join ‘membership’ of On Track before one can book track days,
but it is not a club in any legal sense. Other circuits with in-house operators include Donington,1
Knockhill,2 Castle Combe and Croft.



    4.74. There are some 40 members of the ATDO, which was established at the end of 1999. The
ATDO estimated that its members accounted for about half the track-day market. It was established as a
self-regulatory organization set up to establish and enforce safety standards, which are still under
development. It is also introducing a formal scheme for instruction and recognition of motorcycle track-
day instructors. A minority of the TDOs responding to our survey charge a membership fee.3 Some of
these also admit non-members at a higher charge. Most TDOs offer track days at a range of circuits,
although a few use only one or two circuits or airfields. Octagon said that most track club members were
enthusiasts driving a sports vehicle, who liked variety and wanted to go to many circuits, as each
presented a different experience and test of skills. We were told that the provision of track days was a
growing market.



    4.75. Rockingham told us that motorcycle track days often involved a greater element of tuition than
car track days, as riders needed instruction in how to ride safely and quickly. Some organizations
describe themselves as track schools, where participants are tutored in small groups to receive tuition in
fast riding/driving techniques.



    4.76. We found that it was difficult to establish the true market shares of providers of circuits for
track days, and of TDOs, as bookings were continuously being added or revised, some were only for part
days, and some track days were offered under more than one TDO brand. In early June 2001 DotEcon,
on behalf of Octagon, identified from public calendars and TDO schedules 682 track days due to be held
in the UK in 2001. DotEcon said that there would be some omissions as some clubs (such as single-
marque-owner clubs) did not advertise their track days to the general public. The study listed 32 venues.
However, two of these—Santa Pod and Shakespeare County Raceway—are drag-racing venues where
participants can try drag racing, and the events at Brooklands are low-speed slalom courses around cones
on a section of tarmac. As such, they do not appear to be close substitutes for driving on circuits, and we
have excluded them from the subsequent data. Track days were operated at 12 other unlicensed circuit
and airfield venues.



    4.77. Table 4.7, based on the DotEcon database, provides the following market shares by venue,
measured by the number of track days. The number of attendees at track days, and the revenue received,
will vary between venues and dates but no market share data are available on these measures.




 1
  Trackzone (cars) and Trackattack (bikes) are organized by Donington Park Leisure.
 2
  Knockhill organizes track days under the descriptions ‘Hot Hatch’, ‘Hot Marque’ and ‘Bike Trackdays’.
 3
  We received 14 responses to a survey of independent members of the ATDO. Of these, three required participants to be
members of the TDO ‘club’ or the manufacturer’s owners’ club, while 11 charged only per event.



                                                         82
TABLE 4.7 Number of track days at UK venues planned in 2001

                           Licensed    Number of     Share of
       Venue                circuit?   track days   track days
                                                        %

Cadwell Park*              Licensed        89         13.5
Donington                  Licensed        78         11.8
Rockingham                 Licensed        50          7.6
Brands Hatch*              Licensed        49          7.4
Castle Combe               Licensed        36          5.5
Croft                      Licensed        33          5.0
Knockhill                  Licensed        31          4.7
Mallory Park               Licensed        31          4.7
Snetterton*                Licensed        30          4.5
Oulton Park*               Licensed        29          4.4
Pembrey                    Licensed        25          3.8
Anglesey                   Licensed        18          2.7
Bruntingthorpe Airfield                    16          2.4
Silverstone*               Licensed        16          2.4
Wroughton Airfield                         16          2.4
Goodwood                   Licensed        15          2.3
Lydden                     Licensed        15          2.3
Bedford Autodrome                          10          1.5
Bentwaters Airfield                         9          1.4
Kirkistown                 Licensed         9          1.4
Binbrook Airfield                           8          1.2
Darley Moor                                 8          1.2
Elvington Airfield                          7          1.1
Oakington Airfield                          7          1.1
Crail Airfield                              6          0.9
Llandow Circuit                             6          0.9
Three Sisters              Licensed         6          0.9
Bishopscourt                                4          0.6
Thruxton                   Licensed         2          0.3
North Weald Airfield                        1          0.2
  Total                                   660        100

 Source: CC, based on DotEcon.


 *Octagon circuits.



    4.78. The great majority of track days are held at licensed circuits. The shares of the track-day
market show that no venue is dominant in the provision of circuit time to TDOs. Based on this data set,
Octagon circuits in aggregate (including Silverstone) provide 213 track days, ie 32.3 per cent of the total,
but Silverstone provides only 2.4 per cent of track days. Octagon said that this was due to capacity
constraints at Silverstone: use of the circuit for Formula One testing restricted its availability for track-
day hire. Consequently, it argued, the merger made no difference to the provision of track-day circuit
hire in the UK. However, Octagon also indicated that it intended greatly to increase circuit utilization at
Silverstone.



    4.79. From the database assembled by DotEcon, it appears that On Track provided 52 out of 660
track days, ie 7.9 per cent of the total. DotEcon reported finding 56 organizations offering track days to
the public (which excludes private members clubs). The major track-day providers are shown below. On
Track was the second largest TDO after 100% Bikes.




                                                     83
TABLE 4.8 Number of track days due to be supplied and venues used by major TDOs in 2001

                       Number         Share of         Number of
       TDO             of events     events held      venues used
                                         %

100% Bikes                65              9.8               10
On Track                  52              7.9                7
Track Time
 Promotions               38              5.8                7
Tracksense                38              5.8                9
Bookatrack                33              5.0                8
Knockhill                 31              4.7                1
Donington
 Park Leisure             28              4.2                1
EasyTrack                 26              3.9                8
Gold Track                25              3.8               12
RMA Ltd                   24              3.6                8

  Source: DotEcon.




    4.80. According to the DotEcon database, On Track accounted for 21 per cent of track days operated
at Octagon circuits,1 while the in-house providers at other circuits accounted for 22 per cent of track days
at Castle Combe, 24 per cent at Croft, 36 per cent at Donington and 100 per cent at Knockhill. Croft told
us that this figure (ie 24 per cent) was correct for 2000 but that the proportion organized in-house in 2001
would be lower. Donington Park Leisure said that it organized 23 per cent of daytime track days, and
45 per cent of evening track days, in-house.

    4.81. Towards the end of the inquiry, Octagon presented us with updated details of the number of
track days at Octagon circuits. It said that the total for 2001 had increased from 213 in the DotEcon
analysis to 267, an increase of around 25 per cent. It said that this was due to further track days being
scheduled or re-arranged since the initial analysis was prepared, which illustrated the fluid nature of the
market. However, Octagon said that the share of On Track days as a proportion of all track days at
Octagon circuits had remained the same at around 20 per cent.

    4.82. Octagon said that independent TDOs were important in attracting customers to track days, and
consequently there would be no rationale for a circuit to exclude them to favour its own brands. As an
example, Octagon stated that members of single-manufacturer clubs were unlikely to join On Track
rather than these clubs, and so the only way to access these customers would be to make the circuits
available to such clubs. DotEcon stated that many of the places at On Track track days were actually sold
by independent TDOs under cross-promotion agreements.

    4.83. Various allegations were made before the merger that Octagon was restricting access to its
tracks for independent TDOs. For example, an ATDO press release (9.12.2000) stated: ‘There is a
general belief amongst our members that BHLG is intentionally restricting usage of their circuits to their
own track day provider, On Track and to single make and other specialist organisations with the intention
of eventually becoming a monopoly supplier of track access to the general public.’ The ATDO made a
formal complaint to the OFT on this issue. We also conducted a survey of ATDO members, to which we
received 14 replies. We received several complaints that TDOs and track schools were either being
denied opportunities to make bookings at Octagon circuits or were having bookings for 2001 cancelled.
Some of these TDOs were told that bookings would be reinstated for bikes but not cars, or that they
could have bookings for single-marque car track days, but not for multiple-manufacturer vehicles. One
TDO claimed that circuit managers had explicitly said that it was Octagon policy to exclude independent
mixed-marque car track days; another claimed to have been told that Octagon was only interested in
larger TDOs making multiple bookings. Most of these complaints appeared to concern events before
Octagon’s merger with Silverstone was negotiated, with many cancellations being made in October
2000.

   4.84. However, Octagon told us that it had never been its policy to reserve Octagon tracks for On
Track and that accusations of exclusion were groundless. It said that On Track was charged the same


  1
    On Track provided the following proportion of track days at each of these circuits: Cadwell Park 9 per cent, Brands Hatch 41 per
cent, Snetterton 13 per cent, Oulton Park 24 per cent, Silverstone 38 per cent.



                                                                 84
price internally as other TDOs were charged for hire of the track, and On Track had to make a profit in
its own right. It stated that circuit hire was available to a wide range of independent customers, including
multiple-marque car TDOs. However, we suggested that it would be possible for Octagon to profit from
On Track’s activities by increasing circuit-hire prices and not increasing On Track track-day prices, thus
squeezing independents’ profit margins, and to take its profit via higher circuit-hire revenue. We note
that track hire has an 80 per cent margin, whereas On Track reports a 30 per cent contribution margin.
Also, it appears that Octagon has in some cases charged TDOs a higher circuit-rental price than other
corporate customers (see paragraph 4.105). This tactic would of course reduce the competitiveness of
track days organized by independents on Octagon circuits relative to those organized at other venues, and
Octagon disagreed that it would be a feasible strategy as, it said, price changes would be extremely
strongly resisted.


Experience days
    4.85. Experience days have been developed in the last ten years or so. Customers have the
opportunity to engage in activities such as driving racing vehicles or high-performance cars on tracks
after tuition. These activities are usually run under the auspices of a ‘racing school’. Activities usually
only last part of a day. There are often many off-track activities run at the same venues, such as karting,
four-wheel drive off-road vehicles and rallying schools.

    4.86. The racing schools that offer experience products may be owned by the circuit or may be
independent organizations that also hire the track. These organizations sell their products direct to
members of the public. However, Octagon told us that a small proportion ([!] per cent) of its
experience-day business was obtained through gift catalogues. Companies such as Red Letter Days,
Acorne and Firstplace 41 produce catalogues containing a wide variety of activity days, such as flying
lessons, white-water rafting, powerboats and driving military vehicles. There are also a wide variety of
other leisure activities such as cultural and sporting trips, holidays, visits to health farms, and other
activities ranging from ‘record your own CD’ to ‘have a celebrity chef prepare a dinner party for you’.
Each activity has a voucher price. A voucher is purchased which can then be redeemed against one of
these activities. Consequently, vouchers are suitable as gifts where the recipients can choose which
activity they would like to participate in. Octagon also estimated that motor-racing-type products
accounted for the majority ([!] to [!] per cent) of the turnover of these catalogue gift companies.
Racing experience vouchers are also available in some high street shops as packaged gifts.

    4.87. Octagon told us that the popularity of the gift brochures illustrated that there were many other
leisure activities that consumers could regard as substitute activities for experience days, and that the
purchasers of gift vouchers would often not know whether the voucher would be redeemed against a
motor-racing-type experience. Consequently, Octagon argued, it was competing in a much wider leisure
market and its pricing was constrained by the need to remain competitive against the prices of other
activities in these catalogues. In fact, voucher prices in catalogues are considerably more expensive than
the identical products booked direct and, as noted above, they account for only 15 per cent of Octagon’s
experience day business.

    4.88. Octagon provided an analysis of some [ ! ] customers of Silverstone ‘Drive’ (the racing
school and experience days operation) for the 12 months to April 2001. 28 per cent of customers lived
within 50 miles of the circuit, a further 41 per cent between 50 and 100 miles from the circuit, a further
19 per cent between 100 and 150 miles and 7 per cent from 150 to 200 miles. Octagon submitted that the
population within a 100-mile radius therefore determined the extent of local markets, as this accounted
for 69 per cent of its customers (although 150 miles may be more appropriate accounting for 88 per cent
of its customers). Most other circuits also referred to local or regional markets for experience-day
activities.

    4.89. The nature of the experience market is such that customers are likely to be seeking a one-off
experience, and Octagon acknowledged that such customers were unlikely to come back to repeat the
same experience (although it hoped to tempt the customer to try alternative driving experiences). Such
customers are therefore likely to be distinct in the main from motor-racing enthusiasts or club par-
ticipants.


  1
    Firstplace 4 is an activity catalogue company set up as a joint venture between Haymarket Press and BRDC, which has now
passed to Octagon following the merger.



                                                            85
Race tuition at racing schools
    4.90. It is possible to obtain a basic car competitors’ licence in a one-day training course staged at
any racing school approved by the Association of Racing Driver Schools. A few of these schools operate
serious training programmes for aspiring drivers in order to raise them to a high degree of competence.
This may take the form of longer courses, one-on-one tuition, and vehicle loan, preparation and support
through a series of races. Such courses are much more expensive than one-day experience products.
However, most of the activities of racing schools are to operate experience days for customers, and we
will classify the half- to one-day introductory racing packages under experience days. The Silverstone
Drive racing school offers extended race training, but such programmes are not available at the other
Octagon circuits. Consequently we do not explore this activity in further depth.


Corporate hospitality and corporate events
   4.91. Corporate events at circuits fall into three categories. First, companies use spectator events as
occasions to provide corporate hospitality for clients and staff: typically, corporate suites or boxes will be
booked for events, although these facilities may be hired for the season or longer, and possibly sublet.
Second, motor-racing circuits may be used for corporate events, where the facilities offered for
experience days are used for corporate teams to reward or incentivize staff and encourage team building.
Third, facilities at circuits may be used for conferences, receptions, training courses and so on; for such
purposes the presence of the circuit is irrelevant but other facilities such as press centres may be used.
However, there will often be opportunities to combine these activities with corporate hospitality or
experience events to generate a more entertaining day. In all three categories there is likely to be
supplementary business for the circuit through organizing high-quality catering, accommodation etc.

   4.92. No customer accounts for more than 1 per cent of Octagon’s business across all its circuits.
Consequently, it said, no customer had buying power. Nine of the top ten customers were on the
corporate side of Octagon’s business, of whom most were Formula One teams. We were told that the
corporate market was growing strongly.


Provision of supplementary activities
    4.93. All the licensed circuits have supplementary activities. All operate club races, although as noted
in paragraph 4.43, the number of days used for such activities may be limited by local noise and planning
restrictions. All circuits are also available for hire for testing and other purposes. Again, the number of
track days, the number of vehicles, and the acceptable noise volume may be limited by local restrictions.
The availability of other activities at the licensed circuits is described in Table 4.9. Experience days are
operated through driving or riding schools unless specified, and we distinguish these from professional
race tuition services. Examples of off-circuit motorsport-based activities are also given: ‘4*4’ refers to
four-wheel drive off-road vehicle driving courses.

    4.94. Seventeen of the licensed circuits listed in Table 4.9 operate driving schools (the exception is
Lydden), although Cadwell Park operates only a motorbike school. Octagon now has ownership of the
driving school at Silverstone, which operates under the name ‘Drive’, and its two driving school
operations based at Donington and Croft under lease arrangements. Donington Park Leisure and Croft
both put the operation of their driving schools out to tender. SCL and BHL competed for the Donington
contract, which SCL won (replacing the Jim Russell Racing Drivers School), with a five-year lease worth
close to £[ ! ] a year to Donington Park Leisure. It also gained a five-year deal with Croft. Octagon has
now taken over responsibility for these. It told us that both deals were loss making.

    4.95. Of the 16 licensed circuits with driving schools for cars, seven (Brands Hatch, Castle Combe,
Knockhill, Oulton Park, Pembrey, Silverstone and Snetterton) are owner operated. At the other nine
circuits the operator is a tenant. This includes the Ian Taylor Motor Racing School (Ian Taylor School) at
Thruxton where the schools’ owners have long-term operating agreements to run schools (the Ian Taylor
School acts as advisor to BARC (Pembrey) Ltd which owns the Pembrey School).

    4.96. Not all the circuits operate a general racing school. Octagon has discontinued those operations
at Snetterton but has located its ‘Supercar’ experience there, where participants can drive a variety of



                                                     86
high-performance sports cars over a day. Similarly it has placed the Ducati motorbike experience at
Cadwell Park. [ Details omitted. See note on page iv.         ] Other circuits have their own
specialities: for example, Mallory Park has a wide variety of off-track activities and a Formula One car
experience on circuit.

TABLE 4.9 Facilities for supplementary activities at licensed circuits in the UK

                                               Motorbike        Off-circuit         Race      Corporate     Corporate
  Venue             Car experiences           experiences      experiences         tuition     events       hospitality

Anglesey        Anglesey Racing Drivers                                                          Yes
                School

Brands Hatch    Octagon racing school     Octagon racing       4*4 and rally                     Yes           Yes
                                          school               school

Cadwell Park                              Carl Fogarty bike                                      Yes           Yes
                                          school

Castle Combe    Own racing car and                                                               Yes
                supercar

Croft           Through Drive, racing                                                        Yes (through      Yes
                car and supercar                                                                Drive)

Donington       Through Drive, racing     Ron Haslam bike      Drive               Drive         Yes           Yes
                car and supercar          racing school

Goodwood        Through Road and Track                                                           Yes           Yes
                events

Kirkistown      Independent race school                                                          Yes

Knockhill       Own racing school,        Own superbikes       Off-road 4*4                      Yes           Yes
                racing car and            school               experience, rally
                supercar                                       school, karting
                                                               and quad bikes

Lydden          None

Mallory Park    Everyman racing           Through Team         Off-road 4*4                      Yes           Yes
                school racing car and     Suzuki performance   experience, rally
                supercar                  riding school        school, military
                                                               vehicles

Oulton Park     Octagon racing school                          Rally school                      Yes           Yes

Pembrey         Through Performance                            Off-road 4*4                      Yes           Yes
                Motor Racing School,*                          experience
                racing car and supercar

Rockingham      Through Richard Petty              †                   †             †            †              †
                Driving Experience

Silverstone     Octagon racing school                          Off-road 4*4         Yes          Yes           Yes
                (Drive for experiences,                        experience, rally
                Silverstone race school                        school, karting
                for racing tuition)

Snetterton      Octagon supercar                                                                 Yes           Yes
                experience school

Three Sisters   Aintree Racing Drivers
                School

Thruxton        Through Ian Taylor                             Off-road 4*4                      Yes           Yes
                School, racing car and                         experience
                supercar

 Source: Octagon, MSA.


 *The Pembrey Performance Driving School is owned and operated by the Ian Taylor School which in turn is owned by
BARC which has a long-term management contract for the venue.
 †Rockingham told us that these would be available from 2002.
 Note: ‘4*4 experience’ is a four-wheel drive off-road vehicle experience.



                                                        87
   4.97. All licensed circuit-racing schools are members of the Association of Racing Drivers’ Schools,
and are approved to assess drivers for a basic competition licence.

   4.98. We also looked at unlicensed locations where similar activities are offered.

    4.99. The PalmerSport ‘Motorsport Sensation’ specializes in corporate motorsport events and is
based at Bedford Autodrome (previously known as Thurleigh; Octagon told us that it had also operated
at Bruntingthorpe). The day offers a variety of driving experiences, mainly on various circuits around an
airfield site but also with some off-road driving. There are also some other test tracks around the UK
which operate drivers’ skills training. These include the Millbrook Proving Ground and the Lotus Test
Track.

    4.100. Apart from circuit-based activities, there are many other vehicle-based experiences available
to the general public (for instance, motorbike experiences, rally schools, four-wheel drive off-road
driving schools and karting activities). Examples of well-known operators in this context are Bill
Gwynne Rally School, Phil Pryce Rally School, Buckmore Park Karting Centre and the Land Rover
Driving Experience. We found around 30 rally schools and rally-based experience operators in the UK,
as well as schools for hill climbs and other branches of motor sport.

   4.101. There is no publicly-available information about the overall market size for motorsport
experience activities, and the large number of operators means it is difficult to estimate the size of it with
any degree of confidence. Octagon suggested that the overall turnover of licensed and unlicensed
operators in the UK might be in the order of £30 million.



Pricing analysis for participatory activities
    4.102. As mentioned in the conclusions on market definition, we are concerned both with the market
for final consumer activities and also with the upstream market for the provision of track time for the
organizers of participatory activities. We first address prices for participatory activities themselves.



Prices for participatory activities
    4.103. We collected some price data for track days at various circuits around the UK to determine
whether the prices of track days by operators owned by circuits were lower at those circuits than for
independent TDOs, and also to consider whether there were general differences in pricing between
different circuits. Data on the prices charged by various TDOs are shown in Appendix 4.9 (and are
further discussed in paragraph 4.192). It is important to note that prices may not be strictly comparable
between operators. Some charge a ‘membership’ fee, and some do not, and the amount of time on track
may differ depending on the number of groups being run on the day. The quality of organization,
availability of instruction and so on may also differ. The price of particular circuits appears to vary for
the same operator. It appears that the price of track days is higher in the summer than the winter, and is
certainly higher at weekends than midweek. It also appears that track days for cars may be more
expensive than for bikes, and a premium is charged for track days where noise restrictions are removed.

   4.104. The prices of On Track track days do not appear to be cheaper at Octagon circuits than at
other circuits (relative to its competitors), nor does it appear to be cheaper than its competitors on
average. Octagon told us that On Track was a higher-quality, more professional offering than most.



Prices for circuit hire
    4.105. We now consider the upstream market for the hiring of track time. The evolution of prices for
hiring tracks at Silverstone and the other Octagon circuits for the period 1997 to 2001 is shown in Table
4.10. Octagon told us that at Brands Hatch and Oulton Park, its circuit-hire price differed between
corporate customers and for customers where circuit time was ‘resold for profit’. Thus, at these circuits,


                                                     88
most TDOs faced higher prices than corporate customers.1 Prior to 2001, Silverstone also operated
higher prices for TDOs and certain other categories of corporate customer (for example, where a
manufacturer hires the circuit for demonstration purposes). Prices for various circuit formats are shown,
corresponding to the different lengths and configurations of circuit, depending on which loops and short
cuts are used. Silverstone can operate the National Circuit, Southern Circuit and Stowe Circuit
simultaneously as separate self-contained circuits sharing no common tarmac.

TABLE 4.10 Corporate track-hire rates for Octagon circuits and Silverstone, 1997 to 2001

                                                                                                               £ per day
                                                 Type of
   Circuit                Format                customer*            1997     1998        1999        2000         2001

Silverstone      Grand Prix weekend             Corporate           19,150   20,100      21,320      22,370        †
                 Grand Prix weekday             Corporate           16,550   17,380      18,380      19,120      21,025
                 Grand Prix                     Track day            7,760    9,295      12,980      18,380      21,025
                 International weekend          Corporate           16,740   17,580      18,580      19,325        †
                 International weekday          Corporate           13,260   13,950      14,720      15,350      16,850
                 International                  Track day            7,420    8,645      12,820      14,720      16,850
                 National weekend               Corporate            9,650   10,135      10,720      11,250        †
                 National weekday               Corporate            7,640    8,020       8,480       8,855       9,775
                 National                       Track day            6,165    7,335       7,630       8,480       9,775
                 Southern weekend               Corporate            7,405    7,775       8,220       8,750        †
                 Southern weekday               Corporate            5,840    6,130       6,480       6,755       8,075
                 Southern                       Track day            4,915    5,185       5,430       6,480       8,075
                 Stowe weekend                  Corporate            4,700    4,935       5,220       5,450        †
                 Stowe weekday                  Corporate            4,630    4,860       5,140       5,370       5,950
                 Stowe                          Track day            3,740    3,685       3,880       5,140       5,950

Brands Hatch Indy Circuit                       Corporate            6,500    6,500       6,800       7,200       7,500
             Indy Circuit                       Track day            8,300    8,300       8,700       9,100       9,500
             Grand Prix Circuit                   Both              15,000   15,000      16,000      17,500      18,000
             Two hour Indy                        Both               2,300    2,300       2,500       2,900       3,000

Cadwell Park     Full circuit                      Both              3,200    3,200       3,400       4,000        4,350
                 Club circuit (existing
                 clients)                          Both              1,975    1,975       2,100       2,425        2,000
                 Club circuit (new clients)        Both                 -        -           -        2,900        3,100

Oulton Park     Fosters circuit                 Corporate            5,000    5,000       5,850       6,500        7,000
                Fosters circuit                 Track day            5,850    5,000       6,500       7,000        7,500
                International circuit           Corporate            5,750    5,750       6,850       7,500        8,000
                International circuit           Track day            6,500    5,750       7,375       8,000        9,000
                Island circuit                  Corporate               -     6,500       6,250       7,000        7,500
                Island circuit                  Track day               -     6,500       7,375       7,750        8,000

Snetterton      Full circuit cars                  Both              4,800    4,800       5,100       5,400        5,600
                Full circuit bikes                 Both                 -        -        5,200       5,600        5,900
                One hour rate                      Both                 -        -           -          600          800

  Source: Octagon.


  *Track-day rates are those applying for activities ‘resold for profit’.
  †Prices were negotiated individually for these circuits and times.

    4.106. The Octagon prices were described as ‘minimum prices’ and evidence from ATDO members
suggested that a variety of prices were actually paid. Octagon said that, apart from the cases identified
above, it charged a single track-hire rate for various types of customer and that generally there was no
discrimination in pricing between different uses, although discounts could be offered for bulk bookings.
(Prices to clubs are higher, however: see paragraph 4.109.)

    4.107. Corporate hire prices at Silverstone have increased by around 5 per cent every year from 1997
to 2000. However, the rate of increase in 2001 was much greater (around 10 per cent, except for the
Southern Circuit where prices increased even more substantially (around 20 per cent)). Octagon initially
said that these price increases had been set by BRDC prior to any decision on the merger. However,
BRDC told us that it had not set circuit-hire rates for 2001. Octagon explained that its recollection was


  1
    Octagon said that some track days were organized by ‘not-for-profit’ organizations such as single-marque owner clubs, which
would be charged the lower corporate rate. Profit-making TDOs, including On Track, would be charged the higher ‘resold for
profit’ rate.



                                                               89
that the higher rates had initially been determined by SCL staff prior to the merger and that Octagon had
simply rubber-stamped these rates. Corporate prices at the BHL circuits did not increase between 1997
and 1998. Prices were revised in the following year: in some cases there were substantial increases, in
other cases there were price falls. Prices increased at all BHL circuits between 1999 and 2000 (many by
around 10 per cent). In 2001 the price increases at Brands Hatch were relatively low (around 4 per cent),
and less at Snetterton, but 7 per cent or more at Oulton Park and Cadwell Park.

    4.108. The circuit-hire prices at Silverstone for track-day use (resold for profit) were much lower
than for corporate use at the start of the period covered. However, track day prices increased at a faster
rate than for corporate customers, so that they were only slightly lower than for corporate customers in
2000, and were equalized in 2001. In contrast, track-day prices have been higher than for corporate
customers at Brands Hatch and Oulton Park, although it is not clear that the size of the gap has been
changing.

    4.109. Both Octagon and SCL before the merger have operated different circuit-hire rates for clubs
from those applying to other users. Clubs nearly always require weekend bookings, while corporate
track-hire rates are higher at weekends than on weekdays. Octagon provided details of circuit-hire rates
charged to clubs from 1998 to 2001 at the former BHL circuits and from 1997 to 2001 at Silverstone (in
1997 prices for BHL circuits were negotiated individually). These are recorded in Table 4.11. The table
shows that club hire-rates have not increased at the Octagon circuits between 2000 and 2001 except for
Silverstone, but price levels can be much higher than the corporate weekday rates shown in Table 4.10.

TABLE 4.11 Race club track-hire rates for Octagon circuits and Silverstone, 1997 to 2001

                                                                                                              £ per day

     Circuit                Format               Notes          1997         1998         1999        2000       2001

Silverstone       International weekend*                       13,432       12,437      12,388       24,875     20,833
                  National weekend                              8,955        9,328      10,050       11,813     12,500†

Brands Hatch      Indy circuit                   Winter             -        9,000      10,000       11,000     11,000
                  Indy circuit                  Summer              -       13,500      15,000       16,000     16,000
                  Grand Prix circuit                                -       19,000      20,000       22,000     22,000

Cadwell Park      Full circuit                                      -        5,500        5,750       6,000      6,000
                  Club circuit                                      -        6,250        7,000       7,500      7,500

Oulton Park       Fosters circuit                                   -        8,500      10,000       11,000     11,000
                  International circuit                             -        8,500      11,000       11,500     11,500
                  Island circuit                                    -        8,500      12,000       12,000     12,000

Snetterton        Full circuit                  Summer              -        6,500        6,800       7,200      7,200
                  Full circuit                   Winter             -        5,500        5,750       6,100      6,100

 Source: Octagon.


  *Octagon said that nearly all club events were held on the national circuit at Silverstone; the international circuit was
very rarely used for such events.
  †Plus ‘extras’ of up to £1,200 (see paragraph 4.111).

    4.110. We also received details from clubs of the hire prices that they had paid. Prices at other
circuits had generally stayed stable or increased slightly from 1999 to 2000. The highest prices were at
Brands Hatch, then Silverstone, Donington and Oulton Park, and then other circuits. The lowest prices
were at smaller circuits such as Lydden and Pembrey, where hire prices could be under a quarter of those
at the most expensive circuits.

    4.111. The clubs told us that they had recently seen a large increase in price for circuit hire at
Silverstone (a [!] per cent increase in the case of the 750 Motor Club). Additionally, a number of
service elements which had previously been included in the circuit-hire rate were now excluded: hence
charges had been introduced for medical cars, closed-circuit television, fire tenders etc. Also ticket
revenue, and 75 per cent of any sponsorship money, now passed to the circuit (previously none of it
did).1 Clubs told us that, as they generally did not have any margin available to absorb cost increases, all


 1
  There were some other complaints about additional charges at Octagon circuits, for example relating to filming charges.



                                                               90
circuit-hire cost increases had to be passed to competitors and spectators. For example, the Welsh Racing
Drivers Association Ltd told us that clubs whose race-day hire costs had increased by 50 per cent had
had to raise race entry fees by between 40 and 70 per cent. Event income and expenditure data from
Eight Clubs Ltd (Eight Clubs) showed circuit-hire charges at Silverstone to be just over half of total
expenditure on the event (nearly 60 per cent after including the additional charges for BRDC services).

   4.112. BRDC told us that although the charging policy at Silverstone had varied over the years, in
recent years certain clubs had received discounts on circuit hire. The following clubs had received a
33 per cent discount on hire of the national circuit to reflect BRDC’s support for racing at club level:

    •   Bentley Club
    •   The Motor Cycling Club
    •   British Motor Cycle Racing Club
    •   Vintage Sports Car Club
    •   BRSCC
    •   Peterborough Motor Club
    •   750 Motor Club
    •   Aston Martin Owners Club
    •   Historic Sports Car Club
    •   Sutton Coldfield and North Birmingham AC (Sunbac)
    •   Eight Clubs.

    4.113. Thus in 2000 these clubs were invoiced for £7,875 plus VAT rather than the full hire rate of
£11,812.50 plus VAT. There were a couple of other instances of clubs being offered preferential rates.
BRDC told us the total value of these discounts in 2000 was £43,312. It had decided that, as it did not
expect Octagon to continue these discounts, it would offer an ex gratia payment of £3,000 for one year
only to the clubs listed above (except British Motor Cycle Racing Club) if they held a meeting at
Silverstone in 2001. Although Octagon told us that the Silverstone invoices had listed the subsidy
element separately as a discount to the hire charge, it appeared from the clubs we spoke to that they were
not always aware of the extent of subsidy element they were receiving. We note that the removal of a
33 per cent subsidy would appear to the clubs as a 50 per cent increase in hire rates.

    4.114. We were told by both Octagon and the MSA that there was an impression that circuit hire had
been run in a fairly amateur manner at most circuits, and circuit-hire rates were not set at commercial
levels. The MSA said that it thought there had been an unrealistic commercial generosity on the part of
some larger circuit owners for some of the time over smaller club events, and that in previous days at
Brands Hatch the owners had been rather more generous to clubs than the new owners were. Octagon
told us that its impression when it acquired BHL was that it was far above the rest of the industry in
terms of professionalism.


Cost of racing
     4.115. It was put to us that the cost of circuit hire, as reflected in the entry fees charged to
competitors in club races, was not a major proportion of the total cost of motor racing. Octagon gave the
example of competitors in the Avon Junior Formula Ford Championship, an entry level to serious single-
seat motor racing. Octagon estimated that the costs of operating a car for a season would be between
£50,000 and £75,000, covering testing fees, insurance, tyres, entry fees, support team upkeep and travel.
If, as a supplement, the competitors were to enter the two races of the Spring Cup, it estimated that this
would cost at least £3,000, of which £275 would be race entry fees.

    4.116. The 750 Motor Club estimated the cost of a season’s racing for a typical member at around
£8,000, excluding the purchase cost of the vehicle. Eight Clubs provided an estimate of the start-up costs
for a vehicle, spares, transport and personal kit at £10,000 to £35,000. The start of season expenditure for
new equipment and kit, overhauls, licences and fees could be anything between £1,000 and £10,000.
Running costs for 16 races over the season could be £4,000 to £12,000, and entry fees a further £2,000.

   4.117. We asked a total of nine clubs what proportion of annual expenditure for the average
competitor was accounted for by entry fees. Estimates varied greatly but most were in the range of 10 to



                                                    91
40 per cent. The proportions were higher for those clubs specializing in low-cost racing, as compared
with clubs specializing in larger and more sophisticated vehicles.

    4.118. The MSA told us that no MSA-registered motor club was known to have closed because of
the level of fees charged by race circuits.



The UK motorsport industry and benefits of the merger
    4.119. Many parties and individuals who contacted us told us of the large and successful industry
that has developed in the UK to service the needs of motor sport (for example, production and mainten-
ance of racing vehicles, and services such as promotion). This industry is described in Appendix 4.10.

    4.120. We were told that the merger would yield large benefits to the UK motorsport sector. First,
we were told this was because the acquisition secured the future of the British Formula One Grand Prix;
second, that considerable investment would be made in the UK motorsport industry through the
upgrading at Silverstone; and, third, that UK motor-racing championships would benefit from the use of
a circuit with world class facilities.

    4.121. Many parties said that, had the British Grand Prix been lost,1 there would be very
considerable ramifications for the UK motorsport industry. The MSA said the event clearly played a part
(albeit a part difficult to quantify financially) in maintaining the UK’s position as the world’s leading
nation in motorsport engineering and services. The concerns mainly centred on a fear that Formula One
teams could leave the UK and there would be follow-on effects in other sectors of the sport.

    4.122. We examined the basis of these assertions, ie whether the loss of the British Grand Prix would
actually have had a detrimental effect on the supporting UK motorsport industry. For example, at the
moment 16 of the 17 Formula One rounds are held abroad, and we questioned whether the loss of one
more round would be material in influencing where Formula One teams chose to locate. Secondly, the
UK motorsport industry supports a large proportion of world motor sport, including series that never race
in the UK. For example, all the chassis and most engines for CART racing in the USA are built in the
UK. Also, one Formula One team, Sauber, is based in Switzerland even though all motor racing is
banned in that country. We also noted that the nature of an industry cluster is that it is typically fairly
self-sustaining and durable. Skills and facilities once located in a region are often slow to move, because
of the benefits of being located near other firms, and staff would be reluctant to relocate internationally.
Also, there are no other motorsport clusters elsewhere in the world to which firms could easily relocate
and realize the same benefits. BRDC argued such clusters could be created, but this would take a
considerable time.

    4.123. A number of responses to these questions were made by the main parties. A parallel was
drawn with the UK motorcycle industry where up to the 1950s British machines dominated the world,
but this dominance was very quickly eroded. Similarly we were told that at different times, the French,
German and Italian motorsport industries had at times been dominant but had then lost that dominance.
However, these developments did not seem to us to be linked with the presence or absence of major,
international motorsport events.

    4.124. We were told that testing was very important to Formula One teams, that it represented a
major cost in time and money, and consequently that teams located near approved test tracks. Notably,
the Jordan, Jaguar and BAR teams are all very close to Silverstone, with the Benetton, Arrows and
Williams teams also being reasonably close. This gives them easy access to testing. It was suggested that
if Silverstone lost the British Grand Prix, it would not be able to be maintained to FIA-approved
standards and it would lose its licence as a test track for Formula One, and in any case its relevance as a
testing venue would decline. Without a suitable UK test track, these teams might well find it in their
financial interests to relocate. This would remove the major source of local demand that supported the


  1
    The issue of whether the Grand Prix would have been lost to the UK, or whether there were other means of keeping it in the UK
at either Silverstone, or maybe in the longer run Brands Hatch or Donington, had the merger not gone ahead is addressed in
Appendix 4.5, paragraph 14.



                                                              92
motorsport industry cluster, and could be sufficient to initiate its decline. BRDC told us that major
international car manufacturers were increasingly taking stakes in Formula One teams (for example,
Renault had acquired Benetton and BMW had acquired part of Williams). It suggested that these
manufacturers might wish to relocate the teams near their headquarters. However, Mr Ecclestone told us
that much Formula One testing by British teams was already conducted abroad. The 750 Motor Club said
there was no evidence of a link between the scale of race car industries and the presence of a Grand Prix
round; Germany had two Grands Prix (the German and European Grands Prix), as had France (the
French and Monaco Grands Prix, as well as the Le Mans 24-hour race) but both had small motorsport
industries compared with the UK. The 750 Motor Club added, however, that test and development
facilities were vital to the industry at all levels.

   4.125. BRDC told us that CART cars were much less sophisticated than Formula One cars, and the
teams operated on much lower budgets (£20 million to run a two- or three-car team for a season, as
opposed to around £120 million for Formula One), which made a policy of buying ‘off-the-shelf’ cars
viable. We were also told that a high proportion of the content of Formula One cars even of overseas-
based teams was produced in the UK.

   4.126. It was suggested that the staging of the British Grand Prix at Silverstone brought considerable
benefits to the local economy: for example, it created an opportunity to promote tourism in the
Northamptonshire area. Moreover, Northampton’s motor-racing-related engineering industry would
benefit from the increased investment planned for the circuit.

    4.127. As an example of the impact on a local economy, an economic assessment was made of the
impact of hosting the Formula One British Grand Prix at Brands Hatch, for the purpose of supporting the
planning application there. This concluded that the 2002 Grand Prix would pump at least a net
£35 million of direct spending into the relevant part of Kent, 90 per cent of which would be from outside
the area. Similar results can be expected for the area surrounding Silverstone (the gain in Kent would of
course have been at the expense of losses in Northamptonshire had the Grand Prix moved venues). By
1999 some 220,000 spectators attended the Grand Prix weekend. South Northamptonshire Council told
us that the Grand Prix was a major lynch pin of the local economy, particularly with regard to tourism, as
a significant local employer, and as a hub for a high technology engineering cluster.

    4.128. The main parties told us that the Formula One British Grand Prix was the largest single
sporting event in the UK: if it left the UK this would represent a substantial loss to UK spectators and
enthusiasts. It was also suggested that the Grand Prix provided a selling point which allowed young
drivers to attract sponsorship to progress in the sport, because of the high profile it gave to all aspects of
motor sport. Finally, BRDC explained its plans for the development of Silverstone which were
dependent on this merger, including reconfiguration of the circuit and the provision of enhanced facilities
for the circuit itself, for spectators, for karting and for driver training. BRDC also intends to develop a
centre of excellence, including a major visitor centre at the Silverstone circuit following on from the
investments associated with this merger (but subject to the success of its appeal for government funding).


Market definition

Introduction
   4.129. In considering the actual or likely effects of any merger, we need to identify and define the
market or markets within which the impact of the merger is likely to be significant. Our findings were
summarized in paragraphs 4.5 to 4.11. In this section, we explore the issues that arise in defining the
markets affected by the proposed merger.

   4.130. The relevant market is usually defined as that group of products/services for which there are
no close substitutes (actual or perceived) on either the demand or supply side. In broad terms, there are
two ways by which products/services may be substitutable for each other:

   (a) on the demand side, where consumers switch to an alternative product/service in response to a
       price increase for the product/service they had bought previously; and

   (b) on the supply side, where suppliers of other products/services are induced to switch some of their
       existing production capacity to supply the product/service in question in response to a price
       increase.


                                                     93
Supply-side substitution effects help determine which firms potentially supply the market. Where a
significant degree of investment is required to switch production, however, the potential for supply-side
substitution is considered mainly in the context of entry into the market and is not relevant to market
definition.

    4.131. The question of substitutability is often addressed by seeking to identify the narrowly-defined
group of products or services for which a hypothetical monopoly supplier would be able to raise its
prices (or to reduce quality in order to reduce costs) materially and for a reasonable time period without
suffering a reduction in profitability due to lower sales. Similarly, the geographical extent of the market
revolves around buyers’ response in a given area to a small but significant and non-transitory increase in
prices in that area. This depends on the extent to which acceptable substitute sources of supply exist
outside that area. An assessment involves consideration of competitive relationships between key firms,
availability of substitute products, the nature of consumer purchasing behaviour and so on.

    4.132. In Octagon’s view, the relevant markets were split between a final consumer market, and two
intermediate markets, for the promotion of spectator events, and for the organization of participatory
events. Octagon said the final consumer market could be segmented into spectator events and two
overlapping groups of consumers of participatory events. DotEcon described these two groups as, first,
‘day trippers’ who generally attended participatory events on a one-off basis (these include experience
days and corporate hospitality and events); and second, motorsport enthusiasts, who regularly attended
participatory events such as track days. The same companies serve these two groups of consumers at the
same venues, and the two may to some extent engage in the same activities, but the type of participatory
event purchased may be different and may be distributed through different channels. However, Octagon
also said that there could be considerable overlap between these groups (for example, there were some
repeat customers for experience days and one-off customers for track days).

    4.133. Octagon argued that every relevant market within which it operated was relatively broad, and
that effective substitutes for Octagon’s services existed. It considered the final consumer market to be
part of a wider sporting and leisure activity market: for the spectator market, with the possible exception
of Formula One, there was competition for spectators from other sports events and leisure activities.
Octagon argued that participatory events at racetracks were likely to face competition from a large range
of other participatory and leisure activities. This applied particularly to day trippers, and included the
corporate hospitality and corporate event sectors. Octagon also said that track days and other
participatory events at licensed circuits were very unlikely to form a market in their own right as other,
unlicensed facilities (such as disused airfields) could provide substitutes for track days on licensed tracks.

    4.134. In terms of the geographic reach of the market, Octagon argued that the markets for spectator
and day tripper participatory events were geographically narrow. Participants were likely to want to
engage in activities within their locality, limiting the degree to which Silverstone and Octagon’s other
circuits would have competed with each other in the absence of a merger. On the other hand, enthusiasts
were willing to travel so the market for their custom was geographically broad, and UK circuits faced
competition from unlicensed tracks and foreign venues, as well as from other licensed circuits.

   4.135. Finally, Octagon did not think that there was a distinct segment of prestige circuits that were
qualitatively superior to other circuits, such that there was a break in the chain of substitution between
them and other venues. It argued that both Silverstone and Brands Hatch faced significant competition
from minor circuits (and in Silverstone’s case from the other major circuits as well).

   4.136. We now turn to our consideration of the product and geographic markets.

    4.137. We first address the final consumer market for motor sport, which may be segmented or split
into further submarkets. This consumer market covers the spectator, participatory and corporate activities
that Octagon uses to categorize its business.

    4.138. Second, we address the two upstream markets: organization of participatory events (examples
being the hire of circuits to intermediaries such as TDOs and racing schools); and promotion of spectator
events. The first upstream market highlights the distinction between the provision of access to a motor-
racing circuit, and the final activity undertaken by a consumer for a participatory event. In virtually all
cases there is an intermediary function which provides an event on the track. The intermediary provides a
package which includes time on track but also other elements. For example, racing clubs, TDOs and
racing schools provide that function, which is conceptually distinct from the provision of track time.


                                                     94
There are thus two markets; the supply of track time to intermediaries, and the supply of the final service
to the consumer by those intermediaries. The final consumer will see the provision of circuit time as an
integral part of the final package they are buying. Circuit operators, who supply the first market, may
also integrate vertically into supplying the second market. The promotion of spectator events covers the
promotion function by which events are allocated to circuits, and in which BMP is active.



Final consumer demand
    4.139. The degree of separation of the markets for final consumer activities can be considered with
reference to the following criteria:

   (a) characteristics of consumer demand (how sensitive consumers are to prices, how willing
       consumers are to switch to other activities);

   (b) supply-side substitutability (whether there are alternative venues, besides licensed circuits, where
       the same types of events or activities could take place); and

   (c) geographic boundaries (how far consumers are willing to travel).

    4.140. The common factor between all the final consumer demand activities is that they require
access to a suitable venue. They compete for circuit time. There is easy substitutability in supply between
these different activities with regard to circuit time, although some activities may require additional
resources such as vehicles and instructors. We note that Octagon draws an operational distinction
between spectator events and participatory events. We address spectator events first.



Spectator events
    4.141. The experience of spectating is passive, open to all the family regardless of age, and usually
far cheaper than engaging in participatory activities. We heard no suggestions that there was any
substitutability between spectating and participatory events; although both could be leisure activities, the
nature of the enjoyment from them was fundamentally different.

    4.142. Club racing and some national championships draw small numbers of spectators, with total
attendances at a meeting often a few hundred at best. Sometimes circuits will not bother to charge
admission as the costs of staffing will not be covered. Higher-profile national championships attract
audiences of several thousand (for example, British Superbikes, and the BTCC in the past, could draw
crowds over 30,000). Finally, major international events such as the Formula One British Grand Prix, the
Motorcycle Grand Prix and World Superbikes, with only one or two UK rounds a year, can draw crowds
of over 100,000.

    4.143. As noted in paragraph 4.52, Octagon argued that the major events drew significant crowds of
casual spectators, and that track operators competed for the customer’s leisure budget (both in terms of
money and time) with other sporting events and other leisure activities. Mintel 2001 notes: ‘Motor sports
events compete with other sports and, indeed, many other leisure activities which consumers undertake
in their free time. As such, they need to provide value for money, entertainment and facilities of a similar
quality to those that their customers would expect to find elsewhere.’ Apart from circuit-based motor
sport, there are also other branches of motor sport such as rallying, stock cars and speedway.

   4.144. We were told that track operators were increasing their advertising in order to attract
spectators and participants in competition with other leisure facilities. According to Mintel 2001:

       As circuit operators’ understanding of the fact that they are competing in the leisure
       entertainment business rather than just the motor sports business increases, so they are pro-
       moting their circuits more aggressively, and to a wider potential audience. Consequently,
       advertising expenditure has soared by some 182 % in the past five years.


                                                    95
    4.145. According to Mintel 19991 some 84 per cent of the UK population watched or listened to live
sport, whether in person or on television or radio, over the 12 months to January 1999. Although motor
racing was the joint second most popular sport with 33 per cent of the population watching or listening to
live events over this period (football was highest with 54 per cent), it was just one of 16 sports where the
proportion of viewers/listeners exceeded 10 per cent of the population. Octagon said that these data
illustrated the intensity of competition between sports to attract the public, and it pointed to one of
Mintel’s conclusions, that the evidence ‘emphasises that there are a great many other sports with a broad
appeal to consumers—particularly family groups—and underlines that motorsport circuits constantly
need to be on their toes in order to attract visitors’.2 The figures do not distinguish whether there is a hard
core of motor-race fans who do not watch other sports or would not substitute them for motor racing. It is
reasonable to suppose that excluding Formula One would, perhaps considerably, reduce the percentage
of the population which watches or listens to live motor sport. Octagon said that, with the possible
exception of pricing tickets for the British Grand Prix, its pricing was therefore constrained by the ticket
prices of other sports and, to a lesser extent, other leisure activities (such as other venues for family
outings—theme parks, zoos, National Trust properties etc).

    4.146. DotEcon presented an analysis of the dates of major motor-racing events3 and other signifi-
cant sporting events4 from 1998 to 2001 in order to demonstrate that these motorsport events were
scheduled away from the dates for other events, suggesting they were competing in a common market for
spectators. Various statistical methods were used to demonstrate a significant inverse relationship
between the number of motorsport events held and the number of alternative sports events. However, the
great majority of motorsport events were held on Sundays, followed by bank holiday Mondays, and then
Saturdays, whereas the number of other events was evenly split between Saturday and Sunday, with very
few on bank holiday Mondays. Also, motor-racing events occur primarily in the summer, while some of
the comparison events are winter activities. DotEcon experimented with dummies to take account of the
bank holiday Monday factor but otherwise made no allowance for seasonal or day of the week effects.

   4.147. We heard that spectators at minor championships and club races tended to be either dedicated
enthusiasts or the friends and family of participants. As such, these will tend to be people who are
devoted to motor sport and who may themselves be participants. Octagon said there was a hard core of
motorsport fans, numbering in the low thousands, and it needed to try to appeal to the marginal spectator
who had a choice of other leisure activities.

    4.148. Therefore it appears that a significant proportion of spectators for high-profile and inter-
national events will display different demand patterns to those for more minor championships.

    4.149. The difference between the shares of national event revenue and spectator attendances shown
in Table 4.13 demonstrates much higher revenue per spectator at Silverstone than at other circuits. This
is attributed to the Grand Prix weekend. Octagon said the fact that the Formula One British Grand Prix
was much more attractive than any other event in the motorsport calendar suggested that it was
appropriate to distinguish between events that formed part of global championships (such as the British
Grand Prix) and the organization of domestic UK championships (such as the BTCC and British
Superbikes). However, Octagon also noted that national and international events were in competition for
sponsorship and television time and both were in competition with other events for television coverage.

    4.150. National championships are generally staged over many rounds at different tracks. This is
illustrated in Appendix 4.7. Octagon argued that spectators were likely to come from the surrounding
geographic area rather than nationally for such events: rather than going to see every round in a
championship, spectators would be likely to wait to attend rounds at circuits near their home. Octagon
told us that attempts to sell a season ticket for all rounds of the BTCC in the late 1990s had achieved very
poor sales (around [!] tickets), also that the analysis of ticket sales at Silverstone (see paragraph 4.53)
showed that customers were predominantly local. Octagon said this suggested that organizers found it
beneficial to spread the rounds across a range of circuits in different regions, since there were a relatively


 1
    See footnote to paragraph 2.102.
 2
    Ibid, p11.
  3
    British Superbikes, World Superbikes, British Motorcycle Grand Prix, the BTCC, British Formula Three, Formula One, Formula
3000, GT class.
  4
    Major UK Premiership and Division 1 football matches (start and end of the league seasons and play-off finals), FA Cup, major
rugby league and union matches, London Marathon, Commonwealth Games, Olympic Games, European Athletic Championship,
IAAF World Championship, UK golf open, high-profile horse race meetings, Wimbledon, England test cricket, major national
cricket finals, British rally championship and major speedway meetings.



                                                              96
small number of spectators who travelled from circuit to circuit following a championship, and many
more who primarily wanted to attend events in their home region. Octagon also pointed to the
promotional strategies of circuits described in Mintel 1999: ‘Due to the fact that, for the vast majority of
meetings, circuits attract spectators from within their local area or region, most of the promotion they
carry out is concentrated in those areas.’ However, even for minor championships where there are very
few spectators, the same pattern of geographic dispersion is observed, suggesting that attracting local
spectators is not the only motivation for spreading rounds across a variety of circuits. Other parties also
said that spectators for national events tended to come from local areas. For example, Croft agreed that it
was the only circuit to serve the North-East, Knockhill estimated that for major events around 90 per cent
of customers came from within two hours of the track, and most other circuits spoke of a regional or
local customer base. DotEcon presented an analysis of Octagon’s customer databases at Silverstone and
Brands Hatch (see paragraphs 4.53 to 4.55 and Appendix 4.8) which it said illustrated the extent of local
markets.


Participatory events
    4.151. Participatory events are described in paragraphs 4.61 to 4.92. We now consider whether each
of these should be considered to be in a separate market or market segment, or whether any of them can
be aggregated into a single market or segment, and whether any form part of a wider leisure market.
Each is considered in turn, focusing on the final consumer market. We distinguish between groups of
consumers based on the criteria in paragraph 4.139.


Club racing

    4.152. As identified in paragraphs 4.66 to 4.68, club racers tend to be enthusiasts, or in some cases
professionals, who devote a great deal of time and money to the sport. They are therefore unlikely to
view other leisure activities as close substitutes. We also put it to Octagon that race entry fees (which
include circuit-hire charges) accounted for a small percentage of total costs, suggesting that such
enthusiasts would be likely to be relatively insensitive to changes in circuit-hire prices, because of the
high fixed costs which they incurred (costs which in the short term were sunk). Octagon strongly dis-
agreed with this view. It argued that enthusiasts were sensitive to prices because they wanted to devote
their available funds to enhancing their vehicles. Even these enthusiasts, it said, would have other
interests and might leave club racing, probably between seasons, if there were good financial or other
reasons. Vehicles could be sold through the active second hand racing car market.

    4.153. We asked clubs whether members would consider other motorsport activities such as track
days and experience days to be substitutes for club racing. A few clubs said some members might attend
track days, but this was a different kind of activity to, and a poor substitute for, club racing. For safety
reasons, most TDOs do not allow race prepared cars to attend track days; instead, only roadworthy
vehicles are allowed. Consequently some club racers would not be able to use their vehicles at track
days. All the clubs said that experience days were not a substitute for club racing.

    4.154. The majority of club racing is in the form of championships. There are some one-off club
races, and some regionally-based clubs only make use of particular local circuits. However, the MSA
told us that recognition was the main motivation for participation in sport, and therefore competitors
preferred to participate in authorized championships. Eight Clubs told us that championships had tended
to displace other forms of events as club members tended to be very competitive. The MSA does not
recognize competitions held at unlicensed venues. Therefore, given competitors’ preference for cham-
pionships, unlicensed circuits will in most cases not be an adequate substitute.

   4.155. On the other hand, a survey of MSA licence-holders undertaken for the MIA 2000 study1
found that 62 per cent of current licence-holders had competed in non-licensed events (for example, track
days, karting, corporate and social events) in the previous 12 months. Eight Clubs told us that for some
events, especially one-off events, where clubs had tended to use particular circuits, and for regionally-
based clubs, moving events to circuits further away could be problematic because of the difficulty in


 1
  Referred to in paragraph 4.67.



                                                    97
obtaining the services of marshals and officials. Marshals particularly are unpaid volunteers who will be
unwilling to travel far.

    4.156. Organizing clubs and promoters choose championship venues, and in most cases the aim will
be to achieve a wide geographic spread of circuits. As most club racers seek to compete in champion-
ships, which tend to be nationally based, the market in circuit provision for club racing appears in the
main to be national.

    4.157. Aside from the MSA-licensed circuits there are many other motor-racing venues which host
different forms of motor sport, which Octagon told us catered for numerous clubs in the UK. Examples
are the Santa Pod Raceway in Bedfordshire (Hot Rod Racing), various hill climb venues around the UK,
specialist karting tracks (for example, Buckmore Park in Kent which regularly hosts national champion-
ship events), and venues for sprints, sand racing, hill climbing, rally cross and drag racing. These do not
seem to be direct substitutes as they cater for different branches of motor sport, requiring different
vehicles and skills. The ATDO told us that different branches of motor sport appealed to different
people, and we received no evidence that there was significant overlap between circuit-based activities
and other forms of motor sport. Consequently the relevant market appears to be for the provision of
licensed circuits.


Testing

    4.158. Professional racing teams need to test their vehicles on race circuits in order to improve
competitiveness and reliability. Some championships may impose restrictions on the amount and timing
of testing and the venues at which it can occur. However, all such testing has to be at an approved,
licensed circuit. The circuits where Formula One testing can occur are highly restricted. The top teams
may be able to substitute simulated testing to some extent (for example, engines can be tested on test
rigs), but it will not replace conventional testing. There will obviously be a preference for testing on the
circuits where the teams will compete, or circuits with similar characteristics. In the case of these
customers, demand is likely to be geographically mobile (other circuits spoke of regional, or more
usually national, markets for testing). Indeed, for Formula One, teams will seek to test in a variety of
countries to get a variety of circuit experiences.

   4.159. Club racers do less testing than professional teams, because of the cost and time involved.
Clubs sometimes organize test sessions for their members, and there may be practice sessions before a
championship meeting at the same circuit. In these cases competitors who want to partake in testing will
be likely to follow their club to where it has a testing session or to attend practice sessions at the
championship round. Croft told us, however, that general club testing tended to be for local competitors.
We were given no indication that track days provided a suitable alternative to testing as there is usually
no timing of laps allowed (to discourage competitive or reckless driving), and there would be little
opportunity to work on the car to try out different set ups. It would also be impossible to undertake
controlled comparisons of performance during competitive events themselves.

    4.160. Octagon suggested that club racers and professional teams often worked to a very restricted
budget on testing. Engineering expenditure tended to take precedence when the overall budget was tight.
Consequently these customers would in the short term be very sensitive to price increases for circuit hire,
as teams were always seeking to maximize the performance of their vehicles and respond to changes in
technical regulations. Hence Octagon argued that testing would be cut if prices increased. However, in
the longer run teams still have to make a trade-off between engineering investment and testing to ensure
everything works and is set up optimally.


Track days

   4.161. Track-day customers, in common with customers for testing and club racing, usually use their
own vehicles. While track-day customers may use standard road vehicles, they are more likely to use
high-performance sports cars.

    4.162. We were told that track days catered for a different type of demand from competitive racing.
Track-day customers were not seeking a competitive event and would not want to risk the damage to
their vehicles which may occur in racing. We were also told that experience days were not a substitute


                                                    98
activity as the time on track was very limited and customers did not use their own vehicles. We surveyed
a number of TDOs who all agreed that club racing, experience days and other leisure activities were not
usually substitute activities for track days.


    4.163. Track days are also offered at other venues such as unlicensed circuits and airfields. These
offer the opportunity for high-speed driving but not the same experience as driving on a recognized
racing circuit. For example, at airfields it is usually necessary to mark out a track with cones. The
independent TDOs that we surveyed generally reported that airfields were not as popular as circuits.
They were described as uninteresting, and there were concerns about safety standards. We were told that
most customers would want to experience the glamour of known circuits.


    4.164. DotEcon argued that this segment of enthusiasts were likely to be willing to travel extensively
in order to broaden their experience. Thus UK circuits even faced competition from circuits abroad for
track days: DotEcon provided details of track days organized by a variety of operators at 12 foreign
circuits (in France, Belgium, Holland, Germany, Spain, Italy and Sweden) at 35 dates in 2001. We also
found that several TDOs offered foreign circuits in their schedules of events, alongside UK circuits,
sometimes in the form of a package trip including transport and accommodation. The TDOs we surveyed
reported that they served a mix of national and local customers. They said that some customers were
unwilling to travel far, and that certain isolated circuits were consequently less popular as venues for
track days.


    4.165. DotEcon presented an analysis of customer penetration of postcode areas for track days held
at Silverstone and Brands Hatch. This is reported in Appendix 4.8. It shows a rapid decline in penetration
with distance from the circuit (and the rate of decline in penetration rates is faster than for spectators).
DotEcon also modelled penetration as a function of the proximity of the consumer to other licensed
circuits. This showed there was a local effect if alternative venues were available nearby. Thus, while
many track-day customers will want variety, a great many also have a preference for geographical
proximity.



Driver tuition

   4.166. Octagon told us that it did not offer racing tuition—other than that offered to the experience
day market—prior to the merger. It was not necessary, therefore, for us to take a view on the appropriate
market definition for this segment, and so we do not distinguish driver tuition here from the experience
day market.



Experience days

    4.167. Octagon offers a variety of participatory experiences at its race circuits, including racing
schools, as well as off-road experiences such as quad biking and rally cars. In this regard, Octagon
competes with other providers of sports and adventure pursuits. DotEcon said that this meant that day
trippers would select between alternative events in a particular region and, as a consequence, that track-
event organizers faced competition from a range of other ‘adrenaline activities’. We were told that
experience products at unlicensed circuits were close substitutes for those held at licensed circuits; for
example, Octagon noted that the pricing of the PalmerSport operations was very similar to that at
Octagon’s licensed circuits. We were told that customers would be very sensitive to price changes for
circuit-based experiences as there were so many substitutes available.


    4.168. Some experience-day products are designed to serve a national market. Octagon told us it had
decided that Snetterton should specialize in providing its supercar experience, and Cadwell Park its
Ducati motorbike experience, in the expectation that customers would be willing to travel to those
circuits. However, we heard that most experience products would draw on local markets, as shown by an
analysis of customers at Silverstone (see Appendix 4.8). All except one of the other circuits who
provided information on this said they were competing in a local or regional market.



                                                    99
Corporate events and hospitality

    4.169. The market for corporate event days appears to be similar to that for experience days. We
were told that it served a clientele largely interested in a one-off experience, preferably available locally,
and which had a considerable number of alternative activities available. Octagon told us that the nature
of such corporate business meant that it was in competition with many other providers of corporate
services apart from other race circuits. For example, corporate hospitality could be provided at a wide
range of sporting and cultural venues, or clients could be entertained through trips to desirable locations.
There are also a wide range of alternative activities for corporate events (such as outdoor adventure
centres, sporting venues, paintballing, travel, and cultural activities) with incentives and rewards being
realized in other ways. Finally, there is a large conferencing and exhibition industry in the UK. Other
circuits gave mixed views on whether the relevant markets were local or national.

    4.170. The British Hospitality Association told us that it did not see any competition issue arising
from this merger, which suggested that it believed the relevant market to be very wide. Octagon told us
that the corporate sector had a very high churn rate; there was little year-on-year repeat business as
customers would seek fresh experiences each year, although they might return after three to five years.

    4.171. The corporate hospitality business is a large and established sector. Octagon said that for all
but the most prestigious events, geographic location remained an important factor that limited
competition between venues in different locations. For major events the relevant markets can be expected
to be national, while minor national championships would not attract any corporate customers other than
those directly involved with the competitors, through sponsorship or assistance in kind. While it might be
thought that professional purchasers of corporate entertainment would be very price sensitive (a view
held by most of the other circuits), Octagon observed that in its experience such customers were less
price sensitive than others as prices were less transparent to the corporate user.


Segmentation between cars and bikes
    4.172. We considered whether cars and bikes defined different segments of the spectator or
participatory markets. It appears that there are very few customers who participate in both car and
motorbike activities, and only a small proportion of spectators who follow both categories. However,
although they are different groups of consumers, each could still be characterized in the same way in
terms of enthusiasts and day trippers. There is also very close substitutability in the supply of track time
to both activities. Octagon told us that it did not discriminate between the two groups in the pricing of its
circuit hire.


Upstream markets
    4.173. Rather than purchasing track time direct from the circuit, most final consumer activities are
based on the services of some intermediate suppliers. In the case of participatory events, these services
are performed by different bodies corresponding to each final activity. These organizers assemble a
package creating an event. The use of the circuit or other venue is one essential input, but not the only
one. Thus there are two markets: the first between circuits and intermediaries for track time, and the
second between intermediaries and final consumers, although the final consumer sees the track time as
part of the final package.

    4.174. Examples of intermediaries are TDOs for track days, racing schools for race tuition, clubs for
club racers, and event day organizers/racing schools for experience days and corporate participation days
(for testing, major teams will negotiate directly with the circuit, but clubs will arrange days for their
members). In many cases, the supply of these final consumer activities can be integrated with the supply
of circuits. For example, many circuits own their racing schools. We did not hear any evidence to suggest
that there were efficiency gains from vertical integration between circuits and the intermediaries. As the
experience market is so new it is not clear whether there are substantial efficiency savings from vertical
integration. Some examples of independent and integrated intermediaries are given in Table 4.12.

   4.175. There is a certain amount of differentiation in track hire pricing between different end uses.
Octagon charges different prices to clubs and corporate customers, with different prices again for TDOs,


                                                     100
at some circuits. These differences can be sustained as it is impossible for customers to resell track time
without the consent of the circuit. Price differences could reflect differences in the patterns of demand for
the end uses: for example, club users are generally confined to weekends and, as a consequence, face the
higher prices. Whereas Octagon’s most popular pre-merger circuits, Brands Hatch and Oulton Park, can
charge TDOs higher prices than corporate customers, this is not judged possible at its smaller circuits,
Snetterton and Cadwell Park. However, because of the very close substitutability in the supply of circuit
time for different competing uses, we believe that there is just one upstream market for track time, rather
than a segmented market for different end-uses.

TABLE 4.12 Suppliers to the final consumer market segments

                             Market segment           Independent participants         Integrated participants

 Spectator events (i)    International spectator   FIA (F1), DORNA (Motorcycle      OWI (World Superbikes)
                           events                  Grand Prix), ISC (world rally)
                         Domestic championships    Interactive                      BMP

Participatory events     Track days                Independent TDOs                 On Track
involving enthusiasts
and professionals (ii)
                         Racing clubs              Most clubs                       BARC (owns Thruxton and
                                                                                    Pembrey), BRDC
                                                                                    (Silverstone pre-merger)

                         Testing                   Race teams                       None

Participatory events     Racing schools            Anglesey, Mallory Park etc       Drive (Silverstone,
involving one off-                                                                  Donington, Croft), Octagon,
consumers (day                                                                      Castle Combe, Knockhill etc
trippers) (iii)

                         Experience days           Independent racing schools       Integrated racing schools

 Source: CC.




    4.176. We have considered whether there are local markets in the demand for final consumer
services. It would be expected that this demand would feed directly into the derived demand from
intermediaries for the provision of track time at licensed circuits. However, because of the close
substitutability in supply identified in paragraph 4.175, the upstream market for track time will be
national.

    4.177. With regard to the market for event promotion, we received no evidence to suggest that there
was any overlap between this and any of the other markets under consideration. The nature of the skills
and resources required are different to those of operating circuits, or the motorsport activities that occur
on them. The nature of the service provided to the final consumer is also very different, and consequently
promotion appears to be a distinct activity.



Substitutability in supply
    4.178. We now address the degree of substitutability in supply between the different final consumer
market activities. To qualify as a licensed circuit, a track needs a minimum of facilities such as race
control, timing and scrutineering facilities, basic pit garages, marshal points, safety vehicles and a
medical centre, basic facilities and protection for spectators, and so on. With these, the circuit will be
able to sell track time to stage small-scale licensed events (ie club races). Given these facilities, the
circuit will also be easily able to provide testing time and a venue for track days without further
investment.

    4.179. Improvements to the circuit facilities and safety standards are needed in order to qualify for a
licence to stage higher graded events, and a higher level of spectator facilities, such as catering and
grandstands, is needed to cope with larger crowds. The circuit would also be likely to want to invest in
some boxes or suites for wealthier, usually corporate clients.


                                                      101
    4.180. By definition, unlicensed circuits would be unable to provide a venue for championship races.
Gaining approval for a new circuit is not easy because of the safety requirements that need to be met, and
so there is no easy substitutability in supply for staging championship races.

    4.181. In terms of final consumer activities, in order to provide experience days, corporate days and
race schools, the circuit, or an intermediary organization, will need to invest in vehicles, storage,
servicing and maintenance facilities, mechanics and instructors, teaching rooms and a sales force.
However, once all this has been set up, diversifying into the similar activities seems to be relatively easy.
For experience and corporate days, unlicensed venues can offer motor sport or other adrenaline
experiences, and other events that could appeal to the corporate event and entertainment markets.

    4.182. Unlicensed venues such as airfields have been used as locations for track days. Any expanse
of suitable tarmac, where the public do not have access, may be a possible substitute venue, although it
may not be a successful competitor as the experience and challenge of driving around a circuit are
different to driving around cones on a featureless stretch of tarmac.

   4.183. Promotion of motorsport activities is a different market from the other activities considered
because of the distinct skill set that is needed in this function. The marketing services origins of
Octagon’s parents may help provide the skills required.


Prestige circuits and circuit licences
    4.184. We now consider whether the differences in prestige between circuits segment the market for
their services with respect to certain activities. Prestige may reflect or correspond to differences in grades
of licence, reputation of the track, and facilities.

    4.185. It was put to us that particular circuits might enjoy a prestige status, which would make them
more attractive to participants and spectators. In particular, it was suggested that Silverstone, Brands
Hatch and Donington were all perceived as more famous than other circuits because they had all held a
Formula One British Grand Prix in the last 15 years, and all continued to hold major international events
(such as the Motorcycle Grand Prix at Donington and World Superbikes at Brands Hatch and
Donington). The ATDO also included Oulton Park in its list of the first group of ‘famous’ circuits.
Octagon told us, however, that recognition of the Brands Hatch name was higher for the 40-plus age
group than for those below 40, which it attributed to the fact that no Grand Prix race had been staged
there since 1986. Donington Park Leisure told us that it was important for Donington to retain its
international licences and international events because this helped stimulate demand for other midweek
business activities. It said that there was a knock-on effect for motorcycle track days and most other
activities that took place at Donington. This was partly because customers wanted to ride on the track
used for the Motorcycle Grand Prix or World Superbikes, and partly because the safety standards of a
grade 1 motorcycle-licensed track were very high, with massive run-off areas. Donington Park Leisure
felt that prestige was related to the international events held at Donington, Silverstone and Brands Hatch,
and so it was also tied up with the fact that these circuits held appropriate international licences.

    4.186. Of the championships shown in Appendix 4.7, all use at least one of Brands Hatch,
Silverstone and Donington. While this may just be because the circuits were available to championship
organizers, it may mean that any successful series needs to incorporate one or more of the ‘prestige
circuits’. However, Octagon noted that venues such as Snetterton and Oulton Park had as many rounds of
these championships as famous circuits such as Donington and Brands Hatch.

    4.187. We sought to determine whether there was a perception that these circuits were superior to
less famous circuits, and whether this would segment the final consumer demand market. For example, it
might be that someone attending an experience day, for possibly their only experience of driving a racing
car, would wish this to be on a famous circuit which they had seen on television, and where they had
seen famous drivers racing. Prestige could make these circuits more attractive to spectators and
competitors alike, although this might also reflect the facilities and quality of the tracks. Others argued
that competitors were more concerned with ‘drivers’ tracks’ which offered technical or enjoyable racing.
Examples of such tracks were given as Cadwell Park for bikes and Oulton Park for cars. The MSA said
that, although there was a cachet in competing at Silverstone, some of the smaller circuits were more
enjoyable to club racers.


                                                     102
    4.188. We received evidence from ten racing clubs. Two of the clubs said that it was very important
to members to race on prestigious tracks, and three of the others said better-known venues would have a
greater attraction. The other respondents did not attribute any significance to prestige or fame, but rather
attached importance to the competitive challenge of the track.

   4.189. The Rockingham circuit has only recently opened, and so as yet has not established a
reputation based on events held there. However, it appears to us that it will offer a programme of high-
profile races, some of which will be unique. Moreover, the standard of facilities, particularly in terms of
the field of vision that will be enjoyed by spectators, is high. Consequently it is possible that
Rockingham could also become a ‘prestige’ circuit.

    4.190. DotEcon submitted an analysis of the competitive interaction between circuits measured by
customer penetration (ie number of customers per thousand population) in each postcode area. This is
explained in Appendix 4.8. The results show that proximity of the customer’s home to minor circuits as
well as ‘prestige’ circuits affects the customer penetration achieved by Brands Hatch and Silverstone (see
paragraph 4.208). Octagon argued that there was no evidence for the existence of a separate market for
prestigious tracks: it claimed that Brands Hatch and Silverstone did not appear to be closer substitutes for
each other than other tracks; that prestige was related to events hosted and so would not be retained if the
relevant events were lost; and that even if some circuits enjoyed prestige this did not mean there was a
lack of competition between them and other circuits as they could be linked by a chain of substitution.
DotEcon stated that even if there was a ‘prestige’ factor, there would be a gradation in the ‘prestige’ of
circuits from the most prestigious such as Silverstone, though circuits such as Donington and then say
Oulton Park, and finally to minor circuits. Consequently there was no distinct ‘prestige group’ of circuits.

    4.191. The DotEcon survey of track days found that, of 51 TDOs, 30 did not use Brands Hatch,
Silverstone or Donington. 22 offered days at the ‘big 3’ and at other licensed circuits, of whom seven
also offered days at unlicensed circuits and airfields. Octagon noted that none of the ‘prestige circuits’
relied on their name to publicize their experience days; rather they used trading names such as ‘Drive’ (at
Silverstone) and the ‘Nigel Mansell Experience’ (at Brands Hatch) for their racing schools. Octagon
noted that the web site material of TDOs made no specific distinction of dates at ‘prestige’ circuits and
some TDOs did not visit ‘prestige circuits’. The cost of a standard experience day product for corporate
customers (but not necessarily retail customers) is priced identically at all the Octagon circuits that offer
this. We also saw that the voucher price for gift brochure companies for these activities was the same
regardless of the circuit venue for the activity (including non-Octagon circuits).

    4.192. As mentioned in paragraph 4.103, we looked at the average prices to participants of track
days at different circuits for various TDOs. These are reported in Appendix 4.9. While we note that there
are problems in the comparability of the data, Brands Hatch, Silverstone and Donington are among the
most expensive circuits to hire. However, Rockingham is somewhat cheaper, while Goodwood and
Bedford Autodrome are expensive venues. Thus there appears to be no clear distinction in pricing
between the ‘prestige’ and standard circuits, and indeed between licensed and unlicensed venues, as
some of the cheapest venues are smaller licensed tracks rather than airfields. In terms of admission prices
for spectators at events, a comparison is shown in Table 4.5 for admission to BMP events. These have
been chosen as the main national events with significant spectator attendances. Prices charged are
generally similar and are no higher at the ‘prestige circuits’. The circuit-hire rates that we saw indicated
that ‘prestige circuits’ were the most expensive to hire. On the other hand, rather than reflecting a
premium for prestige, this may reflect the cost of maintaining a large and well-equipped facility.

    4.193. Donington Park Leisure said that Mallory Park, because of its close proximity (it is 20 miles
away), had more bearing on some of its operations than Silverstone or Rockingham despite not being an
international circuit.


Summary
    4.194. On the basis of the evidence and arguments outlined above, we conclude that there are three
relevant markets. These are the downstream market for final consumers, an upstream market for the
supply of circuit time to the organizers of participatory activities and events, and an upstream market for
the promotion of spectator events. The final consumer market can then be split into a number of
submarkets or segments, each of which features different demand characteristics, different geographical
boundaries, and in some cases different substitutes in demand. However, these are all linked into one


                                                    103
overall consumer market due to the ease of substitutability in supply, as all these activities rely on access
to circuit time.

    4.195. Looking first at spectator events, we heard from many industry participants that the nature of
the consumer for major events such as the Formula One British Grand Prix could be different from
spectators for minor club events. Octagon’s evidence from its customer databases also pointed to
differing behaviours. In the first case, many spectators are likely to be one-off consumers for whom we
could anticipate that there are many substitute activities available, such as other sporting events and
leisure activities. There are also diehard motorsport fans, who will attend more minor events and may be
willing to travel further, and who will not consider other leisure activities as adequate substitutes. Such
enthusiasts may be less price sensitive than the one-off consumers, but their numbers are insufficient for
circuits to raise prices to exploit them as circuits need to attract casual spectators as well. We were told
there was only limited interest in other motorsport forms from enthusiasts of circuit racing. We heard
that, for all events bar the most major ones, spectators generally came from a local catchment area. We
therefore divide the spectator market into two segments: one-off spectators, generally attending just
major events, drawn from a regional or national market and, second, racing enthusiasts, likely to form the
core of spectators for minor events, and largely from a local market. However, exactly where the
boundary should be drawn (for example, whether customers for the BMP events are one-off or enthusiast
customers) is not easily defined. Corporate hospitality displayed similar characteristics to the spectator
market. There were many substitutes in other sports and cultural events, and there was a preference for
local venues for all but the highest-profile races.

    4.196. We found that customers for participatory events could similarly be divided into two
categories. Octagon agreed that the participation market could be split between enthusiast and non-
enthusiast segments, which would correspond to whether or not the customers supplied their own
vehicles, although Octagon said there was some overlap between the segments.

    4.197. Activities where customers supply their own vehicles are track days, racing clubs and testing.
The evidence we heard suggested there was little or no substitutability between these activities in
demand, and that the dedication of enthusiasts to these activities meant they were not part of a wider
market. The nature of the challenge, as well as the commitment and cost incurred, differed substantially
between racing and track days. Testing was seen as a necessary accompaniment to racing. We heard that
there was a mixture of a regional preference and a national market perspective for these activities. For
one-off club meetings and series, racers preferred not to travel too far, and clubs found it easier to attract
officials and marshals to local circuits. However, the larger clubs are usually nationally rather than
locally based, and most championships travel around the country. For track days, the DotEcon evidence,
and evidence from TDOs, suggests that many participants are drawn from the local area. However, there
also appear to be a significant number of participants who are willing to travel to gain experience of a
wide variety of circuits. There appears to be enough competitive interaction between circuits for there to
be a chain of substitution over a wide geographic area. Some track-day customers also travel inter-
nationally but that appears still to be unusual. We were not told that there were local markets for testing.
Consequently we conclude the relevant market for the enthusiast segment is national.

    4.198. Participatory events for non-enthusiasts cover experience days and corporate events. All
parties that we spoke to agreed that such activities were in competition with a wide range of other leisure
activities, and we received no evidence to the contrary. We conclude that the availability of substitute
activities is a major constraint on freedom of pricing for this segment of the market. In terms of the
geographical extent of the market, we also received evidence suggesting there was a strong degree of
local preference. There are exceptions to this: for example, Octagon is able to locate the Supercar and
Ducati experiences at Snetterton and Cadwell Park respectively to attract participants from further afield.

    4.199. We now consider substitutability in supply. There is a difference between the enthusiast
segments (track days, racing clubs, testing) and non-enthusiast uses (experience days, corporate events)
as in the latter case it is not sufficient to have a circuit: vehicles, storage and maintenance facilities,
mechanics and instructors will also be required. We also considered whether venues other than licensed
circuits could be used. Considering racing clubs, we heard that such racing centred around licensed
championships. Although there were other forms of racing, these were usually considered a poor
substitute for competing in a championship. As championships require races to be held on licensed
circuits, this means unlicensed circuits are a poor substitute for licensed circuits. For track days,
unlicensed venues such as airfields are sometimes used, but despite their lower hire costs, they account
for only 10 per cent of the market. The appeal of driving around an airfield seems much less than that of



                                                     104
driving on a circuit, and there are concerns over the lack of safety facilities and regulations. Con-
sequently, unlicensed venues are only a poor substitute in this case. We did not hear of testing occurring
at unlicensed venues, probably because competitors need to simulate what will happen in races and so
need similar conditions. Therefore for the enthusiast segment we consider unlicensed venues to be a poor
or unacceptable substitute for licensed circuits.

    4.200. For participatory events such as experience days and corporate events, we note that
consumers have a wide range of other activities available, some of which are not circuit based. Even in
the case of circuit motor sport, the PalmerSport corporate event centre demonstrates that activities can be
successfully held at unlicensed venues. Therefore, while the name and facilities of a licensed circuit may
increase the attractiveness of a venue, a licensed circuit is not a prerequisite to serve this market.

    4.201. Overall however, the final consumer activities are primarily centred on licensed circuits.
Unlicensed venues provide alternatives in only a limited number of cases, and in most of these are an
inferior substitute. Therefore, we consider that the relevant market is for licensed circuits, while recog-
nizing that certain activities face competitive pressures from outside this market.

    4.202. On the issue of ‘prestige circuits’, we note that circuits vary in the nature and quality of their
facilities, the events they stage, and the perceived prestige of the circuits. However, it appears to us that
this defines a spectrum of product qualities, and there is no clear evidence of a significant gap in the
chain of substitution between circuits such that ‘prestige circuits’ may be considered as a separate market
segment from other circuits.

    4.203. We draw a distinction between the supply of circuit time and the supply of activities (for
example, track days, spectator events) to the final consumer. The supply of circuit time is a derived
demand from the demand for final participatory activities and spectator events. However, because track
time is a common resource, close substitutability in supply means that this market is not segmented
provided circuits do not discriminate substantially in hire rates between different end users. In fact club
hire rates are higher than for other users, probably because the demand is largely confined to weekends,
and there is some differentiation in pricing at some of the Octagon circuits between uses where circuit
time is resold for profit and those where it is not. This does not apply to all circuits, although there seem
to be few barriers to having different charges for track days, testing or other uses. Thus there appears to
be only limited discrimination between uses. Because of close substitutability the market is likely to be
national.

    4.204. The final market is for event promotion. We see no overlap with the other markets under
consideration as the nature of the activities is different from the operation of racing circuits and
participatory activities. There are no other functions which equally perform the role of motorsport
promoter (although entry from other branches of sports promotion may be easy). There are both national
and international elements to event promotion. However, as the championships which BMP promotes are
national championships, the relevant market for the consideration of its activities is largely national.


Competition between Silverstone and Octagon circuits
    4.205. The question of whether markets are local or national has been addressed in the market
definition section. Here we consider the question of whether the existence of local markets for some
activities causes competition concerns, particularly with regard to Brands Hatch and Silverstone.

   4.206. Octagon said that the overwhelming majority of the activities that it carried out drew
spectators and participants from a limited catchment area, and therefore the acquisition did not affect
competition. This applied to spectator events except major meetings such as the Formula One British
Grand Prix and the British Motorcycle Grand Prix. As Silverstone was not located close to any of
Octagon’s other circuits, there was little direct competition between them. Rather, the sites competed for
spectators with other sports and leisure facilities in their catchment areas. Most other circuits gave us
similar accounts of competition for spectators.

    4.207. Octagon argued that Silverstone and Brands Hatch were also not in competition for
participatory events such as experience days. It noted that when Donington Park Leisure had invited
tenders for the operation of its driving school, SCL had entered into a loss-making contract, which


                                                    105
Octagon said was motivated by BRDC’s desire to keep BHL out of Silverstone’s catchment area. Hence
Octagon said the circuits could not have previously been in competition.

    4.208. DotEcon argued that if we were concerned with a geographic market that included both
Silverstone and Brands Hatch, we would need to consider all other licensed circuits that were no further
away from Silverstone than Brands Hatch (103 miles) and vice versa. Within these areas, Brands Hatch
also faced competition from Goodwood, Lydden and Thruxton, while Silverstone faced competition
from Castle Combe, Donington, Mallory Park, Rockingham and Thruxton. DotEcon also noted that, even
after the merger, the nearest competitor for all UK licensed circuits remained another circuit controlled
by a different owner. DotEcon’s analysis reported in Appendix 4.8 shows that there is a competitive
interaction between Silverstone and Brands Hatch (and also other circuits) to attract participants, as
reflected in population penetration rates. The competition between them is particularly important for
Brands Hatch, for which Silverstone is the major competitor. The model can be used to show the scale of
the competitive impact on a circuit by estimating the effect on customer numbers if, hypothetically, there
was no impact from a neighbouring circuit. In the case of Brands Hatch, the model suggests that the
absence of Silverstone would increase numbers by 40 to 45 per cent, compared with 7 to 17 per cent if
Donington were absent and 13 to 17 per cent if Castle Combe were absent. The effect of Brands Hatch
on Silverstone was lower, 15 to 20 per cent (the effects of Donington and Mallory Park on Silverstone
were much higher). It should be noted, with reference to the ‘prestige circuits’ issue, that the model
results show an effect on participation rates at Silverstone and Brands Hatch arising from other, less
prestigious venues (although this effect is much less than the effect of distance from the circuit in
question).

    4.209. One possibility that was put to us was that the pricing of access to the tracks at Brands Hatch
and Silverstone for the organizers of participatory activities was constrained by a competitive interaction
between them before the merger, but would not be so constrained after the merger. Thus, if the circuits
were close substitutes, then there should be a positive correlation between price movements at these
circuits, and this correlation should be stronger than that between circuits were not geographically close
or were different kinds of circuits.

    4.210. DotEcon presented an analysis of the correlation in pricing for a day’s track access for
different configurations of all the Octagon circuits using annual price changes over the last four years.
The Silverstone prices are list (undiscounted) prices. There are positive correlations between most
configurations of the Octagon circuits barring Silverstone (as would be expected as the prices are set by a
common management team). The prices of the Silverstone circuits have negative or weak correlations
with the other circuits. Consequently DotEcon argued there was no evidence that there were pricing
constraints between Silverstone and Brands Hatch. However, this is based on only four years’ data, in
which time the ownership of the Brands Hatch group of circuits changed (so their pricing position may
have been realigned), and the price changes at Silverstone in 2001 have been included. These factors
limit the weight that can be placed on the results of this analysis. Octagon told us that prior to the merger,
pricing decisions at Brands Hatch were not set with any reference to Silverstone, but rather with regard
to what the local geographic market would stand.

    4.211. From an analysis of the Silverstone database of customers for a round of the BTCC and of
customers of the driving school, Octagon said that the relevant market appeared to extend around 100
miles, as this captured 80 per cent of customers. The more detailed analysis in Appendix 4.8 based on
postcodes found larger catchment areas for 80 per cent of spectators and track-day participants, measured
by travel distance (except for participatory events at Brands Hatch where the 80 per cent catchment area
was just 60 miles) and travel time (see Appendix 4.8, Table 1).

    4.212. Our concern is that these catchment areas are sufficiently large that there is a possibility of
significant competition between Silverstone and Brands Hatch for parts of their catchment populations.
The true measure of competition between two circuits is the extent to which their catchment areas
overlap, so that potential customers have a choice of both circuits. Figure 4.6 plots the catchment areas
around Silverstone and Brands Hatch based on the isochrones for 80 per cent of customers as reported in
Appendix 4.8, Table 1 (ie 130 minutes for Silverstone and 80 minutes for Brands Hatch). These show a
considerable overlap of population, as much of Greater London and the Home Counties falls within both
catchment areas (shown by the cross-hatched area). In Figure 4.7, a 90-minute isochrone (this figure is
for illustration purposes) is plotted around the centre of London, demonstrating that both circuits are
within the potential choices of a prospective customer.


                                                     106
      65
107
      66
108
   4.213. It is possible to identify and measure the size of the population in catchment areas and the
overlap between catchment areas.

    4.214. We calculated the populations1 found within the catchment areas plotted in Figure 4.6, ie
130 minutes around Silverstone and 80 minutes around Brands Hatch. The population contained within
these catchments was calculated as 15.1 million for Brands Hatch and 30.4 million for Silverstone. The
overlap of catchments between two circuits was calculated at 13.8 million ie 91.4 per cent of Brands
Hatch’s catchment and 45.4 per cent of Silverstone’s catchment. Octagon argued that this overlap only
reflected potential customers, as Greater London might not form a common catchment area for the two
circuits, given the difficulty and unpredictability of travelling across London, and there was no evidence
on the actual behaviour of consumers around London. However, difficulties in travelling across London
should be reflected in the isochrones which allow for slower travel speeds in urban areas, and the
isochrone times chosen are derived from Octagon’s own customer database.


    4.215. One argument which might reduce concerns about local market power being established at
Brands Hatch because of Octagon’s acquisition of control over Silverstone would be based on a chain of
substitution. If Silverstone’s pricing were constrained by competition from independently owned circuits,
notably Donington and Rockingham, and many people in Brands Hatch’s catchment area had the
alternative of going to Silverstone, then Octagon could still not substantially increase prices at Brands
Hatch without losing a large proportion of its Brands Hatch customers to the cheaper Silverstone. Of
course, were Donington and Rockingham to decide to increase prices because of an increase in prices at
the Octagon circuits, rather than maintaining existing prices in order to pick up more customers (perhaps
because of capacity constraints—see paragraphs 4.43 to 4.46), then concerns would be heightened.
Octagon responded that the merger would not facilitate collusion because, it said, Brands Hatch had little
competitive impact on Silverstone, and so if such behaviour were possible, it would equally have been
possible and profitable before the merger.



Market size and share
    4.216. We now consider measures of market size and share. In our judgement, the relevant markets
are based on control of licensed circuits as in most instances the ability of unlicensed venues and other
leisure activities to provide close substitutes to the activities of licensed circuits is extremely limited (see
paragraph 4.8). The merged company will account for five out of the current 18 licensed circuits in the
UK,2 ie on the basis of circuit numbers it will achieve a 28 per cent market share. However, some circuits
have a much greater range of activities and levels of utilization than others. We therefore considered
measures based on market turnover and spectator numbers. There are no available official measures of
market shares of the main circuit operators. Published estimates of market share for motorsport spectator
events, based on event attendance and revenue, are available and these are reported in Table 4.13.
However, there are many other activities at circuits, covering participatory and corporate hospitality
activities. As the nature of activities and the associated prices vary considerably, we believe that turnover
is the appropriate measure of activity levels when looking at all the operations of a circuit together.
Therefore we conducted our own survey of licensed circuits to allow us to determine market size and
share based on turnover (see Table 4.14).



Market shares for the motorsport spectator market
    4.217. Mintel 2001 makes its own estimates of market size and share based on attendance figures
and revenues for spectator events only (ie excluding participatory events and corporate hospitality). By
these measures, there are three major operators in the UK: Octagon, Donington Park Leisure and the
Goodwood Road Racing Company (Goodwood Road). Mintel’s estimates are reported in Table 4.13.




  1
    Population figures were calculated using 1991 census data for the usually resident population in each postcode area (the first four
digits of a postcode, for example CB2 8()() ), where the centre of the postcode area falls within the given isochrone.
  2
    Because of the geographical isolation of the Isle of Man we do not consider the Jurby circuit to be part of the relevant economic
market.



                                                                 109
TABLE 4.13 Leading circuit operators by event attendance and revenue, 1996 to 2000

                                 1996                1998              2000
                          ’000          %    ’000        %   ’000          %
Attendance
BHL                        600          34    660       33    656            35
SCL                        430          24    499       25    393            21
  Octagon and SCL                                                    1,049        55
Donington Park Leisure     255       14        260      13     260           14
Goodwood Road               95        5        176       9     174            9
Others                     391       22        407      20     412           22
 Total                   1,771      100      2,002     100   1,895          100

                                 1996                1998              2000
                           £m           %     £m         %    £m           %
Event revenue
BHL                        7.0          20    9.1       20    9.2            25
SCL                       16.6          48   21.1       47   11.8            32
 Octagon and SCL                                                     21.0         57
Donington Park Leisure     4.3       12       4.8       11    4.9            13
Goodwood Road              2.3        7       5.2       12    5.5            15
Others                     4.6       13       4.7       10    5.2            14
 Total                    34.8      100      44.9      100   36.7           100

 Source: Mintel 2001.




    4.218. The Silverstone circuit accounts for a large proportion of spectator attendances, and a very
large proportion of spectator expenditure, largely because it has been the venue of the British Grand Prix
since 1987. This event is by far the most popular spectator event in the calendar, and it commands high
ticket prices. However, the attendance and revenues fell substantially in 2000. This was because the
event, which had been moved from its usual July slot to April for one year, was affected by bad weather
and flooded car parks, which prevented many spectators from reaching the circuit. Consequently there
was a notable dip in the estimated size of the market for 2000, and the market share of Octagon (BHL
plus Silverstone) would normally be more than the 55 per cent of attendances and 57 per cent of revenue
suggested by the 2000 figures.




Market shares for all upstream activities
    4.219. As we have discussed, the activities of motor-racing circuits extend beyond the staging of
spectator events to embrace various participatory and corporate events. We conducted a survey of all the
UK licensed circuits listed in Table 4.2 to obtain details of revenue for the year 2000. We included the
activities arising directly from the operation of the circuit, but not those from downstream activities
located at the circuit. This was because such value-added activities do not have to be run by the circuit
operator itself, and indeed are often run by independent intermediaries. Therefore, we excluded revenues
for TDOs, racing schools, experience days and off-circuit activities (for example, rallying and karting) as
far as possible. This also included stripping out revenues from in-house TDOs and racing schools.
Circuit-rental fees to these operators (including notional rental fees to in-house operators) were included
in turnover estimates.




                                                       110
TABLE 4.14 Licensed circuits: market size and share, based on turnover excluding downstream activities,
            2000
                                                        Adjusted turnover   Market share
                                                        excluding Formula excluding Formula
       Circuit        Adjusted turnover   Market share   One Grand Prix    One Grand Prix
                             ’000             %                ’000               %

Brands Hatch                                        17.1                                  24.0
Cadwell Park                                         2.3                                   3.2
Oulton Park                                          5.0                                   7.1
Snetterton                                           3.6                                   5.0
  Octagon pre-merger             !    ( ! )                27.9       !     ( ! )                39.3
Silverstone                                         43.7                                  20.7
  Octagon post-merger                 ( ! )                71.6             ( ! )                60.0
Others                                              28.4                                 40.0
 Total                                             100.0                                100.0

 Source: CC, based on information from circuits.


  Note: Adjusted turnover in the case of Octagon circuits omits racing schools, driving experiences, karting and On
Track. For Silverstone it omits Drive.

    4.220. The market share of Octagon in 2000 according to the definition of turnover used was 28 per
cent, and for SCL 44 per cent, giving the merged company a market share of 72 per cent. It was argued
that an appropriate measure might exclude revenues from the Formula One British Grand Prix as this is a
distinct event, separate from the general market. As shown in Table 4.14, even if the Grand Prix is
excluded the merged company would still account for 60 per cent of the market. The Rockingham circuit
has opened in 2001 but, even so, we believe that the market share of the merged company will remain
high, and this finding is robust to any appropriate measure of market size.


Market entry
    4.221. In assessing the possible effects of the merger on competition, we considered the costs and
difficulties faced by potential new entrants to the provision of services from licensed circuits. Octagon
said that the main barriers to entering the market by building a new circuit would be the cost of land and
environmental restrictions (obtaining planning permission, and operating restrictions that might be
imposed if planning permission were granted). In recent years Anglesey Racing Circuit and Rockingham
Raceway have been new entrants to the market. Other circuits have substantially upgraded and
modernized their facilities in order to achieve a higher grade of licence and to be able to stage more
events (examples include Croft and Castle Combe). Octagon considered that the emergence of
Rockingham on a new site was clear evidence that barriers to entry were not preventatively high.

    4.222. There appear to be several barriers that need to be overcome by entrants to the market. These
are obtaining a suitable site with adequate communications; the capital cost of buying the site and
building the circuit; obtaining planning permission and avoiding prohibitive operating restrictions;
overcoming a lack of reputation in attracting spectators and participants; securing rounds of major
championships to attract spectators and sponsors; and obtaining a licence from the governing bodies.

    4.223. Rockingham stressed that the major difficulty it faced in entering the market was obtaining
finance. The capital cost of acquiring the site and constructing the circuit was around £50 million, on top
of which the company had to fund working capital in the initial period of operation before the venture
moved into profit.

    4.224. If a suitable site could be found, there would probably be difficulties in obtaining planning
permission because of the crowds attracted to circuits and the noise from racing vehicles. If permission is
granted, severe restrictions may be imposed in a circuit’s operations: for example, Castle Combe is
allowed to hold only ten days of racing a year, while BARC tends not to offer track days at Thruxton
because of the noise restrictions imposed on it.

    4.225. Another barrier is the difficulty in establishing a reputation and attracting rounds of
established championships to the venue. Rockingham has entered the market by offering a new format of
racing to the UK, drawing on the US oval circuit CART championship. This immediately gives the
circuit the anticipated turnover to justify a large investment and to establish a reputation. A new circuit in



                                                       111
Germany, the Eurospeedway, has recently been built using the same strategy. As well as substantial
sanctioning fees, Rockingham and the Eurospeedway have to pay for all the teams’ cars and equipment
to be transported to Europe.

    4.226. The potential for this entry strategy may be limited. There are few, if any, other similar events
that could be exploited in the same way. Also, it may be that UK consumers are not interested in
alternative forms of motor sport and would be unreceptive to new formats. Mintel 2001 reports a survey
in which over 2,000 adults were asked what types of motor sport they watched regularly. 39 per cent said
Formula One, 15 per cent rallying, 14 per cent Superbikes, 13 per cent the BTCC, and 11 per cent the
Motorcycle Grand Prix. All other categories had low followings.

    4.227. Another strategy has been demonstrated by the PalmerSport business, which has concentrated
on participatory and corporate events at a converted airfield, rather than trying to establish a licensed
circuit. Octagon argued that diversifying into the provision of supplementary participatory activities
should not entail high costs. At its simplest, an off-road activity could be offered with just a field and a
four-wheel drive vehicle. New entry will, however, require advertising to establish market awareness; the
purchase of vehicles, maintenance and servicing facilities; and the provision of instructors and
mechanics, as well as land.

   4.228. There should be easy entry into the TDO market. There are no obvious barriers to entry
provided circuits do not discriminate against independent organizers in the supply of track time and the
operator can demonstrate that all required safety standards have been met. Indeed we observe a large
number of small-scale operators in the market.

    4.229. Octagon estimated that it would cost in the region of £60 million to develop a circuit capable
of hosting a Grand Prix event from a greenfield site. This estimate is based on the planning application
recently handled by Octagon for creating a Grand Prix venue at Brands Hatch and allows for additional
costs associated with creating the basic infrastructure that would be needed when developing a green
field site. It does not include the cost of acquiring the necessary land (estimated to be 400 acres),
although in rural areas this might not be a major cost. In relation to Donington, which held the European
Grand Prix in 1993, Octagon estimated the cost of providing the necessary facilities to be approximately
£35 million.

   4.230. Octagon said that barriers for a circuit seeking to expand and improve its licence grading
appeared to be low. The cost of upgrading circuits to obtain an international licence clearly depends on
each circuit and the services and infrastructure already provided by it. However, in general it would be
necessary to secure a high-profile event that justified the cost of facility and safety upgrades.

    4.231. We also need to consider entry into the market for promotion of motorsport events. The
stages of an entry strategy would be to find a gap in the market for a series that would generate sufficient
interest; get governing body approval; obtain the finance to publicize the plans and persuade tracks,
manufacturers, teams etc to take part; negotiate access to circuits; coordinate the involvement of teams
and other parties; and negotiate commercial exploitation of events and championships (through
competition for sponsorship and terrestrial television). The ability to attract sponsors is closely linked
with the ability to secure television coverage. This is a major constraint on new large-scale entry as
available time on terrestrial television is limited, although there is more space available on cable, satellite
and digital television stations. Octagon told us a number of promoters had attempted to enter the market
but without the finance to ensure lasting success. The MSA has introduced a Championship Control
Panel to vet new championship applications, one factor in which is the financial security of the promoter.

   4.232. One concern that was expressed was whether membership of BMP would mean that circuits
would be less likely to give access to a rival series on suitable dates, as the degree of vertical integration
could lead the circuits to protect their own series. The contract between BMP and the MSA requires that
each will not promote any series that rival the BTCC. However, circuits would be reluctant to refuse
access to promising non-BMP series as they need to fill capacity throughout the year.

    4.233. There have been some examples of new entry, including the establishment of the Interactive
series (using GT sports cars with interactive television coverage), and ASCAR (based on the US
NASCAR touring cars, taking advantage of the Rockingham oval circuit, but also with rounds at
conventional UK circuits). However, the main constraint on entering the promotion market appears to be
the low customer base for spectators of domestic championships and the limited number of new racing
formats that would appeal to significant numbers of fans.


                                                     112

								
To top