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Russian Grand Prix circuit on track to change hands

Nico Rosberg of Germany and Mercedes GP collects his winners trophy from Russian President Vladimir Putin during the Formula One Grand Prix of Russia at Sochi Autodrom on May 1, 2016 Image copyright Getty Images
Image caption Nico Rosberg collecting his winner's trophy from Russia's President Vladimir Putin

Formula One's Russian Grand Prix thrilled crowds on Sunday as Germany's Nico Rosberg fought off his team-mate Lewis Hamilton and Ferrari's Kimi Raikkonen to take the victory and boost his lead at the top of the standings.

However, the real action was going on behind the scenes to determine who could own this track in future.

Television cameras captured Russian President Vladimir Putin watching the race from the grandstands alongside F1's chief executive Bernie Ecclestone.

What they didn't catch was their negotiations with investors who want a piece of F1 in Russia.

The Russian Grand Prix is held in the ski resort of Sochi and the 3.6 mile track weaves around the venues which hosted the 2014 Winter Olympic Games.

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Image caption Vladimir Putin and F1's Bernie Ecclestone have been meeting, both at the track...
Image copyright Getty Images
Image caption and off the track

Sochi has a contract to host the Russian Grand Prix until 2020 and the race made its debut in 2014 as an Olympic legacy project.

It has quickly become Russia's flagship sporting event, so much so that private investors want to take over the state-owned Sochi Autodrom.

Ticket sales

It is a surprising move as F1 tracks tend to be tough to sell. The owners of the UK's Silverstone track, which hosts the British Grand Prix, have spent the past seven years trying without luck to sell up.

The roadblock is the race organisers' business model. Their only take from a Grand Prix tends to be ticket sales.

Revenue from television broadcasts of the race, trackside advertising and corporate hospitality there generally goes to the F1 Group which runs the sport.

Ticket sales cover the running costs whilst governments foot the hosting fees as the races promote their countries to F1's 400 million TV viewers.

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Image caption Sochi is the only Formula One Grand Prix in Russia
Image copyright Getty Images
Image caption So it has a huge market on its doorstep

Sell-out crowds

The Russian Grand Prix is run by experienced promoter Sergey Vorobyev and although he hasn't released figures about the costs of the race, the hosting fee is estimated at £33m ($47m).

The upside for investors is that the more popular the race is, the more potential there is for profit. As the race in Sochi is the only one in Russia it has a huge market on its doorstep.

In its debut season the F1 Group awarded the Russian Grand Prix the trophy for the best-arranged race of the year.

The public agreed and it was a sell-out with a ticketed crowd of 65,000 on race day. That remained roughly stable last year at 62,000 and figures have yet to be released for 2016.

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Image caption The race regularly attracts 62,000 spectators

It is a far cry from the 120,000 attendance at the British Grand Prix but street races tend to attract lower crowds due to the difficulty of locating large grandstands in the middle of a city.

An estimated £135m was spent on converting the streets of the Olympic venue in Sochi into a race track.

Lukoil interest

Industry rumours suggested that Russian oil giant Lukoil had invested £40m in the venture as the local Krasnodar region is a key market.

On Sunday Russia's deputy prime minister Dmitry Kozak confirmed the investment but added "Lukoil paid only a half of this amount.

"We had negotiations with Mr Ecclestone about prolonging the contract with the pool of Russian investors who will be fully financing the Russian Formula 1."

Lukoil is Russia's second largest oil company and is one of the world's largest oil producers accounting for over 2% of crude production.

It was founded in 1991 by its chief executive, the former Soviet deputy oil minister Vagit Alekperov, who owns around 25% of the company and has an estimated fortune of £7.8bn.

Lukoil had revenue of £60bn in 2015 and last month announced that despite the sliding oil prices its cash pile had trebled to £2.5bn as it benefited from declines in the rouble which reduced its costs.

Image copyright Getty Images
Image caption An estimated £135m was spent on converting the streets of the Olympic venue in Sochi into a race track

The company has a close connection with motorsport as it trains Russian drivers through teams it owns in junior series including TCR touring cars which also race at Sochi.

Mr Kozak revealed that that "this circuit was built entirely by federal budget subsidies" and he expects it to break even by 2023.

"Operating expenses are fully paid off by the ticket programme, it is cost effective. Moreover, it demonstrates high budget efficiency because of a significant tourist inflow during Formula 1.

"All taxes that are paid to the federal, regional and local budgets are covering the expenses in full. I think that this excess of operating income over expenses will allow us to cover Formula 1 construction costs in the next five to seven years."

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Image caption Russia's deputy prime minister Dmitry Kozak says he expects the Sochi circuit to break even by 2023

He adds that "it takes less and less involvement on our part by the year to organise the race. The team is solid, it has been the same one since the first year.

"We meet two-three times a year with the organising committee to coordinate all government bodies and all involved organizations' activities. No problems arise.

"I repeat again, we have to get less and less involved with this with each passing year. The team is solid and is very cooperative, there are no problems."

Future plans

To continue driving interest in the Russian Grand Prix, organisers are hoping to hold it at night in future and Mr Kozak said that to fund this change the state-owned management company is on track to be sold.

"Once the managing company is replaced by a company that will be established by Russian investors we will be conducting negotiations on additional investments, because to arrange the night race it will require additional investment of 300m roubles (£3.1m; $4.5m). I deem it viable."

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Image caption There are proposals for night time racing at Sochi

It follows last week's news that Russian billionaire Viktor Kharitonin boosted his stake in Germany's historic Nurburgring by 19% to 99%.

It last held the German Grand Prix in 2013 and its new owners are understood to be in negotiations about taking the race off the Hockenheim track which will host it in July.

By then F1 could have another Russian circuit owner showing that the impact of the races stretches far beyond just one weekend ever year.

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