The history of Formula 1’s television rights is complex: Until the Formula One Constructors Association wrestled the sport’s commercial rights off the FIA’s sporting wing (known as FISA) during the early eighties internecine war known as FIASCO, the rights to broadcasts were held by the title holder of the circuit – effectively whoever owned the land reserved the right of admission, including for cameras.
Thus, F1 went from minority sport followed solely by dedicated petrol-heads via magazines and newsreels – unless spectacular accidents made world news, in which case interest peaked briefly in the dailies – to a global sport. Start-up Extreme E has followed that ‘free’ lead.
During the transition period FOCA had no transmission equipment of its own, so cut deals with local broadcasters: in return for providing their footage to FOCA to market internationally they were granted the rights to all events for the full season. Once broadcasters’ appetites had been whetted, rights followed, which increased commensurately with audience growth.
Bidding wars followed in territories with multiple broadcasters, but all revenues – bar Ecclestone’s slice, said to have been around 15% but the figure has since been disputed by folk who believe it was higher – flowing to participating teams via a complex performance-linked formula.
All this changed in 1998 when Ecclestone acquired F1’s commercial rights in the name of SLEC, his family trust, from an FIA presided over at the time by his long-standing friend Max Mosley for $320m for a period that was ultimately extended to 113 years. Simultaneously Ecclestone developed his so-called ‘digital TV’ product – old hat now, but cutting-edge stuff 25 years ago – for which subscriptions were charged.
Within two years he sold off 50% (plus an option on a further 25%) of SLEC to German TV upstart EM.TV, which struck a deal with KirchMedia when it hit cash flow problems. Kirch, at the time hoovering up sports rights across the world, planned to monopolise the pay-per-view industry and lined up F1, plus the FIFA World Cup and Olympics, in its sights. Saliently, KirchMedia declared bankruptcy in April 2002.
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Instrumental in Kirch’s collapse was the formation of Grand Prix World Championship, founded by five motor manufacturers then in F1 – BMW, Fiat, Ford, Mercedes and Renault – with Honda and Toyota aligning themselves with it later. The GPWC threatened a breakaway series unless Ecclestone and Kirch shelved plans for (subscription) pay-per-view television.
GPWC members asserted they were in F1 to be seen globally on free-to-air TV. But the GPWC gradually collapsed, not least due to the rotating roster of motor executives at its helm, who moved on within their companies or retired – thus robbing the association of crucial stability. Jaguar’s F1 exit hastened GPWC’s demise, with the Ford-owned subsidiary selling out to Red Bull in late-2004, reportedly for a dollar.
Ecclestone smelt blood and offered the then-financially strapped Ferrari a sweetener of $100m if it signed an extension to the Concorde Agreement. This opened the way to PPV deals, with Ecclestone (and Mosley) batting away criticism by arguing free-to-air contracts would be preferentially signed provided they delivered the same revenues. Which they could not. But, as we shall see, for F1 as a whole the argument was fatally flawed.
The next to depart was Honda (at the end of 2008) followed a year later en masse by BMW, Toyota and Renault (as team owner) in 2009. All save Renault took their engines with them when they slammed the door on F1, with only Honda returning (as engine supplier only) in 2015. It is heading for the exit again at the end of this season, likely for good.
Although the manufacturers at the time cited the global economic crisis as official reason for their departures – this excuse suggested managerial caution during the downturn – a number of them subsequently revealed that the true reason was dwindling eyeballs due to F1’s gradual shift to PPV.
“We would have stayed on in F1 had the ROI [return on investment] been solid crisis notwithstanding,” a Toyota source told me later, “but TV audiences were dropping and we were in F1 to be seen, whether we won championships or not.
“Don’t forget that during the crisis we didn’t stop other promotional activities or sponsorships, or advertising campaigns. We continued with these where the ROI was feasible.”
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A BMW manager expressed similar sentiments, adding that the global economic crisis was a “convenient excuse to exit without having to explain why we were leaving, and without giving Bernie the satisfaction of crowing that he had beaten the manufacturers” in what had been an acrimonious war.
The net effect is that F1 lost three engine suppliers: Cosworth (previously owned by Ford), Toyota and BMW, while Honda dipped in and out – indeed, one wonders whether Honda would have been committed to F1 in the longer term had its F1 marketing return on investment – largely driven by global eyeballs – been stronger. F1 has not yet recovered from the loss of those engine suppliers, as new initiatives to attract them proves.
Whatever, thereafter PPV deals were struck thick and fast, not only in individual territories but across entire continents: sub-Saharan Africa has, for example, has no free-to-air live coverage, with the rights held by South Africa’s Supersport channel – as per the official F1 website. With only one (PPV) broadcaster across the entire (multi-lingual) continent, is it any wonder Africa has not staged a grand prix in 30 years?
To illustrate the debilitating effects of PPV on F1 audiences, consider some numbers provided by Motorsport Broadcasting, the go-to site for independent media ratings. In 2018, the final year during which (free-to-air) Channel 4 and Sky UK shared F1’s rights, the former pulled 2m per grand prix, while the pay station attracted a third that for a cumulative audience of around 2.8m – 45% down on historic BBC-only averages of +4.5m.
True, one could argue that the more casual (race only) F1 fans saw no reason to splash out on subscriptions that provided behind-the-scenes insights they had little interest in, so stuck to the F2A alternative. But the real question, then, is whether PPV numbers grew where no free alternative exists. This year’s opener in Bahrain, the first under an exclusive Sky Deutschland deal, provides a pointer:
With RTL losing its free-to-air rights the country that pulled upwards of six million viewers during the pomp of Michael Schumacher and Ferrari saw the number of viewers who saw his son Mick make his F1 debut slump by 75%, while Spain saw similar drops after switching to PPV – despite at times having two stars in Fernando Alonso and Carlos Sainz Jnr. Germany and Spain are not isolated instances, as France and TF1 attest.
These contractions have affected not only TV audiences, but also race attendances – less TV exposure means less overall interest, equals less fans so fewer race-goers, resulting in reduced income for race promoters – and, by extension, lower hosting fees or even the disappearance of races from the calendar. Team entries, too, dropped from 12 during the early 2000s to 10 – effectively nine had Haas not decided to join in 2016.
Further side effects are that consumer brands and financial institutions walked – think back on Martini and similar alcohol products, IT hardware companies and the likes of HSBC, RBS, UBS and others, all of whom sponsor other activities or run glossy advertisements yet withdrew from F1. F1 is on a drive to attract ‘bridge and board’ partners – a quest that Liberty’s top brass admit is challenging despite F1’s global footprint. Why?
Surely none of this is purely coincidental…
The next broadcasting change came in 2018 with the introduction of F1’s live streaming service by Liberty Media – which had acquired F1’s commercial rights a year earlier – using a technology is known in the industry as ‘over-the-top’, or OTT.
F1’s OTT comprises F1 TV Access and F1 TV Pro, the former providing highlights and archive material and the latter full race weekend streaming. These are provided for a fee, of course – a factor in F1 TV’s failure to gain hoped-for traction although myriad well-documented technological issues also blighted its cause, which it has recently addressed with a new version.
Peak PPV, though, was reached in 2019 with the Sky UK deal, as illustrated by the following extract from an analysis published earlier this year by RaceFans:
“Exactly how crucial [is the deal] was revealed in February 2020 by Scott Young, then head of Sky F1 UK, during a presentation attended by RaceFans. Young’s presentation indicated that Sky’s hosting fees run to an eye-watering £1.18 billion ($1.53bn) for 2019-2024 – the six-year contractual period – averaging $255m per year, one-third of F1’s annual television income.”
The focus of this column is on that crucial $255m, for that 33% equates to around $750m in annual income for F1 from the sale of TV rights, overwhelmingly from PPV platforms. However, of that income the ten teams share around $450m – figures approximate after Covid ravaged the sport’s income streams, with the latest full numbers pulled from 2019 reports – or an average of $50m each, with Liberty retaining $250m or so.
Based on the foregoing, let us consider the feasibility of a return to free-to-air broadcasting, whether via platforms such as YouTube or free race weekend broadcasts via traditional stations as per FOCA’s early years. Clearly the major consideration is immediate losses in TV income, and whether these can be recovered via growth in global fan interest, and thus incremental promoter fees and greater sponsor spend at team and Liberty levels.
Although a full analysis would need to be undertaken by Liberty as to the viability of such disruptive steps, the data outlined above indicates that a return to full free-to-air across the globe is feasible, thereby boosting F1’s popularity across the globe. Additional manufacturers and sponsors are sure to be attracted – these also spend on below and merchandising activities, providing further boosts – while live attendances will surely improve.
As outlined, the amount to be initially recovered totals $750, split $250m for Liberty and an average $50m per team. For starters, Liberty could still provide post- and pre-race OTT insights for the benefit of mainline fans, while YouTube’s revenue sharing structure would deliver substantial income. In addition, slices of resultant TV advertising TV could be negotiated with commercial TV broadcasters, providing additional revenues.
Motorsport Broadcasting’s data suggests that the average drop in eyeballs due to the switch to PPV amounts to over 50% and up to 75% in some territories – suggesting that F2A will result in at least a doubling of eyeballs, in turn aiding Liberty’s quest of attracting further trackside partners and boosting rates.
Given ‘bridge and board’ advertising currently generates around $200m per year – of which Liberty retains a third – the additional income reduces the potential risks. YouTube/broadcaster revenues, increased trackside hoarding income, incremental race hosting fees, additional teams and engine suppliers and their associated spend will compensate for direct losses in TV income while providing global growth F1, with commensurate economic benefits.
That brings us to team income: As outlined here, in 2019 the teams derived approximately 50% of income from sponsors – whether from the parent company or brand, commercially sourced or driver-linked – with the balance from F1 (Liberty).
Of Liberty’s income, around 40% is broadcast rights-derived, the rest being their respective shares of promoter, trackside and hospitality income, so proportionately broadcast income amounts to 20% of budgets. Under the $145m budget cap the imperative for major teams – who traditionally received the largest slices of F1 income – to maintain the same levels of income reduces substantially, with some budgets almost halved.
Thus, teams would need to derive an additional 20-25% of their income from sponsors in return for F2A, which potentially boosts eyeballs by 200%. According to a sponsor agent currently operating in F1 such increased given the improved ratings is “eminently doable, and more”, while another was equally confident, provided a clear and unambiguous road map through to 2025 was provided. That is a guarded “yes”, then.
Most of Liberty’s contracts expire over the next five years – and any that mature within this time frame could be extended for lesser periods – as does the (2021-25 Concorde Agreement), providing time enough for in-depth studies into the full implications of all possible factors associated with returning F1 to global free-to-air TV by 2025. By their nature such studies must be all-encompassing, based on quantitative empirical data.
Of course, moving back to free-to-air is a step which holds major commercial implications but, managed correctly, the move could benefit all parties – be they fans, teams, sponsors, manufacturers and Liberty itself – with the exception of pay-per-view merchants. Still, surely F1 owes its fans greater loyalty than it does to the likes of Sky.
“It is a shame that the fans are not getting to see as much because the more people you have at a grand prix the more atmosphere, it’s the fans that make the sport what it is so the more you almost block them or deter them the worse the business is going to be for the people that own it,” Lewis Hamilton told RaceFans after the realities of the Sky deal were put to him in 2019.
The situation has hardly improved since Hamilton spoke those words. Indeed, it has worsened.
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