Autosport’s leading sentence is, “The 10 Formula 1 teams collectively received $47million less than the previous year during the first season of Liberty ownership” and we’ve discussed this at length during several of our podcasts before.
The increase in FOM staff, new offices, London Live event added to costs. Additionally, CEO Chase Carey’s desire to engage in more marketing events, fan outreach, and a new F1 TV service intended to increase F1’s appeal and gain new viewers has been a cause of the increase also. Chase said:
“We’ve settled into our new London headquarters,” he said on Thursday.
“With headcount currently around 120, expecting to settle around 150 by mid-to-late 2018.
“Overall we expect the associated incremental step-up in overhead to be $50m annually compared to 2016, excluding marketing and development expense tied largely to new initiatives.”
As we discussed, the challenge is that Chase has to build a long-term plan and to stave off the decreasing viewership numbers, gain more fans, put more bums in seats at races and offer more fan-forward events, and this takes money and investment. At least that has always been his position since taking over the sport a year ago.
What becomes difficult, and Chase knows this better than anyone, is how to limit team spending while improving the on-track competition and creating a more exciting series. That’s a tall order for anyone and ripe with politics, money and opinions.
The issue of prize money is massive and as Autosport points out, some teams believe this is an investment that Liberty Media must make instead of using the underlying profit (prize money) to pay for the additional costs to improve their product.
On the surface, that seems like a decent argument but if I am Chase, I believe I would state that F1 is a business and has to pay for its opportunity costs and own SG&A. I can understand that teams would rather Liberty make even more capital investment in the series instead of using their precious prize money but I doubt very strongly that Liberty Media is keen to that idea having spent the money it did to acquire the series.
As Chris points out over at Forbes, Chase says that most of the expenses are intended to improve the sport in the long-term and the cost increases were…
“primarily due to spend on fan engagement, filming in Ultra High-Definition and higher freight costs”
I’m trying to not feel like I am being blamed in this statement for being a fan and demanding London Live because I don’t even live in the UK. A bit like being blamed for banning grid girls. ;)
With the teams sharing 68% of the prize money and F1 increasing its costs and reducing the underlying profit in which the teams rely on, it is a huge issue and this is why we say that this year could be the most critical year in F1’s history…or next year. Regardless, the negotiations that happen now for 2021 are massive!
F1 lost UBS and Allianz as series sponsors, as Autosport points out, but it also had one less race in 2017 and I would imagine the lack of a broadcast renewal package with NBC Sports (rumored to be in the neighborhood of $3 million) also had a large impact.
All of this is tied and when the teams start feeling the financial pressure of lower prize payouts, it will be very challenging for Chase. Making sweeping regulations changes to improve the racing will also have serious knock-on effects. I thought Chris’s quotes of Ferrari CEO Sergio Marchionne and Mercedes boss Toto Wolff were prescient to the discussion to add gravity to how serious this profit reduction is, increased expense is and changes of F1 are.
“if we change the sandbox to the point where it becomes an unrecognizable sandbox, I don’t want to play anymore.” He has a window to carry out his threat as the teams’ contracts to race expire at the end of 2020.
“There is the possibility to create an alternative championship from 2020/2021,” he added. “If they think we are bluffing then they are playing with fire.”
“if I were Liberty Media’s new Formula 1 promoter, I would not continue provoking Marchionne with unacceptable suggestions or demands or nonsensical changes.”
Asked what he means, Wolff said, “Bringing rules or show elements into the game and turning F1 into a cheap shopping channel. Formula 1 must remain in its basic structures what it was and what it is. We have to improve them and face the new media environment. But we need evolution, not naive revolution.”
Tough situation for Chase and let’s hope he’s got a master plan to keep all the plates spinning.