Ultimately, how much is enough? Formula 1 is running on very large budgets and costs have spiraled out of control. The regulatory body, FIA, has become feckless in their ability to politically sway the sport to a healthier path and the commercial rights owners seem focused on their investment earnings rather than F1’s future—short term versus long term.
Many years ago, Bernie Ecclestone recognized that F1 was an untapped market and was seriously in need of solidification and marketing. He brilliantly created a group and acquired the commercial rights for the series and along with his friend, Max Mosley of the FIA, he took the series to heights never dreamed of. It was nothing short of brilliant.
In a sense, Ecclestone was creating the mouth of the beast that fed the body. The bigger the body got, the more the mouth had to cram down its throat in order to sustain the ecosystem. Teams merely spent all the money they received through prize offerings via the commercial rights revenues and when they reached $300 million dollar budgets, the mouth had to ask more and more from broadcasters and the venues as sanctioning fees in order to supplement the TV revenue to continue feeding the system.
Many of the venues couldn’t afford the sanctioning fees and this left F1 seeking new venues that would pay the enormous fee which meant leaving Europe and heading east. All the while, the commercial rights owners, CVC Capital, have been enjoying approximately 50% of F1’s reported $1.5 billion each year with little signs of reinvestment in the sport in order to secure its future or creating a compelling sport for younger generations.
Some argue that F1 needs to get on social media in order to really reverse its fortunes with younger fans but that’s insulting younger fans isn’t it? If all F1 had to do to appeal to the next generation was open a Twitter account, how pathetic do these people think the younger generation is? Surely they have more discerning sensibilities than just glomming on to a sport due to a Twitter account? I think this underestimates the younger generation and overestimates the effectiveness of social media.
JMI’s Zak Brown is a delightful fellow. We’ve interviewed him a few times and I have a lot of time for the marketing maven. As a man who represents many of F1’s sponsors, he’s uniquely positioned to know what the current appeal of the sport is and how enticing it may be to sponsors. Brown told Reuters:
“The potential for the sport is untapped. I think it needs, as an industry, to be much better marketed. It’s not where it needs to be,” Brown said.
“The budgets are out of control. And that then forces the whole eco-system of the sport to be financially strained…the expense of the sport is out of balance with the commercial value of the sport. Budgets now are $200-300-400 million. It’s nuts.”
“We don’t need $400 million budgets. And if we don’t need $400 million budgets, we don’t need the same size of sanctioning fees which are putting tracks out of business, which then means we don’t need to charge the consumers as much.”
Zak has a good point but I’d also add that sponsor appeal isn’t the comprehensive solution it may have been when it represented a large percentage of a team’s budget (that’s not revelatory, Zak knows this all too well). These days, the FOM prize money is the real lifeblood of the teams and sponsor investment may represent 20-50% of the teams overall structure depending on the size of the team and its budget. This leaves a majority of the income dependent on the prize money from FOM.
Big teams have gamed the system. They have bipartite agreements with FOM and have increased their budgets to deliver a performance that guarantees a certain level of efficacy on track to ensure a return of the prize money to sustain the entire operation. The only danger is when you are a smaller team and don’t score enough points to keep your balancing act afloat or you are a bigger team that misses the mark and now can’t support your massive budget because your cars aren’t scoring enough points to ensure an offset of expenses through FOM prize money levels.
AUTOSPORT’s Edd Straw had a nice piece about the World Endurance Championship (WEC) and argued that we shouldn’t use the success and great racing that series is producing as a bludgeoning weapon to expose F1’s foibles. I agree with Edd and have a lot of respect for his position here. He argues that the races are too long and complex and while the WEC is the hipster sport of choice, it will never garner the kinds of viewers F1 currently has.
That may be true but as an American, I can recall the appeal of endurance racing back in the late 60’s for the hip crowd. The weekend at Watkins Glen was not just a race but a destination of fun and it coincided with America’s love of the European Sports car. There was an authentic appeal to it and this went for F1 as well as endurance racing back in the day. It was a weekend event for the young, not just a 6-hour race that no one had the patience to watch. Back then, Racing=youth.
The WEC races are more affordable and a bigger value for the money. I get an entire weekend of racing—and really good racing with epic battles between marques—for a fraction of the price of an F1 race. This is an event, not just a race and the WEC would do well to create that atmosphere as would F1.
What you don’t get in WEC is the incredible sound, speed, names, technology, pit access and glamor of Formul…oh, actually you do get more sound, speed, names, technology, pit access and glamor in WEC these days. I’m not using WEC to beat F1 to death with, I’m simply juxtaposing the two, Edd, and from my armchair, it seems F1 could at least use WEC as a case study on what does and doesn’t work. What’s appealing about it? Where can F1 mold it’s offerings to capitalize on the effective parts of the WEC weekend experience?
Yes, they are two different racing series but I suspect there are lessons each could learn from the other. The cold reality might be that F1 is the one the series that never really experienced the approximate global 30% reduction or correction in market position that most of the manufacturers and industries faced from 2008 onward.
For teams with big budgets, that’s nearly $100 million in overall budget reduction and from F1’s standpoint, it is over $400 million in reduction. Before you get excited about that, you have to hand it to Mr. Ecclestone for preventing the massive market correction that nearly all industries endured. F1, on the other hand, simply went east and found ways to keep its revenue growing in a time when everyone else’s was waning…except Apple of course but they don’t make an F1 car or sponsor a team.
F1 could take Mr. Brown’s comments to heart and it would do well to consider it. It could be time to self-correct and better to manage your own correction than allow market force volatility to do it for you. The fact is, you have to get back to the affordable weekend event for attendees and the competitive, good racing for TV viewers. You have to really increase your TV coverage package and reshape it into a first class broadcast replete with a multi-screen experience that ties race weekend data and video along with news, information, audio, and insight.
If it were me, I would have a complete broadcast package across all forms of media planned and programmed for every race that included a level of insight and information that fans can access no matter what platform they are using. Not just live tweeting, mind you, as that has run its course and is a bit like taking your watch off your wrist and telling you what time it is. No, this is a completely new approach and package. But then I don’t work for F1 do I? It’s the product, not the people that need looking in to as Brown said:
“What I’m seeing is…attendance is down, TV ratings are down, car count (the number on the starting grid) is struggling. So your key performance indicators are all on a downward trajectory right now,” he said.
“Every single client we had that was up for renewal has renewed. Every client we have that is in Formula One, is happy they are in Formula One.
“But even though the sport is massive, marketers do like things that are hot and buzzy. And right now Formula One doesn’t have the buzz it’s historically had. I think it can come back but they need to work on the product.”
You know…He’s right, but then that Mr. Brown is a very sharp guy.