F1’s appetite for ‘risk’ is not new; winners & losers?

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In the distant past, Formula 1’s future and governance was a point of major contention between FISA, FOCA Garagistas and Grandees. The concept of a race was used to wrest the control of the sport away from FISA and eventually end up on the desk of the FIA president which would become Max Mosley. It’s a long story and can be best understood by reading Max’s autobiography or the book called, “Bernie”.

Regardless, the reason I mention it is that part of Bernie Ecclestone’s rise to power in F1 was his willingness to take risk and make investments with big returns. One of the things he did was to step into the void the teams left with regards to organizing races and taking the risk for that race. Teams were reluctant and more than happy to allow Bernie to do so and in doing so, he became a unifier, conventional or not, and wealthy in the process.

Later, Bernie moved that risk back to race promoters and was successful in creating very lucrative race sanctioning contracts worth millions that eventually nation’s and governments would have to support. Bernie’s goal was to make F1’s image like that of the Olympics and an easily justifiable option for nations to invest in these contracts. This was important because individual race promoters weren’t always flush with that much cash to afford such an event.

The recent Miami Grand Prix was akin to that old model where F1 would take the risk and in doing so they would take portions of the gate, advertising, hospitality and sponsorship revenue from the event. While F1’s CEO, Chase Carey, makes this sound like something the new ownership is brave enough to do, it was done long before they ever considered F1 as a viable property to own. It was an important strategy that Bernie utilized to unify the teams under his leadership to take on FISA for commercial control of the sport.

Carey told Autosport that the series is willing to look at races with this risk-taking lens.

“Realistically every race is unique,” he explained. “I think each one we’d look at in specific terms.

“People don’t realize that frequently these events have a lot more moving parts than just a fee, there are hospitality components, sponsorship components, other components around it.

“But you look at each on their merits. What are the direct economic benefits and certainties?

“We’re not afraid of risk, if we believe there’s an upside to the risk. We obviously can afford that.

“We like having our promoters have skin in the game, it’s important to us for them to have that skin in the game and stand behind it.

“But if we think there are opportunities to have upsides both in the event itself, as well as upsides to us on a much broader level, we’d evaluate it on the merits.

“We’re not going to turn the model upside down, but if the returns justify the risks, I think we’d look at it.”

This isn’t a case of charging the Circuit of the Americas (COTA) $25M per year and simply charging Miami promoters nothing, it is a case of F1 taking more of Miami’s revenue stream around the race than they do with COTA.

With the rumors of low fees for the Miami GP, other race promoters might be keen to renegotiate their deals with F1 but I suspect what Carey is saying is that not every race is an event that F1 would take the risk for. This may not be the kindest message—for example:

If you are, say, the race promoter for the German Grand Prix and you’d like F1 to take the risk which would mean you pay less for the race and take less of the race revenue, that may be something you would be willing to do in order have a German GP and make a few bucks.

If F1 assessed the German GP event and determined that the revenue models didn’t warrant taking the risk, that would instantly send a message that the current, and any future race promoter, would be daft to actually engage in organizing a race there. It may not be the intention but through these race-risk requests for re-negotiations, F1 could simply be seen as picking winners and losers within their own calendar. If F1 wouldn’t take the risk for a German GP, why would anyone else? You get my point.

That’s a blunt translation of this story and I would imagine there are multiple ways Carey could reduce but not eliminate the sanctioning fees meaning F1 might take varying levels of risk but not all the risk. Perhaps the low or no-cost model that Miami represented was a risk F1 was willing to accept but in my example above, instead of charging $25m for a German GP, perhaps they would charge $15m and take the hospitality, sponsorship and some of the gate to offset the race fee. As Carey says, there are many elements to consider and each one would impact the risk models they would consider.

Hat Tip: Autosport

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Tom Firth
Editor

I’m confused how this would work. I was under the impression that FOM got revenue from the sanctioning fee + all concessions/merchandise and trackside advertising which is why Mr E bought Allsport management, as well as hospitality sold through its F1 Paddock Club brand? Presumably the rest of the hospitality that isn’t sold through F1 Paddock Club is provided by the teams and revenue goes to them? So basically that left the promoter with ticket sales revenue and associated aspects like car parking fees etc, Hence those been costly to the consumer? If we changed the model then FOM would… Read more »

Tom Firth
Editor

If anything though, this seems to add even more risk to the promoter, not the series. The series gets a share of the ticket revenue whatever happens + its sanctioning fee this way, and everything else. The promoter only makes a profit if it makes enough money from ticket sales after giving a stake of those to FOM and they barely make a profit if they sell all 120,000 now. Also i’d imagine the reduced fee would only stay reduced for the first year as the escalator model will still be used? Don’t really see how this is any better… Read more »

Nige
Guest

Great piece, as always! I work in sales, so naturally I am biased to think that everything is a sale, but I think in F1 and race promotion it applies. Look, I know I sound like I am being trivial and people will say “as long as the racing is good nothing else matters”, but selling something that is ugly is a non-starter. F1 has to have good looking cars, and it doesn’t, not by a mile. People want to spend their money to see something beautiful going around the track, just the same way they want to see a… Read more »