F1’s dry well; where’s the next big market?

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As we discussed the other day, Canada, Germany and Singapore are rumored to be teetering on the brink of exclusion from the Formula 1 calendar. Germany’s troubles are well-known since the alternating strategy between Hockenheim and Nurburgring imploded after the sale of the latter. Unfortunately, Hockenheim isn’t too keen on hosting every year and this has left another potential gap on the calendar. The European races have all been buckling at the knees over the large sanctioning fees and circuit maintenance and this prompted F1 to seek Asia-Pac for emerging markets who would back the construction of massive circuits and sanctioning fees for global legitimacy and tourism appeal.

Asia-Pac well

The proponents, and I don’t blame them, have argued that the money isn’t in Europe, it’s in emerging markets and if Malaysia, Singapore, India, China, Turkey and the South Korea are willing to build $300-400 million circuits and pay $25 million per year in hosting fees, F1 needs to move there to keep the prize money high as 63% of the total haul is handed to teams like Mercedes, Red Bull, Ferrari, McLaren, Williams, Force India, and Toro Rosso. Fact is, it is in the team’s best interest to keep going where the money is.

One problem…the money may have run out in Asia-Pac with Singapore hedging on renewing its contract, India gone, China gone, South Korea gone, and now Malaysia announcing they would not renew their contract after 2018. Europe has long been stagnant and now Asia=Pac is grinding to a halt and this leaves few options for F1 to seek $400 million circuits with the latest in posh trappings in which to host the world’s most advanced form of motorsport wrapped in green energy ribbons and bows and backed by the champion of these emerging nation’s road safety in the form of the FIA.

BRIC or bust

One might argue that the BRIC economy is a good “next move” for F1 but two weeks ago the Brazilian circuit, Interlagos, said it was no longer keen to continue paying for F1 races. It seems we have reached a precipice where the track economics aren’t working, the revenue streams aren’t ample enough to profit a nation or circuit owner or promoter and interest is waning. Where would the next fertile ground be?

It also is worth noting that the demand for a FIA Grade 1 circuit with all the trimmings F1 demands are going to be fewer to find if you consider the Circuit of the Americas (COTA) and it’s challenging times to find profit. Could this mean that F1 will experience a rash of temporary road circuits like Monaco, Baku, Australia, Russia (Sochi) and others to avoid the cost of a purpose-built circuit?

With Liberty Media acquiring F1, it will be very interesting how the new owners will entice circuit owners and race promoters to remain committed to the series and one must imagine that lowering sanctioning fees is one of the few ways to do it or sharing more of the advertising revenue and track-side marketing dollars.

When you reduce the revenue stream to F1, it impacts the teams directly and perhaps you could argue that they should have considered that before demanding the series change to a formula that isn’t resonating with fans or race promoters—given the sanctioning fee—but apparently reverberates across the halls and boardrooms of the major manufacturers to be a proving ground and rapid prototyping incubator for road car relevancy in the hybrid space.

F1 boss, Bernie Ecclestone, has always insisted that there are plenty of other nations on a list waiting to host a F1 race and perhaps he’s right but I haven’t read anything yet and there aren’t a lot of massive circuits being built now.

Would Liberty Media be willing to lower hosting fees and take more of the intake from a race weekend? It would be a risky move as attendance can be inconsistent but perhaps the new owners would create a buttress against that by creating all-new distribution models for cord-cutters and mobile consumers—would that be enough? Maybe not if you consider total viewership has dropped significantly in the past five years.

It’s a tough situation to navigate but clearly—and here’s the upside of the story—Liberty Media feel they can turn this ship around and ultimately they have a massive opportunity to own a real top-shelf content generation vehicle. I don’t disagree with them at all, I think it is poised to do something much better and more lucrative with a creative approach to the business model. The good news is, Liberty Media knows how to craft business models.

It’s a good thing too as the list of former F1 races and circuits is becoming much longer than the current list of races and hosts. 

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Rapierman
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Rapierman

We knew long ago that requiring the GNP of many countries to be paid is not sustainable. There’s only so much money in the world, and requiring more than what exists just makes things impossible. Besides, there’s only so many rich folks. It’s time to cut the fee down. Sam Walton made deep discount stores work. The definition of insanity is to do the same thing that didn’t work over and over again and expect a different result each time. I’m not in the habit of butting my head up against the wall. I would hope that, with the new… Read more »

geeyore
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geeyore

1) I’ll have to go with the consistent and repeated statements by Bernie and even Max – hybrid’s (former) biggest promoter – that the obscene costs of the hybrid formula make sanctioning fees high [knowing also that they are not the most unimpeachable sources]. 2) Running races in kleptocracies is and was a bad strategy, since pathetic attendance in the grandstands shows easily and prominently to broadcast viewers. That’s not really good for F1, and it’s not sustainable. 3) F1 “reverberates across the halls and boardrooms of the major manufacturers to be a proving ground and rapid prototyping incubator for… Read more »

judson vandine
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judson vandine

I think expansion in the western hemisphere should be something Liberty Media should focus on. With Malaysia pulling out that could leave room for another race on this side of the pond. Given that GP’s like China and Malaysia have had dramatic decline in attendance seems to point to waning interest in parts of the Asian market. Let’s not forget the miserable short lived failures of the Indian and Korean GPs. I genuinely think that there would be enough fan demand for another race in North America. Montreal is my closest venue and I go every year and the grandstands… Read more »

Member

Where is the next big market? You have not heard Bernie brag about some other country ready to step up to replace Malaysia and Singapore. F1 simply priced itself out of reach of most developing countries. My guess for the next big market might be South America, particularly if Brazil goes away. A race back in Argentina is possible but don’t know how likely. I’m surprised South Africa or a third race in the Persian Gulf states has not come up in conversations. Liberty Media may want more races on the calendar but it may be best to contract that… Read more »

jakobusvdl
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jakobusvdl

If F1 is going to stick with Bernie’s model of going wherever anyone is prepared to stump up the cash, then i guess they be courting pariah states, and dictatorships again – Syrian GP anyone?