I won’t disagree with Mercedes boss Toto Wolff on the challenges Formula 1 currently faces. The old business model is being both challenged and deliberately changed by the sport’s new owners and perhaps they have all the bases covered on this.
The old notion of moving the series around the world and finding new locations who are willing to pay large race-hosting fees may not be sustainable according to Wolff as several race promoters attended a meeting in Monaco last week to discuss that very notion.
“Sanction fees were one of the three key revenue generators in the old Bernie Formula One business model. And he was exceptional at these deals,” Wolff told reporters.
“I am not sure that is sustainable. It is clear that when there is a change of regime, people and promoters will negotiate and try to restructure the business model.
“Bernie was squeezing the last cent out for the benefit of the shareholders and the teams but it left certain promoters in a very difficult economic situation.”
Certainly Silverstone, Circuit of the Americas, India, South Korea, Turkey, Germany and others all face steep fees with yearly escalators in their contracts if rumors are to be believed. Then there are the stories that some circuits pay far less than others for the privilege and that’s not sitting well with those who pay more. Silverstone exercised its break clause sending a clear message to F1.
The main push is that track economics have to work for these circuits and it is part of why I think F1’s desire to see track changes in order to meet the demands of today’s cars will be a difficult ask given the current situation.
The solution? Wolff reckons F1 has to find alternative revenue streams.
“But it is also clear that maybe that one pillar (hosting fees) is going to be difficult to maintain on the levels we have seen before,” he said.
“We have to grow in other areas, we have to grow broadcast deals and digital revenue and monetise alternative revenue streams.”
The broadcast deals are interesting as they were always a large portion of F1’s revenue and as those contracts expire, F1’s challenge is to renew them or find alternative broadcasters to pick the series up. Toto mentions digital revenue currently that’s a bit of a sore subject.
If F1, effectively, handed the US broadcast rights to ESPN while it launched its new OTT service called F1 TV, it means they were willing to forgo any large revenue stream for the American broadcast rights in favor of having the freedom to launch their own service. The problem is that their new service isn’t stable. It seems immature and not very well thought out from a user experience perspective or a network stability perspective. It was still crashing during this weekend’s Monaco Grand Prix—the premier event on the F1 calendar.
Perhaps F1 has a plan that will rely less on broadcast packages and high race-hosting fees but if that’s the case, F1 TV had better get itself sorted or it will be a very hard sell. Regardless, If you’re digital product was going to replace broadcast packages per nation, I am sure F1 will get it sorted in time and simple math would tell you if they can get 20 million subscribers of the 400 million that watch F1, well, that’s a different ballgame entirely.
It will have to be a different ballgame because the teams rely, now more than ever, on the prize money for their revenue. Any reduction in hosting fees or loss of broadcast packages directly impacts them.
Hat Tip: Reuters