Wolff: F1 can’t rely on high race-hosting fees

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Photo by: www.kymillman.com/f1

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

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sunny stivala

“Be prepared, F1 fans- liberty’s vision all about $ $ $”.

Mr. Obvious

Uh…because Bernie’s wasn’t?

subcritical71

Bernie would have had a few more $ signs, and forget the spaces, fill those with $ too

photogcw

Just as the teams had to give up tobacco branding and advertising, FOM may be forced to do the same over sanctioning fees, especially if some tracks pay more than other venues on the schedule. It is certainly possible to replace those tracks unwilling to pay with places that will-get ready to see more street races in the future.

Tom Firth

The loss of $4m (£3.1m) a year from the US TV deal is one thing, compare it to £150-200m per year from the UK TV deal and its a drop in the ocean. The first is somewhat realistically replaceable by streaming membership, the second is not unless F1 can find 2.3 million people who are going to sign up to their paid streaming service, which given Sky can’t get more than 800,000 to sign up to Sky F1, seems somewhat impossible.

Fabio

I don’t live in the UK so I wouldn’t know, but surely the cost is cheaper to sign up to F1TV than to Sky F1? Plus 2.3 million people worldwide shouldn’t be hard. No?

Broderick1

It is only cheap now because they are using the SkyF1 feed. How much are they paying Sky to broadcast outside UK? Will F1 be breaking even after compensating sky? If not, they have no choice but to increase fees. With dwindling numbers in the UK, will Sky renew their broadcasting deal with Liberty? If yes, for how much discount? If no, then Liberty now has to produce their own content and the cost will be astronomical compared to getting a feed. Bratches was also bragging about more cameras on tracks, inside cars, around the paddock. F1 like you’ve never… Read more »

Tom Firth

Sky has an exclusive deal from 2019-2024 in the UK, they signed it under Ecclestone and are very happy with it, it would appear. It’s also probably the biggest rights deal F1 has ever done so Liberty will be happy. There’s also some connections in the relationship too between Sky and F1’s current CEO. The big question for Sky is how does it recoup the money its going to spend on F1 with the size of audience that it personally brings. The release a couple of years ago when they announced it was a bit vague, it said ‘highlights will… Read more »

Tom Firth

Yes the cost to the consumer is cheaper or it would be if F1TV (including the live portion were to become available here) but F1 would need to get 2.3mil subscribers to its service at the current cost to consumer of its full F1TV platform (Translated from the US cost per subscriber per season) to just cover how much Sky is reportedly going to even at conservative estimates I may add, pay FOM per year for F1 rights in the UK from 2019 to 2024. On top of that, F1 has exclusive PayTV deals with Movistar in Spain and Sky… Read more »

Broderick1

Hey Tom, Interesting points. In my opinion, Sky and the UK market is the key. No UK market means no SKY means no content means no feed to the rest of the world. I wonder how SKY is able to provide feeds to North America when there are strict UK laws on importing content. All UK households pay a mandatory tv license fee of £147 annually just to watch live TV. That fee is mandatory regardless if you’ve already paid for a private channel like SkyF1. If it is broadcasted live, you have to have a tv license to watch… Read more »

MIE

The TV license fee is used to fund the BBC, it has nothing to do with Sky or any other TV company. These all require advertising, subscription or a combination of both to fund their output.

Broderick1

 MIE I got this from the official tvlicensing.co.uk guide site from the UK “A TV Licence is a legal permission to install or use television receiving equipment to watch or record television programmes as they are being shown on TV or live on an online TV service, and to download or watch BBC programmes on demand, including catch up TV, on BBC iPlayer. This could be on any device, including TVs, desktop computers, laptops, mobile phones, tablets, games consoles, digital boxes, DVD, Blu-ray and VHS recorders. This applies regardless of which television channels a person receives or how those channels… Read more »

Tom Firth

Just to clarify for non confusion. You need a TV license to view ‘live’ TV irregardless of channel viewed etc (as well as BBC iplayer on demand content) but as MIE correctly points out, the money from that TV license payment is by law for the BBC only. You don’t need one for Youtube or Netflix or on demand platforms except BBC Iplayer. As for broadcasting in the rest of the world, Before Sky took over F1 coverage the BBC broadcast was simulcast in several nations. Additionally until a recent switch to Sky coverage, Channel 4’s coverage was shown in… Read more »

Broderick1

Hey Tom.

I wasn’t really disputing where the money goes. I just wanted to point out that the UK residents pay annual license fees regardless of what they watch, Sky F1, for example, and you don’t even need to watch the BBC either. As long as it’s live TV, you need a TV license.

I just thought it was interesting that UK residents already pay expensive subscription fees plus tv licence fees just to watch the Sky F1 coverage when viewers in North America can watch it through F1 TV for a pittance.

Tom Firth

Correct, though we get a lot of american TV at cheaper prices than the US sees it so its swings and roundabouts and we get the BBC out of this which isn’t too bad.

If you’d like to continue this discussion, feel free to email me: Tom@theparcferme.com. Don’t really want to go anymore off topic here :-)

sunny stivala

Google as printed in my first post and read what the situation is like.
Liberty is in a race to secure a rapid return on their investment and a drastic Americanisation of the sports which has left many fans cold. maximising shareholders revenue are the first, second and third thoughts integral to any decision making process.