Formula One does not do half measures. In terms of speed, spectacle and cost, motorsport’s premier competition is built around high challenge and little compromise. Bernie Ecclestone’s 40 years at the helm of the organisation led the series to both mainstream popularity and tremendous financial success. As drivers like Ayrton Senna, Michael Schumacher and Fernando Alonso became household names, revenues climbed into the billions.
However, while still posting huge profits, Formula One’s viewership has been in decline for the past few years. From a global audience of 600 million in 2008, viewers shrunk to just 400 million in 2015. Ecclestone’s focus on locking down broadcast rights and soliciting large fees from wealthy race hosts may have kept the sport rich, but has gradually priced viewers out of an experience many felt was, in any case, now dull and predictable. With a sense of inevitability, Ecclestone’s reign came to an end at the beginning of 2017, with US mass media corporation Liberty Media swooping in to purchase the platform. With Chase Carey appointed the sport’s new CEO, Formula One is now set for its biggest change in four decades.
For the new owners, the challenge will be to rewire the sport for the modern age, while maintaining the significant profits investors expect. Balancing the sport’s distinctly European history while growing the US market will result in new races, new ways to watch and, with any luck, new viewers.
Race to the top
Born in Suffolk in 1930, Ecclestone was himself a racer in his youth, but a series of accidents at Brands Hatch prompted him to leave the sport. After building a business empire from a single motorcycle dealership, he returned to motor racing in a management role. In 1957, he purchased Formula One team Connaught Engineering and began managing the career of driver Stuart Lewis-Evans. In 1958, after Connaught ended up without a driver, he attempted and failed to quality for both the Monaco British Grands Prix. He exited the sport again after Lewis-Evans was tragically killed competing in the Moroccan Grand Prix later that year. He returned a couple of years later, only for the death of his friend and management client Jochen Rindt in another racing accident to prompt him to leave once more in 1970.
It was in 1972 that Ecclestone began his remarkable transformation of Formula One. He had purchased Brabham Formula One at the end of the previous year and led a period of moderate success for the team. In 1978, he became leader of the Formula One Constructor’s Association (FOCA), an alliance of smaller independent racing teams campaigning for their interests against the governing body of world motorsport, the Fédération Internationale de l’Automobile (FIA). Under Ecclestone’s stewardship, FOCA mounted a fierce legal campaign for a greater share of Formula One’s revenue from the growing television audience. It took until 1987 for the battle to be over, with the establishment of the Formula One Promoters Association to manage commercial rights, and Ecclestone was in charge.
While still posting huge profits, Formula One’s viewership has been in decline for the past few years
“He took it from what was essentially just a handful of teams with not very many household names and grew it into a kind of global circus, while obviously enjoying the revenues behind that and paying back shareholders from [Formula One’s former parent company] CVC capital partners”, said Ed Valentine, a motorsport analyst at Opta Sports. “When he took it over, it wasn’t really a world championship. It was mainly European races, and then maybe one or two in South America. Now we have 19, 20, 21 events which are truly global.”
Formula One’s business model was both much envied and highly secretive under Ecclestone. As well as broadcast rights, the sport took in large fees from the cities and countries that hosted events, bringing in such wealthy states as Abu Dhabi, Bahrain and Singapore. “Business is secretive at the best of times, but he was hyper-secretive, so in terms of how he did those deals, and how they came about, I don’t think anybody would know”, Valentine said.
Formula One is a spectacularly expensive to be competitive in, but Ecclestone always managed to encourage teams to join, however briefly. “It is a sport where we’ve had between 50 and 60 different teams coming and going over the last 35 to 40 years, so keeping the grid populated was always a tricky problem”, said Valentine. “But he always managed to squeeze a minimum of 20 cars onto the grid. So in terms of financing, he was a master.”
Bernie model
While overseeing incredible financial and viewership growth over his time in charge of the sport, Ecclestone has also courted controversy. In January 1997, he donated £1m to the UK Labour Party, a contribution that was only revealed in December of that year and after the Labour government announced Formula One had been granted a temporary exemption from a ban on tobacco advertising – then a key revenue source for teams.
Ecclestone also faced a bribery trial, where he was accused of giving Bayern Landesbank executive Gerhard Gribkowsk $44m in 2006 to influence who the bank would sell a share of Formula One to. In 2012, Gribkowsk was sentenced to eight and a half years in prison, while Ecclestone avoided prosecution with a £60m settlement. In 2009, Ecclestone was back in the news after suggesting Adolf Hitler was a man able to “get things done” and that Saddam Hussein was “the only one who could control [Iraq]”.
Around the latter end of those controversies, Formula One also began to suffer on the track. Between 2010 and 2016, either Red Bull Racing or Mercedes dominated entire seasons, often quickly building an insurmountable lead over rivals. Many races were criticised for being dull processions due to a lack of overtaking opportunities, and for being effectively decided by the halfway point.
Attempts to improve the on-track action were frequently short sighted and ineffective. To make the last race more exciting, double points were introduced for the 2014 season finale. The decision was widely criticised by drivers and fans, and ultimately did not impact the final standings. Qualifying was changed for the 2016 season to incorporate a countdown knockout system, but this was scrapped after the first race due to fan confusion and cars ultimately spending less time on the track.
“I think he started to focus more on the money than the on-track entertainment”, said Valentine. “He had no marketing department. It was basically him running the commercial side with the FIA Championship. He didn’t really put an onus on the theatre or circus of what was on the track.”
Ecclestone also pursued broadcast deals that favoured subscription television networks and almost no digital presence. For a long time, teams were even unable to post videos on social media from the pits.
Giving chase
In September 2016, a deal was signed that saw Liberty Media take a controlling share of Formula One for the 2017 season, valuing the sport at $8bn. Alongside Formula One, Liberty Media also owns the Atlanta Braves baseball team and a third of music promoter Live Nation.
Liberty Media quickly laid out its priorities for the sport, with CEO Greg Maffei saying Formula One would focus more on the US and new, untapped digital channels. Formula One’s new CEO Chase Carey echoed Maffei’s sentiments at the time. “The Americas are an opportunity, and we are excited about developing them”, he said in an interview with the Financial Times. “But we also see Asia as an opportunity, and it’s very important we build on the foundation in Europe. This is a global sport.”
Liberty Media has flagged the US as the biggest opportunity Formula One has for growth
Carey is a veteran of the entertainment industry with an eye for sports. During his time as CEO of Fox Television from 1994 to 2000, an aggressive bet on securing the rights to broadcast NFL games catapulted the network to success. Between 2003 and 2009, he was CEO of DirecTV, before returning to Fox as COO.
The handover also saw Ecclestone’s role effectively being replaced by two additional people alongside Carey. Legendary Formula One technical director Ross Brawn was appointed to the newly created role of managing director of motor sports, tasked with leading the technical direction of the sport to encourage more exciting racing. Former ESPN sales executive Sean Bratches was appointed to the newly created role of managing director of commercial operations.
Some changes were immediate, with teams allowed to post videos online from the pits. Valentine said Liberty Media has shown an interest in making Formula One less elitist. “In the Bernie Ecclestone era, you would have to pay something like €550 to €600 to get a reasonably good seat in the grandstands. For two adults and a couple of kids, you’d pay the best part of €1,300 to €1,500. It might take a family two or three years to save up for that, when they can go to an Arsenal or Chelsea football game and pay €150 to €200.” Other fan-friendly initiatives, such as free Wi-Fi in the grandstands, have also been introduced at races.
In terms of the on-track experience, a new agreement as to how finances are distributed is also on the cards. As it currently stands, while finishing higher in the championship determines a larger proportion of cash for teams, older and larger teams are awarded bonus payments that reach into in the tens of millions, leaving smaller teams unable to catch up.
The current Concorde Agreement, the deal that sets out how money is distributed among teams, is set to expire in 2020. Valentine said he sees the renegotiated agreement as likely to be more equitable, in order to encourage a more level playing field and less predictable results.
Another major change is likely to be where races are held. Right now, Formula One races fall into two categories: the traditional events hosted at historic circuits, and marquee events supported by national or state governments. For the marquee events, governments have been able to justify the substantial race fees since they provide global promotion and a cash injection to the local economy. Some traditional track owners, more reliant on ticket sales, have recently struggled to meet these fees, prompting frustration from fans who appreciate traditional racing heritage.
Carey has expressed willingness to change the way the sport does business in this sense. “Nobody was tricked… [but] has F1 invested in the right way to support the events? It’s not that the deal is overpriced, it’s more, did we deliver where we should deliver?”, he said in the Financial Times interview.
Ecclestone has himself questioned the long-term feasibility of the fee structure he built. “I charged [promoters] too much for what we provide”, he told reporters at the 2017 Bahrain Grand Prix. “I did some good deals commercially. They are paying a lot of money, and most of them, if not all of them, are not making any money. Quite the opposite. Sooner or later I’m frightened that the governments behind them will say enough is enough, and bye-bye.”
Across the Atlantic
Liberty Media has flagged the US as the biggest opportunity Formula One has for growth, with Carey stating he would like to see more races there. But, in order to do this, he will have to overcome a tainted reputation, Formula One’s entrenched European foundations, and the many other sports competing for the average US viewer’s attention every weekend.
While Formula One has held many races in the US, the 2005 event at Indianapolis stands out for only six cars having participated. Michelin’s tyres, the most popular on the grid, proved unable to handle the track’s high-speed banked corner. A compromise on swapping tyres or adding a chicane could not be reached, and all but six cars pulled into the pits after the warm-up lap. Fans were unimpressed, and the US did not host a race between 2008 and 2011.
Valentine said the recent success of the Austin Grand Prix, first held in 2012, has done a lot to repair the sport’s reputation in the US, though the real challenge will be prying viewers away from other events. “They’re going to have a hard job stealing fans away from NFL and the many other sports that are going on.”
Formula One’s new owners appear to be working towards a balance between mixing European heritage with the untapped potential of the US
Dan Jones, head of Deloitte’s Sports Business Group said that, currently, Formula One remains a niche sport in the saturated US market. “Greater broadcast exposure for all races can play a part in raising awareness of the sport”, he said. “However, the ‘jewel in the crown’ for the sport would be to see an American driver compete and succeed in the modern championship. There are many examples that demonstrate the impact that a successful athlete can have on attracting new fans to a sport – the ‘local hero’ factor.” While Formula One did add a US-based team in 2016 – Haas F1 – a local hero may be some time away.
Broadcasting rights, particularly in terms of digital offerings, have also changed in the sports market. Rather than go through a TV network, many leagues are now offering an ‘over the top’ (OTT) service consumers can directly subscribe to. “There is already evidence that sports leagues themselves are taking greater control of their digital rights; the English Football League has recently announced the launch of an OTT platform to broadcast rights to its competitions in international (non-UK) markets, and both the NFL and MLB have established digital platforms available in non-local markets”, Jones explained. Formula One’s new management will have to navigate its complicated licensing deals in order to offer its own service, but it’s a necessity for its US success.
That said, consideration must also be given to appeasing the sport’s European heartland. “We do want to grow globally, particularly in some of the markets where there are opportunities, but the foundations of the sport is western Europe, and we want to make the races in western Europe as strong as they can be”, Carey said in a 2017 interview with Sky Sports.
Valentine said Liberty Media seems to be shifting towards deals that are more favourable for event promoters, both small and large. “They see that it’s not all about extracting as much money as possible from doing a deal at a circuit like Bernie did. Once they see that it’s a fan-friendly environment, I think you will have promoters queuing up.”
While the biggest changes will take some time to play out, Formula One’s new owners appear to be working towards a balance between mixing European heritage with the untapped potential of the US. Encouragingly, the small steps Liberty Media has taken are already paying off: the 2017 Monaco Grand Prix was reported by WTF1 to be the most viewed race since NBC secured US broadcast rights in 2013. If such a difference can be seen after just a few months, the next few years look very promising indeed.