Liberty Media Buys Formula 1 – What Next?

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With the Formula One season returning in the coming weeks, the sport faces to huge changes, which may be unprecedented in its 67 year , championship history.

This is thanks to long-time owner (nearly 40 years at the wheel) and force-of-nature, Bernie Ecclestone selling the F1 brand to Liberty Media , in a deal worth $8 billion.

However, Liberty’s buyout, while timed similarly to WME-IMG’s UFC deal, is different in many ways. While UFC and mixed martial arts (MMA) as a whole is a sport experiencing explosive international growth, Formula 1 is suffering.

Global TV audiences are of huge concern with 400 million tuning into the sport, which is roughly a 33% drop over the last eight years, a loss of 200 million viewers.

Meanwhile in the UK, the sport has been severely criticised for moving some races to paid for only channels, with  half of all live races disappearing from free-to-air television in 2012. As outlined on the F1 Broadcasting Blog the average audience figure dropped in 2016’s season by 29.7%, leaving  an audiences of 2.63 million viewers for each of the sport’s 21 races (across Channel 4 and Sky Sports).

Most worrying of all is that from 2019 onwards only the British Grand Prix will be shown on terrestrial TV. This decision to paywall live F1 content is questionable, in light of the poor performance of a similar deal for European football with British broadcaster BT, with potential rumours that it may be forced to return to terrestrial TV due to very low viewing figures.

Meanwhile, this decline in eyeballs has also had a subsequent effect on the most reliable of income for Formula 1, sponsorship. It dropped to $750m, down from $950m three years before.

The Most Expensive Sport?

Some issues are also unique to Formula 1 as a sport. There’s no getting away from it, it is a very expensive sport, for both teams and countries and cities which host races. This is also a serious issue, especially as viewing figures have fallen for the sport.

Consider that NFL teams have a cap of $167 million to spend a year on players’ wages and across a 32 team league, this amounts to over 5 billion a season. However, just ten Formula 1 teams spent over $2 billion to compete in the 2016 season, with Ferrari being the biggest spender, dropping a whopping $410 million and despite this huge outlay, finished only third in World Constructors’ Championship. Formula 1 could undoubtedly be considered the most expensive sport on the planet. 

Meanwhile, for those countries looking to get in on the action and host a race, the costs are huge too. As previously described in a brilliant Raconteur article by Christian Sylt, countries hosting a Formula 1 race face a hefty cost attached, with a race occurring in two ways: either on the street, or on a purpose built track.

Before even getting into the cost of both approaches, it’s worth noting that host countries pay for the privilege of having a F1 race, with the fee costing around $30 million, yet with a 10% cost increase applied every year. This means, as most F1 race contracts encompassed a minimum of 10 years that host countries will be paying a minimum of at least  $70 million.

In terms of races:

  • Taking To The Street: For a street race, such as Monaco, the costs are astronomical, coming in at a cool $100 million a year, which includes insurance, staffing costs (of roughly 600 people). This approach obviously saves having to build a huge, gleaming new racetrack which may not be used throughout the calendar year.
  • Taking To The Track: Meanwhile, building a new state of the art track will set you back $270 million, a hefty up front cost. However, it ends up being cheaper than a street race, as staffing costs are lower, meaning in total it costs $93 million to host each year, however, recouping the initial outlay to build the track will be a significant cost issue.

Again, this huge outlay for host countries is really unparalleled, unless compared to hosting an event like the World Cup or Olympics, which are one in a generation type events, instead of a yearly commitment.

Where To Next With Liberty At The Wheel?

Broadcasting revenues account for up to 35% of Formula 1’s annual revenues, Liberty Media seem intent on pursuing paid for TV deals, which, as evidenced in the UK, further reduce viewership figures for the sport. However, with Liberty Media owning live music behemoth Live Nation, they’ve pronounced they want to make each race a Super Bowl-esque style event, which may tie in with this paid-for TV approach as each race will likely turn into a week-long event.

Plans to revamp the sport and make it more enticing to new audiences, with significant changes to cars, have also been put on hold. However, one immediate change that Liberty Media has made was to push Ecclestone to one side, with Chase Carey appointed new CEO, with further shake ups in the boardroom a likely to follow too.

In truth, time will tell where Liberty Media brings Formula 1. The sport has some unique issues that need fixing (such as the exorbitant cost for teams and host cities outlined above) and much like the recent UFC buyout, we’re unlikely to see an immediate, large scale changes, but undoubtedly, the sport must change to grab the attention of new potential fans around the world. As Eccelstone, said of the purchase, Liberty Media weren’t buying Formula 1 to be a ‘hobby’.

Dave Claxton

I'm a PR professional and journalist for SportTechie. I'm blogging about how business is increasingly impacting sports in this ever connecting world.

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