Change of power procedures in F1 are interesting by themselves, but what is also important is trying to explain each part’s motive. For years anyone involved into F1 would take it for granted that the sport is a direct association with the name of Bernie Ecclestone. Things, however, change rapidly in the world of business and Bernie Ecclestone can all but be named sentimental when money comes into play. What could have made him leave such a position of power in the sport?
Everything could track back to what has been Formula 1 ‘s working business model. Not getting too much into details, the model should work like this:
F1 received money from several sources. Almost a third of its income would originate from television contracts, a 15% arrived via F1-exclusive sponsors and another 17% from hospitality tickets. The rest third would be added from the racing tracks, paying a substantial amount of money in order to host a Grand Prix.
The teams, on the other hand, rely heavily on this model’s success, given that they receive about a third of their earnings based on their championship performance, being paid by F1. This amounts to about 65-70% of F1’s total earning, which is, well… a lot. And it also justifies why the Concorde Agreement is such a big deal each time it has to be resigned.
All of the above stressed out that the two utmost important factors of income for F1 and the teams have been TV and track license fees. For years Bernie had managed to bring these necessary earnings home for F1 to thrive, but the other side, the paying side, started to struggle seeing the dividends behind the investment.
In television, things started to be more and more complicated, since pay-per-view and subscription services gained ground, digital streaming (legal or not) changed the way we watch and ad revenue plummeted. In this case, it has been fairly straightforward: the businessman would do the math and say a deal with F1 is or is not profitable at this price, being able to directly see the financial balance.
In the case of track license fees, it goes more… political. While demanding a very high license fee from the tracks, F1 would also force promoters and track owners to limit their income sources. For instance, big advertisement boards that are placed throughout the track and are visible through television coverage are mainly F1’s sponsors, not the track’s. Same goes for earnings from hospitality and TV rights. Which means that the track is practically only left with the main option of spectator tickets, along with stores, merchandise renting spots and so on.
Keeping it simple… F1 would calculate what its desired viable income should be and then forced the tracks to get this money whichever way they could. This model would almost never be profitable for the tracks themselves, or would not be anymore. A common practice would be a collaboration between the track, the promoter and the State, at least for some part of the cost. Thinking in good will, this was decided in order to boost the local economy through the promotion of the area or the country itself. The problem was that several traditional racing countries would not buy this anymore, since they did not actually need such a promotion (at least at that price). The trick did the job for a bit longer, by bringing emerging economy countries into play (e.g. India, Azerbaijan, Turkey etc), where there has been some value in such an investment. As it seems, this would only delay the inevitable: race license fees reached amounts (about $30-40 mil) that almost any country would find it hard to justify spending tax payers’ money for.
Somehow, Bernie had managed to make everybody else pay in order to keep F1 alive and profitable, while they would at the most hope for balanced finances. This had to do with the development model of several countries and also the target markets of big automotive manufactures (again, only speaking from an “innocent” straightforward business perspective and not getting into corruption related transactions). There has been, though, a moment when Bernie saw that this could go further no more.. He must have then decided to pull out in an orderly fashion. (read more on this, here).
This kind of mess is now in the hands of Liberty Media, trying to change the scene completely, by introducing F1’s own streaming service (which has been a matter of friction with television commercial rights holders) and daring to re-open the sensitive issue of race license fees, openly talking over new business models. We could go with the hypothesis that Bernie Ecclestone never intended to retire and also the fact that he did not find a way to keep on with a viable business model for F1. Then it’s all reasonable to have some doubts on whether Liberty Media makes it instead. For the good of the sport and its fans, we can only wish the best of luck to the Americans.
