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The way to fix F1 - Part 1 (Learning from Springsteen and Federer)

FEATURE BY MAX NOBLE
07/02/2017

To review and evaluate all the excellent reader feedback around the question "What should Liberty do now with Formula One?" I've split potential actions into three key categories. We will explore each before ending with a synthesis solution of the best ideas as to how one might move Formula One forward.

I've chosen to divide the suggestions into three categories as follows; Business Model, and Healthy Teams; Fan Engagement and Media; and Sporting Regulations. While some concepts might sit in more than one domain, and some impact all domains, I've elected to use these category definitions to simplify thinking about what at once is a very simple idea (to run a great sport for profit), and a very complex one (to run a great sport for profit, taking care of all the detail and pleasing everyone... both at the same time.

So with that modest introduction let us commence by exploring suggestions relating to the Business Model, and Healthy Teams.

I had the privilege over the past week of bathing in the sheer ecstasy of remarkable passion, not once, but unbelievably twice. First we paid a not inconsiderable amount to have the utterly brilliant and unique Bruce Springsteen meld passion, musical ability, and performance genius into a concert of epic dimensions and soaring emotion. Yes it was expensive, but the experience was beyond price.

Then, just days later, via free to air television coverage (Live and Free, as the on-scene watermark reminded us every second) we shared the thrill and passion of a most remarkable Federer, Nadal match of epic dimensions and soaring emotion. It cost nothing, but the experience was beyond price.

There we have it. Our base issues in Formula One captured in two amazing, yet very different, experiences. If Bruce charged nothing for his music he'd be living under one of the bridges or aqueducts he sings about, and only a few locals would ever have heard his music as he could not afford to tour. If the Australian Open was behind a pay wall I'd have read the result the following day. And in both instances all shared passion would have been lost. Indeed except for those directly involved the shared passion would never have been generated on a global scale. What a loss both would be to humanity!

So, with those concepts at the front of our minds, let us run a dispassionate ruler over the many suggestions from readers about what Liberty media should really be doing to fix Formula One. At the core, remember, is the need to generate engaged passion. We want to engage because it is a passionate experience we wish to repeat. If a product or service cannot capture that essence in some measure it will not build a world class brand that people actively seek out.

In our capitalist world, the bedrock has to be a functional business model that is sustainable long term. So, considering the business of Formula One first...

If Formula One were to publicly release Vision and Mission statements they might run something like this:

Vision - To provide engaging passionate world class racing to the largest annual sporting audience in the World.

Mission - Within a safe work environment enable the World's best drivers to engage in fair sporting competition while engaging passionately with fans, show-casing world class engineering, providing fair returns to team owners, and value for shareholders. Independent review of our work should consistently rate us as the largest global sport as judged by viewing numbers, turn-over, and media exposure on an annual basis. Fans should consistently rate our races as "exceptionally passionate and exciting", and Grand Prix weekends as "must attend" sporting events.

To realise our Vision, and achieve our Mission, we need to have a viable business model, functional teams, engaged fans, and world class drivers in remarkable cars.

Pitpass readers provided numerous suggestions on how this might be achieved. Some consensus appeared, but we also had many diverging, and indeed in many instances conflicting, recommendations. First the (few) things we can all agree on!

We want passion. We want close fair racing. We want the best drivers and cars. We want all those involved to make "fair and reasonable" money. Beyond that? Well let's say that the harmony of the singing drops off significantly after the opening verse.

Most readers agreed the top teams have too much, and the lower teams too little, so in general we all agree a rebalance is required. Liberty should be capable of achieving this after 2020 when current agreements expire. With three years to discuss and sign we should hopefully see some reader's ideas successfully adopted.

A formula that combines a base payment, same for each team, plus a rebalanced historic payment, to recognise long service to the sport, plus a points-based portion should not be difficult to generate. What will be difficult is obtaining the backing of teams that will see significant income reduction. In business this is usually considered as a basic retainer with a larger proportion of income being "at risk". Our current issue is that the large grandee teams have a significant basic retainer, and as a result win a remarkable portion of the "at risk" pool of money. Pitpass readers generally agree that sorting out a more reasonable distribution of the available money would flow into sorting a number of other problems around teams being viable, and increasing competition at the front of the field.

Some readers then suggested that Liberty should pay circuits for the privilege of hosting a Grand Prix. While I'm sure Silverstone would be delighted by this possibility it is highly unlikely that Liberty would see this as a beneficial business model. Freezing hosting fees and enabling circuits to access more of the revenue stream of Formula One is a more workable compromise. Again we are looking at the rebalancing of funds distribution rather than a desperate need to find additional funds to run the sport.

Readers generally acknowledged that budget caps would be very difficult to police. As a result we had some intelligent suggestions around increasing the allowances for the bottom teams with some high-value resources. For example doubling, or even unlimited, access to wind tunnels or high power computing for the lower teams. Using a formula to ramp-up allowed access times as one moves down the end of season finishing order should be possible... again over to you Liberty on this creative idea. It could be allocated and policed with reasonable ease compared to trying to ensure no other departments of a large manufacturer were providing multi-million dollar car parts for zero to the racing team.

If Liberty gets the basic funding allocation right, it is then a team management job to run a successful business. This is no different to every day business. Atari, Sinclair and Commodore, to name but three long gone companies from the "Golden Age" of computing operated in the same business environment as Apple and Microsoft. Yet they failed. That is not a flaw in capitalism. That's a flaw (often many flaws...) within the company. So it is with teams. Haas is busy making a significant success in the same business and sporting environments that just put pay to Manor. It is not the duty of Liberty or the FIA to support companies that cannot run themselves at a profit.

Liberty wants to see a return on its investment. That's simply sound business. No doubt increasing revenue would help in this situation, but the first business issue to address as identified by Pitpass readers is to rebalance the funding model. If we have healthy teams, and healthy circuit owners, then as a result of a healthy environment for the sport the competition should naturally start to become closer, improving the show, and then real revenue growth will result, rather than the Bernie Squeeze approach to business that ensures the owner makes money at the expense of circuits and teams.

So. Lesson one. Sort the funding model. Make it possible to run a back of the grid team at a profit. Make it possible to run a circuit at a profit.

Pitpass Recommendation. Larger basic retainer payments to all teams. Significantly rebalanced historic payments, and a new calculation for winnings over the season that ensure a larger percentage goes to the lower half of the grid. Similarly for circuits, freeze, or heaven forbid reduce, basic hosting fees, and allow circuits to turn a profit. Improved racing and improved race weekends will result from the healthier more competitive environment.

In part two we will review suggestions on fan engagement and the media.

Max Noble.

Learn more about Max and check out his previous features, here

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READERS COMMENTS

 

1. Posted by Fan For Now, 09/03/2017 16:04

"Very good points are being made here. As a long time fan, I have become a bit jaded by the chasms built between the organization, the teams and the fans. I can remember back to the mid 70's at Watkins Glen when you could stroll near the pits and see the cars and teams working on them. Hell, you could even have a drink with the drivers at the Glen Inn if you were lucky!!! After attending races in Canada and the Indy track in 1999 and a few years after that, if you don't have a telephoto lens or a pair of field glasses, you can't see anything. The only thing that made you feel a part of the race was the incredible sounds, which are now gone and remind me of high priced Dyson vacuum cleaners.

This IS a FAN DRIVEN sport and the teams and drivers must be accessible to the fans. Montreal used to allow fans to walk the pits on Thursday but when I last attended, there were screens set up so that no one can photograph their precious technology. There are no drivers in sight as they are all in their motor homes or pouring over data sheets. This is not what the fans pay for. I for one will not be attending anymore races here in North America. Thanks for the venting!!!!!!
"

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2. Posted by RossThe1, 08/03/2017 21:34

"If I did not love auto racing F1 would be a waste of time. All these old guy's like me-became adults in the 60's- an some actually attended an F1 event, three or four days of fun with fans and racing! On TV you don't even get a summery of all the activity that go's on associated with F1. Has that died too? At 73 tv is all I have left, I fall a sleep viewing F1 on tv. The DVD saves me and keeps me updated. Note: I don't fall asleep until halftime viewing the NFL. "

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3. Posted by sagosac, 02/03/2017 5:06

"better conditions for track owners / race promoters => more affordable gate-money / entrance fees => more packed stands => better TV ratings [on the long run; because who wants to watch events no one attends]"

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4. Posted by Max Noble, 22/02/2017 10:32

"@4-wheel drifter: I agree. It is the inherent struggle of brilliance over money. Genius over corporate process. A touch of luck and daring over steady as she goes, that keeps us excited in unbalanced competitions.

F1 is very much an invisible team game. In football one can see the team functioning as a team. One player, alone, cannot win a match. In F1 the hundreds of hard working engineers and others that make fielding two cars possible goes unseen. We see the drivers and a few senior folk on the pit wall... nothing more.

Car loving cultures, race loving cultures, get this. New venues trade on novelty for a year or two, and then head south. Brand value, trust, and the belief an undertaking is authentic take years, and years to build. Motor racing has spent (since the very first races...) over one hundred years building this brand, culture, ethos, passion.

If Liberty continue to sell out the core fan base they will be left with nothing in 2020 when they go to resign teams... to perform before empty stands.

We can but hope the doctor spots the cause and treats that, rather than pandering to the symptoms. "

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5. Posted by 4-Wheel Drifter, 21/02/2017 22:52

"Dear Max:

It looks to this fan that discussing the 'business model' for what is a noticably shrinking business is like asking the doctor to give you the bad news as sweetly as possible. Let's face it: when Bernie took over the 'management' of F1 he had a decent fan base (mostly European with some extension to the Americas --always conditional-- and the Far East) and some teams with either national or sentimental followers. To a certain extent the 'national' followers were content to follow drivers from their country when said countries didn't field competitive machines (I'm thinking of Germany when Mercedes dropped F1; of the United States). The 'sentimental' fans followed drivers or machines as the winds blew this way and that. But under Bernie, the investors saw an opportunity to enhance their profits by turning the show into a showbiz extravaganza paid for by countries and circuits willing to pony up cash in exchange for the 'prestige' of having a race that,for the most part, the fan base could care less about. I mean Abu Dhabi, Hungary, Russia (Russia, for God's sake, at Sochi! What breather of the fumes of racing cars on historic tracks gives a damn who wins Sochi!) Singapore, and on and on. Meanwhile we have no race in France and no race in Germany. You can see where I'm going:
racing open-wheel machines has always been lop-sided and the teams with the bigger budgets are on the podium. Nobody thinks that's 'unfair' --unless you think that horse racing --the sport of kings-- is unfair (and for the same reason). What we love, if we love racing, is the contest between the jockeys v. the rich owners, the drivers v. the rich teams. You got the briefest return to this last year with the gangs turning out for Max versus the Merc team and with the fight in the Merc team between the cool brit and the sullen teuton. What we need is not more fiddling with finance, but more foregrounding the drivers, letting them be themselves and to hell with 'enforcing' the 'rules'. Listen to Seb Vettel when he says let us fight it out on the track and to hell with 'fairness'. That's where your passion is --not in the corporate suites, not with the money men and the suits but with bull-fighters and the bulls."

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6. Posted by Max Noble, 21/02/2017 21:38

"@Hardliner. Agree the Dead Horse in the room will start to stink at some point. Liberty will have a far larger organization involved than Bernie to deliver the show and that needs to turn a massive profit. CVC and Bernie have sold at the top of the market. But as the collapse of Kirsh Media has already proven the show can continue with the collapse of the "owner". I'll laugh long and loud if CVC buy F1 back in a couple of years for 10% of what they have just sold for... and then they can afford to drop hosting fees, give more to teams, and turn a larger profit in a smaller turn over. All while keeping the hugs pile of gold from Liberty safely in the bank...

Without question we are in for interesting times. And that's before we consider whatever Bernie Does Next, or breakaway series..."

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7. Posted by Hardliner, 21/02/2017 10:27

"Clearly our central thesis 'Bernie has sold Liberty a dead horse' didn't hit a popular note, and we seem to have stifled the debate about that part of the future of F1 when we had intended to open it up! Sorry about that.

Liberty will be gambling on making a show of each weekend, so Brawn's role will be what I described as 'selling ice creams to Americans'. But even if that vaguely succeeds, what will Liberty have for sale in a few years time, when the returns from the F1 Circus haven't manifest themselves? Money usually talks, and Liberty needs to take too much out of F1 to justify their investment. Fans, tracks, teams, wont stomach it. So come on teams, FOTA2 is crying out to be done, starting now for launch in 2020. It wont matter what you call it [Liberty will fight tooth and nail], we'll watch if it is good enough and at the right price"

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8. Posted by edllorca, 13/02/2017 16:33

"The phrase heaven forbid should read heaven demands. Track fees frozen now are unsustainable as they translate to ticket prices the keep the stands empty. Hosting fees must drop to allow the track and fan portions of the ecosystem to survive. OR liberty must become the promoter, sell the tickets themselves and pay for the tracks use."

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9. Posted by Max Noble, 09/02/2017 9:45

"@hardliner, and @spindoctor my thanks for the feedback.

You both make some interesting points. One being that other governing bodies (FIFA, PGA, ITF etc...) do not demand huge sums from all concerned while making the central body immensely wealthy.

It's an interesting question, "Does F1 now it is global and established require a huge centralised owner to exist?"

If the FIA can successfully manage the rules, and the circuit owners and teams can manage the event calendar and TV and media coverage I think the answer could be that a central commercial body is no longer required... that's a very interesting path that I am highly confident Liberty media has no interest in exploring.

So if a commercial rights holder is a given for F1 in the near and mid term, how does it hollow itself out to run as a lean ship, and pass as much back into the sport while making a profit acceptable to the owners? Given the modest size of Bernie's operation, I can only imagine Liberty loading up with dozens of media, communications, advertising, commercial, sponsoring, partnering, and legal managers and specialists... and then they all need to show a return to the business from their personal activities.

If you do a simple "dollars in the door per person" calculation on Bernie's operation and what Liberty will put in place between now and 2020 I think it will show a trend that would not delight CVC... oh hang on, they just sold out.

It is going to be fascinating to watch developments.
"

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10. Posted by Spindoctor, 08/02/2017 15:22

"Very well summarised (I'm assuming an absence of "Alternative Facts").

The key word, which crops up a lot is "fair". Capitalism depends on freedom to profit, it also depends on a framework of Law, and an assortment of checks & balances. People like fairness. (Assosciation) Football, makes F1 look amateurish and minnow-like on the world stage. That's because anyone good enough is usually able to rise to the top. In general, it's fair, as a business, and (FIFA notwithstanding) in Sporting Terms . "

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11. Posted by Steve W, 08/02/2017 11:17

"So F1 has moved from a 9 to an 7.5... NASCAR has moved from an 8 to a 5.5... IndyCar has moved from a 1.5 to a 1.6...

What's the problem with F1 again? Is it really that bad?

(My numbers and my opinion)... "

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12. Posted by Hardliner, 08/02/2017 10:19 (moderated by an Adminstrator, 08/02/2017 10:31)

"Max, thanks for that, which I fully agree with as far as it goes, although when we are talking business models I would have preferred to see more facts and numbers.

Liberty paid Bernie et al something like $8bn including taking on debt. What do they want per annum just to service that investment? 5%?10%? Lets say 7.5%. So each year Liberty want to take $600m OUT OF THE SPORT just for existing. I think that's the entire annual budget of a top F1 team. Do they give back that much value in exchange?

You and millions of others watched Federer play Nadal for free last week, organised by the ITF, which is a not-for-profit governing body. I don't know what ITF's annual running costs are, but let's be generous and say they are $20m. That's 20, not 600.

The Bernie/Liberty model is no longer valid. The product and market are mature, there is plenty of inertia behind teams, drivers, fans and circuits, we no longer need a Bernie/Liberty to organise 20 events per annum at a cost of $600m just for the organisation. That's $30m per event, just to pay what I would call the promoter [unlike Bernie's Alice in Wonderland use of that word to describe tracks].

The Emperor has no clothes. As you would expect, Bernie has sold them a dead horse. We no longer need Liberty, and that should be the starting point, allowing us to keep huge sums of money IN THE SPORT every year.

Perhaps when Whitmarsh and Ainslie have finally won the America's Cup for Britain this summer they'll turn their extremely sharp minds to FOTA2, by which time Brawn should know just enough about the inner workings of Liberty to be able to jump ship and join them.

Last time, Red Bull and Ferrari broke FOTA ranks as I recall. First time you mention trimming those historic payments in half, which way do you think Ferrari will jump, with Marcchione breathing down their non-performing necks?"

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