The Tower of Fable - Part II


Breathe quiet dear reader! We are crouching, Sir David Attenborough-like, on the edge of an unlikely swamp, hiding in the reeds watching in fascination as the local turtles build a towering turtle tower under the fearsome gaze of King Chase Turtle.

King Chase, like King Yurtle before him, wants to be King of all he can see, so the logical path to a bigger kingdom is to see more, hence the dire need for a bigger fabled Tower of Turtles.

In part one, we discussed the many obedient, but increasingly gum-grinding, turtles already in our Turtle Tower. Fan-Base turtle has the toughest job of all, for he is at the base of the turtle stack with all the others piled on his back. And not even a turtle shell massage, neck rub, or free beer to keep him strong! No! Poor Fan Base Turtle is being asked to pay, yes pay, for the privilege of being the foundation of King Chase's turtle tower. How would that make you feel dear reader?

So with Fan Base Turtle's knees quaking and his shell shaking, sending tremors all the way to the top of Turtle Tower, let us peek once more into the twilight zone miasma of the dark world of accounting, and see if we can crunch the numbers at which turtles start to crack, and turtle towers fall, tumbling King Chase from the heavens into the mud and broken reeds.

Draw a few deep, clean breaths, poor a fresh coffee, G&T, or Kombucha tea, and with strong spirit dear reader follow me down this darkened path into a realm of phantoms where the eye can never really be trusted...

Having established that barter no longer works and money greases the wheels of all modern business let us make some assumptions, and see if we can build a model that tells us roughly how much Fan Base Turtle is going to have to pay to keep the Turtle Tower strong.

First, some idea of the actual cost of the sport... Public figures in the region of $2bn as the income for F1, with a shade under $1bn going to the teams, will form the basis for our assumptions and calculations going forward. Bernie had his own delightful income streams, but now Liberty has a growing number of high level staff… and travel costs, and buildings, and all those trappings of not running a business out of the back of Bernie's Maybach with only a top quality laptop and a good telephone link. Let's call it $50m a year to run Liberty HQ.

Then global travel for all the teams, let's call that another $50m to not under cook anything.

So rounding up to give a bit of a margin for error, lets settle on $2.5bn as the amount of money that needs to run through the sport to keep it functional over a season.

Sponsor intake is wildly variable team to team. Liberty is already talking, as has previously been suggested by Pitpass, about generating series level sponsors, but once again the teams dislike sharing, so this is a work in progress. For this discussion I'll leave the entire circuit owners and race day income and fees alone, as they are not of direct relevance to this framing of the story...

Which brings us to the sleeping dragon curled around the entire Turtle Tower, pay-per-view (PPV) viewers, compared to free-to-Air (FTA) viewers. What does this mystic beast look like?

At this point my thanks to Chris Sylt (publisher of F1's industry monitor Formula Money) for sharing some insight.

Chris' summary of Liberty's position is as follows: "For F1 itself (i.e. Liberty) it's simple. It all comes down to which network pays more, regardless of whether they are PPV or FTA. I can safely say there is no way the sponsorship boost F1 would get from signing an FTA channel would compensate for the lower fee."

So in summary, Liberty is chasing the greatest immediate income, no surprise there, but how short-term is this view of keeping the Turtle Tower upright?

As previously noted, running a punch bag, fresh towel and water bottle is far cheaper for Floyd Mayweather than running a competitive Formula One team. So when he makes $200m every few years that's just fine. He's well covered. Yet after years of PPV, boxing is now struggling to find ways to generate general awareness coverage and attract new followers. The lack of FTA coverage means the boxing pond now has very few turtles floating around with which to build a Turtle Tower.

The Mayweather-Pacquiao fight had a record viewing of 4.6 million PPV customers, generating $400m in revenue. That was it! The millions generated all came from those few. That's an average spend of $86.95US per PPV sign-in. Would you, dear reader, be a good Turtle and pay $86US dollars per race to view F1...? Thought not.

Looking at the current Channel 4 collapse in viewing figures in the UK, let's apply that reduction in viewing to historic FTA viewing figures.

A recent Pitpass article about Channel4 highlight viewing stated the following:

Broadcast Audience Research Board (BARB) figures state that 1,410,100 viewers watched the broadcast on their TVs, while 19,959 tuned in on a PC or laptop, 5,236 watched it on a tablet and 4,086 used a smartphone.

This gives a total of 1,439,381 which is a drop of 13.2% on the 1,658,137 who watched the Bahrain race and 30.1% down on viewer numbers for the 2018 event in Shanghai.

In an age when series like Game of Thrones are broadcast simultaneously globally, and others are released as box sets so that fans can binge, the days when fans tune into a highlights show hours after an event were already numbered.

And the Bahrain event was 44% down on the same race last year... Global viewing figures (based on 2017 and 2018) have been quoted as around 1.3 billion viewers after 15 races. Liberty has a stated aim to attract 500 million PPV subscribers. So clearly the real world and Liberty are aligned on around a 50% drop-off when one goes to paid viewing. Except nowhere near that 500 million have parted with hard earned cash for their F1 TV subscription.

If, and this is a massive if, 1.3 billion viewers paid $86US then Liberty would see $111.8bn roll into its coffers. That's rather a positive number, and I'm using a one-off payment (i.e. a season pass) at $86, not a single race (which I'm sure Liberty would love to do...!). Halve the 1.3 billion viewers and one still has a healthy $55.9bn rolling in. Halve viewers again, 250 million, and at $86 for a season pass one is still welcoming $27.95bn into the vaults!

As Liberty took in a little less than $2bn in 2018, and made an increased loss of nearly $70m on that income, while giving just under $1bn to the teams, one can see that income of $27.95bn from a 75% reduced audience to a mere 250 million PPV viewers (at $86 per season pass) has seen a tenfold increase in revenue! Remarkable! Indeed to simply match the existing $2bn business, one only needs 23.3 million PPV viewers at $86 per year... Gosh. One can afford to show 1.276 billion existing FTA viewers the door, and still have a profitable business... Put another way 98% of existing FTA viewers can follow Elvis out the building and Liberty still has a PPV model that works.

How valued are you feeling right now Fan Base Turtle...?

Because I like round figures, let's say 130 million (10% of existing) of us stick around for our $86 per year season pass (note for esteemed editor Balfe - the timing app is still extra :-) ) that would give us a revenue stream of $11.18bn per year. Or five times the current revenue.

On that basis we can drop hosting fees to $1, and drop $5bn on the teams, i.e. $500m per team! Good-bye budget woes, budget cuts, and cost caps! If one can get to this revenue stream why are we wasting pixels discussing budget problems!? Oh, because all that extra money is going directly to Liberty's bottom line as profit, and they do not want to send such towering piles of golden turtles waddling into the ponds of team owners! Really... A modest 130 million PPV subscribers and every team can run on a Mercedes budget! Wow... Really what is the budget cap "Crisis" other than Liberty protecting a future massive bottom line profit...?

How long such a profitable model can function is another story. If Liberty refine hosting fees, and attract more than 25 million viewers in the first year then the model is operational. But Fan Base Turtle is well known for changing ponds on a regular basis, so Liberty need to ensure a continued flow of fresh Fan Base Turtles into its pond, which is where the need for a feeder audience and FTA viewers comes in. No wonder Liberty states that " to air is vital for us..." they recognize the need for a continued supply of fresh fit turtles to keep King Chase at his lofty heights.

If we take the thirty-year pay-TV journey of Boxing as an example, we can expect PPV subscriber numbers to drift gracelessly downward to the region of 5 million (using the record 4.6 million that tuned into the Mayweather fight as a marker). Now 5 million multiplied by $86 is a humble $430m. Great for a boxer maintaining his water bottle and clean towel, no good for feeding ten hungry F1 teams.

And that is Liberty's true problem. Attaining more than 25 million PPV subscribers in the first instance, and then continuing to grow that, recalling its lofty goal is 500 million subscribers, while strangling FTA coverage, and with it the supply of fresh Fan Base Turtles.

In summary it appears King Chase need not worry. The chances of his Turtle Tower consisting of his own crones alone requires all 1.3 billion Fan Base Turtles to swim briskly from his pond, and even Liberty cannot manage a "Drain the Swamp" moment that immense in one season! Having said that in the countries going to PPV they have managed at least a 50% reduction, so "Proceed with Caution" would be a good motto moving forward.

Our other turtles? Well "Advertising Revenue Turtle" will be wrapped-up by the Pay-TV company, so Liberty has no need to worry about advertising around the show, just some key series sponsors. Hence "Willing Advertiser" turtle will actually change, the old one swimming to that reed-patch in the sky, as new ones swim in and climb to take their position in the stack.

"Corporate Drive" Turtle will also change shells, as reasons for advertising, and being in the sport, will alter as the nature of Fan Base Turtle changes.

"F1 Team" turtle will be the usual mix of crusty old grey-shelled turtle, and fresh new thing turtle, as it has always been. No matter the cash flow, in a team wild mismanagement is always possible (refer Lehman Brothers Bank, Enron etc...).

Next comes a poor underfed "Circuit Owner" turtle. Now here is a fine old turtle that could be in for a wax and polish and soon look very excited. If Liberty is in the mood to share some of the gold flowing from "PPV Fan Base Turtle" even this tired old turtle could have a new halcyon season just around the corner. Hold the line Silverstone! You could soon be a happy newly well-fed turtle sitting on your own personal pile of gold in the middle of a freshly replanted turtle pond.

Nearing the top of our stack we find FIA turtle (I think, not seen him in a while...), and at peak of this reduced height PPV-Turtle Tower, Liberty and King Chase.

Yes, it is a smaller stack of wobbling turtles you've got there King Chase. All balanced on the back of much smaller PPV Fan Base Turtle. Is it safe? Is it Sound? Will you tumble to the ground?

Based on our beer-coaster maths it is clear that in the short to mid-term (less than ten years) you can make a pile of gold from your modest turtle stack. After that, well either the season pass will need to edge towards $5,000 per viewer, or you are going to need many fresh turtles in your pond. But by then it will be the new King Turtle's problem to attract new turtles subjects to build the tower! The King is dead? Long live the King! King Turtle! Atop the ever quaking turtle tower that sways, but so far has never tumbled the King into the mud.

Max Noble

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

Article from Pitpass (

Published: 16/05/2019
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