Could F1 go to pay TV?
Formula 1's ability to generate major news stories above and beyond the excitement of the racing has never been in doubt, and this week has been no exception. No sooner had the dust settled on Lewis Hamilton's brilliant victory in the Chinese Grand Prix than reports emerged that Rupert Murdoch's News Corporation was considering buying the entire sport.
The stories appeared first on Murdoch-controlled Sky News, quickly followed by the Murdoch-controlled Times newspaper, and they certainly set tongues wagging within F1.
The prospect of the sport being taken off free-to-air television - in the UK, it is currently on the BBC, which took over the contract from ITV in 2009 - and put on pay-per-view has also created debate on social network sites.
So could it happen?
Given that this is F1, it is no surprise that not only is there no definitive answer to that question, but that any explanation of the situation is complicated. I'll try to make it as straightforward as possible.
There are two inter-related issues here - who owns F1's commercial rights, and where it is broadcast. We'll leave the ownership of the sport aside until later and deal with the issue of free-to-air versus pay-per-view first.
F1 is governed by a document called the Concorde Agreement, which binds together the teams, governing body the FIA and the commercial rights holders, currently the private equity group CVC Capital Partners, represented by F1 commercial boss Bernie Ecclestone.
The Concorde Agreement is secret - so secret that the teams are not even allowed to retain their own copy - but it is known that it contains a clause which dictates that, in major territories, F1 has to be broadcast on free-to-air television.
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The reason for this is that free-to-air TV has much bigger audiences than pay-per-view, and the bigger the audience, the greater the chance of bigger sponsorship deals and therefore financial security and, for the teams, on-track success.
Take F1 off free-to-air TV and the audience would shrink dramatically. The smaller the audience, the less keen sponsors are to be involved, and the less money those that are involved would pay to the teams and Ecclestone.
However, the current Concorde Agreement runs out at the end of 2012, and negotiations to scope out a new one are beginning - at exactly the time that the global economic climate is making the commercial environment increasingly tough.
So teams are about to discuss the contents of a new Concorde Agreement at a time when several are struggling to raise funds and when the amount of money available from free-to-air broadcasters is, in a lot of cases, stagnating or reducing.
In that environment, might the F1 teams be tempted to try to secure their own short-term financial futures by removing the bar to pay-per-view in the Concorde Agreement, so they can free up the possibility of a big pay-day from, for example, Murdoch?
The short answer is that they don't know yet. While teams are beginning to focus on the need for a new Concorde Agreement, they are, in the words of one team principal, "nowhere" on the subject of broadcasting.
It is going to be a thorny and protracted debate, because so much is wrapped up in it:
- The teams want a bigger share of the total revenue of the sport - they currently receive 47%, with the remainder going to CVC.
- The new FIA president Jean Todt wants to renegotiate the deal that his predecessor Max Mosley signed a few years ago to grant Ecclestone's companies the rights to F1 for 100 years for $380m.
- And there is also the small matter of the 2013 regulations - with Ecclestone and Ferrari unhappy about plans to switch to smaller, more fuel efficient turbo engines on the grounds of cost and, less credibly, the noise they make.
F1 teams are typically short-sighted and self-interested when it comes to such matters - so it is not hard to imagine that some might see the appeal of Sky's millions as a way of securing their own short-term futures.
The risk with that would be that by reducing its audience, F1 could also reduce its appeal, and put its longer-term survival at risk.
You might think that the teams with least resources at the moment - both from TV revenues and sponsorship - would be most keen on a commercial model that raised more money from pay-per-view. But you would be wrong.
I put these arguments to the Virgin team's sporting director, Graeme Lowdon, who said: "My view is that the sport is served much better in the world of free-to-air for all the reasons you mention.
"F1 is an incredibly popular sport. It's talked about by people. It's the ultimate team game and the drivers are the heroes. If you remove the majority of the public, it removes a lot of the spirit of what F1 is about, as well as the ability for the teams to stand on our own two feet without reliance on the commercial rights holder.
The BBC is in the middle of a five-year contract to broadcast F1. Photo: Getty
"It's more important that we have an agenda that grows the popularity of the sport than one that gazes inwardly.
"F1 is way bigger than pay-per-view and deserves its place on the global stage with the viewing figures it gets. We would be concerned if the sport was heading towards a pay-per-view only model.
"The biggest mistake any team can make is to assume you'll never be at the bottom. Look at Williams. They have called it themselves a poor start to the season - and that's an extremely good team. Anyone who assumes they'll always win and argues the financial model on those lines at some stage could come a cropper.
"There are a lot of examples in football - lots of teams have built their model on winning the championship. But only one can win and (beyond that) there's wreckage.
"We have tried to highlight that the model for F1 needs to make sense for the team with the least resources.
"The attraction of free-to-air is it gives you more opportunity to diversify your revenue streams. If we go pay-per-view and find people use other (TV) channels, then we're at risk. At least if you have underlying popularity, you can get your revenue.
"I'd be surprised if a race headlong into pay-per-view would provide F1 with the defences (it needs). Free-to-air provides you with so much flexibility - it means the business is less at risk than if you put all your eggs in one basket."
Of course, there is an opposing view - as expressed by English rugby and cricket executives earlier this week as Sky Sports celebrated its 20th birthday - that pay-per-view can re-invigorate a sport and provide it with much-needed revenues to fund grass roots and youth development. On that subject, the Telegraph has quoted a News Corp source saying the company would "transform" F1.
The issue of who owns F1 is clearly both linked to the debate over free-to-air versus pay-per-view and separate from it.
Ecclestone himself says the potential News Corp sale is a non-story. He told the BBC: "I know Rupert and [News Corp international boss] James Murdoch and Carlos Slim, and if they wanted to do anything they would contact me direct. And they haven't."
Elsewhere, he added: "We would not sell to a media company because it would restrict the ability to negotiate with other broadcasters."
One senior insider said this was one of "Bernie's curve balls - he's always throwing them up; they don't necessarily amount to anything".
And a team principal said he did not think CVC was looking to cash in on its investment in F1. "I think CVC are in it for the long term," he said.
CVC spent £1.8bn on buying F1 in 2006, following the collapse of the previous owners for financial reasons. CVC got into debt doing so, but those debts are scheduled to be paid down within the next two years, after which it can enjoy the huge profits F1 makes.
Any potential sale of F1 is complicated by the fact that the FIA has a veto which it can use if it does not approve of the potential buyer - referred to by Mosley as the 'Don King clause'. And where Todt stands on the issue of News Corp is not known.
Some F1 insiders are sceptical that the story was grounded in reality. "It's built up some momentum pretty quickly," said one, "and I suspect it will die away just as fast."
That may or may not be the case. But the wider conversation is only going to grow in importance over the coming months.
The ownership of F1 is tied up in the Concorde Agreement negotiations. If the teams want a greater split of revenues, that by definition means less for whoever owns the sport. And how does CVC feel about that?
The FIA is also unhappy about its financial arrangements with Ecclestone and CVC. Will it ultimately side with the teams against CVC, with CVC against the teams, or be one of three separate entities all fighting their own corner?
Whether Murdoch is involved in it or not, then, this story is not going away.
Source: http://www.bbc.co.uk/blogs/andrewbenson/2011/04/will_f1_go_pay-per-view.html
