Formula 1 currently faces arguably the biggest set of existential threats in its well-nigh seven-decade existence: political and environmental pressures on internal combustion engines; rising apathy towards the car and associated among Generation X and Millenials, dwindling viewer interest due to disrupted entertainment landscapes, and the continuing aftermath of 2008’s global economic crisis.

Add in inequitable revenue structures that wounded independent teams – some mortally – and an unhealthy reliance on billionaire benefactors as owners or bankrollers of pay drivers (or both), political uncertainties in F1’s heartlands and increased competition from Formula E, and it’s clear F1 faces various stern challenges despite rosy blurbs penned by PR folk who wouldn’t know an F1 car if it ran them over.

This week, during a podcast discussion with 2016 F1 world champion Nico Rosberg , Formula E CEO Alejandro Agag said: “I think in five years [F1] they are going to start feeling a lot the heat [unless F1 switches to electric power].”

“It’s going to be very difficult [for F1] if they don’t switch to electric,” he added, “But they can’t.”

True, Agag enjoys taking pot shots at the competition, but the fact is FE on course to boast at least seven mainstream motor manufacturers while F1 lists Renault, Mercedes and Ferrari, with Honda competing only as an engine supplier, currently supplying a single team (two in 2019). Make that three-and-a-half car companies then, or half FE’s roster.

BMW and Porsche shunned F1 to go electric. The latter entered despite the presence of sister Volkswagen Group brand Audi. Buy into Ferrari’s insistence that the Prancing Stallion is more luxury goods than car brand – as told to prospective punters during its NYSE IPO – and FE is on course to outscore F1 by a factor of three on the manufacturer front after just five seasons.

Since 2012 F1 has lost Caterham, Manor (twice) and Force India, while gaining just Haas – which entered via loopholes since closed to others. True, Force India was saved – by billionaires – but only after exceptional circumstances were devised for its survival, with aspects of that process still under dispute and heading for the courts.

Grid sizes have stalled at 20 cars despite circuits being homologated for 13 two-car teams. FIA President Jean Todt last month admitted no new team applications are on the horizon. Truly independent team are now the exception, not the norm they once were.

Worse, the mortality rate of new grands prix runs at 50 per cent: Of 10 new (or returning) venues attracted over the past 12 years, fully five failed, including New Jersey, which was aborted after a date was listed. Recently the city fathers of Rotterdam and Copenhagen announced they would not be pursuing grand prix projects, while Miami postponed its decision “indefinitely” – whatever that means.

But perhaps most troubling the lifeblood of grand prix racing – television audiences – has been chronically diluted of late. Ratings plummeting from over 600m viewers in 2008 to under 400m last year, like-for-like. Has that trend reversed, or at least stabilised, since Liberty Media – F1’s latest owner – acquired the commercial rights at a valuation of $8bn a little over two years ago?

No. In a recent earnings conference call CEO Chase Carey admitted they had dropped a further four per cent, adding the root cause was F1’s shift from free-to-air to pay-TV in Italy. Excluding that territory, overall viewerships were up three per cent. Tellingly, Formula E this week announced a five-year free-to-air deal for Italy.

Now let’s consider Carey’s statistics: Despite all the bells and whistles and graphics F1 added to its broadcasts, despite (allegedly) the most advanced over-the-top streaming service in world sport (link my March piece), despite so many new hires that Liberty was forced into posh new offices, the loss of FTA TV in a single territory undid all that good work in under nine months.

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This, in a nutshell, is the primary reason for F1’s malaise: swingeing reductions in free-to-air TV across the globe. Before F1 chased broadcast income rather than eyeballs on screens the sport attracted whole generations of youngsters, and oldies in emerging markets, who in turn became hardcore fans who subsequently shelled out hundreds in whatever currency to watch their heroes live.

Crucially, they encouraged subsequent generations, in turn feeding the numbers. This upward spiral enabled F1 to grow from a minority activity appealing only to a fringe element to a global sport spoken of in the same breaths as the Olympics and reaching more viewers over four-year blocks than either the Five Rings or the FIFA World Cup. All in under 30 years.

At one stage F1 was the world’s largest continuous TV sporting block; today it has fewer viewers globally than the Turkish football league. What was built over 30 years was decimated in 10 – by venture capitalists bent on short-term return on investment. Sustainability? Let the next owner worry about that.

Thus they told their frontman Bernie Ecclestone to chase pay-TV deals – and the more, the sooner, the better. Before CVC Capital Partners acquired F1’s rights, pay-TV deals were few and far between and struck only where no viable alternatives existed.

For example in South Africa – the first country to go down this route, back in 2001 – the only possible broadcasters were either state-owned or the pay-channel Supersport. When SABC switched its sports budgets to (mainly) football, F1 had no choice but to go with the latter but Bernie hedged his bets by insisting on midnight highlight packages on SABC. Still, SA’s ratings plummeted by around 50 per cent.

The constant argument in favour of pay deals was the promise of increased revenues earned by the commercial rights holder, and paid to teams as ‘Bernie Money’. But in their collective clamours for a few dollars more from their tsar, team bosses overlooked one crucial factor: pay deals, by definition, deliver fewer eyeballs, in turn making F1 markedly less attractive to sponsors, car companies and consumer brands.

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The first to latch onto this were the car manufacturers, who had entered F1 en mass to build their brand images by competing on F1’s global stage. Before CVC bought into F1, the number of car brands numbered seven; within five years only Mercedes and Ferrari remained, with Renault staying remaining as engine supplier. F1 needed to justify this exodus, so put about the word that the economic crisis and/or lack of success forced their exits.

There is an element of truth to either reason, yet they did not cease advertising or other sport/cultural sponsorship activities – only F1. Clearly, then, F1 no longer delivered cost-effectiveness – little wonder given that eyeballs kept reducing by the season. Commercial sponsors in turn reduced their F1 spends, placing greater strains on manufacturer budgets. Ultimately F1 simply became unattractive, global crisis or not.

In place of the car companies came billionaires keen to own the next big thing: Red Bull’s Dietrich Mateschitz bought Jaguar Racing off Ford, Vijay Mallya acquired Spyker (nee Jordan/Midland) from the boutique car maker, and Genii Capital cut a deal with Renault before being sold back after staring administration in the face.

Next, riding on the back of budget cap promises, came four entrepreneurs hoping to build teams by attracting sponsorship. Within as many years this quartet was buried, having found it impossible to raise sufficient funds due to the state of the sport, and being unable to survive on ‘Bernie money’ alone. Without exception, they took on pay drivers until even their contributions proved insufficient.

Their demises should have pealed warning bells, but the trend towards subscription-based TV continued. Aside from the British Grand Prix, live free-to-air F1 broadcasts will end in Britain, another F1 heartland, in five races’ time. Ecclestone cut a Sky-only deal for Britain from 2019 onwards, which will include delayed broadcast highlights packages on FTA broadcaster Channel 4, but remember the South African lesson?

Has Liberty learnt from all this? Consider comments made by Greg Maffei, Liberty Media president – and thus Carey’s boss – at a broadcast conference two weeks after the deal with CVC was inked: “I think there’s an opportunity to grow that broadcast stream, much of it free-to-air, to competitive pay services.”

“That’s for example what happened in the UK when [Sky] recently bought the rights,” adding his belief that F1 could increase sponsor revenues: “I think there’s opportunity to grow, invest in the sponsorship organisation.” Really? How?

Tellingly, since Maffei’s talk F1 has lost both corporate and team sponsors, continuing a trend that started a decade ago, as even the most cursory comparison of car liveries and driver overalls during that period attests. Clearly, then, F1 is becoming increasingly cost-ineffective as the move towards pay-TV accelerates. Yet the Sky Italia deal went ahead.

As an indicator of the ravaging effects of pay-TV, consider the following FTA/Pay-TV comparisons in Great Britain and German-speaking territories:

Data supplied by The F1 Broadcasting Blog.

The delta between the two broadcast models is stark; now consider the effects of pay-only broadcasts on sponsors, and, by extension, teams. In short, their ability to attract sponsors has been severely reduced, making them increasingly reliant upon FOM income – a complete reversal from the pre-CVC, pre-pay-TV period, when even tail-enders managed to survive on commercial sponsorship thanks to over a billion eyeballs.

Commercial sponsorship enabled Frank Williams to enter F1 and build his multi-title-winning team, enabled Eddie Jordan to covert his junior league outfit into grand prix winners, Peter Sauber to switch from sports cars to F1, and Jackie Stewart to start a team from scratch. It enabled them to largely employ the best available drivers – without resorting to pay pedallers – off the back of global TV viewerships.

So, Messrs Maffei and Carey, here’s the deal: Cancel all pay-TV contracts and chase eyeballs, whether via TV footprint or digital media. Offer free race broadcasts across the globe, with value-added services being the end-game. Sure, broadcast income initially will reduce, but managed correctly teams/corporate sponsorship will increase in proportion to offset any losses. Eventually.

Crucially, global interest will increase, converting casual fans to hardcore followers willing to subscribe to bells and whistle OTT services, and buy into gaming and augmented reality products. In time they will drag their mates (and kids) along, and so on. Check how most fans, the ones you claim to have interviewed got hooked on F1; I bet it was via FTA.

As F1 regains popularity, so race attendances will increase, delivering more profitable events for more promoters, further feeding this momentum and returning F1 to its rightful place at the top of the sporting pile. Teams will regain profitability, thus being increasingly less reliant upon pay drivers. Rather than staring at the scrap heap, Esteban Ocon would have five teams chasing his services. The losers in the auction also need drivers.

Top F2 teams could enter F1 off the back of their successes, having “grown” sponsors along the way, and the manufacturer brigade could no longer ignore F1 as a truly global marketing platform. Of course they won’t all partake, but two would be a step in the right direction. Add another two independents, and grids are oversubscribed, as they once were. Ask the F1 lifers about pre-qualifying and 43-car entry lists…

All this will, of course, take time and effort, but managed correctly will take less than the decade it took CVC to destroy a model built up over 30-odd years. That F1 survived despite CVC’s best efforts bears testimony to its resilience and appeal – and these attributes provide the first (re)building blocks. Forget not that where CVC was in F1 for a quick buck, you’re (allegedly) in for the long haul.

This proposal, of course, bucks the trend. But right now bucks of a different sort aren’t rolling in, as the numbers prove. Indeed, payments to teams decreased, and again – which points to a worrying, one mirrored in the latest TV ratings.

Ecclestone realised 40 years ago that F1’s future depended upon free-to-air TV. Indeed, way back then he handed out F1’s rights for free, and played the long game. Once the world was hooked, he and the teams coined it and built the business Liberty Media paid eight billion for. Forty years on they have a chance of (re) making history. To do it, they must go back to the future.

Follow Dieter on Twitter: @RacingLines

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