How Bernie Ecclestone’s departure from Formula One will herald a new commercial dawn for the sport
Bernie Ecclestone’s departure from the helm of Formula One (F1) ushers in a much-needed new dawn for the business, one which will see its antiquated commercial model transition to one more befitting of the most technologically advanced sport in the world.
Big changes are on the horizon for Formula One following Liberty Media's acquisition and the departure of Ecclestone
Prior to Liberty Media’s $8bn takeover of F1 the company was tightly marshalled by Ecclestone for four decades and, while the business magnet is renowned for his sagacious negotiating ability, the sport’s valuation has fallen massively over the past few years.
Sponsorship revenue for the teams amounted to $750m in 2015, down from $950m three years before and the switch from free-to-air to pay-TV has hurt broadcast audience in key markets.
“Some of the teams have tried to lead the way in developing better content and longer term marketing strategies, but they've been massively hampered by the restrictions on what they can do through the central body of Formula one,” points out Gavin Peters, director of partnerships at Pitch Marketing Group.
It’s this landscape which new chief executive, Chase Carey, now faces and he has been vocal in its criticism of its running, describing the decision-making within the sport as “somewhere between ineffective and dysfunctional”.
Carey, who rose to prominence as a hard-edged negotiator at 21st Century Fox, admits he has a huge task on his hands to turn around the downturn.
“The problems are across the board,” he told The Telegraph. “We’re not marketing the sport, we’re not enabling fans to connect with it on the platforms that are available today, our sponsorship relations are one-dimensional, the events feel old, the hospitality feels as if it’s at least 15 years old.”
Chase Carey (centre) alongside Bernie Ecclestone
Paddy Hobbs, head of sport at PrettyGreen, says that one of the main failings under Ecclestone was the fact that F1 has been “slow to get off the grid in respect to digital amplification, content creation and utilising their high value assets to create real connections with their audience through social.”
One of the first moves Carey has made to address this issue has been the appointment of Sean Bratches, the ESPN veteran who steered the Disney-owned broadcaster to the forefront of the TV industry's efforts to expand into internet distribution.
While at ESPN Bratches oversaw the launch of the WatchESPN app which allowed its pay-tv subscribers to stream games on the go while also offering non-subscribers lower-profile sports coverage. Bratches also oversaw the advertising, sponsorship and licensing efforts for the broadcaster and will use his experience in the sector to make F1 more engaging for a digital audience.
Bratches' arrival is hugely significant for the sport and drastically needed, not just because broadcast revenue accounts for around 35% of the business’s income, but as a means of helping the sport reach younger audiences through new digital distribution.
Engagement with audiences is another aspect of F1 which will undergo a seismic shift under the new owners too. There’s little doubt that the decline in sponsorship revenue is related to Ecclestone’s indifference to modernise the commercial arm of the business.
“The sponsorship model is still quite traditional with boards, banners and logos so it’s in desperate need of being brought in line with other sports and future proofed,” says Steve Martin, chief executive of M&C Saatchi Sport & Entertainment.
Martin maintains that changes on the track desperately need to happen first in order to make the sport more competitive and ultimately more attractive to sponsors.
This has been a longstanding criticism from within and outside of the sport and is something which Carey planss to change having brought in Ross Brawn, one of the most successful F1 team managers and technical directors of the past few decades, as a managing director of the on track action. Autosport magazine reported that Ferrari was paid $192m in 2016, compared $47m for the lowest-earning team, Manor Racing, which recently went into administration earlier this year.
Competitive races and commercial growth go hand-in-hand and, as Martin points out, teams are “falling by the way side every couple of years because the funding is extraordinary and the sponsorship’s going to two or three teams at the front of the pack”.
Ultimately, Liberty Media have two broad issues to address across the business, explained Adrian Pettett, chief executive of HSE Cake. The first is how it will respond to the changing needs of sponsors and the second is how they intend to grow the property.
Part of Liberty Media’s strategy to grow the sport is to better market and monetise each of the Grands Prix races throughout the year.
“We have 21 races – we should have 21 Super Bowls,” said Carey. “They should be week-long extravaganzas with entertainment and music, events that capture a whole city.”
Bigger, broader and better seems to be the broad approach going forward, particularly in the US where the race in Austin, Texas has proved hugely popular since its introduction in 2012.
Pettett argued that expansion in this regard might not be the best approach and questions how many more races the market can take.
“The more radical route is to extract more revenue from fewer brand partners, deepening the relationship between sponsor and property, particularly across digital and social media.”
The sponsorship with Heineken serves as an example of the kind of big player sponsors which the sport needs to grow, but as Steve Martin points out, “the Heineken sponsorship is a mega deal, but they need four Heinekens”.
“Ideally you would want fewer bigger partners but that’s hard when you’ve got a slightly flawed product,” continues Martin. “It’s a brilliant property but it needs to be revamped and that starts with more competition and excitement on the track.”
Liberty Media’s arrival will undauntedly entail major changes, with the overhaul of the sports marketing and digital media output among the immediate goals, meaning the changes will soon more accurately reflect the innovative nature of the sport itself. Greater changes may be on the horizon, with Carey promising that real shifts will follow on from investments needed to build foundations.
Speaking to Sky Sports, he said: “You'll see changes this year but our real goal is where can we get this sport in 2020.”