In most markets the optimal media strategy is for only a proportion (about half) of the F1 races to be behind a pay wall; after that, extra races added to the pay product don’t drive many new subscriptions but reduce the sport’s exposure.
Sean McGuireSean McGuire is Managing Director of Oliver and Ohlbaum, the London based strategic advisers to the media, sports and entertainment industries. Sean has advised many global sports, leagues, rights holders and investors in sport.
Last weekend marked the start of the 2019 F1 season. The greatest show on earth rolled into town; all the glitz and glamour was back on display, and the work of thousands of the world’s best engineers could be finally unleashed in head-to-head competition.
The off-season had been busier than most; changes to the regulations required hefty redesign of the cars. These changes were supposed to bring closer racing and even a degree of unpredictability. The result? Mercedes dominated once more, with a one-two in qualifying and in the race. Overtaking? Max Verstappen passed Sebastian Vettel on lap 31… and that was it.
The rule changes of this year are seen as a precursor to a much more radical overhaul in 2021 – when a complete redesign is intended to reduce significantly the costs of entry, and at the same time enable closer, more competitive racing.
But what do we mean by ‘competitive racing’? Are we trying to get back to a golden era that never existed? Not in the 1950s, when Fangio won four in a row. Or in 1984-91, when a McLaren won seven years out of eight. Or in the early 2000s, when Ferrari won for five years. Same for 2010 to 2013, when Red Bull won four straight championships.
Ever more complex regulations arguably play into the hands of the bigger teams and their superior resources
Ever more complex regulations arguably play into the hands of the bigger teams and their superior resources. Looser regulations offer opportunity for maverick solutions – the secret of Brawn’s unexpected success in 2009, and before that the garagistes that brought us six-wheel cars, ground effect and fans. F1 has always been about innovation and pushing the edge of the envelope: allowing the designers off the leash, giving them a slightly more blank canvas can only be a good thing. Reaffirming F1 as the pinnacle of engineering development will regain some of the magic.
But even so, a more equal distribution of resources would without question be beneficial. The Premier League is globally attractive because it is competitive. And it is competitive because the payout ratio - the difference between the payments to the top team and the bottom - is the lowest of any of the major leagues (in the EPL it is 1.6 x; in LaLiga, where the dominance of Real and Barca has long been a concern, it is 3.6 x; in F1, it’s 4.2 x). A more even income distribution gives everyone in the sport a solid foundation. Formula 1 cannot maintain the current level of disparity.
The related issue of cost control might seem like a good idea, but teams are commercial entities and if they have the resources and think that it represents a good investment, then they should be allowed to spend it. The introduction of a luxury tax – as deployed in many sports including MLB, for example – allows for overspending but also allows some of that spend to be redistributed to the smaller teams. Fixing income distribution will reduce the clamour for a cost cap.
These are internal issues, and while addressing them will go some way towards re-engaging with a new generation of fans, much more will need to be done.
Races of two hours – with build-up and results, more like three hours – are simply too long for a broadcast product in today’s market
Firstly, it needs to be made simpler. Races of two hours – with build-up and results, more like three hours – are simply too long for a broadcast product in today’s market. Quicker, punchier events are needed (MotoGP and Formula E, where races are around 45 minutes and thus fit comfortably inside a broadcast hour, are notable positive exceptions).
Secondly F1, like many sports, is going to have to come to terms with revenues that aren’t growing or are in decline. In many key markets the pay-TV competition that drove the explosion in rights values is over. A move behind a pay wall in many markets limits opportunities to broaden its fanbase (and reduces the value to sponsors who are looking for exposure). A mix of free to air for exposure and pay (or OTT) for the superfan will be required.
O&O consumer research suggests that in most markets the optimal media strategy is for only a proportion (about half) of the races to be behind a pay wall; after that, extra races added to the pay product don’t drive many new subscriptions but reduce the sport’s exposure. An OTT, rather than a pay, platform approach to a pay wall, while it requires more marketing spend also brings the opportunity to drive greater sponsor value per fan, as sponsor activation campaigns can be finely targeted and their impact measured accurately with the help of detailed user data.
Thirdly, a truly global sport requires a considerable North American presence. Efforts there remain stymied. A public falling out with the broadcast partner NBC, a not particularly successful launch of the replacement digital service, the failure to secure a race in Miami (while annoying other venues by offering very preferential terms), and the potential loss of Mexico City as a venue have, if anything, made cracking America further away than ever.
In many ways it appears that Liberty Media might be fighting the last war
In many ways it appears that Liberty Media (the new owner) might be fighting the last war. A tweak of the rulebook and a change in the division of the spoils might have worked in 2010 but the next Concorde Agreement with the teams will last to 2030. F1 needs to think what the world will look like then – and how it gets there. And that might require some very different solutions.
Because, over and above all the short term issues there remains the existential issue: people just aren’t buying cars any more. Younger consumers are increasingly able not only to do without owning a car, they’re not even learning to drive. If they do, it’s increasingly in electric vehicles. The sport was founded (and funded) on the principle of ‘win on Sunday, sell on Monday’.
In the long term, without radical thinking, motor sport might become like equestrianism – a niche interest in what used to be everyday transport.
For details on the new Sportcal Sponsorship Data Report: Formula One Sponsors 2019, click here