There are suggestions in Formula 1 circles that CVC Capital Partners has decided to take a close look at the way in which the sport operates to see whether there is a better business model than the one currently used by Bernie Ecclestone. This relies heavily on promoters, sponsors and TV companies being willing to go on paying more and more for the right to be involved with F1 and on the teams being manoeuvred in such a way as to accept far less than perhaps they should. It has been clear since the establishment of the Formula One Teams’ Association (FOTA) that the next negotiation is going to be the most difficult. For the moment the teams have a deal until the end of 2012. This gives them 50% of the revenues of the business. This business model gave CVC the opportunity to take a huge profit very quickly, relying on future revenues to secure loans. FOTA has made it clear to CVC in recent months that this will not happen again and that the teams are looking for a figure closer to 85%, which is a more realistic figure. Promoters, sponsors and TV companies are all complaining about the costs and many of the tradional F1 races have had trouble surviving.
CVC Capital Partners has a finite term on the fund that owns F1 and that means that the company needs to be in a position to sell the business by 2015. Before then CVC wants to cash in again by securing another big loan and then add a third pay-off when the business is sold. this could stil happen but it requires the teams to be in agreement – and clearly they are not. They would prefer there to be some kind of trust or foundation arrangement which would administer the sport and distribute the revenues, thus putting the money back into the business. The best way to achieve this is probably in league with CVC rather than in opposition and FOTA is believed to be working towards a situation in which CVC would take a smaller share of the money but over a longer period of time. This would make it possible for CVC to take a suitable loan and sell the business, although the buyer would need to have a far less aggressive approach towards the investment.
The CVC audit of F1 is also likely to include an assessment of whether the promoters’ fees can be reduced so that they can afford to lower ticket prices and thus bring in bigger audiences. This would also allow them money to improve their facilities making F1 a more rewarding experience for the spectators, including more women and children.
F1 thrives on its exclusivity at one level, but fans also need to be looked after better if the sport is remain popular.
I think Bernie has smartly sold a business plan built on fantasy to CVC and left them holding the bag. According to the US corporate game plan, its time for the banks to play hardball to wipe out the shareholders and scoop the assets on the cheap, probably along with Bernie and the teams onside. No wonder that Sorel dude was ticked off !!
I’m not clear if the terms “revenue” and “profit” are meant to be the same here. Typically they are not of course and Bernie Ink seems to be the only significant cost, to both CVC and to the teams, (although the FIA is getting a cut as well, I think?).
So with Bernie’s role reduced — by 2012 he will be in his 80s, after all — the logical thing would be for FOTA to buy out CVC after 2012, funded over a long term by a third-party lender.
But this would all depend on FOTA putting together a management structure to replace Bernie; i.e., the “trust or foundation arrangement” to “administer the sport” as posited.
Perhaps the above scenario is merely restating what has been implied in the post. In any case, it would require a remarkable jump in maturity on the part of the teams. With all the suits running about, maybe that is possible. But it also would further corporatize and generally dumb down the competitive end of F1.
Short of it is, the age of forceful individuals in F1, for better and for worse, is likely going to end soon. And it’s hard to say whether that will best server “the fans”.
Spot-on Joe. I don’t know a whole lot about the operations of CVC, but anyhting that brings the sport closer to the fans (including here in the USA) is a great thing
Isn’t this something like what NASCAR does, take cash and exposure from companies who want to be the Official Whatever of NASCAR, and deprive the teams of possible sponsorship dollars? Will F1 become less of a high-priced call girl and accept being whored out?
Bernie has done a brilliant job over the years, no one can say otherwise but its time for things to change and to get F1 back to what it was, a racing event for spectators rather than a ‘Sporting Event’ for TV viewers. Yes it still needs to be high profile TV viewing so all the advertising dollar$ keep rolling in but if the core product (ie. The Race) isn’t up to much the genuine motorsports fan will drift off to other forms of motorsport and refuse to pay the ridiculously high entry prices. The circuits will then be full of rich people going to ‘be seen’ at the social event of the year and not understanding what the cars are doing there .. a sad demise indeed.
I disagree with Iain. I think Bernie has done a lousy job and has missed opportunity after opportunity to make money for the sport.
We hav not had an official F1 game in years. At a time when computer game sales have gone through the roof and driving games are massively popular F1 has made $zero for several years. Online racing is also popular and many F1 drivers play these games. So why isn’t there an official F1 online game with the opportunity to race against F1 drivers. That would be a guaranteed money maker.
F1 videos are constantly pulled from youtube to be replaced soon after. This is a cost for the sport with no real benefit. Why not put videos on the official site where adverts can provide the sport with a financial benefit. The ALMS actually ask fans to post their own videos on the ALMS site. So instead of fans being annoyed by having videos pulled off youtube they feel wanted.
The F1 fan experience on the internet is appalling compared to many championships including A1GP and IRL. There is a massive opportunity to make money through advertising for the services these championships provide. Instead we are offered a live timing feed that is flaky at best.
Everyone knows that people don’t spend there entire lives in their own country any more. Therefore many people find themselves watching F1 in countries where they don’t understand the language. They have two choices. Watch on TV and understand none of the commentary or watch an illegal web stream. Why is there not an official feed with language choice available? Another money making opportunity.
I could go on all night about opportunities Bernie has missed including not establishing F1 branded merchandise until a couple of years ago but the point is despite the positive image of his contribution to F1 other people could have done a far better job and made a lot more money for the sport. Of course he is not the only one who is guilty. Mosley giving him 100 years of commercial rights for a fraction of what CVC paid for them shortly afterwards was ridiculous and cost the sport and the FIA a fortune.