A story of Formula 1 and a big fat cow…

Wow, that was a weekend and a half. No time to do anything. Just running to keep up all the time. I finished the work necessary on Sunday morning about two minutes before the cars took off on the final parade lap for the Spanish GP and then dived straight back into it when the chequered flag fell… It was rather a highly-charged weekend with the F1 teams becoming increasingly frenetic about the FIA’s trenchant position on budget caps and one gets the feeling that the whole thing is on the verge of spinning out of control. That is really not good. There must be compromises that are possible if those involved will focus on the important matters and not worry about extraneous things like team performance or ego or power. What is important is to hold everything together.

For me the most important thing of the weekend was the number of empty grandstands. This was very bad news for Formula 1 because Spain is supposed to be the boom market. The country is supposed to be wild about Fernando Alonso and yet the crowds were seriously down. Fernando remains one of the top drivers and while his Renault this year has not been very competitive, he is still very popular with the fans. This was so noticeable that I went to find out the numbers. The Catalans do a four-day head count and last year that number was 371,000. This year it had fallen to 213,000. Now I was never very good at mathematics but a few taps on the calculator revealed that this means that the overall crowd was down by a shocking 42%. The race day figure was 92,430. That is not a bad crowd at some events but last year it was 132,600 and in 2007 it was 140,700, which means that the two-year loss of bums on seats is something in region of 35%. Last year’s Renault was pretty rubbish at this time of year so one cannot blame that. The only other logical explanation is that the tickets are too expensive in the current economic climate.
The crowd figures in Australia and Malaysia were both down but the drop was in single figures. The numbers in Barcelona call into question whether any of the European promoters will still be in action at the end of the year if their fees are not reduced by the Formula One group. There are several already squealing and others who have given up but Bernie Ecclestone says that his business model is still working because he has customers in the Middle East and Asia. Perhaps he does, but is this really what is best for the sport? The smart thing to do would probably be to agree to drop the fees across the board so that no-one would feel aggrieved, but that is not in Bernie’s DNA. That is why he is a billionaire. The problem he has is that his partners at CVC Capital Partners need him to keep pumping money in their direction so they can pay their debts. I noticed some of these people in the paddock in Barcelona. They are not regular visitors, and I have no idea what they contribute to the sport, particularly when you compare it to what they take out.
Last night I wrote a column in the GP+ e-magazine and I think you might appreciate it. It is called “A tale from the farm…”
These are difficult times. Unless you live your life with your head buried deeply in the sand, you know what is happening. We are in the grip of a major economic crisis: the biggest for several generations. Companies are shutting down, people are losing their jobs. The signs are that this is going to be a prolonged recession, which will almost certainly soon be defined as a depression. There is no hiding from this one. 
How is Formula 1 going to survive? I think we will know the answer to that pretty quickly. The various parties involved show signs of coming to blows and being polite is becoming less and less of an option. The important thing is to understand what is going on. And, surprisingly, it is not really to do with two-tier systems, nor even budget caps. Those are symptoms of the problem, not the problem itself. So let us forget the politics and the egos and alliances. Let us look at this in the most simple way possible. 
Formula 1 is a big fat cow in a field. It has plenty of grass to eat and it plods off to the milking shed every so often and produces milk which a dairy company takes away and turns into cream, butter, cheese and so on. The farmer sold the commercial rights to the cow to some men in suits and they have sold the milk for years to come. They have kept all the money. So the old cow has to go on being milked, while the men in the suits drive around in fancy sportscars and the farmer buys Armani jeans and has a big boat. 
The cow is happy enough because eating grass is what she does best, but now and then she thinks that she deserves a little more. She sometimes wonders what would happen if she jumped the fence. 
The problem has now come to a head because there is a drought. The grass is drying up and the cow is hungry. The farmer and the men in suits demand the same amount of milk and the cow is protesting more and more and thinking about refusing to go to the shed. She knows that refusing to be milked will be painful but cannot think of what else to do. The hedge to the next field seems higher than ever. The farmer is no longer able to convince the cow that the men in suits deserve what they are getting… 
The cow does not care whether the men in suits go out of business. All she wants is more grass, perhaps a shelter and to be left alone to do what she does best. The cow thinks she is the star of the show… 
Where will it all end? 
You would be hard pressed to find anyone in the F1 paddock who has any sympathy for the men in suits (CVC Capital Partners). They came in, they borrowed money to take over and restructure the business. Then they borrowed a vast sum against the future profits of the sport and took the money, leaving the sport to pay for years to come. If it cannot pay, what will happen then? Will they dip into their own pockets and help out? Of course not. They will fold up the business and run to the administrators asking for protection, blaming everyone but themselves. If that happens, the debts will disappear and the commercial rights of the sport will be up for sale to whoever pays the most. 
The teams are the stars of the show. They are what people come to see. They are happy to give a promoter a fair share of the profits, but 50% is not the right number. A more normal figure would be around 15%. Let us not take it away from farmer Bernie. He has done a terrific job for F1. He has done a terrific job for himself. The sport would not be where it is if it had not been for him, but then again he has been handsomely paid for his work. He is a squillionaire. Yes, he wants to hold on to the cash cow that the sport has become, but the old cow is beginning to protest more and more… 

19 thoughts on “A story of Formula 1 and a big fat cow…

  1. Excellent article, Joe.

    Please tell us you have evidence that MM and BE (in particular) read either this blog or GP+… they need to see this analogy being made, to understand where they stand (on a crumbling precipice above a raging river in flood!).

  2. Joe,
    I agree – F1 won’t be the first business ruined by takeover artists who enrich themselves and actually don’t produce anything. Somewhere along the line, Bernie Ecclestone decided to cash out and give himself a big present for all he has done. This does denigrate any past contributions. The other public displays and power trips may be the final impetus for a new F1. See how CVC likes that. If those who actually do the work pull up stakes, I can tell you who I will pay to see when they fire up a new series.

    And it’s Monday after four excellent days without news of Max and Bernie, something will need to fill the columns until Monaco.

  3. Milk is not the only thing cows produce. A sufficient quantity of alternate byproducts would be a choice test for those Armani jeans. But that would require more concerted cunning than cows are typically known for.

  4. Great article! It amazes me that men in suits from CVC to those responsible for the GFC continue to take and take and we are unable to alter the game. I love the sport but I am very tired of CVC, the greed and the FIA. As much as I don’t like it I hope the teams do not sign for next seasons 2 tier system. The heritage and DNA of the sport are in jeopardy and a stand has to be made for the teams, tracks and fans. The question is what can we do?

    Well done Joe.

  5. “If that happens, the debts will disappear and the commercial rights of the sport will be up for sale to whoever pays the most. ”

    Wrong. If Delta Topco defaults,the bondholders (as secured lenders) take control. That is why the identity of the party/parties buying the distressed-debt in the market is so important. Could it be BE himself? FOTA?

  6. A great analogy, but to a certain extent I disagree with the teams being the stars of the show. Apart from perhaps Ferrari, there are a few things I’d put ahead of the teams – the drivers, the races (places like Monza and Monaco) and F1 itself. F1 was popular before Toyota arrived, and has been popular since Lotus pulled out, because it’s F1, although it’s not immortal.

    As much as I like the idea, a two-tier system isn’t going to happen because of the opposition to it. So I think we’ll see an FIA backtrack covered up by another nonsense investigation/proposal/scandal/distraction very soon. But a budget cap of some kind is vital now because it’s gone too expensive for manufacturers and privateers. Plus the commercial side of things is flawed.

    F1 has relied too heavily on manufacturers in the 2000s and is now paying the price for it. This whole crisis right now directly stems from that. If we didn’t have so many manufacturer teams, it wouldn’t be as big a crisis as it is, because the privateer teams wouldn’t have the power to be able to make such a big thing out of demanding a better deal, and they wouldn’t be on the verge of pulling out at any moment because of the cost like Honda and Ford did.

  7. Terrific article Joe. We need journalists like you who care for the sport to call out the leeches (CVC) that are hurting “OUR” sport.

    CVC deserve nothing but contempt from everyone following this sport and i am very happy that you do your part every so often possible.

    I was very happy to see Cerebrus Capital get the shaft in the Chrysler saga. They were trying to patronize the tax payers saying “all was well…we just need some more to turn around and lay golden eggs”…really? then why the hell dint you put up with the money from your pockets into your “LLC”?

    I cant wait to see CVC die a sorry death because of their own greed…

  8. Outstanding piece highlighting the problems Joe.

    However I don’t think CVC are to blame. They saw an opportunity to get into the sport and take money out. The problem is Bernie’s greed and the fact that Max rolled over and gave him a 100 year contract. No other sport has sold commercial rights that far ahead. Most work on 5 year contracts and not one only offers the contract to one party. They have an auction and 5 years later have another auction and move their cow to the greenest grass.

    I think you are right when you say Bernie had done a good job for Bernie but he has done a lousy job for F1. He has missed so many opportunities that other sports have exploited and have expanded much faster than F1.

    Bernie is for example constantly pulling videos off youtube. ALMS on the other hand ask fans to post video on their site and as a result are able to advertise directly to their fans and understand theor opinions. Why doesn’t Bernie allow fans to post videos on an official site and sell advertising? Why doesn’t he have official videos streaming online for a fee? There is a demand.

    Bernie’s TV contracts are a joke. Anyone who finds themselves in a country where they don’t speak the language should have the option of watching live streaming on f1.com with commentary in the language of their choice for a small fee. Instead they have to watch poor quality streams that are frequently shut down during broadcast only to re-appear somewhere else a few minutes later. There is so much money to be made from that.

    It reminds me of a comment made by a TV reporter visiting a Scottish ski resort cafe. She pointed out on the wall that someone had made a sign in big red letters that said “WE DO NOT (underlined) SELL HOT CHOCOLATE!!!!. Clearly they were often asked for it and instead of thinking maybe we should sell it and make money they decided to waste time making a sign so that they didn’t have the annoyance of customers asking for it.

    When was the last F1 video game? John Madden is only known in the majority of the world because of his NFL games. Every year people buy his game out of habit. There are many communities who indulge in online racing games and several F1 drivers have said they race in these games including Lewis Hamilton. If I was in Bernie’s position I would have an official F1 game on an official F1 website with the chance to race against Lewis Hamilton and co and I would sell advertising and merchandise.

    Bernie has missed so many opportunities to make money for F1 and himself that it is unbelievable. I have in the past had discussions on this subject on the internet and literally within an hour we have compiled lists of over 100 opportunities to make good money from licensing deals that require no real effort or risk but have a serious prospect of making real money.

    One day we will have a championship that sells us the hot chocolate we desire.

  9. wow 371,000 fans down to 213,000. what can that be but ticket prices? 500 euro for a seat, 150 euro just to walk around on Sunday? but haven’t you analyzed this previously, and if they halved prices, the venues wouldn’t be able to fit twice the people. so unfortunately, the fantasy of being open to all who would love to attend just isn’t the most profitable economic reality.

    but since I live in the U.S., all I personally care about is the tv coverage. Do European stations get more complete coverage? During the race, we had a Buemi interview, but no Bourdais, Trulli or Sutil for their version of the accident. Though it was fun to watch JB/RB/MW watch the replay during post-race interviews and see their facial reactions.

  10. Joe

    If it is cheaper for a Spanish family to go to New York for a week than visit their Grand Prix then it is obvious that CVC are either asking too much money or the circuit owners are asking too much. I think the former is the case especially as the circuit owner has to rely on gate takings alone !!!! Pretty dumb when without the circuits F1 is dead. The circuit owners have to rely on their annual event to make a profit otherwise they can’t maintain or improve their facilities. Another problem facing Barcelona is that it must be hit hard by the testing ban as that is less income for the track. I think it is time that the money that is there was shared around a bit more but when you read that Brawn won’t get Honda’s TV money presumably because they’re blowing everyone’s ears off, that is unlikely. Perhaps we’ll now see the F1 implosion everyone has been warning of the last few years and we’ll get back to a 1970’s type F1.

  11. Joe,

    The article in GP+ was bang on. Looking at it from the inside, it is a worrying situation.

    There are still many people in this business who still just want to go racing. Shame that we have to get tied up in the politics.

    While we can’t deny that motor racing is safer, better funded and higher profile. But to what cost?

    If I may, can I take the opportunity to complement David Tremayne on his article about Ayrton, a thought provoking piece.
    The “Last Lap” piece sums up well how tiny changes in the paddock will all slowly add up to big changes within the sport.

    Bomber

  12. Bernie and Max have let power get to their heads. I cannot believe how the teams get treated and how much money Bernie creams off for himself and CVC.

    If there is one thing that the current downturn has shown, it is that any business that operates with greed or excess will be in serious trouble.

    I really dislike Bernie and his business style. He has become a puppet for an investment group, and is taking Formula 1 close to collapse.

  13. Excellent analogy! I just wished the cow had the courage to jump the hedge… its grass eating would certainly be far more efficient, and a much greater proportion of the milk and cheese it produced would go to the people who count- the fans.

  14. Although I am sure the current economic climate is the most significant factor in reduced ticket sales could it not also be the case that people are less likely to pay to see Jenson Button and Brawn win a race. I may be wrong but I was under the impression that Ferrari and to a lesser extent, McLaren have by far the largest fanbases and with these teams struggling perhaps fans thinking of attending a race may save their money until their teams show some winning form. I personally wouldn’t pay 500 euros to watch Jenson and Rubens cruise to frst and second place but I’d seriously consider shelling out to watch Lewis, Fernando and Kimi battling it out at the front of the grid.

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