F1's dry well; where's the next big market?
Europe may be stale but Asia-Pac is grinding to a halt and Bric isn't interested...where to next?
As we discussed the other day, Canada, Germany and Singapore are rumored to be teetering on the brink of exclusion from the Formula 1 calendar. Germany’s troubles are well-known since the alternating strategy between Hockenheim and Nurburgring imploded after the sale of the latter. Unfortunately, Hockenheim isn’t too keen on hosting every year and this has left another potential gap on the calendar. The European races have all been buckling at the knees over the large sanctioning fees and circuit maintenance and this prompted F1 to seek Asia-Pac for emerging markets who would back the construction of massive circuits and sanctioning fees for global legitimacy and tourism appeal.
The proponents, and I don’t blame them, have argued that the money isn’t in Europe, it’s in emerging markets and if Malaysia, Singapore, India, China, Turkey and the South Korea are willing to build $300-400 million circuits and pay $25 million per year in hosting fees, F1 needs to move there to keep the prize money high as 63% of the total haul is handed to teams like Mercedes, Red Bull, Ferrari, McLaren, Williams, Force India, and Toro Rosso. Fact is, it is in the team’s best interest to keep going where the money is.
One problem…the money may have run out in Asia-Pac with Singapore hedging on renewing its contract, India gone, China gone, South Korea gone, and now Malaysia announcing they would not renew their contract after 2018. Europe has long been stagnant and now Asia=Pac is grinding to a halt and this leaves few options for F1 to seek $400 million circuits with the latest in posh trappings in which to host the world’s most advanced form of motorsport wrapped in green energy ribbons and bows and backed by the champion of these emerging nation’s road safety in the form of the FIA.
One might argue that the BRIC economy is a good “next move” for F1 but two weeks ago the Brazilian circuit, Interlagos, said it was no longer keen to continue paying for F1 races. It seems we have reached a precipice where the track economics aren’t working, the revenue streams aren’t ample enough to profit a nation or circuit owner or promoter and interest is waning. Where would the next fertile ground be?
It also is worth noting that the demand for a FIA Grade 1 circuit with all the trimmings F1 demands are going to be fewer to find if you consider the Circuit of the Americas (COTA) and it’s challenging times to find profit. Could this mean that F1 will experience a rash of temporary road circuits like Monaco, Baku, Australia, Russia (Sochi) and others to avoid the cost of a purpose-built circuit?
With Liberty Media acquiring F1, it will be very interesting how the new owners will entice circuit owners and race promoters to remain committed to the series and one must imagine that lowering sanctioning fees is one of the few ways to do it or sharing more of the advertising revenue and track-side marketing dollars.
When you reduce the revenue stream to F1, it impacts the teams directly and perhaps you could argue that they should have considered that before demanding the series change to a formula that isn’t resonating with fans or race promoters—given the sanctioning fee—but apparently reverberates across the halls and boardrooms of the major manufacturers to be a proving ground and rapid prototyping incubator for road car relevancy in the hybrid space.
F1 boss, Bernie Ecclestone, has always insisted that there are plenty of other nations on a list waiting to host a F1 race and perhaps he’s right but I haven’t read anything yet and there aren’t a lot of massive circuits being built now.
Would Liberty Media be willing to lower hosting fees and take more of the intake from a race weekend? It would be a risky move as attendance can be inconsistent but perhaps the new owners would create a buttress against that by creating all-new distribution models for cord-cutters and mobile consumers—would that be enough? Maybe not if you consider total viewership has dropped significantly in the past five years.
It’s a tough situation to navigate but clearly—and here’s the upside of the story—Liberty Media feel they can turn this ship around and ultimately they have a massive opportunity to own a real top-shelf content generation vehicle. I don’t disagree with them at all, I think it is poised to do something much better and more lucrative with a creative approach to the business model. The good news is, Liberty Media knows how to craft business models.
It's a good thing too as the list of former F1 races and circuits is becoming much longer than the current list of races and hosts.