The BBC went cap in hand to Bernie Ecclestone back in June this year, to request a reduction in the broadcasting fees it pays. The offered a number of compensatory solutions with regard to scheduling, however Ecclestone refused to countenance change. This despite RTL, a free to air German TV channel, having recently agreed a new F1 broadcasting contract which sees them pay about half of the previous annual broadcasting fee.
Ecclestone’s response to Auntie’s approach was dismissive, as he explained: “What they [the BBC] would like to do is not spend as much money. They want to know if they can schedule it different ways or pay a bit less now.
“They don’t have a lot of choice because they’ve got a contract with us. They’re there for another three years.”
TJ13 suggested at the time the BBC did have a lot of choice and due to the stringent cuts the corporation is being forced to make, Formula One was the last big annual budget sporting event left in the BBC’s portfolio of live sport. It was even in the BBC’s interest to just pay Ecclestone his broadcasting fees for three years, and save the production and broadcasting costs. So in reality, the BBC was holding all the cards.
The latest news on the matter is that ITV (with adverts) is set to take over the BBC’s final three years free to air (FTA) contract to broadcast F1 in the UK. At present this is ‘leaked’ news is unconfirmed by any of the three parties – the BBC, ITV or Ecclestone.
However, culling Formula One from its schedule is a no brainer for the BBC and even with a penalty for breach of contract – which Ecclestone may impose – the savings made from Formula One over three years have made it possible for the BBC to fund Match of the Day until the end of 2019.
Formula One FTA broadcasting in the UK appears to be like a game of ‘pass the parcel’ – with a package delivered by Jihadists – and given the continued decline in TV audience, this is hardly surprising.
In 2009, ITV ditched the sport in favour of their budget being focused on Champions League Football. ITV lost those broadcasting rights this year, and so appear to reluctantly accepting back something they were happy to give away 6 years ago.
Interestingly, Formula One’s finances are at present rather troubled. A number of circuits like Shanghai and Belgium have in recent years renegotiated a reduced hosting fee. The rescheduling of the Malaysian GP back to back with Singapore appears to suggest they have done likewise.
TV companies are also questioning the value Formula One brings, given the lack of investment by the commercial rights holders to popularise the sport. The evidence of a reduced value in F1 is clear from the RTL cut price deal.
Forbes revealed recently that in 2014, Formula One revenues were $1.35billion with an associated profit of $1.13billion. “But from that total some $863 million, or more than 75% of earnings, passed to the teams in the form of prize money. That left $265 million for stakeholders, a sizable dip over previous seasons (the company’s EBITDA was $426 million two years ago). Tacking on F1′s marketing and hospitality interests adds a combined $430 million in revenue, but those are mostly break-even businesses; pre-tax profits totalled just $5.2 million”.
These figures mean, if CVC are trying to sell the sport for around $8 billion, that is a multiple of 30 times profit. Add in the debt loaded upon Formula One and this price becomes around 45 times the sport’s current annual profit.
Sponsorship across the F1 platform is essentially flat and the only growth in income on the horizon for Ecclestone is from more races a year – which drives more hosting fees. 21 races are provisionally schedule for 2016, yet COTA has stated they are in trouble and recently Ecclestone admitted he was still unsure whether the 2017 German GP would go ahead in 2016.
Of course F1 fans have the thrill of a new circuit being added to the 2016 calendar – in Baku, Azerbaijan. Though, for motorsport fans who want excitement instead of another procession around the streets of ‘anywhere’, Le Mans is likely to captivate their attention instead.
If ITV pick up the pieces from the BBC, they too will want their pound of flesh in terms of a reduction in the broadcasting fee. When we consider that Ecclestone is contractually bound to deliver free to air TV in the UK (and certain other countries) or suffer demands from the teams for higher payments – due to them being forced to reduce sponsor rack rates due to a lack of eyeballs.
The loss of FTA TV in the UK would be a disaster. Formula One would become an insignificant minority sport, with around just 500,000 tuning in 19, 20 or 21 times a year.
The well tried and tested business model for Formula One is an retreat – and fast.