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Aug 24, 2015
The Decline of Formula 1

The 2014 Formula 1 season was dominated by an intriguing intra-team battle. For the entirety of the season, teammates Lewis Hamilton and Nico Rosberg were locked in a two-way race for the Drivers’ Championship. The two racing superstars completed the transition from childhood friends to arch title rivals and was one of the most intriguing sport stories of the year, finally concluded with Hamilton seizing victory at the final grand prix of the year in Abu Dhabi. Yet, despite this absorbing backdrop, F1 is struggling.

Why aren’t they watching, Nico?

Why aren’t they watching, Nico?

The sport of Formula 1 is currently embroiled in its very own financial crisis. It continues to enjoy a gargantuan annual turnover of $1.7 billion, with governments willing to pay $20m for the honour of hosting a race. Yet there remain entrenched financial struggles, which afflict the pinnacle of motorsport. The teams involved in F1 share $800 million in prize money, 63% of the profit made by the sport, which should help to compensate the reduction in incoming sponsorship due to declining viewership figures. Yet a major problem with this is that the funds are not distributed evenly; Marussia was given just $10m from the fund last year, whereas Red Bull and Ferrari are understood to have enjoyed $150m each. This disparity is not unusual for F1; but it is aggravated greatly by the increased costs of actually getting on the grid.

During the 2014 campaign, Marussia and Caterham were both forced to go into administration within the same week, with Marussia withdrawing and Caterham able to scrape through the season, partly by appealing to fans for donations. Neither team was on the grid at Australia for 2015’s opening race. A major reason downfalls such as these is that smaller teams are increasingly spending beyond their means. They view positive track performances as far more important than ensuring that they balance the books. This is all well and good when results are favourable, as increased attention from sponsors can help to offset costs; the problem comes when this bold strategy does not pay off. They may have to resort to ‘rent-a-drivers’ (e.g. Maldonado & Chiltern) to cover costs, which reduces performance potential, thus reducing competition further in F1.

Established teams with worldwide recognition, such as Ferrari and Mercedes will likely never have a problem attracting sponsors. Smaller teams require points and coveted podium finishes to gain the admiration of those firms armed with lucrative sponsorship deals. They are also at a disadvantage from the offset, as certain teams gain extra funding in other ways, such as how Ferrari receives roughly $100m from the Constructor’s Championship Bonus along with an extra $62.2m as a reward for being the only still present from the sport’s inception in 1950. All of these financial struggles both for and within the sport of Formula 1 are contributing to its perceived demise, as competition is limited even more to the major teams on the grid.

Caterham F1;  forced out

Caterham F1;
forced out

 

Formula 1 is also suffering from declining viewership on a global scale. In the 6 years preceding the 2015 F1 season, viewing figures have fallen by 175m to 425m. F1 remains the world’s most-watched annual sports series, however this downturn is an alarming one. This can be traced to the movement from free-to-watch channels broadcasting races to PayTV services, with 51 out of 89 of the broadcasters for F1 being pay-per-view in 2015. Some countries, such as the UK and Italy, allow half of races to be screened live on free channels with the rest available delayed, yet others, such as the Czech Republic, have completely removed free F1 coverage. What’s more, the cost of these PayTV channels in large for potential fans and on the rise. The UK price of Sky’s F1 coverage has gone from £363 to £562 in the space of three years. These high prices not only put off established F1 viewers, but also make the engagement of new enthusiasts all the more unlikely. This in turn leads to sponsors becoming less willing to increase funding to a sport where global interest is falling, thus worsening Formula 1’s financial burdens further.

So what can be done to reverse this decline in Formula 1’s fortunes? One possible solution could be the recently rumoured purchase of the sport by Qatari Sports Investors and Miami Dolphins owner, Stephen Ross. They are planning to be lining up a bid for CVC Capital Partners’ 35.5% controlling stake in the company, with plans to purchase Bernie Ecclestone’s 5% stake also (but not get rid of him). This move could help to reinvigorate the sport of F1. They may be able to achieve this is through greater exploitation of the US market. The US bucked the trend in terms of viewership figures in 2014, growing by 10.1%, with the Canadian Grand Prix alone getting 3.5m unique viewers stateside. In addition to this, viewing figures for NASCAR have been on a steady decline, with the 2014 Daytona 500 receiving a record low of 9.3 million viewers in 2014. Therefore, with Stephen Ross’ foundation and knowledge of the US sporting scene, F1 may become more likely to become an established and popular sport in the USA.

F1 must also work to address issues with its current image; entirely fuelled and driven by money. The decision to allow Azerbaijan to host a grand prix, despite its more than sketchy human rights record, was criticised in some parts, with UK politician David Davis saying that the organisation should take the “morally proper” decision.  In addition, there is talk of another F1 event in the Middle East; yet none in the F1 heartland that is Germany? The sport should attempt to avoid controversial issues such as this to boost its public perception, along with its attractiveness to potential sponsors. A return to louder engines could also be beneficial; but what is clear is that Formula remains on negative path, and steps must be made to stop the rot.

 

Written By Henry Davies

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