Really, what is it with F1 and America? Possibly the most important market for the sport, and the relationship gives the impression of being fated.
F1 used to get it right there with races each year at Watkins Glen and Long Beach. One east; one west. One a road course; one a street course. Both popular with fans and drivers alike. Both attracted large and vibrant crowds.
And yet. In the early ’80s the Glen went bankrupt and then Long Beach was lost to Bernie Ecclestone’s attempt to play financial hardball with it. F1 in America then entered a sublime to the ridiculous phase: there was the Las Vegas car park; Detroit which had everything other than the circuit which was awful; Dallas had more going for it than history often assumes but its only race was shambolic and then someone, um, did a runner with the takings; Phoenix had no crowd, indeed mirth was made one year that a nearby llama festival attracted more through the gates; Indianapolis looked like it provided an answer finally but that was lost too on almost identical grounds to Long Beach. Taking the whole thing full circle.
But now we have Austin. The Texan venue at the Circuit of the Americas which at last gave F1 its answer it seemed. A magnificent facility attracting vast numbers in, a track and event popular with drivers and fans, and at a town determined to absolutely embrace the whole thing. But no, perhaps it was indeed all too good to be true after all, given in recent days news landed that the Texas state government is to reduce its annual subsidy of the race from around $25m to around $18-19.5m as it changed its formula for measuring economic impact and concluded that of the F1 event was less than thought. The local government contribution is also expected to drop and this all at a time when the round’s hosting fee is increasing, its crowds have tapered off a little and a financial hit was incurred in this year’s event with the notorious bad weather.
Indianapolis turned its back on Formula 1 due to rising fees (© Williams F1 Team/LAT Photographic)
Not that we should leap to the conclusion that they’re being penny-pinchers, as the Texan state subsidy was, and is, much higher than for any other event and to give some kind of context is 25 times what it gives to the local NASCAR race. Some reports suggested that all were minded to cut the funding further than they did indeed. But whatever the rights and wrongs, summing up the potential impact of it all the COTA track’s chairman Bobby Epstein said in response that “I think we’re screwed”. Bernie Ecclestone might yet be convinced to go easy on them given everything. But we know what Bernie thinks of the States. His first few public noises on the matter did not at all suggest emollition was on his mind.
And more to the point we know what Bernie, and his masters at CVC, as the sport’s commercial rights holders think of money. Yes dear reader as you’ll be aware this is by no means a peculiar case to the States or anywhere else, indeed the story by now will be a very familiar one.
Where does F1 get its vast sums of money to operate (and to pay its money-glutinous CVC masters) from? Not from sponsors as many cars these days barely have a livery on them. Ron Dennis even spoke recently of F1 living in a post-title sponsor age. “If you look at what title sponsorship would normally be” said Dennis earlier in the year, “it would be somewhere between 40-50 per cent of your budget. Where the budgets are for a competitive team, no company will come in and give you that kind of money.”
It doesn’t even come from ticket sales necessarily as there are a good few rounds whose crowds are rather meagre.
No the money these days tends to come in part from TV contracts (hence the sport’s coverage disappearing increasingly behind paywalls) and a lot from race hosting fees. That is, the wedge that can be extracted from host rounds for the privilege of F1 turning up. Rather like, some have said, you hiring a factory to make your product in and expecting the factory to pay you for the honour. And these fees now are so inflated as to be usually way over the event’s ability to generate the money through other means.
even if you do get state support, the state can giveth and the state can taketh away
The changes in the F1 calendar in the past ten years or so underline this. Yes Bernie has been known to talk loftily about expanding into new markets but essentially what sets many of these new host countries apart is that their Governments are happy to foot the large bill and write the financial loss off in the name of national promotion – some for more benign reasons than others. Either that or you need a benevolent angel investor as the Austria and Mexico rounds have. Meanwhile as a result of it all some prestigious races associated with the sport’s history and core following have been lost while even the British and now the Italian rounds seem to exist only in constant struggle. And as you may have discerned from attending one of these sort of races not only are ticket prices often high to make up for this as much as possible as it’s one of the few means the circuit has to make the money back, but also little cash is left over for improving the fan experience and into line with what you might have experienced at other spectator events.
And as Austin found out even if you do get state support, the state can giveth and the state can taketh away.
But it is modern F1’s way that one in the face of such things can feel helpless, like there is nothing to be done. And forced to go through periods of mind-numbing drift as the corrosive ways continue regardless. This is another instance. But there might be a way out, and one that might be nearer to reach – at least in theory – than we realise. It was outlined in the aftermath of those recent Austin developments by the estimable former F1 doctor Gary Hartstein on Twitter: “If the F1 licensed circuits would cartel up they’d have some leverage” he said.
If anything Hartstein understated the case. If the circuits one way or another got together and bargained as one then it would turn F1’s distribution of power, and therefore its financial model, utterly on its head and immediately. The circuits would have the whip hand.
It’s not a new idea either. For example back in 2011 when the Australian round’s promoter Ron Walker was talking of F1 tracks in response to the proposed new engines for 2014 getting together and en masse going off to Indycar – and in an irony given it was Walker saying it, it was likely to have Bernie somewhere near to hand – Joe Saward wrote: “What is quite amusing in this scenario is that the idea of organising the circuits into a political force – traditionally rather like trying to herd cats – is also the last thing that Ecclestone wants as there is a very real danger that one day a leader will come along who realises that the race promoters have the real power in the sport, as the owners of the venues are the real owners of the TV rights.”
After all the circuits and race promoters own the fixed assets. Without them F1 can’t happen. And what does Bernie (or rather CVC) own aside from a few TV contracts? Their assets beyond that are strictly intangible. But that they negotiate with Bernie one at a time means Bernie has much opportunity to play them off against each other.
There also aren’t actually all that many tracks in existence of the exacting Grade 1 standards required for an F1 race. An FIA list published earlier this year showed there were just 32 of them in the world (though since Mexico’s Autódromo Hermanos Rodríguez can presumably be added to it). And that an F1 calendar usually has 20 or more rounds on it – next year’s has 21 as things stand – shows that Bernie has little room to manoeuvre. Circuits also can’t be built overnight.
Also we have another irony here kicking around in this, given when Bernie first built his power base in F1 it was at a time when most of what money F1 made stayed with the race organisers and host circuits; the constructors – which tended to negotiate individually as the circuits do now – themselves got very little. Bernie therefore – in another irony – in effect used trade union tactics by organising the constructors and leading collective bargaining on their behalf, giving him huge muscle. This move with circuits if it came to pass would be another thing to in effect bring matters full circle.
And if folk couldn’t stomach the union model the same end could be achieved with more of an enterprising capitalist one instead. Saward a year later on a similar subject spoke of the model that exists in NASCAR. It has a very different outcome to F1’s with a full 65% of its TV revenues going to the circuits, 25% to the teams and just 10% to the sanctioning body. That therefore ticket prices are much lower and all aspects of the fan experience much better is no coincidence. And a virtuous circle exists between the circuits and the sport, as the circuits share their income with the teams in the form of substantial prize monies. Also there’s little need for Government help.
You cannot buy Monaco, but who is to stop the Formula One Group buying Monza, Spa or even the Nurburgring
And why is this? As Saward explains: “The France family, which controls NASCAR, is also in control of the International Speedway Corporation (ISC), which owns around half the tracks that are used. They thus make more money. They are careful not to have too many venues and have a strong rival in Bruton Smith’s Speedway Motorsports, Inc (SMI) and there are even one or two independent operators still in business. What this means is that the incentives are all aligned and all the businesses are stronger as a result.”
As for what could be done for F1? “Given the state of the finances of some of the F1 tracks these days, buying a string of F1 venues would not be that difficult” Saward continued. “You cannot buy Monaco, but who is to stop the Formula One group buying Monza, Spa or even the Nurburgring and Hockenheim and then turning them around by being nice to the fans, rather than driving them away?
“In F1 circles the thought-process usually rejects ideas that they did not think about, but it might be wise to look at the NASCAR model and see the advantages it brings.”
There are many benefits of the F1 circuits getting together and with it bringing the hosting fees down, and they would be felt by the sport’s most important group, the paying public. Plenty of popular venues near to F1’s core support such as those in France, Imola and the like, could be priced back into the market, plus prestige and attracting a crowd would again be the chief considerations rather than having the readies to hand (personally I thought India was abandoned way too soon too). As outlined circuits wouldn’t need to charge such high ticket prices plus could invest more into the experience the fan does get, such as comfort, access and additional entertainment. And given that necessity is the mother of invention F1 would have to find more healthy and sustainable ways to fund itself, such as by growing its fanbase (further aiding the case of the tracks mentioned) and attracting sponsors and other investors, which in turn may convince those in charge to be more minded of the sport’s image. A virtuous circle again.
So if it’s that glaring then why hasn’t it happened? Well there’s the usual impediment of no one having thought of it, or rather even if the benefits of it had occurred to them (and I’m sure it has to a few) no one has taken the initiative, or had the time or inclination, or even the skill or fortitude, to be the one to do it. Taking on Bernie is not for the faint of heart.
Bernie organising the constructors back in the day was enough of an achievement and he had the advantage not only of an effective power vacuum in the sport at the time but that those constructors got together in the same place every couple of weeks. Not so with circuits which stay at the four corners of the globe and all sorts of barriers exist between them in terms of language, time zones and the like. You heard what Saward said about herding cats.
Would Bernie allow it to happen behind his back? Most likely not.
There are other probable barriers too in making this work. The first is the jewel in the crown of Monaco, which uniquely does not pay a hosting fee. How exactly therefore do you get them on board with this? Before you begin the most important chip of all could be Bernie’s to play.
Then there are a few of those new rounds I cited, whose virtually only selling point is their ability to pay the vast hosting fees. Why would they therefore get on board with something whose aim is to shoot their only fox?
Bernie therefore with Monaco and the middle and far eastern Tilkedromes on his side suddenly has something to work with in creating a calendar.
And as we know divide and rule is quite Bernie’s thing as seen for example with FOTA a few years back wherein the competitor teams were in a similar sense seeking to unite against his interest. Then Bernie resolved (from his point of view) the situation by offering highly lucrative deals to Ferrari and Red Bull to tempt them and their supporter teams to cut and run, in so doing delivering a wound to FOTA that proved fatal (it also skewed the wealth distribution among the teams which is something we still suffer from, but that’s another story). It wouldn’t be beyond Bernie therefore to pick a couple of the more important venues and tempt them with nice discounts… Just as with FOTA the rest could be left with little option but to follow on and on rather non-advantageous terms.
But then again most of these tracks are on non-advantageous terms as it is. Plus even if you don’t have all of the tracks onside as NASCAR has shown having a significant block of them together as one can be effective enough. As outlined too they make losses on their F1 races anyway so have little to lose in that regard either. Some tracks that have dropped off the calendar lately have given the impression of being positively relieved to be rid of their F1 money loss.
Let’s end with a final irony. Given everything taking adapted inspiration from a Communist Manifesto rallying cry for any F1 matter – let alone for its haughty power brokers – doesn’t seem all that likely. But it applies rather aptly here. Circuits of the world, unite! You have nothing to lose but your chains!
