Formula One Chief Executive Officer Bernie Ecclestone’s move to push more races behind a paywall is prompting concerns among team sponsors.
Ecclestone is making deals with pay-television broadcasters including Sky Plc in the U.K., Fox Sports in Australia and Spain’s Telefonica SA to sell exclusive rights to between half and all of the 20 races, breaking from a decades-old model of free-to-air television. The season-opening race is March 15 in Melbourne.
The 84-year-old CEO is reaping a “double bubble” in income for shareholders led by CVC Capital Partners Ltd. by charging twice in each territory, although he risks driving away sponsors for teams if audiences continue to decline, according to Mark Gallagher, a former head of sponsorship for Red Bull Racing. Sponsors include Banco Santander SA, which backs Ferrari, and Bacardi Ltd.’s Martini, which supports Williams.
“Formula One gets the chance to secure a ton of additional revenue” but has to be careful not to alienate casual fans, Gallagher said. The strategy “won’t please mass-market brands like Santander.” According to an internal FormulaOne broadcast report made available to Bloomberg News, the cumulative audience for 19 races fell 5.6% to 425 million last year, a third straight annual drop. A Santander spokesman declined to comment.
McLaren hasn’t had a main backer for more than a year, while smaller teams that rely on sponsorship are struggling to survive. Caterham folded after last season, while the Marussia team was rescued by Ovo Energy Ltd. CEO Stephen Fitzpatrick days before administrators were to auction its racing cars. Ecclestone is navigating a more complex media landscape after pursuing so-called escalator contracts that rose 10% every year with free-to-air operators. Many of those broadcasters are seeing ratings decline as young people watch less television and they aren’t willing to pay more every year to screen Formula One.
“You’ve got a jigsaw puzzle and you’ve got to make sure all the parts fit together,” said Michael Payne, a former International Olympic Committee marketing officer who advises the Formula One CEO. “The industry is totally different from a decade ago.” The average race audience on Spain’s Antena 3 channel fell by 17% to 3 million last year. In Germany, RTL Group SA’s viewership fell by about 18% to 4.35 million last year even as local driver Nico Rosberg fought for the title with Mercedes teammate Lewis Hamilton. RTL will trim its coverage of qualifying and race build-up this season.
Ecclestone sold live race rights to Rupert Murdoch’s Sky in the U.K. in 2012, while making 10 of the 20 races still available for free on the British Broadcasting Corp. In 2013, he reached a similar agreement with Sky Italia Srl and state broadcaster Rai television. From this season, Murdoch’s Fox Sports and Ten Network will split races in Australia. Telefonica’s Movistar TV will put all races in Spain behind a paywall from next year.
Subscription channels pay more for Formula One rights to lure fans who will spend as much as $100 a month to watch live races, Gallagher said. Bidding wars between broadcasters are driving up prices in other sports, with Sky contributing the bulk of a record 5.14 billion pounds ($7.8 billion) for the U.K. rights to soccer’s Premier League.
Formula One’s net income from television rights deals and race-hosting fees before tax, interest, depreciation and amortization declined 8% to $1.08 billion in 2013 after the series paid more prize money to teams, according to a filing in April last year.
In a foreword to the internal broadcast report released in January, Ecclestone wrote that Sky and Telefonica are providing longer and better coverage for loyal fans. “The value of this committed audience can never be underestimated,” Ecclestone wrote. “Rather than just eyeballs watching Formula One these are the people that support the sport.” Ecclestone didn’t immediately return a call seeking comment on the broadcast strategy.
Some sponsors are concerned that move to pay television may shrink audiences, according to Zak Brown, the CEO of Just Marketing International, an auto-racing consultancy that advised Bacardi on its Martini brand’s return to Formula One last year. Bacardi spokeswoman Clara Fay didn’t return a call and e-mail seeking comment. “I have had a handful of comments from sponsors that they are concerned over the reduction in reach,” Brown said. “No one questions the massive reach of Formula One but people are hung up on the trend line.”