F1 is being acquired by Liberty Media at a valuation of $8bn. In Part 1, 2 and 3 I summarised the main points of the deal and how the new owners might increase revenue from sponsorship, race hosts/promotors and broadcasters. In this final part I look at several other new ways Liberty Media might increase revenue.
How to increase revenue by other means:
First up, licensing of the F1 brand…
It has been mentioned for many years that F1 has done a poor job of licensing its brand name, logo and other marks. There’s several reasons for this but one main challenge Formula 1 Group will face; it is the teams and drivers that fans have the emotional connection to, and thus it’s them that fans want to associate with and wear (if we’re talking apparel). Up until recently it was only Ferrari that had done a credible job of licensing their brand. Their ‘buy all the Ferrari you can afford’ model has generated millions in revenue — though some in the company also feel it has in some cases detracted and devalued the brand. The only other best practice example is Mercedes and Lewis Hamilton — the decision to create unique one-off caps has worked very well the past few years.
For Formula 1 itself, the first decision is what products it should entertain licensing itself for. One would suggest premium or luxury goods is a sensible start, but the audience buying these products may not want an overt F1 logo over their $5,000 luggage, $1,000 pair of shoes or $100 cologne, so product quality and aesthetic must be carefully managed.
One area that F1 might further consider licensing itself is for Theme Parks, or at least Theme Park rides. There’s the obvious connection to speed and danger, and theme parks always need to have big name attractions that are differentiated from one another.
Another idea… Building off the back of Formula 1 Paddock Club’s reputation as a premium destination for entertainment, why not a F1 World corporate event location in key cities around the world? Businesses are always looking for new ideas for corporate away days. Formula 1 and the messages of teamwork, efficiency and innovation have proven highly popular. This might combine Paddock Club hospitality, with F1 memorabilia, race related activities (simulators, pit stop challenge cars etc), and meeting rooms.
Film licensing is a further opportunity Liberty might consider. F1 has been approached many times for which to wrap a hollywood story around, but traditionally Bernie Ecclestone has always asked for too much money. Liberty, with 21st Century Fox experience (where Chase Carey has recently been Vice Chairman) has experience in this area.
One film every couple of years may only bring in $10–20 million but it would promote the sport to an international audience, and if they wanted to, F1 could get creative by maintaining the right to sell all of the in-film trackside and car branding. I’m sure many of F1’s global partners and principle team partners would invest a little each to protect their position and gain from the additional exposure and activation opportunities the movie provided.
The Grandstand Finale:
Finally, to address many issues — and ‘the big question’ in Formula 1 — perhaps Liberty Media might consider creating an annual one-off non-championship event where all drivers compete with their teams in a spec car. The SuperBowl of Motorsport.
The event location could be different each year — going to the city or track that offers the best combination of money, location and promotional activities. The world’s greatest and richest nations would compete to host the event. The event would be box office, and as the broadcast would sit outside the official championship, F1 could sell these additional rights to their global partners, show it exclusively on F1TV or with other pay-TV broadcasters. This event would showcase which driver is truly the best, attract and draw global attention and drastically increase Formula 1 Group’s revenue! It’d be awesome!
What might this race event contribute in revenue terms? Hard to say, but with one-off host fees, one-off broadcast fees, and a global audience, I’ll put a wild estimate out there that is could bring anything in the region of $200 million per year.
So, What Could F1’s Revenue be in 5 Years?
So when combining all these ideas, how much additional revenue could the new Formula 1 Group stand to make in say 5 years when all these concepts could be implemented? Well, don’t hold me to this, but minus the incremental revenue from annual escalators in current race host and broadcast agreements, something in the region of $750m-$1,150m in additional revenue may be possible. Therefore, when taking into account the annual escalators in current race host and broadcast agreements, it MAY be possible to see Formula 1 revenue get close to $4bn by 2021.
Hope you enjoyed reading this. It’s certainly been fun to write. At the end of the day, I hope Liberty Media do what’s right for the sport and it gets back to exciting, close racing; a real spectacle for fans. If Liberty Media manage the sport well over the next however-many-years, I absolutely don’t mind them making a huge profit.
If you want to check out the earlier parts to this blog, they are on Medium. Alternatively you can read the whole thing over at my website now: http://www.jamescparrish.com/single-post/2016/09/09/How-Could-F1s-New-Owners-Accelerate-the-Sports-Revenue
Please do check back soon for more thoughts and ideas on the commercials and sponsorship of F1 and Formula E.