Formula 1 was once a sport for the wealthy elites, but in recent years it has caught up with general public
Formula 1 has become one of the most popular sports once again, but it hasn’t always been this way. The situation was especially dire with the onset of the financial crisis. Viewership for the sport started to decline rapidly after 2008 , when it reached 600 million television viewers worldwide. The year after viewership declined to 520 million, slightly recovering to 527 million in 2010. Viewership hit rock bottom in 2017, when the amount of viewers decreased to 352 million. The number of television viewers recovered to 433 million in 2020. How did the sport get back on track?
The sport gained momentum after the second world war
Formula 1 emerged during the interwar period, when Europe was captivated by racing. The war put the sport on pause, but resurfaced after the end of the second world war in 1946 with a drivers championship to be launched in 1947, although the first world championship was held in 1950 at Silverstone, marking the beginning of the sport with Giuseppe Farina as the first ever winner. At the end of the 1950s the British joined the sport, with legendary manufacturers such as Lotus and Cooper. The cars were fragile, with iconic drivers losing their lives when competing for the first price.
With the increased competition and the urge for teams to stay ahead, costs spiraled out of control
As the years passed, manufacturers optimized their vehicles, through aerodynamic improvements, making the vehicles look smooth and consequently placed the cars firmer onto the tarmac, allowing for higher speeds. With the increased competition and the urge for teams to stay ahead, costs spiraled out of control and as the vehicles were able to generate ever higher speeds, the sport became more dangerous than it already was. Jackie Stewart became an advocate to improve the safety of the sport.
During the 1970s, Bernie Ecclestone restructured the commercial rights of Formula 1, evolving it into a billion dollar operation. With the purchase of racing team Brabham in 1971, he obtained a seat at the Formula One Constructors’ Association and became president seven years later. This turned out to be a defining moment for the sport as it moved the negotiating power away from the circuit owner to the teams who were now able to negotiate as a group.
Formula 1 cars become ever faster with turbos
In 1977, the cars evolved once again with the introduction of the turbo. A turbo is a power unit that forces air into the engine’s cylinders, which generate stronger internal combustion, consequently generating more power output. McLaren became the dominant force in Formula 1, winning the driver’s title seven times within 8 years with racing legend Senna and Prost. In 1988, McLaren won 15 out of 16 races, raising eyebrows with regulators who banned the usage of turbo power engines, with turbochargers being completely banned in 1989.
Other technologies also found their way into the sport during the 80s such as electronic driver aids, semi-automatic gearboxes and traction control. Technologies we see on cars today, but marvels of engineering at the time. Despite the ban on turbo’s McLaren, along with Williams, Renault and Ferrari, remained dominant in the sport. ESPN noted that fans of the sport saw the sport evolve into a technical arms race, rather than the cunning skills of the drivers. Just like decades earlier the costs to compete became ever higher, with smaller teams falling behind compared to the dominant manufacturers.
A defining moment came for the sport in 1991, when Schumacher was promoted to the F1 league, becoming a racing driver for Jordan and in 1992 moved to Benetton where he won the driver’s world championship in 1994 and 1995.
The problems for Formula 1 begin during the financial crisis
The situation for Formula One (F1) looked bleak after its glorious days. In 2008, the great financial recession, marked by the fall of Lehman Brothers in September, was about to begin and the expensive race car sport Formula 1 was caught in the middle of it.
Honda announced that it would be pulling out, leaving 700 employees in the United Kingdom without a job overnight, with Renault also reviewing its financial performance. The operations of the F1 team cost Honda over $200 million a year with little financial backing from sponsors according to The Guardian. With the impending financial meltdown, advertisers and sponsors held onto their wallets, like Dutch bank ING, which was speculated to retreat from F1 at the end of the season. The manufacturers were left with mounting costs in an economic landscape which was rapidly turning against them. Who would be buying cars in these uncertain times?
In 2014, F1 team Marussia had to stop operations and had to leave the sport with two races left to go. The team failed to find investors and was placed under administration. With the dissolving of the team, 200 staff members were let go. Caterham went as far as to launch a crowdfunding campaign so it would be able to compete in the Abu Dhabi race. Despite the economic hardships it has been encountering since the economic meltdown of the mid 2010s, the sport was able to generate more revenue than its popular counterpart, FIFA. Over a period of 15 years, from 1999 to 2014, Formula was able to generate a revenue of $16.2 billion compared to FIFA, who with its World Cup series, generated $14.5 billion. Formula 1 is drawing large sums of money from different sources that all contribute to massive revenue streams.
How Formula 1 and its teams make money
The Formula 1 Group collects revenue from three major sources, namely hosting fees, media rights, hospitality. Other sources include advertising revenue. Owner of F1, Liberty Media published its financial results in 2019, highlighting its revenue shares per category. The group generated 38% of its revenue through broadcasting fees, 15% from sponsorships and 30% of hosting fees.
In a 2014 pay-out summary published by Autosport we get a glimpse in how the revenues are distributed amongst the teams, who receive pay-out based on their season performance. According to the website, 65 percent of underlying revenues is shared amongst the competing teams. The share is based on prize money from race standings and premium payments. Ferrari claimed the top spot with a total revenue of $164 million, followed by Red Bull with $156 million and Mercedes with $126 million. Another key component for revenue generation is merchandise. Figures from 2017, reveal which merchandise generates most income for the sport globally. The biggest contributor is caps, which account for 26.6% of merchandise sales, followed by polo shirts, which add 23.3% and model cars 15.8%. The money flowing in the sport makes it an interesting investment.
Liberty Media acquires F1 and Formula 1 turns a profit
In 2016, mass media company Liberty Media announced that it would be acquiring Formula 1. Liberty Media would acquire all stocks from the current parent company of F1, Delta Topco. Liberty already maintained a minority stake of 18.7%, which was worth $746 million, wholly acquired through cash. The acquisition would reflect $4.4 billion and be completed in 2017. The media company will pay $1.1 billion in cash, 138 million shares of Liberty Media, $351 million in exchangeable debt instruments and the most noteworthy, taking over $4.1 billion in debt.
In 2018, under the wing of its new owner, the F1 Group launched its first ever global marketing campaign in collaboration with London based agency Wieden+Kennedy. The 60-second commercial, dubbed as Engineered Insanity, would start before the season opening and be released on owned social media channels. The campaign would be scaled up across other platforms, including out-of-home displays, advertising near airports and across major cities, murals and social media and digital campaigns. Director of Marketing at Formula 1 Ellie Norman, said the big advertising push was meant to change the perception of how people view F1, focusing on the aspects of the sport that excite fans. It’s a shift from what she calls, the echochamber that the sport has been operating in. The advertising materials would also tailor to modern trends such as GIFS and Instagram stories.
In 2019, the F1 Group turned a profit for the first time since 2016. In 2017, the F1 group had a loss of $37 million and the year after $68 million, but in 2019, it was able to generate a modest profit of $17 million. The company was able to generate more profits from broadcasting fees, whilst advertising and sponsorship revenue didn’t increase.
Netflix’s Drive to survive turned Americans into fans
An interesting contributor to the rising popularity of Formule 1, is the docuseries Drive to Survive, which was able to get Americans on board. Those previously unknown to the sport, were now passionately watching the adrenaline packed races.
Paul Martin, executive producer of “Drive to Survive.” said to the New York Times, that Mercedes and Ferrari initially refused, telling the producer that he didn’t have a clue how the world of Formula 1 operated. But in cooperation with the parent organization of the sport, Netflix was able to get the access they needed to create an authentic retelling of all the moving parts that go into each race, from the cars to the teams themselves.
After the success of the first season, Mercedes and Ferrari were on board as the series was able to attract new audiences and create a unique viewing experience. Just like the producers of the series aimed to deliver. Australian driver Daniel Ricciardo said that the series was able to move the sport into the eye of the general public, whereas before it was a more private affair. Zak Brown, CEO at McLaren Racing said the series played a major part in popularizing the sport in North America. After the series’ debut, ticket sales for the Grand Prix in the United States rose by 15 percent in 2019, compared to the previous year. ESPN revealed an increase of 54% in viewers in 2021, compared to 2020, reaching almost 1 million viewers per race with 934,000 people tuning in and breaking the previous record of 1995 where an average of 748,000 viewers per race. While ESPN cannot pinpoint whether Drive to Survive fueled this growth, it didn’t hurt viewership either.
Formula 1 accelerates digital expansion
We’ve started the story of F1 with the decline in television viewership, but where it had lost viewers on television, it has realized substantial growth online, being able to engage with fans in new and innovative ways. The sport saw a major increase in online engagements across Facebook, Twitter, Instagram and Youtube, realizing a growth in engagement with 99% in 2020 compared to 2019, the highest growth figure of any other major sports league.
Across its social media channels, it saw a 36% increase in its followers in 2020, compared to 2019, reaching a total following of 35 million. Its online video views also increased by 46% over the same period, reaching 4.9 billion views. With its podcast, Beyond The Grid, it was able to attract 14 million listeners and became the most popular motorsport podcast in Australia, Canada, the UK and the US. The sport has also been venturing out into eSports, where it saw a 98% increase in views in 2020, compared to 2019, reaching an impressive 11.4 million live video streams.
Formula 1 has yet to fully recover
The sport has had many challenges, especially during the economic downturn, which moved the sport into an even more costly endeavor for manufacturers and the teams. Under the umbrella of Liberty Media, Formula 1 has become a global phenomenon once again. The large advertising push ensured that the sport would be noticed amongst sport enthusiasts and the general public. While major sports enjoyed organic coverage, Formula 1 had some catching up to do after struggling with its finances and finding a way to shake off its elite allure.
Netflix has also contributed a lot to the sport, with multiple seasons following the teams across the world, documenting their rivalries, their wins and their losses. It turned Americans into fans and drew newcomers to the sport. And while the league has been losing ground on television, it has seen massive growth online, especially on its social media channels and eSports where it could engage with fans on new levels and attract younger audiences. Nonetheless the owner still has work to do to minimize the multi billion dollar debt it has taken over, but the first signs of recovery are promising and with fresh rivalries heating up, viewership will undoubtedly rise.