Formula 1 is on fumes

F1 on Fumes – Image1b (1)

In the earliest days of Formula 1 during the 1950s and 1960s, launching, funding and running a team was largely within the reach of anyone with the gumption to take it on. Drivers were literally putting their lives on the line with each race because they were racers at heart and driving was their drug. Teams often operated on a shoestring besting one another for the thrill of it. The men who built these teams and then organised them into a racing series were in it as much for the bragging rights as the money.

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Prehistoric times

By the 1970s, the hobbyists were supplanted as commercial opportunities reached their adolescence, begging for some structure. Enter some crafty moves by Bernie Ecclestone to organise this unruly bunch with Max Mosley, then shrewdly running the FIA as the sport’s regulator, and it didn’t take long before Formula 1 grew into the pinnacle of motorsport. Ferrari, McLaren, Lotus and Williams attracted avid fans by the tens of millions and curious sponsors soon followed.

Formula 1 was it. All glamour, grease and peril.

As Formula 1 matured, the stakes were raised as each team pushed the boundaries of performance. The technology gradually outstripped the driver’s raw skills to become the deciding factor. The rise of the engineer spelt the end of an era. The fan base, hungry for any track action, welcomed the arms race and the current business model of Formula 1 took hold. The ready cash once dangled by hungry sponsors soon became the lifeblood to fund the now dizzying pace of development. The teams courted global brands as ruthlessly as they competed on track. Industry soon came calling as the superior technologies being developed to squeeze a few tenths of a second per lap found their way into everything from passenger cars to aircraft and medical equipment. It was a heady time to be in Formula 1.

The changes

By the last decade of the twentieth century, Formula 1, through a series of terrible losses and the lessons those losses demanded, set about cleaning up the rough edges. Driver safety became the guiding principle. The cars, now built from carbon fibre and free to find whatever form cheated drag, were also as strong as tanks. With the issue of safety no longer a concern, auto manufacturers lined up to explore their options in Formula 1. Relevance was everything. Our global obsession with the automobile was strong, and it connected Formula 1’s fans until it had become the most-watched sport on television with more than half a billion unique viewers. With the exception of the Olympics every four years, nothing else came close.

Enter some crafty moves by Bernie Ecclestone to organise this unruly bunch with Max Mosley, then shrewdly running the FIA as the sport’s regulator, and it didn’t take long before Formula 1 grew into the pinnacle of motorsport.

Under that model and those parameters, Formula 1 roared along through years of domination by McLaren, Williams and Ferrari before Red Bull upped the ante with a package of power and aero that took the sport as far as twelve, ten and then eight growling cylinders could take it.

On June 29th, 2007 Apple introduced the iPhone and the world changed in an instant.

Mind-bending technological advances that ushered in modern hardware innovations soon gave rise to the broader and immediate reach of even more fanciful software-based solutions. So much so that as we entered the second decade of the 21st century, bits of software code harnessed atoms of hardware and the autonomous driving era began in earnest. Companies like Google and Uber joined Apple and others as they took a deep-pocketed dive into a world where the driver – actually driving a vehicle – would become an option and a more dangerous, expensive, and inconvenient one at that.

When most of Formula 1’s ageing fan base was growing up, cars played an integral part of their lives. Buying, fixing up and even racing their own cars was all part of the fantasy. It connected them to the racers, their heroes. Today that experience is all but gone. Just 44% of the teenagers polled in a recent survey intended to get their driver license. Ten years ago, that number stood at over 80%.

There will be no going back.

Behind the scenes

Meanwhile, the FIA, now under the firm control of Jean Todt, along with Ecclestone, working with the teams and the likes of Mercedes, who had indicated a strong interest in returning to the sport they abandoned in 1955, drafted a formula for a new, highly complex six-cylinder “power unit” with a single turbo and a sophisticated energy recovery protocol. It was an attempt to appease a younger, more environmentally aware and sensitive demographic. Huge sums of money were invested. The cars fitted with these purring hybrid power units were introduced in 2014. The Toyota Prius on steroids.

The teams complained. Their sponsors complained. The fans complained. Mostly these new engines were too quiet. Gone was the deep-throated roar that hit spectators in the belly. Surely that meant these cars were slower. In time they would learn just how wrong that assumption would prove to be, but for now, with their collective point of view squarely in the rear-view mirror, the pace of change accelerated and the world around them pulled ahead.

Unfortunately, gimmicks will only drive away from the hardcore fans in search of new, less committed fans. NASCAR is proof of that.

What Mr Ecclestone and his band of (largely) men had built was now in danger of losing relevance. Potential buyers came and kicked the tires. A few even got quite close. CVC, as the true commercial rights holder, looked for an exit in the public markets, but Ecclestone’s lean operation lacked certain components the bankers needed to float the shares. Then, with the sport losing TV viewers, sponsors and teams, Liberty Media stepped up to craft an ingenious deal that allowed them to gain control of the whole kit while also taking the business public on the NASDAQ exchange.

Liberty wasted no time installing new management with big new ideas who, in turn, went on a hiring spree telling everyone that after nearly 70 years they were reinventing the wheel and treating the entire experience as if they were a Silicon Valley start-up. Liberty’s managers confidently predicted new sponsors, spectacular events and a bigger, better deal for the teams. All within weeks of moving Ecclestone to the side-lines and assuming control. Nearly two years on and most of the paddock is still waiting.

The nitty-gritty

Much has been written about stalled talks to extend the Concorde Agreement that governs the relationships between the FIA, Formula 1, and the teams. Managements on all sides of the table have been cautious not to reveal their cards. Who can blame them? When the Agreement was first drafted and then amended time after time, the world was still on a predictable path.

Not so anymore. The value of the Formula 1 brand and franchise will depend entirely on finding a way forward by keeping the current fan base happy while reaching out across every available platform in this digitally controlled world to engage and develop new fans. Just this side of a fool’s errand in this new competition for views and impressions across hundreds of tantalising options.

Formula 1’s fresh faces in their equally fresh HQ relished the challenge. The management announced that fans would come first. Something, they scoffed, Ecclestone apparently cared little for – all 500 million of them. The new managers changed the business category from a “racing series” to a “media and entertainment” company, borrowed templates from other major sports franchises, and launched with abandon. They changed the iconic logo, added their own commissioned theme music, beefed up the once exclusive paddock experience with zip lines and added ancillary entertainment in an expansive Fan Zone. Expensive initiatives all designed to get the fan closer to the action. To be fair, some have improved the experience while others are in danger of reducing the racing to that of a carnival sideshow.

Unfortunately, gimmicks will only drive away from the hardcore fans in search of new, less committed fans. NASCAR is proof of that.

What Formula 1’s new ownership and management had failed to appreciate was their lack of experience in Formula 1, let alone motorsport. In Liberty Media’s eyes, they had acquired a sporting asset. Not unlike a football club or an NBA team. But Formula 1 is a motorsport asset with deep roots and a unique culture of its own that is exported and adopted the world over. Formula 1 is a complex machine that defies easy or dictated solutions.

Formula 1 is a complex machine that defies easy or dictated solutions.

When Alejandro Agag launched Formula E in 2014 as the first electric-powered championship, he did so as an alternative to what he saw as a wounded buck. He was dismissed by the Formula 1 paddock. He won’t last, they crowed. The cars were slow and required a lengthy pitstop halfway through the race to change cars! Worse, they sounded atrocious. The circuits resembled karting tracks in city centres. Alejandro could set up and be gone in days instead of weeks. Formula E races attracted a different crowd. It was the future of racing, he told manufacturers, drivers, venues, sponsors, and broadcasters.

The steady pace of progress was on his side and everyone knew it. Slowly, but surely, the series has grown. It may still be considered by some to be more of a curiosity than a serious racing series, but Agag dismisses the trolls with a wave. He, along with the FIA and their deep-pocketed partners, has science and history on their side.

Two-way street

If Liberty Media was a dark horse bidder for Formula 1, they should have been no surprise to anyone and yet their arrival was treated as if they were interlopers. What seemingly everyone missed is that while Greg Maffei runs Liberty Media, his compatriot, Michael Fries, runs its fraternal twin Liberty Global which owns a sizeable stake in Formula E. Both companies are assets of one John Malone, a man with a proven track record of keeping his sights firmly on the horizon.

While everyone in the Formula 1 paddock was wringing their hands wondering what an extension of the Concorde Agreement would hold, Malone and his (largely) men were at their whiteboards plotting out a timeline and a set of tactics that will, in time, merge the two series. The internal combustion engine is dead. In fact, if the big auto manufacturers could speed up the transition to EV, they would. It’s the service businesses of their powerful dealership partners that are slowing the evolution as they bargain for a soft landing in the world of lower maintenance EVs. Porsche once expected to re-enter Formula 1 has instead joined Formula E. No surprise that they recently announced they would be a fully electric car company within a decade. All except the 911, though they have suggested that their EVs will outstrip anything their traditional 911 customers have experienced and come to expect.

Liberty Media, as owners of the valuable Formula 1 brand, are naturally competitive with Liberty Global, as owners of the future.

The ace in the hole is this: Agag and his Formula E control the exclusive rights to electric-powered open-wheeled racing for 25 years, and they’re barely off the line with 21 years left on the clock.

If Formula 1 has a future, that future rests in the hands of two men and their stakeholders – the venerable Jean Todt and wily John Malone. Will they rewrite the Concorde Agreement, or will they tear it up and introduce a new model?

You do the math. Todt is on his last term at the helm of the all-knowing, all-powerful FIA, and Malone is spending some of his time working through his own inevitable succession plans. Liberty Media, as owners of the valuable Formula 1 brand, are naturally competitive with Liberty Global, as owners of the future.

Where it all ends up is where the action is.

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