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Photo by: www.kymilman.com/F1

Indeed, life’s lesson may be that there is no such thing as a free lunch and perhaps in Formula 1, that applies as well. It’s a colloquialism for sure but it is intended to suggest that you truly don’t get anything for free. It takes some level of cost or investment to gain a return…monetarily speaking of course.

Liberty Media’s Chase Carey says that the teams need to understand that there’s no such thing as a free lunch under the new ownership. This is on the heels of an approximate $40M (13% lower than last season) from in total prize money and some teams have concerns over the lavish new offices in London, the expenses F1 has incurred under new management as this reduces the prize money from which they benefit.

“I think the sport has been underserved by a continual short-term focus,” said Carey.

“I think we’ve got some fresh momentum back into it.

“A lot of things were not going in the right direction in recent years, but this year attendance is up, viewership is up and I think we’ve got a much more positive spirit behind it. The sport needed fresh energy and investment.

“To grow things, well, to use an American phrase, there are no free lunches.

“We didn’t have an organization that was able to properly develop, to build the sport. We had no research, no marketing, no digital organization and realistically if you don’t have capabilities like that, you’re going to fall behind.

“If you’re building research capabilities, normally you have to invest in those before you get to use them. It’s the reality of building capabilities that haven’t existed.

“To do things like the Trafalgar Square demo, to do things at broader fan fests, requires investment. However, all are investments in the future of the sport.

“From the teams’ perspective, sure, everybody would like to have free lunches and get the growth without the investment. [But] the world doesn’t work that way.

“I think there’s an understanding of and an appreciation for what we’re doing, and in many ways we’re very much agreed on what needs to be done for the sport.”

All good points but as I’ve been since January, I’m reticent on kicking former ownership for today’s current struggles. You own it, you fix it, tweak it or make it better. I understand his point but the “underserved” business buzz phrase is wearing thin these days and to be perfectly fair, it’s a notion we’ve all known for a long time with regards to digital media and broadcast features.

However, what Chase is bumping in to is an entire business model that was a thin layer of administrative, commercial monetization and management over a machine. What I mean by that is that Mr. E’s model was really a low-ish cost management structure with a healthy portion of profits retained for prize money. Sure, Formula One Management had costs back then too but the key here is it’s cost structure was relatively stable and it didn’t spend on marketing, Fanzone’s, new offices in high-rent district etc.

Mr. E had a business, effectively, with the teams—a sort of Joint-Venture if you will—and that’s because they stopped chasing massive sponsor dollars and began relying on prize money to keep their teams going. There are a lot of reasons for that and I am no knocking them but if you don’t have to go hunt for your food and you can structure your expenses to be covered by a pot of prize money, then who needs stickers on a car?

Now, to defend Chase on this issue, you have to spend money to make money and he’s right that FOM under Liberty Media, needs to infuse serious cash into making their product bigger and better and while the team’s don’t like it, they have to realize that Liberty needs to get serious about their investment and they are going to spend money to exploit its capacity to generate revenue. In doing so, it adds more cost to the Balance Sheet and less prize money.

If you own a team, you may say, I’m fine with my $175 million payout and I’m fine with the way things are right now because I like the amount of prize money I’m getting for my efforts in the Constructor’s Championship. You may even argue that Chase needs to find another bucket for all his growth and marketing spend. Chase will say no and he’s right to say no.

I said over a year ago that when F1 is sold to new owners, the real battle for F1’s soul would happen. Nothing has surprised me or shocked me. Not even NBC losing the broadcast deal.

We are at the tip of the iceberg here folks, the real fireworks haven’t started yet so get comfortable because when F1 wants to spend more to make more and teams earn less, all (you know what) will hit the fan and that’s because Mr. E and the teams were happy to work in this symbiotic business model and Liberty is a different entity who is more intent on spending that money to make it bigger with or without teams. The era of trying to find big sponsors may be back and that’s going to be tough as Ferrari just lost Santander.

Hat Tip: Autosport

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An F1 fan since 1972, NC has spent over 25 years in the technology industry focusing on technology integration, AV systems integration, digital media strategies, technology planning, consulting, speaking, presenting, sales, content strategy, marketing and brand building.

  • Salvu Borg

    “we are at the tip of the iceberg, the real fireworks haven’t started yet” Fully agree NC.
    Ferrari is F1, take them out and you are gone. Does anybody think the other teams, given any other situation would have accepted the special FERRARI bonuses? FERRARI are a classic monument to F1, and nobody in his right mind will contemplate investing in F1 without FERRARI, let alone upsetting all the four manufacturers in one go, add to that reducing the “dear” small teams income by no less then 13%.

    • subcritical71

      I believe if the teams were to have been asked, at the time, if they thought Ferrari should get a preferential payment and/or veto they would have said no. And we would have seen more quit threats than today. But I don’t think that decision would be a reflection on how the teams view Ferrari.

  • charlie white

    The sport lost Santander, not just Ferrari. They chose UEFA Champions League football over F1. But the moment Bernie signed the sport over to Liberty, everyone should had saw this coming. No other sports league or business operated as F1 did under the Ecclestone regime. Santander may be one of many leaving the sport including Ferrari and maybe Mercedes-Benz. It’s a brave new world now.

    • subcritical71

      I read that Santander decided to leave, at a high level, because Ferrari were asking too much $$$ to renew. Yet another reason to get these costs under control. If a team like Ferrari are starting to shed sponsors then everyone is in trouble.

      • Salvu Borg

        With Santander bank’s departure from formula one, the future of the sports does not appear as rosy as Liberty media suggests. Declines in revenue and purses from races have become a matter of concern for teams, more so to the “small” teams.
        Santander have been sponsoring formula one including the British and the Spanish GP’S for much longer then they have been sponsoring FERRARI. There is no numbers around as regards what the formula one sponsorship cost was to Santander. But it is known that in the 8 years Santander sponsored FERRARI it cost them Euro 280m. And according to Santander communications Chief Juan Manuel Cendoya “every Euro given to FERRARI has been returned and much more” Such is the status/standing of FERRARI in formula one.

    • Salvu Borg

      If Liberty media doesn’t back-up from on their chosen road to regain total power of formula one, chances are that they will end up running a formula two cars series for lack of formula one cars and teams on the grid, this had happened many years ago, and I am not reading quoting history, been there seen that.

  • subcritical71

    Liberty has some good points… it took CVC/Mr E about 7 years after HD was mainstream in the states for it to offer an HD feed.. Social media was all but missing until this year (some of last year). I know CVC/Mr E had their own way of doing things, but with new ownership comes new ideas in any industry. I don’t think either of them were/are wrong at this point. Time will tell.

    I also don’t buy that their is a real rift between Liberty and the teams as some have speculated. The teams are currently only stating their positions with the same veiled threats they have always made. We will see how that develops with time but I can also imagine it is only the beginning.

    Yeah, the loss of Santander is going to hurt. Too bad F1 wasn’t able to keep them on the grid.

  • Paul KieferJr

    I learned a long time ago, and it serves me well to this day: Nobody is bigger than God. Not Ferrari, not Mercedes, NO ONE. Anyone who says or acts otherwise is going to get whacked in some form or another at some point in their lives. I’ve seen it happen to much to ignore it. BEING HUMBLE IS PARAMOUNT. Once you lose that, you’re just begging for bad things to happen to you. Ferrari will learn this very soon. Chase Carey just happens to be there at the time. The Deadly Sin of Pride will get you every time.

    Don’t get me wrong: As a car manufacturer, Ferrari is definitely on top of their game. As far as attitude, behavior and/or spiritual soul is concerned, it’s definitely lacking.

    • Sakae

      Excuse me, but who are you to lecture Ferrari on morals of the F1? I think some people on sidelines wish to remake F1 into their own image, and unless all goes as they dream about, than we end up with assertion such as “As far as attitude, behavior and/or spiritual soul is concerned, it’s definitely lacking”. Ferrari hardly deserves that, considering the snake pit in which they have to survive. Forgive me, but I find your comment lacking and insulting.

    • Salvu Borg

      Are you by any chance comparing Chase Carey alone or with his two captains as BIG AS GOD?.

    • subcritical71

      Paul, completely agree with you here. While I would hate to see a team go and any team leaving will have an impact of some sort, the sport will continue. Lotus, Brabham, Benneton, etc. All great teams that for one reason or another are no longer with us, but the sport has continued.

  • Dancing_Horse

    Personally I feel like many I have talked too in past few years that E seemed to be moving through the paddocks as if he was riding on his personal cloud, being above all as in his mind; a Demigod – His changes he brought in the last few years were so many and to demanding at one time.
    His changes, some good, yet the not so good hurt a lot of smaller teams in trying to stay on board. By this, handing over racing podiums and million$ of prize money to the big dogs, to which they need it less then the little guys in the back of the field; this I pray will change very soon with the new sheriff’s in town…

    F1 should be about anyone who wants to give a shot at it construction/car given a fair shot to compete without having to be some big conglomerate company with billions of dollars – case in point; Dan Gurney’s The Eagle. Who can do this today with all the demands of cost due to so many changes just to feed one’s (E) ego as it had so become overboard? By this too I might add, he became not only the man with the whip but also a multi millionaire.

    Yes! I blame E for allowing this to happen, which has taken away from the competition it once had. By this led to many fans and sponsors, etc. walking away from the sport.
    I really believe in this past year many have returned, seeing already how its changing for the better, especially the fans…

    Although there are changes coming, I hope they will be much in the next few years, this allowing the smaller companies to breath easier and giving them a real chance at the competition prizes, and not having them fall like a lead balloon after only a couple years in bankruptcy!
    So far I like the new owners, they need to be given a chance before judging. There is one favor I would love to ask them if I could? Please do not put any Halo nor any other obstruction to the cars vision, nor cosmetic look….