- The Inside Line
The future of Formula OneKate Walker March 6, 2014
The past week has been an interesting one in the world of Formula One. Following the dissolution of FOTA and Bernie Ecclestone's hints about retirement, one thing that seems certain is that the next era of F1 has less to do with the new turbo engines and the action on track than it does the creation of a new standard of operations.
In some respects, of course, little is going to change. The calendar will continue to push into new territories, such as Azerbaijan, while the European heartland of the sport is going to have to pay up or drop out (see Germany). Whatever happens on track, the teams are unlikely to be able to put self-interest aside for mutual benefit, while in the boardrooms the status quo will persist for as long as the sport is owned by a private equity firm.
While there have been reports this week that CVC are likely to pull out of Formula One by 2018 at the latest, the justification for the statement was given as being that investment firms are only involved in their investments for short periods. Writing for Autoweek, Christian Sylt quoted Bernie Ecclestone as saying "the way CVC [is] structured, I think they eventually have to sell, not just this company but any company. They can only keep [the stake] for a certain period." Ecclestone went on to add that the "explanation is confirmed in the Private Placement Memorandum for Fund IV which was sent to its investors."
Except a quick look at the CVC website shows a number of investments still on the books that have been around a lot longer than Formula One, which was acquired in March 2006: Korea's WiniMando Inc. (November '05); Spain's Zena Group (March '01); Belgium's Betafence (June '05); Spain's Cortefiel (September '05); Germany's Flint Group (November '04); and Italy's Lecta (October '97).
CVC, like the majority of investment firms, holds onto its investments for as long as it makes financial sense to do so. They might want to divest themselves of Formula One, but until they can do so in a way that's financially advantageous to their clients it's not going to happen.
But change will come.
Whether or not he chooses to retire - and irrespective of whether the outcome of events in Germany forces his removal - Bernie Ecclestone is not going to be running Formula One in the long term. He is 83 years old, and is as mortal as the rest of us. Ecclestone's replacement is far more likely to be made up of a cabal of the power players from Prince's Gate and Delta Topco than it is any one individual from inside or outside the sport, and the change from autocracy to rule by committee is one that will be felt throughout the paddock, even if little appears to have changed to the world at large.
One change the fans will notice in a post-Bernie world will be a change in the approach to broadcasting and social media. With an octogenarian overlord it is hardly surprising that F1 sees the internet as a lawless entity to inspire fear. But with a more progressive committee - and the existing relationship between FOM and Tata Communications - expect to see a shift towards paid-for online content (the profit motive is unlikely to change, irrespective of who's in charge), and a more relaxed and commerce-aware understanding of the use of YouTube clips and gifs as promotional content that can help grow a fanbase.
Moving from an autocratic to a corporatist approach is also going to have an impact on F1's teams and sponsors. At present, we follow the money around the world and as a result find ourselves in morally uncomfortable situations that lead to bad publicity for the sport and a dearth of blue-chip sponsors for the teams. The knock-on effect from that is seven of 11 teams scrabbling to survive, a scarcity of manufacturer involvement in the sport, and an increase in the number of pay drivers as teams seek to boost their coffers any way they can.
But when decisions are made by a committee of lawyers and businessmen who are aware of the operating standards in play at the world's FTSE 100 companies, short-term profit will be less desirable than longer-term relationships that will promote a financially sustainable Formula One. At present, there is little acknowledgement of the fact that former true blue sponsors have stepped back from the sport as they are loath to be associated with our geo-political mis-steps.
In future, however, the likes of Peter Brabeck-Letmathe and Sir Martin Sorrell (and quite possibly Justin King…) will approach the management of Formula One in the same way that they managed - and grew - the Nestle Group, WPP plc, and Sainsbury's, respectively. The companies listed have weathered their fair share of PR storms, and responded by adapting their approaches so that they could continue to be profitable in a modern world that expects a certain moral behaviour from their corporations.
It is that change in approach which will prove to be the biggest revolution for Formula One. It may be taking place a decade or two behind schedule, but bringing the operation of Formula One into line with the expectations of the 21st century business world is exactly what is needed to maintain manufacturer interest in F1 while attracting the new breed of sponsors so desperately needed if the teams are able to stay afloat.