Honda website
Honda website

AUGUST 9, 2006

Television income in F1

It is worth noting that ITV yesterday removed its chief executive Charles Allen, following poor advertising results in recent months. The television company is suffering because of the migration of its traditional viewers to digital stations.

This may not seem to have much importance in the world of Formula 1 but one must consider the implications of the problems at Britain's biggest commercial broadcaster. With less money coming in from advertisers because of fewer viewers, there is going to mean that less money is available to pay for the rights to televise sporting events and that, translated to the international scene, could have a serious impact on the income of Formula One Management and, as a knock-on effect of that on the F1 teams as well. ITV is trying to make up for the losses by making programmes that can be sold to other TV channels and Formula 1 needs now to look at alternative ways to maintain its revenues if there is a slump in TV rights payments. There is also a question of what will happen if TV revenues do start to drop because CVC Capital Partners, the owner of the Formula One group, was planning a bond issue to recoup its investment in the sport and may be in some trouble if it tries to launch a bond at a time when revenues are sliding. If launching a bond proves to be difficult, it may be that the investment firm would consider going to the markets to float the business in order to get their money back.

While F1 fans might like the idea of being able to own a part of the sport, this is a dangerous path to take as was seen in America where CART went public in 1998 and traded for as much as $18 a share in the early years before running into trouble, primarily because of the rival Indy Racing League, and filed for Chapter 11 bankruptcy in December 2003. The company was recently dissolved with shareholders getting 29c per share. The new Champ Car World Series acquired the assets of the old company and has been trying to build up the business again but ti is a shadow of its former self.

The message in all of this is that CVC needs to look at different ways for Formula One to make money to replace any potential loss in TV income in the years ahead.