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Features - Insight

NOVEMBER 27, 2006

Formula 1 and NewsCorp - a perfect match?


Formula 1 is the biggest annual worldwide sporting competition. NewsCorp is the biggest worldwide sports broadcaster. Currently NewsCorp subsidiaries, (of which BSkyB is one), own the Formula 1 broadcast rights in a variety of different markets worldwide. BSkyB's recent purchase of 17.9% of the most important Formula 1 broadcaster, ITV, raises the question of whether TV rights might one day be globalised.

The current approach of Formula One Management (FOM) is to sell TV rights separately in each market. Not only does this increase the revenue, it also dilutes the power of broadcasters over the sport by weakening their bargaining positions.

The past experience of NewsCorp with other sports, such as Rugby League in Australia and the United Kingdom, and Rugby Union worldwide but particularly in Australia, New Zealand and South Africa, has been very different. In these sports TV rights have been negotiated in a manner that has seen NewsCorp pay a large amount of money to the governing body and then essentially takes control. Both Rugby League and Rugby Union were struggling for popularity, they were behind other sports in terms of marketing and professionalism, and were both in need of modernisation. NewsCorp stepped in, took over the marketing, increased the professionalism and transformed the sports by imposing modern business practices, thus increasing the profitability of the competitions.

In contrast, Formula 1 is a far more mature and sophisticated market. This market sophistication is currently preventing NewsCorp from developing the influence and power within the Formula 1 framework that it occupies in other sports. In a 25 year marketing master-class, Bernie Ecclestone has positioned Formula 1 so it is not dependent on any single TV company: if it has a dispute with one broadcaster there is always another one ready to step in and purchase the rights because of the competition amongst different stations in most regions. This was most notable in the bidding war between ITV and the BBC in the United Kingdom. Unlike Rugby Union and Rugby League, Formula 1 does not need NewsCorp or, more specifically, its money and business acumen.

If, on the other hand, NewsCorp positions itself so it could offer Formula 1 significant coverage in the United States as part of any worldwide TV rights deal, the situation could become very different. NewsCorp owns an array of stations in the United States, notably the Fox network, but also cable and satellite services. For the moment NewsCorp obviously sees no reason to throw its weight behind promoting F1 in the United States but there may come a time - perhaps in a post-Ecclestone era - when CVC Capital Partners decides that dealing with each TV station on an individual basis is more labour intensive than is necessary and decides to do a global deal with NewsCorp, in effect sub-contracting the TV rights that FOM has leased from the FIA. This would be no real difference to the arrangements that have been in place until recently with Allsport Management exploiting trackside signage, VIP hospitality and official supplier programmes on behalf of FOM, in exchange for an annual fee. It would be similar to the deal that has recently been struck with Union Properties of Dubai to develop theme parks around the world.

Sub-contracting the TV rights would reduce the day-to-day power of FOM and, perhaps, its bargaining position with the teams whenever there is a new Concorde Agreement to be negotiated but, at the same time, would give the organization the opportunity to remain lean and efficient while also developing new areas of income for the future. Although the company is beginning to sniff around merchandising, its efforts to date have not been very effective and there remains a strong argument that F1 teams need to get together and work with FOM to generate greater income. The problem is that Ferrari has already started developing its own shops - which may mean that F1 has missed the boat one doing collective deals as one sees in other sports.