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Analysis: The numbers show why Formula 1 took the exclusive Sky deal

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Analysis: The numbers show why Formula 1 took the exclusive Sky deal
Mar 24, 2016, 11:55 PM

We have had an interesting response to the news that F1 in the UK will be behind a paywall from 2019 onwards with many comments from fans suggestin...

We have had an interesting response to the news that F1 in the UK will be behind a paywall from 2019 onwards with many comments from fans suggesting that this will be the point at which they disconnect from the sport.

But a glance at the numbers involved in this deal show why F1 felt it was a deal they had to take.

We always like to showcase the outstanding contributions our readers make to the comments section of this site, with many intelligent and considered points of view. We've picked out one reader's comment below, which sums up the mood among a certain contingent.

This is actually a really fascinating situation, with F1 trying to balance the need to generate income from media rights with the need to maintain mass viewership. Like any media business the monetisation of the sport is based on its scale.

Where the UK is concerned, it's worth remembering that the two recent TV rights negotiations F1 Management was involved in were ITV wanting to pull out in 2008, replaced by BBC and then BBC wanting to pull out in 2015. That's quite a negative for the sport, but also shows how F1 needs to be careful with whom they partner, as both of those partners were unable to fulfil their side of the deal.

Webber and Coulthard

Balanced against that in 2015 was the will of Channel 4 to come in and take the BBC's package of 10 races live and the rest highlights. The numbers on this are that BBC paid £15m a year for its package. They needed to exit because of a shortfall in the licence fee revenues and the need to find quick savings. Channel 4's deal is worth £24m a year, reflecting the channel's ability to raise income through advertising. The new Sky deal is a kick in the teeth to them, just days after they broadcast their first F1 highlights show and a week before their maiden live offering.

It means they will host live races only for three years. At best they'll be able to subcontract the highlights from Sky after that.

Now consider that Sky has been paying £45m a year for its rights, during this time of shared rights. With the Channel 4 fee on top that has meant a yield from the UK for F1 of £70m a year. This is roughly twice what ITV was paying 10 years ago and about 80% more than the 2009 BBC exclusive deal.

With the Channel 4/Sky deals in place until the end of 2018, F1 Management wasn't in any particular hurry to secure a longer term deal, but when the ongoing battle between Sky and BT Sport over rights acquisitions moved onto the F1 playing field, they were not about to turn that down.

Sky Sports F1

In recent weeks a bidding war has been taking place between the two broadcasters and it has led to a 150% uplift in the yield from UK TV rights for F1, taking it to almost five times what BBC was paying for its original contract from 2009-2011. Over six years that's roughly a billion pounds.

Looked at in that context, you can see why F1 took the deal. It's a business after all, one that shares 60% of net earnings among the teams (albeit in an unfair split). It is hard to turn down that kind of offer. Fans will have noted a deafening silence from the teams to this news; they realise it's unpalatable to many fans who don't want to pay or who won't engage with Rupert Murdoch's empire due to its distasteful activities in print media or other reasons. But it's a rainmaker deal for the teams.

There is little consolation in any of this to the many F1 fans who have been used to watching F1 free to air, even with adverts. But with that kind of money on offer it's not hard to see why F1 took the deal, just as the Premier League did with its £5bn deal over three years and the Champions League, which is exclusive to BT Sport and no longer live on ITV.

In 25 years no Premier League match has ever been shown live on a terrestrial channel in the UK, but the popularity of the series and the following is greater than ever.

But football is not F1; motorsport is more niche. Compare it to golf, whose Ryder Cup is only shown on Sky. The danger is that it diminishes in importance as the audience consolidates at a much lower level.

The UK F1 fan has been able to watch F1 free to air in some form for longer than fans of most other sports and it's not surprising that they are unhappy to lose that privilege.

Murray Walker

The small consolation is that the new Sky deal obliges them to show the British GP live and all highlights on a free platform, available in 90% of homes. At present Sky does not have a platform that qualifies. So they may well sub licence the highlights to Channel 4 or more likely ITV, in the same way as Champions League is live on BT Sport with highlights on ITV.

This is what is know in the industry as 'barker content' - the opportunity to showcase the sport on a free to air platform that lets people know that the event is on and draws some to take up the pay offering to watch more of it live.

This is not to defend F1 Management's deal with Sky, merely to provide some context. As TV fragments and declines in value, quality sport is one of the few things that consumers want to watch live. So there is a real premium on it. One wonders what events will still be free to view by the end of this decade.

Please leave your thoughts in the Comments section below.

Anyway, to our reader reaction piece. It comes from M Pinchbeck, who is one of many that grew up with Nigel Mansell racing on the BBC with The Chain as a theme tune and Murray Walker providing the soundtrack.

M Pinchbeck writes: I started watching F1 as a child in the early 90s when F1 was free to watch on the BBC. The uniqueness of an F1 car and the fact that one of them was driven by Mansell, with a big red ‘5’ on the front was what got me hooked. I went on to become an avid watcher of F1 and a fan of Williams to this day. I’ve bought F1 memorabilia, attended an F1 race, and exposure to sponsorship (on the cars, at the circuits, and on TV when F1 was on ITV) have subliminally affected my choice of purchases and influenced my products of desire over the years. I would say that the free-to-air business model has worked if I am example and especially if I am one of 10 million+ other people with a similar experience. It’s a shame that the F1 powers-that-be think otherwise.

Back in the early 90s F1 didn’t have the same money it has now. It was certainly hard for teams to make ends meet but TV rights and circuit hosting fees didn’t cost what they do now. Today, if an historic circuit can’t afford the latest exorbitant fee it simply gets dropped for another Tilke-drome in a country with no F1 following regardless of the views of the fans and drivers. Perhaps F1 has become a victim of its own success. Right now it can probably afford to sit itself behind a TV paywall with a diminished, but paying, TV audience. I’m not so sure it can afford to so forever though.

F1 fan

If, when I was a child, F1 had been behind a paywall, it would be doubtful that I would have had that initial exposure to generate a lifelong interest. To maintain the interest I did get as a child it relied upon being able to watch each race every couple of weeks which I was able to do. The opportunity to do that would have been distinctly reduced if F1 had been behind a paywall. I’d have been reliant upon parents paying for and choosing the right sports package. From 2019 onwards, where will the new F1 fans come from? Or does F1 no longer care?

It is clear from the other comments here that I’m not alone in not having followed F1 to Sky. Free-to-air works for me and I’m not fussed about the extra F1 content offered by Sky (I’ve got the internet and F1 Racing magazine instead). I don’t often watch the races live due to time of day and having a family but recording the races that are live on terrestrial to then play back later, or watching the delayed extended highlights programs, suits me. I’ll hold full judgement until we see what sort of highlights package becomes available in 2019. However, taking MotoGP as an example, I wouldn’t be surprised if F1 highlights on terrestrial end up becoming a condensed 1 hour program at 7pm on ITV4 on the Monday after the race. If so, F1 will end up a minority sport. And with such a reduced program package, I can see my interest in the sport, and certainly my religious following, waning when that happens.

If F1 does go ahead in sitting behind a paywall then that’s just something loyal F1 fans will have to reluctantly accept but surely there must be a better way than Sky exclusivity. Personally, much as I love F1, I’m unlikely to switch to taking out a Sky Sports package. Having little interest in other sports, I’d have to decide whether or not the fee for Sky Sports is worth it for just 20 or so events a year. At least for football followers they have 100s of games per season they can watch. For F1, I don’t think pay TV works but unfortunately the F1 powers-that-be think otherwise!
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