Formula One is heading towards a crossroads in 2020 but it isn’t for the reason that has been widely reported.
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F1 cars and facilities are largely bespoke which makes it hard for teams to switch to other racing series. The teams could pull put of racing completely but that would lead to thousands of redundancies so it seems unthinkable. Instead, the teams seem satisfied with the terms put on the table by Liberty Media, the investment firm which bought F1 for $4.6 billion in January 2017.
Likewise, earlier this week Dutch driver Max Verstappen extended his contract with Red Bull Racing until 2023. Other teams have signed long-term agreements with drivers, engine suppliers and sponsors so they clearly aren’t planning to pull out. Maybe one or two of the worst performers might cut their losses and leave but F1 has survived this kind of churn in the past.
It fueled discontent from investors and in 2018 the stock fell 11.8% to close the year at $30.70. It picked up in 2019 and finished 49.7% higher than it began. The roller coaster ride is continuing in 2020 as F1 has already lost 1.1% of its value. Liberty initially told investors that some of the lowest-hanging fruit was sponsorship which is the smallest of the three core revenue streams and generated $266.4 million in 2018 according to F1’s latest full-year financial statements.
Testimony to this, F1’s sponsorship revenue in 2018 came to $266.4 million which was just 1.7% up on the total the year before Liberty bought the business. F1 has failed to sign any big-ticket deals under Carey and although he recently said he still hopes to land a major partner, there is no guarantee that will get the green light. Price is the biggest roadblock.
Some of the biggest-payers are F1’s series sponsors which include luxury watch maker Rolex, the Emirates airline and beer brand Heineken. They get banners around the track and use of the F1 logo in marketing campaigns for a fee of up to $50 million annually. This premium pricing has a halo effect on F1 sponsors in a booming market but when times are tough it gives it a high barrier to entry.
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