The rising cost of Formula 1’s UK television rights
One of the biggest talking points in the broadcasting scene in recent years has been the sky-rocketing cost of television rights to broadcast sporting events. Whilst Formula 1’s deals have indeed risen in the last ten to fifteen years, the cost of Formula 1’s rights pales in comparison to the Premier League television deal which now runs into the billions. Formula 1’s rights in comparison, are less than a tenth of that. One Premier League season, for Sky Sports or BT Sport could buy the equivalent of about seventeen Formula 1 seasons. Yes, I agree, that is completely bonkers.
But where did the rights picture start for Formula 1 in the UK? Back in the early 1990’s, the BBC signed a deal to cover Formula 1 for three years from 1994 to 1996, for just under £7 million (or £2.3 million a season – source: The Guardian, December 14th, 1995), a paltry amount compared to today. In other words, for the BBC, Formula 1 in 1994 and MotoGP in 2013 were probably close to one of the same, except the former’s viewing figures were much higher than the latter. Back then, ITV were fed up of losing in the Sunday afternoon ratings battle. And who could blame them, this being a time where there were fewer channels so the audience was more pointed towards terrestrial, except ITV was losing hands over first while BBC was consistently bringing in five to six million viewers for each Formula 1 race. That changed in December 1995, when it was announced that ITV had bid six times the amount of BBC previously, with a new deal from 1997 to 2001. Turn £2.3 million to £14 million per season, a substantial rise. A nice profit if your name is Bernie Ecclestone.
Away from the cost implications, ITV appeased the Formula 1 fan by having longer pre-race and post-race broadcasts which were largely successful and definitely paved the way to what we know now. In an Ofcom consultation back in 2007, details on all of ITV’s contractual costs were published by the regulator (page 79). We can see that the cost rose again in 2001 despite Michael Schumacher’s dominance from £14 million a year to £19 million a year for the 2001 to 2005 contract. However, it must be remembered that some broadcasting contracts work on an ‘escalator’ approach, meaning that the amount a broadcaster pays increases throughout the contract (the graph below gives an idea of the amounts involved). This means that the £19 million a year would not be too much higher for ITV – they would be paying essentially £16 million at the end of the previous contract and possibly £17 million at the beginning of the next contract.
For ITV, the death knell came when they overpaid on Formula 1’s television rights from 2006. They overpaid badly, and the viewing figures at the time definitely did not justify that. With no other broadcasters bidding, ITV’s rights increased immediately by about £7 million, a near 33 percent increase. In hindsight it was a frankly stupid decision made by those who were not thinking long term, however an unsurprising one when you consider that they also overbid on The FA Cup the following year. ITV did not foresee the advertising recession that would follow leaving those in charge needing to save money, and fast. Sadly, with a choice between the Champions League and Formula 1, ITV went for the former, activating a get-out clause. Formula 1 was heading back home. Which was another chance for Ecclestone to get more money out of a broadcaster. Seizing the opportunity, Ecclestone signed a contract with the BBC, estimated to be around £200 million for the five years, or £40 million per year for Formula 1. I’ve spoke before about how this was a disastrous mistake for the BBC that would have major consequences. I feel sometimes that broadcasters ‘play’ with money, going back to the ITV bit above, just why did they need to increase the rights by that much, I don’t know. It doesn’t make any financial sense whenever I see any sporting contract go up significantly, but it is a repeating pattern over and over again. The bubble will burst, especially where the Premier League rights are concerned. It is a matter of ‘when’, not ‘if’.
BBC’s financial problems soon hit Formula 1, in 2011. A reduction of the BBC Sport budget meant that BBC went to Sky and agreed a deal that would only see half of the races live on terrestrial television, an irreversible move. In terms of cost, it is believed to be in the region of £40 million per year for Sky and £15 million per year for BBC, again on an escalator approach. As always, broadcasters always use the word ‘undisclosed’ whenever announcing new deals, so a degree of caution must always be taken, especially when different websites can report different figures. At the moment, it is difficult to say whether the BBC will see out the remainder of their contract. I expect they will, but nothing is guaranteed. It was reported this past Wednesday that the BBC are about to make another round of £100 million cuts, the full details of which will be announced at the end of this month. It should be noted though that Tony Hall said that further “salami-slicing” cuts would not happen. But, at the end of the day, if any cuts to BBC Sport are announced at the end of this month, then alarm bells have to start ringing where BBC’s Formula 1 television coverage are concerned. An interesting question to be asked is whether the BBC and Sky contracts are treated ‘independently’ of each other, or if they are treated as ‘one’. I assume that they are independent, i.e. any future BBC actions regarding Formula 1 do not affect the current Sky contract, but I don’t know for sure.
So, what can £55 million a year get you?
– ten Premier League games
– the group stages of a Champions League season
– one and a third Six Nations championships
– four and a half MotoGP seasons
Formula 1’s television rights have not yet descended into silly money, like the football rights have for both the Premier League and the Champions League rights have, for which I personally am thankful for, as we still have Formula 1 live on free to air television in some capacity. If the current contract is seen through to the end, then the silly money will not begin for quite some time yet, but as always in this game, things can change with the flick of a coin. There is a long, long way before the finishing line in this contract.