March 20th, 2008. The Formula 1 teams and personnel were gearing up for the Malaysian Grand Prix. The previous weekend, the Australian Grand Prix saw ITV celebrating their best season opening ratings for nearly a century. Morale was high within the team. After years of low ratings, a new Brit was on the scene and with it, Formula 1’s popularity in the United Kingdom was on the rise.
All was going well within the ITV F1 team. Higher up at ITV though, they had other ideas. ITV were going through an advertising downturn and, although the situation was improving by the end of 2007, it meant that the broadcaster had to cut costs across the board. In early 2007, ITV swooped for the FA Cup rights. Although it was a huge boost to ITV’s portfolio, in the process, the broadcaster had paid over the odds for them. And what it meant, one year later, is that the sums did not add up. Something had to give.
There were essentially two options. ITV could either bid extremely low for the UEFA Champions League Football, in the hope that they would retain, or they activate a get-out clause in their Formula 1 contract. On March 20th, 2008, it was revealed that they had done just that. Formula 1 was heading back to the BBC. At the time, fans were extremely happy with the move. ITV’s coverage was improving, with the addition of live streaming of practice on the internet, but the move to BBC promised a lot in terms of scope that the coverage would take. Just as a brief aside, a get-out clause is a clause that a party can activate at a particular time as specified if they no longer wish to continue with said contract, sometimes at a price, or sometimes with no price to pay (this particular point will become important later on).
But why did ITV take the UEFA Champions League instead of Formula 1? The answer, for ITV, was pretty simple. Taking the football would for ITV fill a lot of primetime hours around the year and more importantly for them, bring the male audience to the channel that other programs in their schedule then – and now – cannot achieve. Also, in terms of raw total audience figures, the football in primetime was an easy winner against the Formula 1 which goes out on Sunday mornings and afternoons. Currently, three out of the 19 races are in the lucrative European primetime slot. Nevertheless, for some, it seemed like an odd move, when Formula 1’s popularity was rising thanks to Lewis Hamilton and, a year later, Jenson Button. At the same point, we have to ask: why did ITV not renegotiate their contract with FOM? If the Formula 1 product was profitable to them, then it should have been in their interests to renegotiate to a lower deal, unless money was that tight at ITV, which prevented them from doing so.
So from their perspective, it was a fairly simple decision. Okay, it may have gave them a lot of headache, especially from the ITV F1 team who had worked fantastically for the decade before the announcement, but it was in the BBC’s hands to make Formula 1 broadcasting even more enticing to watch. The BBC won the contract for a reported £40 million per year. Already, the first mistake in their tenure had been made. £40 million per year, for the rights. Nothing else. At this point, I will quote from Steve Rider’s book. Page 223:
“Meanwhile, within a few weeks the initial euphoria seemed to have disappeared at the BBC as well. We received a call from a very senior producer at the BBC asking if we would mind giving them a rough ballpark figure on what our production costs had been (aside from the rights costs) for putting a full season of Formula One on the screen. Such a friendly informal exchange of information was commonplace, despite the public posturing. When he was told there would not be much change out of £8 or £9 million there was silence, then ‘Oh shit…’, and the line went dead.”
The last paragraph shows for me, that no negotiation took place between BBC and Formula One Management (FOM) in 2008. They took the first offer in place, without trying to reduce it or seeing where it would fit within their existing budget. Obviously production costs and rights costs are separate, but the point remains that no discussion took place about how much things would cost before entering the contract. If they realised the production costs beforehand, then they could have negotiated to reduce the rights costs. Failing to do so would turn out to be a grave mistake. With nearly £50 million being spent by BBC on Formula 1 each year, that works out at roughly £145 million the cost that the corporation spent on Formula 1 between 2009 and 2011, possibly more. Had BBC tried to negotiate the contract with Formula One Management, they could have tried to reduce the contract from £40 million to £35 million or £30 million, reducing their spending each year by a few million – and over the 3 years by between £15 million and £30 million. I guess, though had BBC stalled straight away on the first offer, Formula One Management would have been well in their right to walk to Channel 4 or even BSkyB and ask them if they want the contract.
On October 19th, 2010, it was announced that the licence fee had been frozen for seven years, which in real terms is a drop in income of 16 percent. The BBC had to save, and in some cases reduce services. Formula 1 was under threat. Immediately, their failure to negotiate with FOM in 2008 hit them. Because had they managed to negotiate a lower deal with FOM, they would have chopped potentially between 10 percent and 20 percent off their total Formula 1 expenses. Which could have been enough to save Formula 1’s full free-to-air profile. Could, have, would. It didn’t.
Fast forward to early 2011, where rumours began of potential Sky and News Corporation involvement in Formula 1. The Summer began, though, with the rumours having moved away very briefly. Again, like with the ITV deal and their people, people higher up in BBC began negotiating. Not with FOM for a lower deal. Instead they went straight to Sky Sports. At this point, you may be wondering why BBC did not activate a get-out clause. Firstly, it would have cost them a substantial amount of money, and secondly, they did not want to get rid of Formula 1 altogether. Those higher up within the corporation were prepared to do a deal with Sky, despite Formula 1 achieving its highest ratings since the late 1990’s. BBC and Sky agreed a deal, BBC went to FOM, and the contract was signed. Neither ITV or Channel 4 could agree to 2012. ITV were tied already due to Euro 2012, whilst Channel 4’s budget was covered by the Paralympics. They could have done 2013, but, as noted above, BBC opting out then would have left them with a financial penalty – they would be paying FOM for essentially screening no Formula 1 for one year. A lot of people call Sky ‘the enemy’ for taking Formula 1 on board, when in fact BBC went to Sky for the deal. I don’t particularly agree with that, but whether Sky used News Corporation newspapers as a ‘pressure movement’ to BBC management to try and get them to budge, we will never know.
At several stages here, there is a distinct lack of thought from all concerned. The first: ITV failed to renegotiate with FOM back in 2008. Had they have done that, I think it is highly likely that ITV would still have the rights today and more importantly every race would be live on free to air television. Would the coverage and air-time be as good as what BBC provide today? I don’t know, it is impossible to know what ITV would – or would not – have done had their ratings continued to increase in the same style BBC’s did. Secondly: BBC failed to negotiate the original contract presented to them by FOM. Again, had they have done that, they would have saved on the deal they actually proceeded it. Would it have been 17 percent? Possibly not, but it may have meant that Formula 1 would not have been in the firing line. Thirdly: BBC failed to renegotiate the original contract once the licence fee reduction was put in place. Would FOM and Bernie Ecclestone have granted it? We don’t know.
Five years ago, Formula 1 was live, every race on ITV. Now, half the races are live on BBC, with every race live on Sky Sports. The landscape has changed quicker than anyone predicted.