The deal that changed it all

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.

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16 thoughts on “The deal that changed it all

  1. Makes sense in some ways… Always did secretly wonder why the BBC didn’t chop f1 altogether… Its like a mobile phone contract that you try to get out of… It costs a fortune because you have to pay for the remaining months in one go so I imagine the same principal applies here… Although I always thought that the BBC simply didn’t bother asking channel 4 if they wanted to have some of the rights… Actually if you look deep enough on the net you can find the preliminary details for channel 4’s F1 coverage how they would market it and so on… So if they couldn’t afford F1 it baffles me somewhat as to why they would have the plans and marketing tools put together… Just seems strange to me

    • Just an extra to that… If I read channel 4’s F1 plans properly they promised things like no red button hideaways separate programmes for the engineering side of F1 extensive use of the F1 archive and a number of very impressive billboards proclaiming… We are 4 F1. Looked impressive on paper but it was all talk to be honest

      • I hadn’t seen that and thanks for the link… Great reading… You’re suggesting that C4 would have broadcast the GP2 and GP3 races… I have to disagree there… For 2 reasons… Firstly I always thought that the GP2 GP3 and indeed the Porsche supercup were sold as sparate packages which would explain why eurosport were able to keep the Porsche supercup but lose GP2 and GP3 so cost for channel 4 would be one big issue… And last I heard their budget wasn’t that big… Second is commitment… By which I mean they couldn’t do the schedule you suggest especially for a Saturday because of their horse racing commitments which they are obligated to show.. On their main channel as I understand.. At best I would wager that GP2 and GP3 would be shoved to E4 or more likely more 4… As I can’t see a main terrestrial channel devoting their entire Saturday schedule to one sport… Not even football gets that

  2. “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.”

    I’d like to know whether the individuals responsible for seemingly messing this up on such a grand scale lost their jobs or continued to draw a healthy public sector pay and pension package?

    In terms of Sky, it’s pretty clear they did use The Times to pressurise BBC Management. Both Times articles contained wild inaccuracies & were designed to make it look like Sky Sports was the only option for the BBC. No other publications ran with either of the stories. Remember Andrew Benson’s piece at the time which effectively debunked the BS that was being peddled by News International?

  3. It would be interesting to know how much the BBC actually save per year by only showing 10 races live. I would imagine that the production costs haven’t changed much, if at all, as they still have to fly the presentation team, camera crew and equipment out to every race. Also I would like to know how much cheaper it is to show extended highlights compared to showing the full race delayed, which brings me onto my next point.

    I think the biggest mistake the BBC made in their deal with Sky and FOM was not showing all the races in full. I assume that the costs between a delayed full race and extended highlights must be very similar, so would this not have been the better option? Even if it does cost a reasonable amount more, I would rather they show say only 5 races live a year (or worst case scenario, no races live) and have all races in full, instead of what they currently offer. But then I suppose from a BBC point of view the extended highlights are better from a viewership standpoint for casual fans or newcomers as it cuts out all the “boring bits”, making it more likely for people to come back again and watch another race.

    Another issue I have on the sports side of things is that why was it only F1 that took the brunt force of the budget cuts and yet everything else remained pretty much the same.
    I think the tennis could have easily been cut by just showing highlights of the first set of rounds and then just show the quarter-finals, semi-finals and finals live, because lets be honest, most of the previous rounds get missed because they are on during the week when everyone is at work. Something similar could also be done with the snooker.
    The MotoGP could have been scrapped completely or just show highlights for all races as viewing figures for that are lower than that of F1’s. I realise that a lot of fans would be upset by this but it is also shown in full on British Eurosport, which a lot more people have access to than Sky Sports F1.
    As for golf, I have yet to meet anyone who watches it casually, let alone a proper fan of it, so I have no idea why the BBC shows that at all. And finally, for the rugby and football, they don’t tend to show much of either (just the Six Nations/Rugby League equivalent and the World Cup/Euro Cup as far as I’m aware) so that could potentially stay as it is.

      • Yes. Isn’t it the case that they are actually paying the amount they would have been paying for exclusive rights in 2012 and 2013 to now cover the shared deal until 2018?

        Unfortunately, F1 is not an especially ‘political’ sport for the BBC to show. Participation rates are low and it has a reputation as being a playground for the rich and famous and full of sponsorship. It is well documented that in order to satisfy the DQF saving, BBC Sport would have had to cut one of their ‘big three’ deals: Formula 1, Wimbledon or the Six Nations rugby. Wimbledon was always safe, as the outcry if that was dropped would have been enormous, plus it gives the Beeb great ratings and it is a staple of their sports output.

        So, it came down between Six Nations rugby and F1. The Six Nations features all of the nations, it is the BBC’s main Rugby coverage and it would have been a highly unpopular move politically to lose the Six Nations in order to keep F1.

        Anyway, in response to this article in general (which is fantastic in laying out the details of that deal five years ago), I think that there is one important point: Bernie Ecclestone. He is well known for phoning up the television companies, offering them a deal and giving them a ‘take it or leave it’ offer. This is what happened with ITV – the head of sport got a phone call saying, ‘Do you want F1?’ and replied ‘yes’ with little thought of scheduling detail or financial cost.

        I think that it would have been the same with the BBC – Bernie called with an unexpected offer and they took it. Remember, at the time, there was no suggestion of an upcoming licence fee freeze and the BBC would have jumped at this addition to its sports portfolio. To attempt to negotiate back would have been risky – they wouldn’t have known the details behind ITV’s pullout, nor whether anybody else, such as Sky or Channel 4 were also interested.

        It’s very easy in hindsight to criticise the deal, as Steve Rider has done, but there were plenty of business decisions made in 2007/8 which no longer look very smart (just look at the BBC Worldwide/Lonely Planet sale!).

  4. Given the way ITV present most of their sport, if they still had the rights now it’s entirely reasonable to assume the coverage would probably be pretty much unchanged – same style of production, same interruption for ads, same haste to rush off air after the race, same personnel, maybe with Coulthard added. It is interesting to wonder though how they would have coped with some of the races – would they have stuck with Canada 2011 all the way through, or if the Austin race (at X-Factor / Downton time) would have been shown on ITV1 or shoved off to ITV4.

  5. Personally as I have mentioned on previous blog comments, I have no problems with Sky having any coverage, but I don’t like the idea of them, or anyone, having EXCLUSIVE coverage.

    I do like the quote “…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.” I think that senior producer was a bit out of touch with the way costs work – probably thought that they were roughly the same as pre-ITV costs.

    Now with live & free (Freeview) F1 I think this would be a good way of minimal disruption to major channels:
    – Most race weekends
    – All track sessions shown live on a sister (free) channel
    – Quali & race shown in full in early prime time with highlights of buildup & reaction/analysis (red flag sessions edited out)
    – GB race weekend & those from the Americas
    – Practice sessions & most of the pre- & post- race shows shown on the sister channel
    – Quali & Race shown live with about 30 mins of buildup & reaction/analysis (2.5 hrs after face start)
    – Onboard & Pit-lane feeds etc shown on recordable iptv channels & online as well as the sister channel when live on both channels.

    If its also on another network, e.g. a pay-tv channel (not premium), it can provide competition to the main channel (& keep standards as high as possible)

    • I’m not sure I agree with the ‘minimal disruption’ point, surely it is a good thing for BBC One and ITV (when they had it) if F1 can easily fill 3 to 4 hours of TV with over 4 million viewers. The moment you start moving things to sister channels is when the audience begins to reduce because you are removing content from the main channel. Content on BBC Two rarely gets better ratings than BBC One – same applies for ITV2 with ITV, albeit on a bigger scale.

      • Yes but when it comes to a sport you don’t like & you’re left waiting for a programme as the channel is running 20 mins late or more its very annoying, especially if your recording it and you don’t have the modern version of the P.D.C. – Wimbledon is case & point, how many viewers watch it on BBC1 in an evening waiting for their programmes to come on?

      • Also the Prime-time repeats counter balance the live on the sister channel – chase the viewers

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