F1, Hollywood and John Lewis

When you stop and think about it, Formula 1 is a lot like the movie industry. The business has studios, which are basically  like the teams. The teams hire the stars. The biggest brand in Hollywood, however, is not 20th Century Fox, Warner Bros, Paramount, Disney, Columbia or Universal, it is Hollywood itself. There is no special prize for Disney because lots of people like it. It is a part of the industry, a Prancing Mouse to compare to Ferrari’s Prancing Horse. When it comes to the stars, they move from team to team, but star power is decided by results. The stars of old, the Dustin Hoffmans, Robert de Niros and Michael Caines still pop up from time to time in cameo performances, but they don’t earn anything like the kind of money that today’s heroes are pulling in. Yes, they may get royalties from the old days, but Robert Downey Jr, Bradley Cooper, Leonardo DiCaprio and Vin Diesel have taken over. It is all about success and performance.

The thing that does not make sense is why Formula One should pay Ferrari the vast premium that it is paid? The “Ferrari is an icon” argument raises its head. True, but then icons make money as well. Marilyn Monroe and James Dean are both earning handsomely despite being dead. Ferrari earns more money from its merchandise, licenses and sponsorships than all the other teams put together. There is its bonus. And let us not forget also that Ferrari spends no money on advertising. F1 does it for them.

The only reason that Ferrari and the other teams that benefit from historical money have these privileges is because it suited the people concerned at the time when political deals had to be done. In short, the teams were bought off. That suited them because it gave them an advantage over their rivals, but was a bit like sending bulldozers on to the playing field. It’s just wrong. It is very much the Orwellian idea that “all animals are equal, but some are more equal than others”. Power and privilege went to those who supported the leadership. The result is a right mess with no-one really in control.

So how should it be? Well, the first thing is that Hollywood should look after the Hollywood brand, rather than dabbling in the business of the studios. The Formula One group spends no money at all promoting the industry and takes a Fatty Arbuckle-sized slice of the F1 pizza, which is devoured by the rats of private equity. They are so greedy that they have already eaten pizza that will have to be paid for in the decades to come. This has turned the teams into their slaves and a peasants’ revolt is required to get rid of these carpetbaggers. Can the rats of private equity be domesticated, or should they be driven out and a new structure be found to serve the sport, rather than to rape it?

A hyena does not change its spots, nor its habits and so one cannot expect much from these people. It was a disaster to let them into the sport. They are not going to accept lower profits and become promoters who will actually do some promotion. Besides, the sport now needs the money that they take, if it is to remain healthy.

The best business model for a sport is probably some kind of a trust or foundation to would exist only to further Formula 1. It would employ good people and delivering known percentages to the members. Being a member of the club would be dependent on performance and there would need to be provisions for helping outside organisations join the membership. This structure would be fair, solid and would provide for growth and better promotion.

An interesting business model is that of the British retailer, known as The John Lewis Partnership. Since 1929 it has been owned by its employees. All 76,500 of John Lewis’s permanent staff are partners in the business. Together they own the retailer’s 35 department stores and 272 Waitrose supermarkets, which generate annual sales of more than $11.5 billion. It works as a normal business and you can get fired if you don’t pull your weight, but when it comes to annual bonuses, everyone gets a fair share. The partners could, in theory, vote to sell the business and cash in, but they don’t.
In a perfect world, an F1 trust/foundation would have a professional administration to organise, promote and negotiate deals for the business and there would be a share of the profit for this unit, to use to help keep the feeder championships healthy. As a business this could make strategic acquisitions to strengthen the business; be these junior formulae, new media operations or racing circuits, to make the sport more democratic, better positioned and more in tune with the customers.

There would be a need for a regulatory division, but this too could be part of the trust structure. It would make and police the rules, but without interference from the other partners. The FIA could do this job, or the trust could simply buy the rights to the World Championships from the FIA and this could then sail away and do good deeds for road safety, while leaving the sport to run itself.

The trustees would need to be carefully chosen, but it would be best that the majority of them come from outside the sport, to ensure less vested interest.

The problem, of course, is levering the promotional rights out of the hands of those who currently exploit them, but in this respect, the unity and vision of the teams is all that is really required. If they vote not to accept the terms offered by the Formula One group, it has no product to present to the FIA and the 100-year commercial agreement would be broken, as I believe, it was always intended to be. People blame Max Mosley for selling the sport to his buddy Bernie Ecclestone, but I think that Mosley saw this agreement as a necessity to legalise and gain acceptance of the federation’s very tenuous claims of ownership. I think his intention was always to find a suitable opportunity to terminate the 100-year deal, but that never happened because he had to leave the job and his anointed successor chose to steer away from the fight and use the federation for other goals, while hoping that the business would fall apart and the debris would fall into the FIA’s lap.

Whatever the case, the next four years will be key to deciding the fate of Formula 1 – the commercial agreements in 2020 need to be very different to what we have today. And there is a great opportunity for a new leader to step in and make these things happen.