The $150m gamble that spooked F1

One of the first moves made by Bernie Ecclestone after acquiring Formula 1's commercial rights (initially for 15 years, but inexplicably extended by an FIA administration then headed by his chum, Max Mosley) was to establish what was known as F1 Digital+ - a state-of-art broadcast service offering a variety of channels and options that enabled viewers to effectively become their own TV directors.

The service was offered on subscription via existing broadcasters and, after a slow start in 1996 and even slower death in 2002, was canned. Initially budgeted to cost around $35m, Ecclestone is estimated to have lost $100m before eventually pulling the plug. That $100m would be worth around $150m (£125m) today - a fortune at a time when he owed the FIA double that for the purchase of rights he had not yet sold on.

It is little wonder that Bernie had an abject aversion to change and new-fangled technologies after that experiment. He had failed to realise that at least half of F1's billion-strong TV audience - or so he had the world believe at the time - was made up of couch potatoes seeking cheap thrills after devouring their beefy and beery Sunday dinners. For proof look no further than F1's plummeting ratings after pay-TV was forced upon the masses.

F1 Digital+ proved one of Bernie's few failures but its legacy still lingers darkly. Ironically, that experience killed off the gambler in Bernie, such that the fastest sport on Earth has since been the slowest to adapt to a rapidly moving world.

Virtually every aspect of F1 is now rooted in the '80s and early '90s: grids are decided by lap times set during Saturday qualifying; races last two hours (or 200 miles); races generally start at 1400 local time on a Sunday; prize money distribution is based on a table introduced in 1997 (save for heavily criticised bonuses paid to four teams since 2013); F1's four-day weekend formats are boringly familiar. The list is endless.

F1's calendar expansion followed the familiar formula first developed in 1997 when negotiating with Malaysia: go (Middle) East, sweet-talk promoters and governments into F1's tourist benefits, appoint Hermann Tilke to design circuits that incorporate local themes, charge astronomical fees and up them after five years, watch event implode; move on. Same old, same old...

All that harks back to the pain of losing $150m big ones, and a subsequent reluctance to embrace meaningful change. Worse, when Ecclestone did attempt (admittedly myopic) change - think last year's qualifying fiasco - he was slapped down by all and sundry, further compounding his allergy.

So it is, too, with F1's commercial agreements, even if the latest editions are referred to not as Concorde Agreements but "bilaterals", being as they are between individual teams and commercial rights holder Formula One Management, rather than tripartite agreements entered into between FOM, FIA and the teams collectively as per 1998.

That agreement was based in turn on the respective 1982, 1987 and 1992 Concordes, with the basic format adopted 12 years later while negotiating the 2010-12 version with FOTA.

The issue is, though, that F1 is lumbered with its current contracts through to at least end-2020 (some elements of the agreement with the FIA run to 2030 and even 2110), meaning there is little room to manoeuvre in the short term.

However, this "stability" can be used to advantage: with team, commercial rights holder and governing body obligation defined through to 2020, this breathing space provides F1's new commercial owner, Liberty Media Corporation, with ample time to repackage F1 and prepare it for the 21st century's third decade.

The burning question is, though: what form should future team agreements take in order to provide teams with an equitable playing field that delivers sustainable teams able to fill grids with top class, hi-tech cars that produce close, affordable racing at the pinnacle of global motorsport?

Clearly, what has gone before is no longer sustainable - if it ever was without billionaire patronage or manufacturer involvement - and F1's business model, rooted as it is in the 1980s, needs to change. Basing future agreements on the three pre-1998 Concordes would be an exercise in utter futility given that they were bilateral agreements between FOCA teams and the governing body (then FISA).

The 1998-2007 agreement, although tripartite, fell woefully short on matters of governance. Critics of the document suggest that it was deliberate in order to permit the FIA to dictate regulatory changes to the frustration of teams. Although its successor, signed in 2009 after an extension to the 1998 document was agreed, corrected the regulatory imbalance, it still short-changed the teams in the revenue department.

The less said about the current bilaterals the better, save to add that they are subject to legal challenges at EU Commission level on revenue/regulatory grounds after the commercial rights holder, then headed by CVC, excluded half the grid from the Strategy Group while paying substantial, non-performance linked bonuses to Red Bull, Ferrari, Mercedes and McLaren. No team outside that four has won a race since 2013.

Based on the foregoing it is clear Liberty needs to totally revise F1's business model, but to which format, given that all previous agreements and structures have proven to be utterly inadequate for a variety of individual reasons? Maybe F1 should totally erase the past and formulate a new business model going forward, one that delivers the 'mission statement' identified above.

The key words are: equitable playing field, sustainable, top class, full grids, affordable, pinnacle. Taking these key words in sequence, the components fall into place.

Equitable playing field: The key here is "equitable" in every respect. All teams contesting the championship, regardless of ownership or pedigree, should be treated on an equal basis. Whether Ferrari or Joe's Bubblegum F1 Team finishes fourth in the championship, that team should receive the same revenue share for equal performance, and be granted the same input into F1's regulatory processes. No holy cows or horses.

Sustainable teams: Staggering from cash flow crisis to financial crisis has no place in a global championship turning over $1.8bn annually. Yet that is the reality - as Tyrrell, Prost, Arrows (twice), Minardi (twice), Sauber, Manor (twice), Jordan, Caterham, HRT and Lotus could attest to at various times since Ecclestone acquired the commercial rights for a song. These teams represent an overall mortality rate of over 50% in 20 years.

Top class: No-one denies that F1's sharp end features class acts, but there can be no excuses for hand-to-mouth operations at the back. Currently, there are valid excuses: marginalised and overlooked on TV, the tailenders cannot hope to break out of this poverty trap, no matter how hard they try. Cost caps are required to rectify the imbalance: it does not need $700m budgets to be top class, yet teams fail to manage it on $80m.

Hi-tech: The current cars and engines are exquisite mechanical jewels, and so they should be in F1. But such hi-tech should not be restricted to the majors, nor develop into an arms race. "Equitable regulations" is the key phrase, and that can only be achieved by empowering all teams with regulatory input.

Technology should be accessible to all teams, and not only those with manufacturer backing or Ferrari-sized bonuses. Regulations should place the emphasis where it best serves F1, not fancy windtunnels in Maranello or test rigs in Brackley.

Full grids: While F1 apologists suggest 16 car grids can cut the mustard, the fact is that it is a matter of the more the merrier - and more so at the pinnacle, where folk pay eye-watering sums to soak up two hours of action.

Liberty should target grids of 12 teams (24 cars), ideally consisting three manufacturers, Ferrari and eight independents. However, it should not stop there: two further engine (only) suppliers should be attracted, making it six engine brands supplying two teams each. That would provide the perfect balance.

Affordable: Affordability is a function of income versus expenditure. As income rises, so does spend, with the opposite holding equally true. F1 revenues need to comprise 60% of team budgets, with sustainable sponsorship acquired off the back of increased global TV audiences providing the balance.

This balance requires the optimum mix of free-to-air and pay-TV broadcast deals, and a sustainable combination of 'money races' and traditional grands prix. To achieve these objectives, teams should be represented equally on all decision-taking bodies, be they calendar commissions, sporting and technical committees, the F1 commission and be represented at executive (company) committee level.

Pinnacle: F1 should strive at all times, in all aspects, to represent the pinnacle of motorsport - not be shaded on technology by the World Endurance Championship, by World Rallycross in the excitement stakes, or by Formula E in sustainability.

To achieve all objectives, all players, from FIA through commercial rights holder to all teams, need to be totally committed to maintaining the growth of F1 and its position at the pinnacle of motorsport. That requires a united approach.

Conclusion: The biggest challenge for Liberty is bridging the natural suspicions that exist in a highly competitive activity further fragmented by years of the divide-and-rule doctrine practiced so proficiently by Ecclestone and, later, by CVC. Liberty needs to create an 'us together' environment to replace the 'us and them' mentality that reigned for over 20 years.

The only commercial approach that ticks all boxes is a franchising model. In other words, make the teams shareholders and partners in the business by granting them (all) equal shares in the holding company. The 12 teams would then have the right to compete in the world championship and share in all its riches - directly via equitable shareholdings, and indirectly via performance-linked payments.

Think McDonald's: franchisees are committed to the brand and product above all else, simply because they have invested in it and operate under its trademarks. One 'off' burger reflects as poorly on the brand as it does on the individual outlet and, equally, the outlets band together to overcome common issues, be they the competition, authorities or market conditions. Unity is strength.

The word 'franchise' is derived from the old French term 'franchir', meaning freedom. During the 14th century the term was used to denote 'freedom from servitude' - a state many team owners confessed to lacking for many years under the outgoing regime.

Just as McDonald's franchises (the right to operate the business under the brand name in a given territory) can be traded, so a franchising system would permit F1 teams to be traded. They could sell not only their operations, but their allocated grid slots, too.

The value of franchises would increase, thereby attracting team owners, with riders being that 12 teams need to be committed before trading takes place and the incoming owners don't 'cheapen' the brand.

Of course, the terms and conditions of franchise agreements would need agreement from all players, with the number of shares allocated to teams equally being negotiated and payment deducted from revenues over five years to ensure no teams are marginalised through lack of affordability.

Included in the agreements would be clauses demanding that teams contribute (on a percentage of revenues basis) to a central marketing fund and participate in activities staged to enhance the F1 brand. For example, all merchandising sold by teams should incorporate the F1 logo plus team identity.

Franchising has worked for fast food outlets, car dealerships, wine bars, car wash operations and pooch parlours, and there is no reason why the concept cannot be applied to F1 - just as it has been successfully applied to sport properties across the globe, from football through baseball to netball. Liberty owns the Atlanta Braves, a franchise competing in Major League Baseball, so it surely understands the concept.

Establishing F1 as a sport franchise would take time, but Liberty has a window of almost four years before the current bilaterals expire. If the media giant, with fingers in media, TV production and sport promotion and management, is unable to get its act together in that time and unite F1, then F1 is surely doomed.