The battle for ownership of F1 explained

Following widespread speculation at Spa-Francorchamps about possible bids for a majority slice of Formula 1's commercial rights, various parties, including F1 tsar Bernie Ecclestone, indicated to Autosport at Monza that a multi-stage deal for control of commercial rights holder Formula One Management was imminent - with the first transaction possibly completed by the end of this week.

More intriguing were suggestions from sources close to the 85-year-old that he reckoned the Italian Grand Prix could mark his last official appearance at an F1 race, with American cable TV broadcasting executive Chase Carey (61) slated to slide into motorsport's hottest seat in time for the Singapore night race. Whether this all pans out only time will tell, but clearly F1's commercial potential is being duly and diligently examined.

Until June Carey was COO of News Corporation subsidiary 20th Century Fox, but he recently stepped up to the position of executive vice president - and is seeking bigger fish to fry. News Corp is a partner to 'cable king' John Mallone in his Liberty Media company, said to be the prime bidder for eventual control of F1's rights - putting the impressively moustached Carey on pole for F1's CEO job (or even chairman).

The deal may yet be gazumped by a consortium comprising Miami Dolphins owner Stephen Ross's RSE Ventures media/entertainment company and Qatari investors, or topped by an unnamed private equity fund, but, whichever, it seems investment fund CVC Capital Partners, which has exercised majority control since acquiring the largest individual slice of the rights a decade ago, will shortly lose its grip on F1.

A year ago RSE and the Qataris were said to be making a move for F1, then all went quiet - until the Liberty bid was all but confirmed by folk on both sides of the table. CVC co-founder/co-chairman Donald Mackenzie made an unexpected flying visit to Monza on Sunday, and suddenly the entire ball game changed - and, voila, RSE was again in play.

Could it be that Liberty jibbed at the rumoured valuation of F1's commercial rights at $8.4billion - already well down on the stratospheric $12bn previously punted by folk who should know better, but still way above the series' annual earnings - and that in a last throw of the dice Mackenzie chucked the RSE name into the bid equation? City and financial media have not yet commented on RSE, whereas they swooned all over Liberty's bid...

Whatever, whoever; the obvious question is: Just what does any potential new owner see in F1 that makes grown men fall over themselves in their haste to cut deals with card-sharp opponents? The answer lies in the potential of 'content deals' - programming to fill the trillions of TV hours that cable and new media operations need to fill to satisfy growing demands for visual wallpaper.

Liberty Media is both a creator and consumer of content, and therefore has a double-barrelled interest in content-generating activities - Discovery Channel is one of its allied platforms - while RSE is described as 'part capital venture fund and part [emerging business] incubator'. The synergies are obvious. The Qataris? Simply put, the desert country aims to lift GDP from a present $98k to well over $100k as soon as possible.

F1 superbly adds to the bouquets of global sports offered by cable merchants, particularly as there is no disputing its TV market is chronically under-exploited despite a plethora of pay-per-view deals cut by Ecclestone of late - with the recently announced full-on switch-over to Sky in the United Kingdom for six years from 2019 being just one example.

At the heart of the matter lies a peak in race hosting fees: Where in the past around 20% of F1's approximate $1.8bn annual turnover flowed from hospitality/signage/sponsorship/licensing fees - with the rest split equally between race hosting/broadcast income - team personnel believe F1 is overstretched by 21-race calendars.

Most consider 20 to be the sustainable maximum despite the draft 21-race 2017 version currently doing the rounds - which features Australia back-to-back with China after a March 26 start, with the rest from Bahrain onwards being much the same as this year.

A circuit such as Silverstone long reached the tipping point, both in terms of capacity and ticket pricing, yet faces 10% escalators in fees going forward to 2026. As the sight of orange-packed general admission areas during the Belgian Grand Prix proved, circuits attract fans by the tens of thousands at 100 quid on race day, but not at prevailing grandstand rates of £300 (or more).

Monza will, for example, pay an average of £20million for each of the three years of its extended contract - if, that is, an appeal court due to sit on October 26 deems the tax aid extended by the state to the circuit does not unfairly jeopardise the counter bid submitted to Ecclestone by Imola - yet can look at selling no more than 70,000 three-day tickets at an average price of £250, providing an income of £17m or so.

Add in promoter fees/associated costs of £5m, and clearly race promoter Automobile Club d'Italia faces annual losses of £8m or so. Indeed, former F1 driver-turned organising committee member Ivan Capelli told Autosport at Monza that ACI forecast subsidies (losses of) between "seven and nine million of Euros annually". That is simply not sustainable regardless of how alleged tourism/image benefits are tabulated.

The key word here is 'sustainable'. F1 is a voracious animal that requires increasing funding to survive, and with hosting fees peaking, and hospitality income reducing due to stringent corporate compliance regulations, the only option faced by the commercial rights holder to satisfy demands from teams for larger slices of the 'Bernie Pot' is to put the squeeze on the only remaining revenue stream, namely media.

Consider the following broad-brush calculation: Based on present contracts and shareholder expectations F1 currently needs an annual turnover of around £1.4bn to survive. It costs approximately £350m to stage the 'show' annually - all FOM overheads, plus expenses such as flyaway race freight and airfare subsidies for teams - resulting in underlying revenues of £1.05bn.

As revealed here, the teams' collective 2015 earnings (paid in '16) amounted to $880m (£675m), providing pre-tax profits of £360m. Incidentally, should the eventual value of F1's rights pan out at $8.4bn, it represents an earnings multiplier of 17.8, where a figure half that would be deemed to be acceptable - hence suspicions that RSE's alleged bid is phantom, calculated to up the bid value allegedly submitted by Liberty.

Let us run the same calculations on a per-race rather than seasonal basis: With 20 grands prix being generally accepted as the sustainable maximum going forward and a turnover of £1.4bn, each event would need to turn over an average of £70m. Taken over a season, hospitality/signage would deliver approximately £14m per race, with race hosting fees and broadcast rights collectively contributing the balance (£56m).

In the past this was split 50/50, but, as detailed above, race promoters find it absolutely impossible to turn a decent return on hosting fees now averaging £28m per race. Assuming promoters are able to sell 100,000 three-day passes; they would have to average £280 per head - and closer to £400 when all costs are factored into the equation. Try doing that in Malaysia or Bahrain; indeed, try doing that anywhere in 2016.

The promoter's lot is compounded by the peaks and troughs created by individual drivers - would Spa have pulled 80,000 punters with the lure of Max Verstappen, or Silverstone its 135,000 without the genius of homegrown hero Lewis Hamilton? No.

In the early noughties Michael Schumacher and Ferrari filled two circuits in both Germany and Italy; today, despite Mercedes dominating in similar fashion with a German driver, the country's sole grand prix is regularly in doubt, while Imola and Monza face an appeal court on October 26 over the right to stage the country's only race. Any wonder it is increasingly difficult to frame a 21-race calendar?

By contrast, F1's TV ratings graph is relatively stable - even in decline - with audiences being less partisan and more spectacle- (rather than driver- or team-) driven, while race broadcasts can be repeated on various channels, in different formats; be aimed at different audiences. Deals can be struck with different platforms in the same territories for different content at different times - as opposed to one race per country per year.

With F1's contracts expiring in 2020 and the EU Commission likely to impose equitable revenue structures across the grid - even if bureaucrats do not demand a prior revamp of the present structure - the commercial rights-holder faces even larger financial pressures, for the likes of Ferrari and Red Bull Racing are unlikely to accept reductions in their generous payments, while independents are sure to push for a doubling of their current deals.

In short, where on the one hand the revenue squeeze is on the commercial rights holder, on the other hand prospects for growth among race promoters are limited (saturated, even), while multimedia is in its infancy. Emerging tech - virtual reality, 3D, 4K, streaming, simracing, and that is simply the start - will change the face of content (and F1) over the next decade, and therefore the championship needs to be led by an executive with vision, not one rooted in the 1980s.

This is where Liberty and RSE come into play: with ready-made distribution channels they are ideally placed to exploit F1's multi-hued TV palette while having the necessary expertise and vision to develop new media platforms in addition to desperate attempts to halt F1's TV ratings slide - which impacts equally on FOM's 'bridge and board' signage deals - and therefore FOM's bottom line - and team sponsorship.

In a nutshell, where the 1980s FISA/FOCA war was over broadcast rights, the current battle for control of F1 is all about ownership of content.