Was F1 surviving on 'a wing and a prayer'?

The recent publication of the F1 Group's full financial results for 2017 gave us our first proper opportunity to judge the performance of Formula 1's new owner. And it was hard to miss the standout numbers - the income distributed among the 10 teams fell by 5% from $966million in 2016 to $919m last season.

This trend was hardly a surprise, and it had been signalled some time ago. But the official fourth quarter figures provided the definitive picture for the full year. So can we conclude that Liberty has done a poor job for its key partners?

It's a little early to draw that conclusion. As Liberty has regularly reminded us, F1 is not a short-term project - it's about investing now to generate results a few years down the line.

You also have to consider that the new management only gained full control in late January of 2017, and until then Bernie Ecclestone was still in charge. Taking over any business, never mind one as complex as F1, with its myriad associated companies and dozens of contracts running to different end dates, is not the work of a moment.

Even with the continuity provided by staff stability, with Ecclestone's top financial and legal players staying on, Chase Carey and his colleagues had much to absorb and understand before they could implement their own business strategies.

And the deals that generate F1's three key revenue streams - the race contracts, broadcasting, and sponsorship - were already firmly in place, and running with terms for 2017 as agreed by Ecclestone.

The overall sum F1 generated was down by $12m on the previous year, arguably not much when the total is nearly $1.8billion, but nevertheless a significant number when the usual direction is upwards.

Race income was affected by there being 20 races in 2017, as opposed to the 21 of '16. In addition, before he left Ecclestone renegotiated a cheaper deal for Brazil and that had an impact.

With unfortunate timing, two key Ecclestone-era sponsors, UBS and Allianz, did not renew for 2017 and were not replaced. These things are not the work of a moment, as company budgets are allocated way in advance, so that was not a surprise.

"It has been surprising how limited the capabilities were around things like marketing, around any digital offering. They'd just done nothing to invest in that" Liberty's Greg Maffei

Meanwhile F1's many broadcasting deals continued to run as per existing Ecclestone arrangements.

What the new management did have more control over in 2017 was spending. Liberty has made no secret of the fact that it has to spend to help grow the championship, and make up for a previous lack of investment.

The move to a brand new headquarters, a massively increased head count and marketing initiatives such as the London Live event contributed to significantly increased costs in 2017.

From the start Liberty has reminded us how limiting Ecclestone's infrastructure was, and how much would have to be done to upgrade it. Carey recently described F1 as "essentially an organisational start-up", which seemed a little unfair on Bernie, especially given how much Liberty had paid for the business...

Liberty now says that the reality was worse than had been expected.

"The surprise was while we knew there was a lack of infrastructure, [it was] just the basic bones of a company," Liberty CEO and president Greg Maffei said last week. "And also how large that hole was, and how little of it was there, and how much of it was done kind of on a wing and a prayer, or wrapped with baling wire, or whatever your analogy would be.

"And that's taken more capital, and more operating expense to build up, than we might have originally anticipated. But that's modest, we're talking another $20-25m here, not massive.

"But scaling that has been surprising, how limited the capabilities were around things like marketing, around any digital offering. They'd just done nothing to invest in that."

Ecclestone was known as the ultimate dealmaker, but Liberty believes that he could have done better, and thought more about the long term.

"Some of these deals were done on a wing and a prayer in the same way," said Maffei. "The promoter relationships, no best practices, no real attempt to make the promoter successful.

"An attempt instead to say, 'OK what can I get out of the promoter?' and 'That's the money I'm going to get,' not 'Let's get as much out of the promoter and let's make the promoter work, so we can get more money next time.' That strategy didn't exist.

"There was no real attempt to think about the interplay between free, pay, and what's the rise of digital or how do you try and play all three of those together? In terms of the broadcast side."

Liberty has made much of the untapped potential, both of specific commercial areas that it believes Ecclestone had not explored, and F1 in general.

"All the ancillary business that we think are available, like eSports which we've begun, potentially like gaming, like electronic experiences, none of those were capitalised on, so I think there's a lot of opportunities that are yet to evolve," Maffei added.

"Will some of those take longer to be the full-fledged businesses that we hope they can be? For sure, but we remain very bullish on the thesis that if you look out there, there is a broad fanbase, a fanbase which hasn't been tapped, hasn't been as marketed to, as smartly as they can be.

"We can broaden that fanbase, also by making the races more competitive, and more interesting. The prior regime I would argue didn't spend a lot of time worrying about that."

Clearly Liberty has to be given some leeway for the 2017 numbers, since it was limited in terms of what it could change, especially in terms of revenue.

But what can we expect in its second season at the helm? Inevitably many Ecclestone deals will remain ongoing for years to come, and depending on your point of view that's either easy income that he left for the new management to count, or a restriction on what they'd really like to do.

Race income is set to go up this year as we are back up to 21 events and, as we know, the fees that all the promoters pay increase year-on-year anyway. Malaysia has gone, but France and Germany are back - but both with contracts that originated in the Ecclestone era.

What Liberty can claim credit for is extending the Chinese and Singapore GP deals into 2018, and beyond. Any lucrative new races, which will be a real landmark for the management and will represent genuine fresh-minted income, will have to wait at least until next season. You can see why there's strong motivation to go beyond 21 races, and push up to the current limit of 25.

The new regime has had a much bigger input on the broadcasting side, and that is where the decades of TV experience and knowledge brought by Carey and commercial boss Sean Bratches have paid off. More by luck than judgement many big deals came up for renewal in 2017, and that gave the new guys a chance to impose their own terms.

Key to that was negotiating deals that allowed them to reclaim the digital rights in those territories, therefore allowing the launch of the new F1 TV streaming service. France, Germany, Austria, the USA and much of Latin America will be able to access it in year one.

With an average annual subscription of $100, this new money is hugely significant, which is why there will be a huge push behind F1 TV, and a big effort to roll it out in other territories as soon as new deals can be agreed for those areas.

What we don't know, because the detailed numbers are not made public, is how much income F1 has had to give up in order to reclaim those digital rights from the regular broadcasters - but there will be an impact.

"Our priority is long-term value, not a short-term buck," said Carey. "For example, in the broadcast area in some cases we recently traded dollars for reach and digital flexibility."

The one area of cash generation where Liberty is not hamstrung by Ecclestone deals is sponsorship. He had a policy of having half a dozen or so key partners, the rationale being that this small number offered each some degree of exclusivity.

From the start Liberty has rejected that approach, pointing out that the likes of the NFL and MLB have an "official partner" or suchlike for every conceivable area of business.

"We can broaden that fanbase, also by making the races more competitive, and more interesting. The prior regime I would argue didn't spend a lot of time worrying about that" Liberty's Greg Maffei

Aside from the ongoing Ecclestone deals - with Rolex for watches, Pirelli for tyres, Heineken for beer, Tata for communications, DHL for logistics, and so on - the sponsorship playing field is wide open for Liberty.

Ecclestone's savvy and decades of inside knowledge played a huge role in his F1 race deals, and to some degree, in his broadcasting arrangements. But selling sponsorship is a universal and transferable skill. Indeed, Liberty has not only recruited its own marketing people, it has also hired US agency CAA Sports to help bring in more money.

Still despite the almost limitless opportunities, we haven't seen much action yet. Last year the odd minor deal was announced - with the likes of Snap Inc. and Champagne Carbon - but notwithstanding the budget lead times mentioned earlier, sponsorship is clearly an area where Liberty has to be seen to get results sooner rather than later.

Maffei (pictured below with Carey) agrees that there is plenty of scope, but even he admits that F1 won't get as many deals done within 2018 as it would like to.

"We know there are categories of sponsorship that will likely get filled out, that didn't exist, and that will not all get completed in '18," the Liberty boss noted.

"We don't have an oil and gas sponsor, we don't have a technology sponsor, we don't have a soft drink sponsor, we don't have a hard spirit sponsor, we don't have a hospitality sponsor, we don't have a financial services sponsor - a long list of people you would like.

"And you would think we should be able fill out some, if not all, but they won't all get done in '18 to the degree that we'd like.

"Activating those, and getting the full power of those, it's going to take a couple of years. I think there's a positive trend, I don't think it's a direct upwards 'hockey stick' [shaped-graph], but I think this will build over time. And we remain very bullish on the asset we bought, and where we're going with it."

In other words, Liberty sees 2018 as another transitional year, and so we can't expect to see a dramatic hike in income. As with the future technical and sporting regulations, and changes to the financial arrangements with the teams, the focus remains on a distant horizon.

"I think '17 and '18 we look at as foundation building years," said Carey. "Our real target for where we're trying to get to is 2020."