Does Liberty really understand its F1 challenge?

Gradually Liberty Media Corporation, the new owner of the Formula One Group, has come to appreciate that its acquisition is no easy ride, and that its potential riches will only be realised after numerous challenges are overcome.

While the FOG, under the leadership of seasoned media man Chase Carey, who reports to Greg Maffei, CEO of parent Liberty Media - in turn reporting to a board headed by chairman John Malone - moved commendably quickly in appointing a revised management structure, dissent among suppliers (the teams) and customers (promoters/broadcasters) has not been slow in brewing.

Of course, as any newly-appointed executive knows, the sooner a new management team is appointed, the better for all concerned - for old loyalties die hard. Announcements that Sean Bratches, formerly ESPN executive vice president of sales and marketing, was handed the role of managing director, commercial operations and Formula 1 legend Ross Brawn appointed managing director, motorsport, were expected sooner rather than later.

Ditto the sidelining of Bernie Ecclestone - albeit dressed up as a move to 'chairman emeritus', whatever that role may entail.

Suggestions from certain quarters of the media that the sale of F1's commercial rights may be suspect or even illegal in terms of EU law, and should not be permitted by Brussels, can only have originated in the anti-Liberty camp, for outgoing commercial rights holder CVC Capital Partners desperately wishes for the sale to proceed - so profitable is it for fundholders - as does Liberty, for penalties apply in the event of a breach.

The mere fact that British MEP Anneliese Dodds, who is widely quoted by the anti lobby, and previously left it down to those teams who felt aggrieved by F1's revenue structures to file their own EU complaints rather than taking up the cudgels in Brussels on their behalf, publicly considers the Liberty transaction to be unlawful does not, by definition, make it so.

However, if there is one downside to the transaction should it be completed - and all indications are it will be, particularly given that the EU apparently has no objections regardless of MEP Dodds - it is that CVC remains a major shareholder and retains a seat on the board. F1 is still not fully rid of its Gordon Gekkos, but at least CVC's influence is markedly reduced.

One hazards that the FIA would prefer its flagship championship to be promoted by a media giant than a venture fund working in conjunction with an octogenarian, so is hardly likely to leak contractual details to non-accredited media.

Who then could be putting about such stories, or why the criticism of Ecclestone's dehiring by his close friend of 40 years, ex-FIA president Max Mosley?

Unsaid is, of course, that his administration not only hived off the lease of F1's commercial rights to Ecclestone's family trust, then approved a raft of transactions until they eventually ended up with CVC, but imposed items such as grooved rubber, single-make tyre supply and gawky aerodynamics - which combined arguably did more to damage F1 than any lifting of aero restrictions could ever do.

Back, though, to now. Although no further announcements have, as yet, been forthcoming from the FOG, additional departures can be expected in due course - particularly those of Ecclestone loyalists, of whom there were more than a few within Princes Gate, from where Bernie ran the world's most visible annual sporting block. Melbourne will tell who has retained a hallowed paddock pass.

However, less easy to quell will be agitation from the full spectrum of teams and circuit promoters, all of whom have become increasingly vocal, even threatening, as they fight for bigger slices of a pie that has, in real terms, stagnated in recent times. Indeed, when it comes to TV viewership, the lifeblood of a vibrant commercial structure, these have tumbled spectacularly over the past five years, mainly due to pay-per-view TV.

On the one hand the so-called Championship Constructors Bonus teams, namely Mercedes, Red Bull Racing, Ferrari and McLaren, are pushing for a retention of their current levels of income to and beyond 2020 (when current covenants expire), while on the other the disenfranchised outfits are pushing for equality. Such parity would cost up to $300m per year, unless the CCBs agree to a reduction in income.

The question is, though, why should they, given that the FOG's predecessor - the CVC-controlled Delta Topco - contractually agreed to pay the premiums? Any change would require the agreement of both parties, which is unlikely to happen any time soon.

The same applies to Strategy Group status. While all admit the governance procedure is flawed, those within it are unlikely to voluntarily forego the benefits of framing regulations, now or in future, for it has enabled them to successfully argue against further windtunnel bans and cost control regulations. Is it any wonder all 78 grands prix staged since the formation of the Strategy Group in 2013 was won by member teams?

The next group of agitators comprises F1's disadvantaged teams. However, they signed their contracts with eyes wide open, and the FOG is not obliged to amend these unless forced to. The EU has been conspicuously slow in intervening, and the closer these contracts edge towards expiration, so the chances of Brussels getting involved diminish.

In any event, why would the FOG voluntarily forfeit $200m annually, particularly once it is fully listed and is subject to shareholder and securities exchange regulations? The risk, though, is that one or more teams will follow Manor off the grid. Carey & co face a serious balancing act: voluntarily step in or risk additional team bankruptcies?

Equally, throwing the governance process to include all teams at the initial stage by canning the Strategy Group poses risks, for the major teams could exit F1, much as the manufacturer teams did in 2009. The last thing the FOG needs so soon after taking over the rights is for Ferrari and Mercedes to walk, followed by Red Bull.

Given the uncertainty regarding F1's future revenue structures, a regulations reset and post-2020 governance procedures, the chances of new teams joining in the case of bankruptcies or mass exists are effectively zero. Recall the fate of F1's four post-2009 'budget teams' - another Mosley-era legacy. One never made it beyond Charlotte; the balance went into administration, one twice over. That said, F1 seems to have an endless supply of dreamers.

The next question is, why would CCB teams accept any reduction in income, even after 2020? They have structured their multi-million dollar business around such expectations, and will fight tooth and nail for similar levels of income (at least), including premiums over independent teams, which they - in the main - see as nothing more than grid fillers. Even when trounced comprehensively, as happened to McLaren recently.

All these challenges immediately facing the new owners are just for starters, and tell the story from one side of the divide, that of the teams. The other side consists of the circuits, which is, again, split roughly 50:50, between those pushing for miraculous reductions in hosting fees, and those hoping to remain on the calendar despite Carey's (frequently) stated intentions of increasing the number of US rounds, and making F1 more Euro-centric.

Clearly, given that 2018 potentially has 21 rounds (Hockenheim is contractually obliged to return) and teams push back against more than 21 rounds (unless handsomely rewarded for their efforts), circuits will need to drop off should Carey grow the trans-Atlantic schedule, where calls for reductions in hosting fees are loudest.

One solution would be to can the likes of Azerbaijan and Bahrain, which, though, pay double the going rate - so the FOG would effectively be cutting off its nose to polish its face. Whether fans appreciate a race on the Caspian Sea or in the desert or not, the fact is that such venues made massive infrastructure investments, and hold valid contracts to host F1, some for up to 10 years.

Any kneejerk changes to the calendars could mean the FOG faces legal challenges from races wishing to remain on the calendar, all while circuits with exit options use these in order to negotiate reductions in fees. Whichever it pans out, the size of F1's revenue 'pot' is likely to diminish - just when the teams are pushing for more money!

As for creating 21 Superbowls - another stated Carey intention - apart from the fact that there exist very good reasons why the world currently has but one such event, Carey would do well to ask Australians or Chinese how they feel about having this very American institution forced upon them. A major attraction of the championship is that it allows diverse countries to showcase cultures and customs to global audiences.

The long and short of the foregoing is that, contrary to promises and expectations, F1's present structure is likely to largely remain as is through to, at the earliest, 2020. And even then change is unlikely to come without massive pushback from both sides of the divide, each side of which is, in turn, further divided into at least two factions.

And, this is before complaints from broadcasters, who clearly feel aggrieved that the series that they pay tens of millions a year to transmit to ever-decreasing viewerships, is controlled by a global media company.

Does Liberty really understand the challenges ahead?