Auto: F1s Painful Path to Profitability

When a market is growing, and a company is on the front-end of a wave, for the management team, every new quarter brings a new sales record, champagne, caviar, and good times. But when the market turns down, and just treading water feels like drowning, life can be hard. The same is true for a management team taking over a business that needs turning around. Yes, there is at least a license to change, but tough decisions still have to be made.

Tough decisions face Liberty Media, the relatively new majority holders in Formula 1 (F1). Licensing rights to pay TV provides guaranteed revenues against which expense budgeting can be done, but also alienates a sector of the fan base that has been used to watching F1 on free-to-air TV. Pay walls also have the potential of reducing serendipitous exposure to F1, further limiting growth. The recent decision to allow gambling on F1 creates additional revenue streams, and while all us business model people are all about finding new revenue streams, it also has created a fan outcry. There are those people that genuinely believe gambling is a curse, a moral ill, and creates the foundation for the kind of betting / game-fixing scandals that have hurt other sports. There are also those fans asking the question, WTF, you got rid of “grid girls” because you said they were immoral (actually they said not consistent with their brand values and societal norms), but now you are allowing gambling. Ok, let’s not get distracted by that piece of cultural war eye candy, let’s stay on point here.


Source Formula 1: One of the 2021 concept cars

Against these disturbances in the fan base will be changes that are applauded. In newly released  2021 concept cars, lost downforce when cars are in close proximity has been reduced from 50% to 20% (providing more overtaking opportunities), the designs are more aerodynamic, larger wheels, and wheel designs that stabilize airflow. Much for technical fans to geek out on, with more research and design changes to come.

Some times creating a new foundation means laying bare the old one. Sometimes management teams have to reverse decisions in the face of customer outcry, as Netflix famously did, but then went on to prosper – no-one has a perfect record in management decisions. When taking over a business where the customer base is declining, it is hard work turning it around. On one hand not wanting to alienate the current fan base too much, or too fast, on the other hand, setting a course towards the next generation fan base: streaming races, no grid girls, cars that look as good as the ones in video games, fuel efficiency (perhaps even one day fully EV), and more.

Good luck to the new F1 owners, and may the fans be with them.

 

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