It has been nearly a week since we found out that Sky Sports would be broadcasting Formula 1 exclusively in the United Kingdom from the 2019 season.

The news itself is not a surprise. Anyone who has been tracking the rights of sporting events in the UK will know that they are rising at a pace that free to air networks cannot cater for. The value, believed to be around one billion over six years, is something that is out of the BBC’s, ITV’s and Channel 4’s price range. It is unfeasible for them to bid with those numbers. This was always going to happen, but it was the timing that caught everyone out.

This contract will not make teams at the back of the field rich overnight. As I illustrated last week, if every single penny of the Sky deal went back to each of the eleven teams, then the lower end of the field stands to gain around £3 million in prize money when comparing 2019 with 2018. However, as was pointed out in the comments section and on various other fora, the likes of CVC will take their chunk out, meaning that teams are not going to gain as much as the illustration suggested.

Sky’s Formula 1 television overnight viewing figures have stagnated since 2012. The broadcaster averaged 711,000 viewers across their race day programming in 2012, compared with 639,000 viewers in 2015. Audiences have not moved towards Sky since they started broadcasting Formula 1. Viewing figures for the likes of Sky Go and Now TV are not released publicly, however this is unlikely to exceed 200,000 viewers per race for Formula 1. We can see this by looking at the quotation below.

In their press release outlining their achievements last year, Sky said in relation to Formula 1:

Online video views surpassed 12 million, and on-demand downloads were over 700,000.

Bear in mind that these two numbers are cumulative across the entire year. Divide both numbers by 20 race weekends. Per race weekend, online video views amount to around 632,000, and on-demand downloads around 37,000. Assuming there are 15 videos per race weekend, then each video on the Sky Sports F1 website averages 42,000 views. So, whilst the total looks great, the devil is in the detail and shows why television for Formula 1 is still king.

Online is growing extremely fast, Sky tout an overall total increase (i.e. everything) of 175 percent between 2014 and 2015, so these numbers will change rapidly before 2019, although it is unknown how the F1 numbers above differ year-on-year in comparison to the rest of the Sky Sports website.

What needs to be established is what, if anything, can the free-to-air terrestrial television networks in the UK bid for. The press release last Wednesday stated:

· Free to air: The FORMULA 1 BRITISH GRAND PRIX, together with highlights of all other races and Qualifying sessions, will be shown on a ‘free-to-air’ basis.

· Sky Sports Mix: Additionally at least two other ‘prime time’ live races a season will be offered on the soon-to-be-launched Sky Sports Mix along with other F1 content.

Sky’s press release was titled: “Sky Sports to become exclusive home of F1.” My instinct is that Sky’s interpretation of free to air will mean them showing free to air content on either Sky Sports Mix (beyond the commitment above) or another Sky free to air channel, such as Pick TV. There is no legal obligation for Sky to sublet the highlights rights to a terrestrial network. This is only something we will find out a definitive answer to in time, but as with everything in F1, I wouldn’t assume anything.

As with the change from 2011 to 2012, and more recently with the change from BBC TV to Channel 4, there needs to be a strategy in place to slow down the haemorrhage of viewers. If there is not a highlights package available for terrestrial networks from 2019, Formula 1 needs alternative viewing methods implemented and running by the start of the 2018 season. By alternative, I’m referring to an over the top network. Alone, a highlights package, like now, on F1’s website is not good enough. It needs an alternative online source to entice viewers in, who cannot afford pay TV or Sky’s services, for people who are simply interested in F1. The reason I have stated 2018 is so that the transition period can begin, a phased approach (the word ‘agile’ comes to mind).

Regular readers will be familiar with the ‘over the top’ phrase given my previous comparisons with the WWE Network. If F1’s deal with Sky restricts the ability to do that, then the deal in my opinion is damaging to the overall health of F1. I find it problematical if Formula One Management’s (FOM) contracts with broadcasters worldwide are being signed for the ‘here and now’ as opposed to ‘the future’, almost as if the rights holder has neglected to realise that the future is significantly different to the ‘here and now’.

James Allen posted the following on his site:

Over the top services you refer to are very much part of the future but this deal means that F1 is going to do them with Sky, rather than in competition with them.

Reading into that comment, the suggestion appears to be that an over the top network will be a collaboration between FOM and Sky. My main worry is that the over the top network will have Sky branding on it, which I hope will not be the case. Any F1 Network needs to be a FOM branded product that can stand on its own, independent and free from any broadcaster. A ‘Sky F1 Network’ is less appealing than a ‘F1 Network’. It implies that an F1 Network needs Sky branding to be successful.

It is plausible that FOM may want to utilise Sky’s technologies for an over the top network, as opposed to a branding exercise. A potential scenario would be an F1 Network to be a standalone platform, with a discounted price for Sky or Virgin Media customers within the UK. How would this all fit in with Sky’s exclusivity? From the outside, it is not clear what FOM’s road map is, and I think that is the main concern. “In two years’ time, we want to be doing X, Y and Z.” Last Wednesday in Sky’s press release, Sky announced that ultra HD will be coming to F1 in 2017. Should this not have come directly from FOM rather than Sky announcing it on their behalf?

This is not to undermine the work that has gone into FOM’s social media channels by their digital media team, it is about wanting to know the direction that the various outlets are heading in. There is a lot of legitimate concern right now about the direction F1 is heading in, and I include social media, over the top distribution and exploitation of new media in that. If F1 is going to continue to sign exclusive pay TV deals, then they need an action plan on how they aim to reach fans that do not have pay TV. Otherwise, F1 will haemorrhage fans.

A Formula 1 only accessible behind a pay wall is not a fruitful Formula 1.

A Formula 1 that exploits social media, is available to fans at a reasonable price, and finds new, innovative ways to harness their audience, is a fruitful Formula 1.

This past Wednesday, it was announced that Sky Sports would be covering Formula 1 exclusively in the United Kingdom from the 2019 season. Their new contract will last from 2019 through to 2024.

A definitive figure of how much the rights cost has not yet been released, however, it is understood that the rights will cost Sky around £1 billion for the six seasons. Barring some change between now and 2019, Formula 1 will lose a significant portion of viewers in the UK once this new deal kicks in. Sky have splashed out on the rights to prevent BT Sport from grabbing the F1 contract.

This post is based on some assumptions, but I wanted to understand (for myself) how much teams may benefit financially between 2018 and 2019 as a result of this contract. I’ve made a few scribbles in Excel, and I thought it made sense to publish them on here for others to see and analyse. I’m not saying “this is correct”, it is merely an indicator of how teams may benefit from the new deal. Readers of this site can judge for themselves whether the financial benefit for teams will offset the loss in viewers.

Assumption 1 = Sky’s UK F1 contract from 2019 to 2024 is £1 billion.

I should note that if we find out that their contract is less than £1 billion (let’s say £900 million for sake of argument), it does not invalidate the calculations below. As we will see, the figures at the foot of this article are quite small, meaning that a difference up top will not make a huge difference further down.

We have this figure that we need to split over the six years. Normally, we could do a straight ‘divide by six’ to present a figure per year. In broadcasting terms, contracts normally work with an escalator, meaning that they can increase in value by either 5 or 10 percent per year. This means that the cost can be back loaded through the contract as opposed to the majority of it upfront. I would expect the same to happen with Sky’s F1 contract. It is rare for the cost to be frontloaded, especially if broadcasters are in financial turmoil (see: ITV Digital and Setanta historically).

Above, there are four choices: your flat option along with three escalators. Option three on the escalator I think is a non-starter because it would result in the final year of Sky’s contract breaching the £200 million mark. Instead, I think option two is a more viable approach: the contract would start with £138 million in 2019, increasing to £198 million in 2024. You could flip a coin between option one and two, but even then there is £9 million difference for 2019 when you compare the two options.

Assumption 2 = Sky will pay Formula One Management (FOM) around £138 million in 2019.

I wrote a piece in 2014 looking at the rising cost of Formula 1’s television rights. In it, I placed the 2018 season roughly around £60 million. James Allen says that this is now £70 million, because Channel 4’s deal is £24 million per season instead of the £15 million that the BBC were previously paying.

To work out how much Formula 1 will benefit in 2019, we need to deduct the 2018 contract value (Channel 4 and Sky) from the 2019 total. The reason we deduct both Channel 4 and Sky is because there will not be a Channel 4 replacement in 2019. As of writing, the deal is Sky exclusive with no room for a second broadcaster to enter the fray. There is a “free-to-air” provision with relation to the British Grand Prix, but as mentioned before, this is where I anticipate Sky Sports Mix coming into play.

Based on the maths above, the difference between 2018 and 2019 is £68 million. That is the amount of money FOM will get extra as a result of the new deal. Probably the biggest assumption of the whole post is that every single penny of the £68 million will, in some shape, go back to the teams as part of their prize money.

Assumption 3 = Every penny of Sky’s Formula 1 deal will go back into the sport, and contribute to the financial health of every team.

This relies on those running the sport not taking 10 or 20 percent off Sky’s contribution. The £68 million difference can be divided multiple ways. Either, an equal split between the 11 teams, or a split whereby the larger teams get a bigger proportion of funding. The escalators below take an approach, whereby, for example with option one, Ferrari get 85 percent of Mercedes, Williams get 85 percent of Ferrari and so on and so forth.

The calculations in this article show that a team such as Force India or Renault could gain around £6 million between 2018 and 2019 as a result of Sky’s exclusive UK deal. A front running team, such as Mercedes would gain between £8 million and £12 million, whereas the likes of Haas and Manor will gain between £2 million and £4 million between 2018 and 2019. Each team would then gain a further £1 million each year until the end of 2024 as Sky’s escalator kicks in (see the first figure in this post).

Alternatively, the increase from Formula 1’s UK rights could be split equally for 2019, thereby meaning that every team would gain around £6.2 million of prize money. A third alternative is that the inverse could occur, whereby the smaller teams gain as a result of this deal, with FOM choosing to distribute more money to them than the bigger teams, resulting in a healthier Formula 1 for all concerned.

Like I said at the top of the post: I’m not saying the above is correct, or will happen. However, hopefully the above helps to show how Formula 1 teams may benefit financially as a result of Sky’s new UK deal with FOM.