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.
7 thoughts on “Looking at whether F1 teams will benefit as a result of the exclusive Sky UK deal”
I find it hard to believe that Sky have paid anywhere near £1 Billion, they allowed C4 in when they didn’t have to, so presumably that gave them some bargaining power.They have also been cutting back on resource and the F1 Show, which had been awful in the recent studio form, so it seems odd that they would then splash out a billion.
According to Kevin Eason, CVC take £4 out of every £10 of income, so the teams will be lucky if they get anything.
David, have you heard anymore on what the FTA option will be? I read Sky’s Press Release differently to you. Sky Sports Mix will have at least two other live races, so I can’t see how that will be the FTA option.
The £1 billion is because BT Sport pushed the price up. When you consider the total cost was previously £70m a year, Sky would have gone a fair bit higher to get exclusively. Add in BT competition and you can see why we are at the position we are currently in. I’d say it is just shy of £1 billion, but until we see exact figures, its difficult to say.
I haven’t heard anything about the FTA option I’m afraid. Will be interesting if we hear more detail next week in Bahrain.
Looking at the numbers JA on F1 is quoting. the BBC were paying £39m for their exclusive deal up to the end of 2011, and Sky are currently paying £45m. So to almost quadruple it when it’s a niche sport seems odd, even if it is competing against BT.
I agree that we will never really know because the details won’t be published, and I take JA on F1’s numbers with a pinch of salt. I say that because when the BBC approached Sky in 2011, it was reported that the BBC would save £150m, and that included extending their coverage to 2018. If you look at JA’s numbers, the BBC didn’t save hardly anything.
Assumption 3 has me confused. Why wouldn’t a large percentage just end up in CVC’s pockets? Surely, that is exactly what will happen?
We already know, from experience, that FOM will take their slice and the rest is divided up amongst the teams based upon the agreements that were made unilaterally after the last Concorde agreement expired.
There is no way in hell that the teams are going to see 100% of this £1 billion (or similar) figure.
I agree completely with you Samantha. You could argue that the figures posted are most generous (hence why I’ve done a step by step post as opposed to jumping to the final figure).
It is extremely alarming if the majority of Sky’s cash goes to CVC and not back into the sport as it means the teams will not benefit at all. If you were to say that 50% goes to CVC, then teams at the back of the grid will only gain around ~£1m in 2018 compared with 2019.
I struggle to see what’s in it for the mainstream motor car manufacturers Mercedes, Honda and Renault, they don’t really need the Pay TV income, they do need the massive exposure of winning on free-to-air TV. Same argument goes for brands like Red Bull. For them F1 involvement is just a marketing strategy. Why would they blow their marketing budgets on expensive racing cars for a massively reduced TV audience?
Somewhere on a laptop in Osterley, this Sky deal makes perfect sense. I don’t think it’s in any way a loss leader. Has Formula One coverage been reduced to being an incentive in their subscriber retention strategy?
I think you’re dead right – manufacturers and the likes of Red Bull want lots of people watching and following. Exclusive Pay TV deals cut that in a stroke. By having to subscribe, at an ever increasing cost, fans are being asked more and more to finance the obscenely expensive world of F1 and line the pockets of CVC. Traditional sponsors are gradually walking away, leaving TV deals as the main cash stream.