Following a rather odd conversation on The Formula 1 Blog with Anonymous, it is becoming increasingly clear that a breakdown of what it would take for Sky to break even is necessary. This is, after all, the main reason why the attempt to transfer the UK rights from free-to-air to pay-TV is likely to have medium-term consequences on non-UK F1 fans. It's a bit rough-and-ready because of the timing, but I will happily tidy up anything that you think needs tidying later.

Wimbledon never fails to get full crowds even though few people in Britain follow tennis otherwise. Silverstone never failed to get full crowds even in years where British F1 figures fell like a stone due to Schumacher dominating. You'd be surprised at how low an audience conversion is needed to fill a stadium, so saying that test cricket grounds are still full doesn't say anything about what's going on with the TV side of things. Attending a cricket match is a special occasion. It does not mean that watching cricket is still bread-and-butter to people. The BARB statistics do not lie and they say that Sky struggles to get a seventh of the audience Radio 4 Longwave does for cricket matches, and that both combined are far lower than cricket got before Sky took over. The numbers end up working for the sport largely because Sky can afford more, but that is reliant on capping the level sports can charge it. That works financially for sports that seriously undervalued themselves (primarily by only considering the BBC pre-Sky, which of course can't run adverts to offset its expenses) but F1 hasn't done that since 1981...

I suppose if one calls 234,000 rugby viewers (2008 League World Cup) with Sky compared to over 2.6 million for the previous version* pre-Sky a success, then rugby might be considered a success. From Sky's perspective, it's a relatively successful sport because the low sanctioning fees means it can make quite a bit from the deal; from the perspective of a rational outsider surveying the effects on the sport's support base, it is a disaster.

The more one looks at the effects of Sky getting involved in sport, the worse it looks for sport. If a sport wants to go from being a majority sport to a minor one, going the pay route's a pretty effective way of doing it. That's been demonstrated time and again.


Advertising is of course part of Sky's arsenal when paying for things. However, Bernie fees are not the only costs it faces, and F1 isn't football. It costs £10 m per year to produce F1 the BBC 2011 way and to do all the extra features Sky has said it'll do, it will need to spend even more than that. ITV couldn't get that much from sponsorship when it had F1 in boom time, so given that Sky isn't having in-race advertising and is operating in a recession, it'll struggle to even meet its production costs through advertising, let alone start tackling marketing, satellite rearrangement fees (yes, making a new channel costs money) and the Bernie fee (which is now four times higher for Sky than the BBC's production fee was). 

Even so, my original calculation of a million new customers being needed assumed, optimistically, that the non-Bernie fees would be entirely covered by advertising. (Before the amount Sky paid was announced, I tended to say "between 0.5 and 0.88 million" when commenting on the internet; I was bargaining on Sky doing some sort of cost calculation prior to purchase). The £40 m from subscriptions prior to F1's arrival has to be ignored on the grounds that they'll have bought other contracts with them. These naturally must be maintained, with the possible exception of programs that directly clash with F1 programming. Other sports may not be as expensive as F1 but they do have acquisition and production fees. Instead, the calculation has to be done from base.

There are two ways of getting Sky F1 - one using the HD pack and the other using Sky Sports. The Entertainment pack cost (common to both routes) has to be ignored because the channels on the pack are funded by it, along with all their programming. Much like the BBC, each Sky channel is funded separately. Terra Nova, for example, is not a free show. Even through the HD route, the HD money is not free because all the programming on Sky has to be converted to HD. If Entertainment and Sports are priced in relation to their values to Sky, then only half the HD top-up can be assumed to be available for F1.

Let's assume that the only sport that the people are interested in is F1 and that HD buyers don't buy any other packages (if we don't, again, the figures look even worse for Sky, as that person's subscription fee would then need to be shared among however many additional contracts corresponded to that individual's customised viewing habits). The cost of Sky Sports 1 and 2 on top of that package is £20 and this is the maximum amount Sky can take in per customer per month with regard to F1. HD, once the half for Entertainment package upgrading is removed, only contributes £6.125 per customer. Only new-to-Sky customers can be assumed to be taking the package for the full 12 months, so only the 7 months where Sky has an exclusive race can be safely counted for Sky's revenue (let's assume for now that Bahrain goes ahead).

I am also going to assume that everyone who watches F1 is a singleton who never has the TV on when entertaining and doesn't have lodgers or other unrelated co-residents similar sneakily "borrowing" a chair during races. Otherwise, each viewer is only contributing part of the subscription payment. I'm also assuming none of these people are bar, pub or club owners because then every patron of the bar/pub/club is contributing towards the subscription.

Remember that the Bernie escalator ensures that prices go up at least 10% every year (that fee quoted for Sky's acquisition will be the first-year price; Bernie rules ensure it goes up and up after that). The £40 m initial annual price becomes £77.95 m by the end of the contract Sky has. If that sounds high, the fee the BBC paid went from £25 m to £40 m a year from one end of its contract to the other (projected but never reached due to renegotiation) end; if it hadn't it probably wouldn't have needed to let F1 go. That's compounding for you.

At the moment, 30% of Sky customers are on HD (therefore using the cheap route) and 70% on SD (therefore would need the expensive route). Being optimistic and assuming this proportion does not move any further towards HD despite more HD subscribers being in Sky's overall business plan, Sky needs 0.95 million new subscribers (rounds up to 1 million to the nearest 100,000 subscribers) that didn't care for any Sky-carried sport bar F1. To break even. Compounding means it doesn't have to get them all immediately - a 2012 figure of 0.53 million is enough for that specific year - but Sky's sales definitely aren't going up by the 10% per year needed simply to keep up with Bernie (they only increased by 3% per year for the last 2 years - it's pretty consistent at the moment). 

Even 0.53 million is over twice as many viewers than Sky gets for any part of its non-football programming. It is unlikely Sky will get the figures it needs because past and present data demonstrates it. This is before considering that every assumption I've just detailed here - advertising revenue, house occupancy, HD, caring about other Sky sports, Bahrain, the extent of Bernie escalator - is more likely to go against Sky than in its favour with regard to making F1 pay, and therefore require even more people to sign.

(For the curious, on the assumptions made in this item, it would take 2.08 m cumulative new customers for Sky to be able to justify taking all 20 races in the first year of the next broadcasting contract of 2018, assuming the minimum number of new customers were signed up as needed to let it break even in each previous year, that no additional fee was made for exclusivity and assuming Sky merely wished to break even with F1 due to its high profile).

Japan F1 is mostly free Fuji TV. There is a pay option (Next) but it gets 1/6 of the audience the free version does (helped by the fact the same provider on the same platform shows the free and pay options - not the case in the UK). Brazil is primarily covered by GloboTV, which is free-to-air and easily beats the pay option for popularity. Italy and Germany used to have pay TV options (through Sky) but they've folded due to lack of interest. Some other countries with smaller audiences have pay-only, and their audiences went through the floor. This has left some channels dropping F1 altogether and others putting it on progressively higher-cost options. That's what always happens with pay TV concerning sports that were previously shown just fine on free-to-air**. The audiences shrink and so the pay TV provider has to rely on cheap rates to keep the option alive. Here's a hint: Bernie will never, ever, provide cheap rates.

So why are the likes of rugby and cricket succeeding despite their TV mistakes? Because other avenues of revenue exploded in the last decade or two. Sponsorship, once quite rare for a series, has become huge money, especially for drinks companies who would struggle to advertise in certain international markets through the standard methods. Ticket prices skyrocketed, turning the weekly patronage of a favourite sport to an occasional treat for the poor without turning away the rich (in fact, with more focus on rich clients as seen in the past decade, the rich are pouring in as they spy networking and hob-nobbing opportunities). The sponsorship alone accounts for why there's more money in disability swimming than ever despite it having no media profile worthy of the name and free tickets to nearly all events. The latter is why the Paddock Club in F1 is worth over 10% of the total income of F1 despite serving a maximum of 5000 people per race.

After all is calculated, Sky's chances of making F1 break even are remote. The chances of Sky keeping a sport that doesn't break even is even remoter. The chances of Bernie finding anyone willing to pay more than Sky pay him now in those circumstances is nil. That means Britain's fees will drop. It's not clear who'd pick up the rights then - it depends who has most to spare at that moment out of the not-recently-"burned" parties. What is clear is that it would cause a domino effect. Other countries would see that pay TV does not work and be able to call Bernie's bluff by not engaging in bidding wars with such channels. It would mean the prices paid by channels would fall through the floor. So would F1's revenues.

F1 would have to either seriously tighten its belt (and hope it's no longer up to the neck in debt) or die.

Quite how not want F1 to kill itself counts as "not loving F1", as Anonymous alleged, remains a mystery.  

* - In case you're wondering, rugby union suffered even worse. The Heineken Cup final, for example went from 9 million in 2005 to below 185,000 in 2007. The only reason it's still on Sky is because the Heineken Cup charges much, much less for its tournament broadcast rights than Bernie does and the BBC is currently trying to sell sports rights rather than buy them.

** - Football, in case you're wondering, was not shown fine free-to-air before Sky got the rights; the BBC could typically only show one match a day - and hardly ever in primetime - due to broadcasting balance requirements, whereas Sky was able to show multiple ones, at any time of day, almost immediately. Being able to see twice as many matches means twice as many people are going to be interested, so it matters less if no single match gets much in the way of viewing figures compared to free-to-air - the sheer number of matches viewable through the multi-channel, more specialised pay TV system meant that many small parts became a bigger sum than the BBC could achieve. Also, people can't advertise on the BBC, so when Britain's favourite sport went to the advertisable platform, advertisers naturally paid top dollar to be associated with the sport. Football is, economically speaking, pay TV's one big sporting success.

Warning! Long entry alert!

I've been thinking what to write for this for most of the week. Normally F1 tackles politics by avoiding it with a 10-foot bargepole; Bernie focuses on the almighty [insert currency here] and the FIA is apolitical by statute.

The events of the past week in the Middle East have prevented the possibility of solution through ignorance.

First of all, some background. The chain of events that led to the current FCO travel advice not to go to Bahrain unless strictly necessary started in December 2010 over in Tunisia. The recession, poor living conditions, corruption and dissatisfaction with a lack of political freedoms resulted in a population ripe for turning into a mob.

The eventual spark that ignited the fire of rebelliousness was caused by a dispute over a vegetable cart licence. Cart owner Mohamed Bouazizi, after apparently being assaulted by a police officer and unsuccessfully attempting to get the local police station to hear his complaint, set himself on fire in protest. The people, for the most part, sided with the cart owner. Initial protests concerning his treatment by the police were met with tear gas, obstructionism and a "quasi-curfew".

The people increased their demands in response, eventually demanding the removal from government of the entire ruling party (RCD) and release of political prisoners. Even a reformation of the government with a reduced number of RCD members did nothing to quell the uprising. Eventually the army sided with the protesters and mass resignations followed.

This Sidi Bouzid Revolt triggered a chain reaction across the Middle East. Most of the world is currently in recession, but many if not most countries in the Middle East are characterised with various types of authoritarian regime. While the majority have democratic layers, there have been as many ways of implementing them as there are countries.

Authoritarian regimes tend to be associated with corruption and generate nations of layered societies.As Frank Herbert correctly noted, "The layered society is an invitation to violence". This is because each layer tends to envy, covet and/or despise the other layers, resulting in rampant power abuse. In turn, a desire is created to take what rightfully belongs to others, which remains undisclosed and unsatisfied due to fear of said power abuse and the lack of incentive for the powerful to enable uncontrolled social movement.

The countries of the Middle East have shared a bond with one another since Islam first united their common ideologies. They have also experienced common changes that have made them more vulnerable to a tidal change in popular thinking. The average population has slowly become younger, therefore less likely to think conservatively or in accord with the opinions of their elders. They have been typically better-educated than before; in many of the Middle Eastern countries, agriculture has become less important as more highly-skilled services such as banking and business administration have increased in importance.

Oil, which has slowed the transition from agriculture to service-based industry, is becoming less important as it is increasingly clear the resource is finite. Many of the countries which had oil have diversified successfully, but it has broadened horizons.

Most importantly, many people are engaging with the internet and social media - which are proving more difficult to censor than more traditional communication channels. Newspapers, broadcast channels and even static web sites can easily be influenced by rulers in their home nation should they be so inclined. Trying to influence thousands or even millions of individual connections and accounts across multiple networks, many of which aren't even in the Middle East, has proven vastly more complicated.

The reduced censorship has not only emboldened people but provided easier access in materials on how to voice their complaints. Non-violent manuals easily downloadable (PDF) from the internet have contributed to the ability of protest organisers to make their protests effective. People who have been involved in previous protests can share their expertise.

Furthermore, it is easier for the people to give direct accounts of what they believe to the world and for the world to answer back. Most of the traffic on social networks consists of spam, banter and matters of relatively minor importance (in approximately that order). However, it is also possible for a large number of people to give the same message to those involved in political strife. It reminds those people that the world is watching. It can help people remember that those people have standards and thus utilise peer pressure to modify behaviour. It can demonstrate the failure of censorship and the politics of fear. It can even encourage normally-apathetic people to engage with the issues of the day, thus increasing pressure on the governments not directly involved to state their stance and bring their great powers to bear.

All this provided a highly unstable backdrop; the governments of many Middle Eastern countries simply hadn't adapted to the changes enforced by the passing of time. Protest dominoes suddenly looked likely, just as Gdańsk had become the trigger for the downfall of Soviet influence in Eastern Europe and pan-European revolts in the 1840s started with the Chartists in Britain.

Egypt was the next to feel the wrath of a dissatisfied people. Change happened over a period of weeks, as various measures were tried and found wanting by a population wanting wholesale regime change rather than just dismissing the odd minister.

In fact, there had been resistance for years but it took the Tunisian experience to catalyse it into the violent clashes, mass striking and constant demonstrating that eventually ensued. By February 11, even President Mubarak had seen the writing on the wall and resigned. Since then, things appear to have stayed calm (touch wood) pending discussions on how to ensure the reduced repression and application of a stronger democratic structure demanded by the population. Events have demonstrated that the old regimes cannot be replaced like for like and that something new is needed - and not just in Egypt.

15 other countries in the Arab world have featured protests - or more than protests - since Tunisia's revolution began. These had been going on for six weeks before the F1 world noticed, for Bahrain looked to be among the most stable of the Arab nations.

Bahrain has a prosperous economy and has had democratic institutions in its constitution for a decade. The trouble was that many people, particularly among the Shia, had not had their fortunes uplifted in line with those of their nation and the institutions are easily overruled by the King and other members of the royal family. The protestors tried to keep the sectarianism out of the equation but the government still saw a sectarian threat, which increased tensions. There were also complaints about the number of political prisoners in Bahrain. The success of the Egyptian revolt in particular inspired the dissatisfied to action.

The King paid 1000 Bahraini dinars (£615.10) to every citizen in the country on February 14, the 10-year anniversary of the constitution that should have ensured the democratic institutions were powerful. It is rumoured that this was an attempt to head off the demonstrations. If so, it failed. On February 14, there was a mass occupation of the streets across Bahrain. One protester died, but it was his funeral next day that turned the situation from a purely political problem to one that involved the motorsport community.

Police fired at the funeral procession, killing one person, injuring 25 and pushing thousands into believing the powers-that-be had abandoned them. It was into the resulting bloodstained fury that the GP2 Asia circus entered the country. Will Buxton vividly described the situation in the country on the relatively quiet day before first practise was due to begin. The reports from others indicated that increasing amounts of violence were being employed by the police and army, a tactic which never helps calmness of people or encourage stability of government. The official position attempted to reassure foreigners that they were still safe in Bahrain, but increasingly people were having doubts.

Practise itself started with the ART and iSport teams playing football against each other because the medical staff due to support the race's requirements were recalled to Manama to assist the injured. The riot police had started using live bullets in addition to the tear gas and batons used previously. Clearly, it was dangerous for the GP2 Asia people to remain in Manama and there was no prospect of getting the medical staff back in time to run the race anyway. This was sufficient reason for the FIA's Bahrain branch to cancel the race, using Article 1.3 of Appendix O of the International Sporting Code:

"Recommendations regarding the number of personnel should be complied with throughout the event; if it is not possible... ...the programme of the event should be rearranged".

The press release was rather less verbose, but it posed a clear message to F1. If Bahrain could not safely host a GP2 race, what chance a F1 test two weeks later - or indeed the F1 race a week after that? Many people on the internet were arguing against going to Bahrain, and not because of the complaints of previous years concerning low overtaking opportunities and general blandness. The violence in the region is ongoing, despite the Crown Prince's pleas for calm and orders for the army to leave Manama having resulted in an entire day without bloodshed.

Insurance for many people in the F1 paddock is currently invalid with respect to travel to Bahrain, and is likely to remain so unless and until the various international travel advisers are assured the current peace is permanent. Sponsors may be reluctant to associate themselves with the country for the time being. Nick Heidfeld, one of the more thoughtful drivers on the F1 grid, has urged sensitivity - a level-headed approach, but is there time between now and the point where visa applications and freight transportation demand an answer?

How can F1 justify sending its people into a country where there is probable danger over and above the inherent danger of racing at over 200 mph? What ethical responsibilities does the sport have, given that ethical expectations have changed across the world as well as in the Middle East? Politically, what can - or should - F1 do to prevent itself from facing similar problems in future? Oh, and is there anything F1's own psuedopolitical structures can learn from the lessons of the Middle East?

I hope to answer these in my next blog entry. Until then, I leave you with a link to a comment I made on F1 Fanatic that may convince you that F1 - whatever it does - cannot be truly apolitical about this.

This weekend, Viva F1 has organised the third Blogger's Swap Shop. It is a fantastic idea where 15 motorsports bloggers write for each other's blogs. An entry from me will appear at The Formula 1 & Motorsports Archive today. La Canta Magnifico Blog is honoured to host a guest entry by Maverick of Viva F1 (please ignore the entry by-line as I haven't figured out how to get it to change yet).

Formula One has more than its fair share of rules. There's not even a single rule book - please refer to the International Sporting code, F1 Sporting Regulations and F1 Technical Regulations as well as all the attached appendices while not forgetting the Rules of the FIA International Court of Appeal [and the Concorde Agreement - ed]. Undoubtedly the vaguest of all the rules, and quite deliberately so, is Article 151c which concerns "any fraudulent conduct or any act prejudicial to the interests of any competition or to the interests of motor sport generally." In other words, ‘bringing the sport into disrepute’.

The ‘disrepute clause’ gives rise to concerns not only about its ill-defined and wide-reaching nature but also about its potential for abuse. So vague is the clause, who is to define what is and what isn't against the interests of the sport? Furthermore, having lost the case, while there is scope to challenge the decision in the Court of Appeal how can you possibly argue that it didn't bring the sport into disrepute? It's an immeasurable concept. Taking a case even further, with notable exceptions, the courts are generally reluctant to intervene in the internal disputes of voluntary associations and not inclined to review the decisions of tribunals.

Last month, the FIA scrapped the team orders rule but with the caveat that "any actions liable to bring the sport into disrepute are dealt with under Article 151c of the International Sporting Code and any other relevant provisions". So are team orders banned? Ferrari's decision to manipulate Michael Schumacher past Rubens Barrichello on the last lap of the 2002 Austrian Grand Prix induced boos from the watching spectators and widespread condemnation from the media. It ultimately led to the banning of team orders, but how would it be dealt with today? It clearly sounds like a case of bringing the 'sport into into disrepute' but at the time, the WMSC "recognised the long-standing and traditional right of a team to decree the finishing order of its drivers in what it believes to be the best interest of its attempt to win both world championships" and hence took no action. Does tradition trump public opinion?

Moving onto 2010 and Hockenheim and this time it was Felipe Massa who was giving way for Fernando Alonso. The stewards acted by issuing the maximum fine allowed to them but the WMSC chose to not extend the penalty, instead going as far as recommending that the ban on team orders be abolished, which it subsequently was. However, what about bringing the sport into disrepute? There was uproar amongst groups of fans and the media, so was there a case for turning to Article 151c? The trouble is that while large parts of the media were unhappy (the Brazilian castigation of Massa being particularly venomous) it certainly wasn't the case everywhere. The Italian media sided with Ferrari, the Spanish media sided with Alonso and the German media, seemingly conditioned by the Schumacher-years, coolly seemed to think that it was business as usual - which in reality it probably was.

Another example from 2010, which might have resulted in Article 151c being brandished in anger, was Ferrari's and Alonso's claims that the European Grand Prix was fixed. If this was football there would have been repercussions - earlier this week, Liverpool's Ryan Babel picked up a £10,000 fine for retweeting a link to a mocked-up picture of referee Howard Webb in a Manchester United shirt after Liverpool lost 1-0 to their rivals. The stewards may have done a poor job that weekend but for drivers and teams at the centre of it all to suggest bias at the FIA could easily be seen as damaging to Formula One.

On the other hand, others may suggest that it was the actual stewarding that was damaging - which begs the question of whether the FIA themselves should be able to be found guilty of ‘bringing the sport into disrepute’? While many fans have been suggesting that for years, the nearest anyone on the inside has come to suggesting such a thing in recent years is in 2008, when Mark Webber accused Max Mosley of damaging the sport following allegations about his private life.

In the end, the Hockenheim result is forgotten largely thanks to a combination of a close-fought Championship and the fact that Alonso didn't take the title thanks to those points gained in Germany. How might the issue have rumbled on down the years if 'Alonso's title' had been questioned by some? Of course, one whole problem with the question of ‘bringing the sport into disrepute’ is that public exposure is central to the accusation and yet, by simply pursuing an issue, the FIA can generate even more publicity for a case, causing further damage. Yet, does it all really matter?

Formula One thrives on controversy, the politics is as much a part of the drama as the racing - an ongoing soap opera. Admittedly, the politics occasionally takes too much precedence over what is happening on the track (Max Mosley and FOTA's wranglings at the end of his reign being a prime example). Yet has any of it really damaged F1's reputation? Renault were found guilty of manipulating a race but fans never stayed away from the subsequent Singapore Grand Prix. McLaren were found guilty of stealing Ferrari information but Formula One is still seen as a glamorous sport. In short, the concept of the ‘disrepute clause’ seems like a misnomer as far as Formula One is concerned. Perhaps it comes down to that image of glamour - a bit of palace intrigue is expected to be part and parcel of the show?

But then maybe Bernie Ecclestone already knows that - a man who could probably earn himself three or four disrepute charges a year.