It's a hot and dusty August day at the Hungarian Grand Prix circuit. With the race still 24 hours away, fans flood in to watch sleek 200-mph Formula One cars scream around Budapest's racetrack, the Hungaroring, ahead of the afternoon's qualifying trials. Flags wave and whistles blow as German hero Michael Schumacher roars in, driving his scarlet Ferrari. Above the deafening din of the throaty 750-horsepower engines, Briton Bernard Ecclestone, 66, racing impresario extraordinaire, sits in his big silver bus unfolding his ambitious plans for Formula One Grand Prix car racing.
The sport is already a highly tuned profit-making machine. This year, Ecclestone's grab bag of F-1 companies will pull in an estimated $136 million in pretax profits on revenues of $330 million, garnered largely from TV rights to the sport. Ecclestone plans to consolidate his empire into a new company, Formula One Holdings, and sell shares through an ambitious $2 billion initial public offering on stock markets in London and Frankfurt this winter.
But Ecclestone, son of an English trawlerman, has even grander plans. He aims to turn F-1 racing into a megabuck global sports and media enterprise, imposing more structure and more professional management. To succeed, he needs to run new races in Asia, expand F-1's pay-TV services, and build a global F-1 merchandising business.
F-1's TV audiences are already huge. Though it has never been a big draw in the U.S., it attracts 330 million viewers per race in more than 200 countries worldwide. Only World Cup soccer and the Summer Olympics draw more. But most people watch free broadcasts for which networks pay flat fees.
Top-of-the-line digital pay-TV technology could generate far more revenue. With pay-per-view or subscription cable packages, pay-TV should produce $100 million a year in revenue by 2000, according to Ecclestone's bankers. He already has invested $100 million in digital equipment, mobile studios, and camera crews, all ferried around the world in two jumbo jets. Instead of just one channel showing cars zooming around the track, his digital packages offer six views, including one that gives behind-the-wheel coverage from about half the cars in a race.
BRAVE NEW AGE. To help oversee Formula One's brave new age, Ecclestone is lining up blue-chip managers such as former Mercedes-Benz Chief Executive Helmut Werner. But Ecclestone will remain the driving force. "He is the one man who sees the big picture," says Ian Phillips, commercial director of the Jordan Grand Prix race team. "And he sees it five years ahead of everyone else."
Ecclestone has drawn up a clear route to where he wants to go. But not everyone in the sport is ready to follow. Some team owners, for instance, are balking at Ecclestone's plan to make them pay for shares in Formula One Holdings. Eleven teams, which each provide two cars and drivers per race, are the bedrock of the sport. Owners finance their annual budgets, varying from $25 million to $100 million each, with prize money, cash from sponsors and a share of TV revenues.
Fractious team owners, however, are in the midst of a show-me-the-money dispute with Ecclestone that could delay his IPO flotation. Three teams are still haggling to get a bigger cut of TV revenue for themselves. "Bernie's a tough, competitive businessman who gives nothing away," complains one of them, Frank Williams, head of the Rothmans Williams Renault team.
A successful IPO could earn $1 billion for Ecclestone, a former race driver and team owner, and his family trusts. The details are in flux, but a tentative plan is to sell half the shares to the public via an international banking consortium led by Salomon Brothers Inc. Ecclestone family trusts would keep 30% of the shares. The sport's governing body, the Paris-based Federation Internationale de l'Automobile (FIA), would get 10% in return for prolonging Ecclestone's TV rights, and another 10% would be sold to the teams.
Despite the spats, the pressure is on to make the deal work. "Bernie can't go on forever, so a structure has to be put in place to prepare for his absence," says team owner Williams. Adds Ecclestone: "I'm 66. What if I die, and my wife [ex-Armani model Slavica, 37] remarries? In a year, everything I built up over a lifetime could be wrecked."
GIVING WAY. Ecclestone's top priority is a big push into Asia, which accounts for nearly two-thirds of F-1's vast TV audience. That's remarkable in itself, as it features only two Asian drivers, both Japanese. And Asia hosts just one of the 17 Grand Prix races annually, at Suzuka, Japan. New Asian races and drivers, Ecclestone figures, would create more fans like the so-called Tifosi, who follow Italy's Ferrari team with near-religious fervor.
Competition to get extra races in Asia is frenzied. Malaysia and South Korea are building government-subsidized racecourses. Meanwhile, China hopes to beat them to the starting line. A track in Zhuhai, near Macau, could stage the first new Asian race at the end of the 1998 season. "It's a big event that [would] bring a lot of prestige for China as a whole," explains Joe Lim, director of Zhuhai International Management Ltd., Hong Kong representatives of the track's owners. Ecclestone says all three might host races in 1999.
Ecclestone has had a slew of ideas from other people about how to generate more profits, ranging from a global chain of F-1 theme restaurants to a line of racing-related sportswear and other merchandise. Ecclestone says he has been too busy to exploit these ideas. "It's time for racers like me to give way to the businessmen in suits who can come in and do all these things," he says.
The chief "suit" is Werner, 60, a longtime pal of Ecclestone who will chair Formula One Holdings' six-person board if the float goes ahead as planned. "It's not a one-man show anymore," says Werner. Marco Piccinini, a Monte Carlo banker who once directed Ferrari's Formula One effort, will be deputy chief executive and handle day-to-day operations. Ecclestone still plans to play a big role, but the new setup eventually could loosen his viselike grip on F-1.
Ecclestone's path to the top of Grand Prix racing, once a gentlemanly snob sport, has been long and circuitous. After building a thriving motorbike and auto dealership in Britain, he caught the bug by racing sports cars and Formula Three cars, a less powerful category of single-seater racing cars. In 1970, he bought an F-1 racing outfit, the former Brabham team, and won two championships with it.
Soon, he organized the usually independent-minded teams into the Formula One Constructors' Assn. As president, he bullied the FIA into improving facilities for racers, spectators, and journalists. Then, he snatched TV rights to Grand Prix racing from the track owners in a series of deals with the FIA. "The key was realizing back in the 1970s that he had to control TV," says FIA President Max Mosley.
Now, Ecclestone's TV rights, which still have 13 years to run, and the lucrative deals he has wrung from broadcasters make him the kingpin of F-1. The big TV audiences generate most of Formula One Holdings' revenue. This year, 47% of it, or $150 million, will be passed on to the 11 teams. TV brings in yet more cash to the sport indirectly, thanks to a long line of big corporate sponsors. Companies from Shell Oil Co. to cigarette maker Philip Morris Cos. together pay about $250 million a year to have their logos on F-1 cars and get product endorsements. Auto companies such as Mercedes and Ford Motor Co. kick in $25 million or more apiece as well. It's not cheap, but auto makers can't resist. Germany's BMW will reenter F-1 in 2000, after a decade's absence, as engine supplier to Williams and spend $55 million a year. Honda also is expected to get back into F-1 the same year.
With the fights over TV money and how much they'll pay for shares in the float, the team owners are Ecclestone's biggest headache right now. For the record, they lavish praise on him. "I don't know anyone else who could have done what he did for the sport," says Ken Tyrrell, head of the Tyrrell Racing Organization team and doyen of the sport. Ecclestone, for his part, insists he's trying to save the teams from themselves. Without the company and him, Ecclestone says, "[they] would take to fighting among themselves like dogs."
The teams are throwing their weight around over expansion. Under the sport's rules, they have to agree unanimously before any events can be added to the current schedule of 17 races a year. But they aren't eager to do so, for fear that the extra races may not bring in enough extra cash from sponsors, who provide the lion's share of their funding. But they may be persuaded to dump some of the lesser European races, such as the Hungarian Grand Prix, to accommodate more Asian events.
So far, the teams haven't been able to parlay their leverage, as potential spoilers of the IPO, into major concessions from Ecclestone. A crafty negotiator, Ecclestone has been known to spill his briefcase on the floor, jump up and down, or pretend he's going to make a phone call in attempts to faze others when he's under pressure.
WISH LISTS. Using such tactics, Ecclestone got owners to agree that a broad settlement is needed. Even on extra races, Eccleston predicts, "eventually, it will all fall into place, and [the teams] will realize that it is better to go racing and get paid than not go racing and not get paid."
Meanwhile, sponsors are putting on pressure to go forward. They like Ecclestone's Asia strategy because of massive spectator interest there. The U.S. is also high on sponsor wish lists. F-1 has never cracked the U.S. market, where stock cars and Indycars have captured the hearts and wallets of Americans. "It seems to me, it's difficult to portray [F-1] as a world sport without having an event in the world's largest market," says Jacques Nasser, president of Ford.
Ecclestone still needs to get all the players lined up behind him for the IPO. He hasn't made that any easier by treading on his financial advisers' toes. In July, in classic maverick style, he went behind Salomon's back to consult with SBC Warburg, another bank in the offering syndicate, for advice on alternatives if the IPO falters. Another syndicate member, BZW Ltd., approached Rupert Murdoch's British Sky Broadcasting PLC, with a plan to take a 10% stake in Formula One Holdings. BSkyB officials say they may still consider a stake, though Ecclestone insists the idea has never been put to him formally.
Even if Ecclestone's bankers all start singing from the same songbook, other pitfalls lie ahead. Some outsiders cast doubts on growth projections for the company. Formula One Holdings' digital pay-TV audience figures, says Max Alexander, a consultant at London-based TV consultancy Oliver & Ohlbaum Associates Ltd., "are frothy," since corporate sponsors insist that most viewers should still see free broadcasts.
Initial projections were that 15% of viewers would buy the digital services. But so far, only 30,000 of Paris-based Canal Plus's 500,000 digital satellite subscribers in France and Italy have sprung for the $130-a-year package. Ecclestone concedes that digital pay-TV hasn't produced stellar results. "(But) realistically, it'll take two years for the revenue stream from digital to really kick in," he says.
Tobacco sponsorship, worth about $100 million a year, could throw another wrench in Ecclestone's plans. Antitobacco lobbies want governments to ban tobacco sponsorship and advertising from the sport. Already the French, German, and British Grand Prix operate with restrictions, and European Union sources say the 15-nation body might look into tighter regulations. "It would be a severe blow if tobacco sponsorship were banned," says Jordan's Phillips.
The risk of losing tobacco cash is propelling Ecclestone into Asia. "Tobacco doesn't have the stigma there," says Brian Sims, account director at London-based API Sponsorship Ltd. Adding races in Asia, where cigarette advertising restrictions don't exist, will keep tobacco sponsors in the sport. So could digital wizardry--Ecclestone's TV engineers can electronically paste tobacco ads onto blank track-side billboards in countries where the ads are illegal.
Despite his critics and doubters, Ecclestone still seems to be the only one who can deliver the millions of fans and dollars Formula One expects. And if his IPO succeeds, Ecclestone will be a big step closer to ensuring that the sport thrives long after he is off the scene.