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FORMULA ONE

Liberty Media looks to embrace digital to revitalise Formula OneIs Formula One about to turn a corner? Following the acquisition of Formula One by Liberty Media, Mark Buckley and Thomas Maw of Fladgate LLP assess the potential for Formula One to reinvent itself under new leadership, the opportunities presented by digital media platforms and new sponsorship models in order to engage with new audiences and the legal issues that may arise.

Mark Buckley Partner mbuckley@fladgate.com

Thomas Maw Trainee Solicitor

Fladgate LLP, London

Introduction For a sport historically synonymous with wealth and success, by some measures, Formula One has in more recent times been in a period of gradual decline. Official figures produced by Formula One Management (‘FOM’) in April 2016 show that television audiences have fallen by a third to 400 million viewers in the period from 2008-2015. A combination of Mercedes’ complete dominance of the 2014-2016 seasons and a failure to allow the sport to evolve with the times has meant that Formula One has become stale and outdated. However, the sport is entering a new season with new owners, the American media company Liberty Media (‘Liberty’), who have shown a desire to change the status quo but the question remains whether the sport can adapt to ensure its survival.

Reinventing itself Any analysis of Formula One must first consider the sport’s history and path to where it is today. Over the past 40 years, Bernie Ecclestone has transformed the sport from a weekend pursuit to a fully fledged global corporate entity. Ecclestone’s influence in Formula One can be traced back to 1978 when he became the executive of the Formula One Constructors’ Association and battled for the commercial rights to Formula One. Ecclestone’s mission to control the commercial and TV rights in the sport culminated in the FIA granting the commercial rights in Formula One for 100 years to Formula One Administration

in 1995. A few years later, a holding company, SLEC Holdings (‘SLEC’), was created to act as the parent company to the Formula One group of companies. This was a clear sign that Formula One was becoming more attractive to outside investment with various financial institutions taking stakes in Formula One, the most recent being CVC Capital Partners (‘CVC’) who owned the majority stake in SLEC until the sale to Liberty. One constant, however, was Bernie Ecclestone. Criticism of his leadership grew with issues such as lack of social and digital media engagement, outdated sponsorship methods, a move away from traditional race tracks to soulless, purpose built tracks and excessive controls on teams coming to the fore.

The acquisition of Formula One by Liberty has the potential to radically shake up the sport if the ambitious statements from Chase Carey, the new chairman and CEO of Formula One, and Greg Maffei, President and CEO of Liberty, come to fruition.

Opportunities Liberty has been critical of Bernie Ecclestone’s approach to media and has said it wishes to make the drivers the ‘stars of the show.’ As the 2017 season gets underway, the potential for drivers, teams and stakeholders to engage new audiences through social and digital media is significant.

Part of Liberty’s strategy is to

personalise the drivers, allowing for wider public engagement and not just on race day. The current contractual arrangements on a Formula One driver are set out in two places:a) The service contract between the driver and their team; and b)The FIA Super Licence which a driver must hold to compete in Formula One. A driver’s obligations are primarily to his team and it is not unusual for his contract to have little or no provisions relating to social and digital media commitments - the use of such media in Formula One has traditionally been carefully restricted. Liberty’s wish for drivers to engage more with new media presents some legal complications. Unless the drivers are willing to alter their service contracts to include a commitment to post a certain number of tweets during a race weekend, for example, the teams (and Liberty) will not be able to compel reluctant drivers to start engaging with social and digital media. An alternative approach might be for the FIA to alter the terms of the Super Licence issued to Formula One drivers to requiring social and digital media engagement.The use of social and digital media by drivers in a personal capacity is another issue that requires consideration. It is not unusual for drivers to have limited contractual commitments in relation to social and digital media thus allowing them to engage with it in a personal capacity. Lewis Hamilton, who has a combined following of over seven million across Facebook, Twitter and Instagram,

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has used social media very effectively to create his own brand and market his sponsors although such opportunities can be limited by a driver’s contract with their team. Liberty’s focus on enhancing the social media presence of drivers will need to be managed very carefully to ensure any rights and obligations placed upon drivers are in compliance with existing rights, in particular to personal sponsors.

It is not only the profile of current drivers that Liberty wishes to raise. Former drivers have complained of the difficulty in receiving paddock passes at races. This position is to change with passes being made available to any former drivers who want them on the proviso that they will fulfil an ambassadorial role. Inevitably, this will include, amongst other things, a requirement to engage with fans, make TV appearances and participate in interviews. Whilst the presence of driving legends will enhance Formula One, Liberty needs to ensure those with a commercial interest in the paddock, including sponsors and broadcasters, are adequately protected. It is possible that Liberty may require former drivers to enter into a form of contract accompanying the paddock pass to establish obligations to firstly perform certain duties and secondly, set out restrictions on social media use and other sponsor commitments whilst using the paddock pass.

Fan engagementIt is clear that a cultural shift has taken

place in the way modern audiences consume their sport and Liberty wishes to capitalise on these changing dynamics. The use of social and digital media as a promotional aid has become an integral part in raising any sport’s profile within an already saturated market. As audiences now automatically reach for their smartphones when interacting with a sport, the value of an effective social and digital media strategy is of paramount importance. Liberty’s push for greater digital interaction within Formula One can, therefore, be seen as an effort to raise the sport’s profile with generation Y as much as it is to capitalise on any of the other associated benefits that come with a greater digital presence.

The provision of more online content by both the NBA and NFL are good examples of sports embracing social and digital media to raise their profile with an increasing amount of online content leading to greater public interactions. The impressive viewing figures following a 2016 agreement between Twitter and the NFL to stream 10 Thursday Night Football games live on Twitter is a testament to this. Liberty’s relaxation of social media use has already allowed teams to become more active online with McLaren, Red Bull and Renault all taking advantage of these freedoms by posting various insights on how the teams operate away from race day. However, such freedoms do pose risks to Liberty and FOM. FOM will need to monitor the content carefully

to ensure that the highly lucrative, and often exclusive, broadcasting arrangements in place with broadcasters across the world are not breached by an increase in content produced by teams for the benefit of the fans.

Increased fan engagement with social and digital media channels has led fans to become more inventive in what and how they post, posing a challenge to those holding broadcasting rights. A recent example of when a Manchester City fan live streamed his teams’ FA Cup match against Crystal Palace via Periscope from within the ground highlights this, with the broadcast attracting 139,000 viewers. As Formula One embraces the use of social and digital media the unauthorised use of similar platforms to live broadcast Formula One races is a real possibility. Whilst the Premier League has agreements with the likes of Twitter (Periscope’s owner), Facebook and YouTube to monitor and remove such broadcasts, there is a question over whether Formula One has similar arrangements in place. A further complication is that a sporting event itself is not a protectable ‘work’ under the Copyright, Design and Patents Act 1988. In theory, the live streaming of a Formula One race would attract no copyright infringement making enforcement of rights particularly difficult. Liberty and track owners must, therefore, carefully consider the conditions they impose on spectators as part of their entry into a track for a race week. Interestingly,

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Manchester United have gone one step further and banned any form of tablet devices from Old Trafford in response to the risk posed by new OTT (over the top) medias which cut out the broadcaster in streaming a sporting event. With a growth in streaming, the law is much clearer on whether an individual can film a broadcast, whether that is live or replaying key moments such as an exciting overtake or pit stop. Broadcasters and governing bodies can rely on the Copyright, Design and Patents Act 1988 in such a scenario to enforce their rights, as the 2016 case of ECB & Sky v. Tixdaq & Fanatix made clear. The publication of video clips from Sky’s broadcast of England’s 2015 cricket tour of New Zealand was held to be an infringement of copyright.

SponsorshipAlong with Liberty’s criticism of Formula One’s lack of interaction with social and digital media, it has been equally vocal regarding the sports ‘one-dimensional’ approach to sponsorship. Traditionally, sponsorship in Formula One has been split into three main categories: a) team sponsorship, most commonly on the cars or staff uniforms; b) individual driver sponsorship; and c) event sponsorship. In effect, there are numerous competing stakeholders all with an interest in the promotion of Formula One, and Liberty must ensure it balances carefully these rights and relationships.

Recently, Formula One has struggled for principal sponsors; however, the recent announcement by FOM of Heineken as a global partner is welcome. That said, it is clear that Formula One needs to attract more global partners especially

with team sponsorship on the wane. Many will hope that Liberty’s takeover will act as a catalyst to move away from a focus on advertising space at tracks and on cars to a more digital approach. This, coupled with Liberty’s vision of creating ‘destination events’ by turning races into week long festivals, will be an attractive proposition for sponsors.

Existing sponsors will also want to exploit the growth in Formula One’s use of social and digital media with increased connectivity providing great opportunities for brand exposure. A review of existing sponsorship arrangements will need to be carried out and if necessary, extra rights be granted to existing sponsors to exploit the opportunities presented. Unfortunately, teams may not always be able to grant these extra rights and will need to ensure sponsors are made aware of the extent to which they can use social and digital media. Those using social and digital media to promote their brand through Formula One should be aware of the various guidelines set out by the Advertising Standards Authority and in the CAP Code in the UK, in particular where social media is used by a driver or team to promote a brand or particular product. It must be made clear that the tweet or post is a marketing communication.

From a corporate perspective, Formula One’s increased appeal could see companies who are not official sponsors trying to take advantage through means such as ambush marketing and new media including social and digital media. Whilst the law is clear that companies must not pass themselves off as an official sponsor or partner where they have no relationship with the

particular sport (see Irvine v. Talksport Ltd), companies have often used major sporting events to publicise their brands despite the best efforts of those policing such activity. Liberty will need to ensure that a strict monitoring and enforcement regime is developed to take into account the new directions in which it is taking the sport so as to maximise its investment and attract new audiences.

European Commission investigation?Finally, there has been some comment in the media as to whether an EU Commission investigation into the sale to Liberty is possible. The answer is a clear ‘no’ as there is no jurisdiction for such an investigation according to the Commissioner, Margrethe Vestager. A separate earlier complaint concerning governance and distribution of revenues in F1 is ongoing but Liberty must presumably be looking to close this as part of its strategy.

ConclusionThis is an exciting time for all involved in Formula One. Liberty’s background has opened up a wide range of potential opportunities to the drivers, teams and rights owners. Liberty must consider carefully how it goes about growing the sport and engaging new audiences whilst maintaining and complying with any legal obligations set out in existing relationships and agreements with teams, drivers and other stakeholders. Kimi Räikkönen once said that Formula One would be paradise without the media; it looks like Kimi will be waiting a little longer for his paradise now!

FORMULA ONE

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Along with Liberty’s criticism of Formula One’s lack of interaction with social and digital media, they have been equally vocal regarding the sports ‘one-dimensional’ approach to sponsorship.

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