Motley Fool Money - Does F1 Need Netflix?

Episode Date: March 23, 2024

The Netflix show “Drive to Survive” completely changed the sport of motor racing. But Formula One’s story begins long before the streamer stepped in. Joshua Robinson and Jonathan Clegg are sports reporters at the Wall Street Journal and co-authors of the new book, “The Formula: How Rogues, Geniuses, and Speed Freaks Reengineered F1 into the World’s Fastest Growing Sport.” Ricky Mulvey caught up with them both to discuss: How a used car dealer became a global entertainment magnate. Why the underdog never seems to win in racing. The inseparability of Ferrari and F1. Host: Ricky Mulvey Guests: Jonathan Clegg, Joshua Robinson Producer: Mary Long Engineers: Rick Engdahl Companies discussed: LSXMA, FWON.A, FWON.B, FWON.K, RACE, MBGY.Y, NFLX, AAPL Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed sponsored jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate C. According to Indeed data, sponsor jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed. Get a $75 sponsor job credit at Indeed.com slash podcast. Terms and conditions apply.

Ferrari has used F1 as its primary marketing tool forever and is so intrinsically linked to the sport. It's the only team that has participated in every season of Formula One. And it was Bernie who said a long time ago in conversation with Enzo that Formula One is Ferrari and Ferrari is Formula One. You cannot separate one from the other. So all of that contributes to a huge amount of pressure to perform that often Ferrari collapses under. I'm Mary Long, and that's Joshua Robinson, a sports reporter at the Wall Street Journal and co-author of the new book, The Formula, how rogues, geniuses, and speed freaks, re-engineered F1 into the world's fastest growing sport.

My colleague, Ricky Mulvey, caught up with Joshua and his co-author, Jonathan Clegg, for a deep dive into the world of motor racing. They also discuss why Formula One's parent company is happy to have you forget the sports pre-2017 history, the evolution of Formula One. Ferrari's mythology, and whether the timing of Netflix's drive to survive was a lucky punch or a stroke of genius. Joshua and John, I have to say, I was reading your book on a flight, and there's a part of me where I'm like, I'm going to read 20 pages of this book.

It's a book for work. All right, fine. I ripped through this thing. I had so much fun reading the formula. I'm delighted that you are able to join us today. I know you can't probably label it like this, but I think it is an excellent and entertaining prequel to drive to survive if you're a fan of the show on Netflix. So thanks for joining us on Motley Full Money. Thanks for having us. Yeah, thank you. So one of the things you write,

you say basically Formula One is perfectly happy for its fans to assume that the organization started in 2017. So either one of you, why is that? Well, I think there's a lot of it, you know, much of the Liberty era of Formula One is about rebranding it, about representing it to the world as this very polished, very glitzy sort of entertainment product. And I think that's one reason it's happy to look past the pre-2017 history because that was often gritty, full of some unsavory characters. They were racing in places that sometimes involved dealing with the KGB, for instance. We can get into that later with Bernie Eccleston.

And that was also a time when the reality of F1 often involved, you know, extreme levels of danger and tragedy. So I think Liberty was happy to airbrush all of that and present to the world, hey, we have this thing that's also on Netflix. It's a modern TV epic. Yeah, it's one of my favorite reality show. It's one of my favorite television shows. You know what?

No, let's hit it now. I got an outline, but I think if I were listening and I heard Bernie Ecclestone in KGB, Bernie Ecclestone was, who's the Supremo, he was the boss of Formula One for 40 years. and in getting races done, he had plenty of successes with the European circuit, getting the races to the Middle East, some missteps in America that I want to get to. But yeah, he had some interesting dealings with the KGB. Can you tell our listeners about that? Well, Bernie Eccleston, first of all, is a former used car dealer who became a driver agent,

eventually bought a team in the early 70s, and realized that the product they were selling, was not racing. It was a television product, and it was, they were in the TV rights business and the sponsorship business. And he built up the business over the course of 40 years into a global series that was prepared to go anywhere and take pretty much anyone's dollar. And so in the 70s and 80s, he got it in his head that he really wanted to race behind the Iron Curtain. There were negotiations with Brezhnev in the Soviet Union. Eventually, they had to settle for communist Hungary where he says he was quite happy to deal with the KGB because as Bernie told me when I was sitting in his living room in Switzerland,

they were straight shooters. So he quite enjoyed that. As we were saying, he's one of those people who's been largely airbrushed from the pre-netflix era of Formula One. John, you're nodding. Yeah, yeah, I think when you talk about Liberty Media being very happy for people to believe that the series started in 2017,

a large part of that is because it's pre-2017 history is kind of inextricably tied to this small white-haired maniac named Bernie Eccleston. And they would rather people knew much less about him. The less people knew about him, the better. Because, you know, he has enjoyed, you know, some rubbing shoulders with some unsavory characters. And, you know, is a man of a few scruples. There is a lot of controversy with Formula One. One of the stories that your books dives into that I think has been maybe airbrushed

from the official history is Crashgate. Either one of you, can you give our listeners the primer on CrashGade and how that controversy maybe changed Formula One? CrashGate was an episode that took place in 2008 at the, Josh, remind me. It was the Singapore Grand Prix. Singapore Grand Prix, that's right. And what had began like a perfectly regular Grand Prix was delayed for a safety car. That's when in F1, when someone crashes and the remnant,

of their car are scattered over the circuit, they have to bring out what's called a safety car, which is like a sort of regular road car. The drivers all then have to do a couple of laps driving very slowly behind the safety car before the race can resume. This particular safety car hasn't happened quite early in the race, and at what turned out to be a very convenient time for Fernando Alonzo, who was, had qualified very low down in sort of the high teens, and had just take it a pit stop, gotten some new tires on his car, and found himself after the safety car incident at the front of the pack, while the sort of leading contenders had been moved to the back. And he then went on to win the race, which, you know, would have been perfectly

reasonable, were it not for the fact that the car that crashed was his teammate's car. And it ultimately emerged that his teammate had been ordered to crash, to drive into the wall, you know, at 100 miles an hour on purpose, in order to. to rig the race for his teammate to win. This was something that came to light only after the race happened. Although when we spoke to one of the team principals who was taking part in that race, he described Fernando Alonzo's look on standing on the podium.

So Alonzo had maybe a look of guilt. He's not enjoying the moment of a race win when you normally expect drivers to pump their hands into the air and celebrate. Exactly. Standing on the top step of the podium, his only win of the season, and he sort of wore the somber look of a man who knew that he had got to the top of the podium by nefarious means.

Or he's following the rules that McLaren set out, which we can get to. But how did the investigators know that crashes happen all the time in Formula One? People run into walls sometimes, but how do they know that this one was on purpose? So they were able to look at the telemetry on the car, which is the set of sensors that record almost like a black box on an airplane, everything that happens in the car. and what they could tell is as he came into this corner and was heading for the wall, he didn't really lift off the gas and didn't apply the brakes in a way that any normal person would if they were about to crash. So they were able to determine that it was intentional.

Subsequent interviews revealed that they had been planning this in quite an intricate way to be as far away from the cranes as possible from maximum inconvenience and guarantee a safety car. And the fallout was really that in the process of all of this, a Brazilian driver named Felipe Masa was denied a bunch of points because he got caught behind the pack in the big reshuffle. And ultimately, it cost him a world championship by one point. And since then, he is suing in British court to be reinstated as the 2008 world champion and for about $80 million in prize money and lost income as someone who would have been a world champion because he never got that title. Yeah, it's interesting to me where Formula One is,

a sport where it had surfaced. It's supposed to be like a pure meritocracy in some ways because whoever's the fastest wins, but it's also a sport that's named after its rule book and in one where it's incredibly hard to find justice. One, I think recent example of that would be, it would have been Ferrari at Las Vegas, even this year, where a driver hits a drain cover during qualifying, rips out the underside and ultimately the team is punished for it because they have to use new parts over a mistake that the track made, because there's no flexibility within the rules of this sport except when it's fought about.

Like at the higher levels, there's very little intentional, unintentional, understanding. Yeah. I mean, I think that's the sort of great take. One of the great takeaways of the book is that, as you mentioned,

this is a sport literally named after the rule book. The formula applies to the technical specifications that each team has to use each year when they build these cars. And yet the entire history of the sport is basically about people trying to break the rules and getting away with it. And even the most successful teams and the sort of like dynastic teams that we think of as dominating the sport at various points throughout F1, most of those successes were built on identifying sort of gray areas and loopholes in the rulebook and exploiting those to maximum advantage. And then was anyone actually fired for Crashgate? They were banned from F1 for two years.

Yeah, the Renault team was banned from F1 for two years. And Flavio Brio Tori, who is the team principal, was suspended. We've mentioned Liberty Media. It's actually, it's a company that last week, it was reported that Warren Buffett increased his stake in. It's not quite as opaque as Bernie Ecclestone, but it's certainly one that sort of shies away from the spotlight. What is Liberty Media? It was the company started by John Malone, who is the telecoms and broadcast giant, and who, it has its fingers in a lot of pies, but it's, you know, outside of Formula One, it's obviously, it's got Live Nation, it owns the Atlanta Braves, and it has a lot of quite diverse interest, you know, dating back to a vast cable network empire.

And so it invested in Formula One because it wanted a truly global sports. property that it thought was undervalued. And it had been held for a long time, sort of in between the period of Bernie's, you know, sort of total reign over F1. And, you know, the business needed to be cleaned up and prepared for another sale. And that was done by a private equity firm in London called CBC. And they held onto it for about a decade before flipping it to Liberty Media. So when you talk about ownership of Formula One, this is a part that, like, it can, confuses me. What do you own when you own Formula One? It's a great question. You own what is often referred to as the commercial rights to F1. So you are in control of the broadcast rights, in control

of sponsorship, and in control of any kind of licensing. You don't own the circuits because those are done by local promoters, and you don't own the teams, obviously, because those are all privately held. So you kind of, you don't even own the rules because that's done by the motorsport world governing body known as the FIA. So you are the organizer and yeah, you own the commercial rights is a good way to put it. Seems like a good business if you can get it. Another company that is very old company, but it's back, really back on the come up is Ferrari right now. And when we talk about branding, when we talk about marketing, I don't think there's, I'd struggle to think of a company that's done a better job at this than Ferrari. Actually, maybe Red Bull.

But what were the ingredients? What created Ferrari's mythology where we think of it as this premier racing car champion? So one thing that's really amazing about Ferrari, and I think that even we didn't realize initially, was how relatively young the company is. The first Ferraris didn't roll off the line in Maranello until 1947. So Enzo had been building cars at Alpha Romeo before then, but all he really wanted to do was race. and so he was selling road cars to finance more racing. And what was incredible at the time is that right in this sort of post-war period

where people were starting to have disposable income again, he built cars that won critical races in front of just the right people. So movie stars and like the crowned heads of Europe. And suddenly Ferrari took on this idea of glamour very quickly. And it also found a group of people to, to appreciate Ferrari and appreciate this kind of old world luxury at the right time. And that was Americans. Americans loved Ferrari in the 50s and 60s,

and that contributed a huge amount to building up the mythology. And in many ways, Ferrari did not love Americans. And that maybe made the love grow a little bit. That was the secret of selling old world luxury in the new world that Enzo understood, which was if you mistreat Americans and make them feel like they're not good enough for this, you'll own them for life. Yeah. And I think one rule that I learned about reading your book is how Enzo allowed Ferraris to be

portrayed where, what was it, there's a movie where they wanted to put Ferraris in, and he basically said, you can kill a driver in one of my cars, but the car cannot lose a race. And I think that rule still might be in effect with the latest Ferrari movie that came out. It's amazing how Ferrari has leveraged F1 to, you know, market itself around the world. When you think this is a company that has basically never really advertised, certainly not advertised on TV, F1 is its kind of marketing and advertising arm. And one of my favorite nuggets from the book is that the whole reason that we, when we think of an Italian sports car, we think of, you know, we picture the red sort of machine

is because in the early days of F1, that was the color given to all Italian cars. They used They used to have different colors for different nationalities. So French cars would be blue, German cars would be white or silver, which is why we think of Mercedes, the silver arrows. Italian cars were given the color red. And that's why in your mind, when you picture an Italian sports car, you always think of it as red, because that was the color that was the color they were given by F1. And really no team, like you say, with a possible exception now of Red Bull, but no team has

really used F1 to market itself around the world. effectively as Ferrari. So what do you think, what's been happening with Ferrari's resurgence? Because while it did, it dominated the, the aughts with Michael Schumacher, then it falls behind. This is something that Ferrari is intensely unhappy about, where you have the dynasty of Toto Wolf and Lewis Hamilton at Mercedes. And now you have a, what is it, two straight constructors and driver's titles with Red Bull, Max Verstopp in last year, I think, what did he win?

He went basically all but two races? Ferrari was the only non-red Bull winner of a Grand Prix last year, and there was only one of them. But yeah, this is a source of intense frustration in Marinello. But also, you know, Ferrari is for all of its technical aptitude and sort of stylistic brilliance, is also the team that can't get out of its own way a lot of the time. You know, they've been kind of known in recent years as these bumbling guys who, you know, mess up pit stops, pick the wrong strategy, and just can't quite pull. put all the elements you need together.

Sometimes it's just straight up bad luck. But the pressure to win at Ferrari is incredibly intense, and that dates back to Enzo. And I think a lot of that comes down to the fact, as John explained, that, you know, Ferrari has used F1 as its primary marketing tool forever and is so intrinsically linked to the sport. It's the only team that has participated in every season of Formula One.

And it was Bernie, who said a long time ago, in conversation with Enzo that Formula One is Ferrari and Ferrari is Formula One. You cannot separate one from the other. So all of that contributes to a huge amount of pressure to perform that often Ferrari collapses under. So now, and I think you pointed out something interesting, your book talks about it, which is the internal culture that that creates, where you have such an intense pressure, but you also have people who are unwilling to work with each other. I forget that, I think it was basically people are almost more collaborative between, I think it was Britain and Japan than they were in the same hall of a Ferrari office building. And then that sort of entropy can end up

collapsing in on itself. Right now we're at a point, though, where people are a lot more optimistic about Ferrari in 2024. And part of that has to do with the signing of Lewis Hamilton. Certainly, Ferrari's investors are really optimistic about it. But from the story perspective, what's going on with the resurgence? Why are folks so much more optimistic about Ferrari today than they were five or six years ago? Well, I think, yeah, one of the reasons, like you say, is that they've signed Lewis Hamilton for the 2025 season.

And, you know, Hamilton obviously is the tied for the record number of championships, easily leading in the most career F1 wins, most F1 pole positions. You know, one of the great. truly great drivers in F1 history. I think also, you know, they're optimistic because we're not far away from our rules change now. And one of the things that has sort of characterized F1 through the years is that every four, five, six years, they kind of rip up the rulebook and release a new series of specifications, you know, which has the sort of knock-on effect of reordering the grid. What that means is that the teams that sort of in the middle or at the back can sometimes get

propelled to the front as they interpret the new regulations better, whereas the teams who were on top who kind of are trying to maximize their window and win as much as possible under the old rules, then find themselves moving to the back. And I think that's really the only thing that can stop, that will end Red Bull's run at the moment is like a change of the rules, because frankly, they're so far ahead that it really wouldn't be a surprise if they won every single race this year. what the sport needs is one of these technical upheavals to sort of reorder things and the next round of those is due for 2026. So what you're seeing is Ferrari are getting closer to Red Bull. They're certainly the closest challenger to Red Bull.

But I think what they're also doing is positioning themselves to really capitalize on the rules change that comes in 2026, at which time Hamilton would have had a year in the car. And hopefully they'll be sort of firing on all cylinders and able to really, you know, this rules change and be the team that really, you know, interprets the rules most effectively and starts out on top. Yeah, because this is a sport that needs a rules change to stop basically what complete domination in a sport. And that's what the history has been with, we mentioned Ferrari with Michael Schumacher.

Then you have Mercedes and now a burgeoning dynasty at Red, not even burgeoning. You have a dynasty at Red Bull. Why is F-1 a sport where the underdog has such a difficult time winning or even getting to the top on any of the races. You know, we think about baseball, for example, you can have the worst team play the best team, but, you know, 20 to 30 percent of the time, the worst team might come out on top. Pick your sport, I think there might be some similar percentages, but in Formula One, that's completely not the case.

Why is that? I think, one, there is so much that goes into building a winning car that has to go right. You have to have the right combination of driver, of car, of strategy, of performance and qualifying and everything else. So there is less variance there, but in a larger sense, the teams, as they look at every rule change, will spend a year or two years devising the right kind of setup and finding all the right loopholes.

And there are some people who are just much, much better at that than others. And Adrian Newey, for instance, who is the technical director at Red Bull, is one of them. So those are the moments in that phase of development where you can really steal a march on the rest of the field. And what makes it difficult to then catch up is that there are huge limitations now on budget, on wind tunnel testing time. So all of that just makes it hard to close gaps because once your car is kind of set at the beginning of the season, there's a very minimal amount of things you can, number of things you can do to improve it.

You can sort of marginally upgrade certain parts, but you're not going to change. change the overall aerodynamic design in a significant way at that stage of the season. I think it also gets to the sort of balance between, you know, the sort of human aspect of F1, you know, the driver and what he controls versus the sort of engineering and technological aspect. You know, one car is just quicker than the other. You know, baseball team can play and on their best day, you know, this player is better than another. And on another day, that might be completely different. But one machine is just faster than the other. And although the human aspect plays a role, sometimes it's not enough to overcome the fact that the car just isn't as

fast as one of the competitors. One of the main themes in your book is basically who has the upper hand, right? With Bernie Ecclestone, it's Bernie Ecclestone has the upper hand with pretty much every single race track with the exception of, what, Monaco. Then you have sort of him getting towards the end and then these new investors come in, Ecclestone getting the upper hand against the other teams that he's competing against every team in Formula One trying to get the upper hand on each other in any given racing season. One company that comes in unexpectedly and cheaply is Netflix, which completely changed the sport, completely changed the fandom. And they get into the paddock, like, is you write about relatively cheaply? This would have been completely unheard of

just a few years ago. How does Netflix? sort of get started in Formula One, as you say, relatively cheaply. So during the Bernie era, the Paddock had been this kind of Sanctum Sanktorum where it was impossible to, you know, he wanted to control everything and every image of Formula One, you know, Lewis Hamilton talks about every time he posted something on Instagram, he'd get a cease and desist from Bernie. They didn't, he didn't want to let cameras in. He didn't want anyone sort of prying because this belonged to the teams, this belonged to F1, and if things were going to emerge from there,

he wanted to get paid for it. Liberty comes in sort of as a much savier media operation, and in one of their many efforts to kind of open things up, lands on this idea with Netflix, not knowing what it was going to turn into. And, you know, to this, you know, it was so kind of off the wall and many teams were suspicious of it. Ferrari and Mercedes didn't even participate in season one.

They kind of kept it at a safe distance. But pretty soon it exploded, and it's no coincidence that season two dropped two weeks before the pandemic became what it was in 2020. And two weeks before everyone was about to spend a year sitting on the couch watching TV. and Total Wolf said to us that to this day, they don't really know if the whole Netflix experiment and the way it exploded, it just lifted the sports to new heights, was a lucky punch or a stroke of genius.

Yeah, it's at this point, who do you think has the upper hand in the relationship? Does Formula One have a sport where it can say, you know what, we're going to take our reaction? show to Apple or to Hulu, something like that? Or is Netflix, or is Netflix in control of those negotiations? I think at the moment, Netflix is in control because I think F1, you know, as we, as we discussed, I think there's still so much sort of uncertainty around what exactly makes this show work so successfully that F1 would be sort of very loath to, you know, to try

something new because this has been, you know, probably the biggest single factor in the sports growth of popularity over the last five years. So, you know, Netflix certainly has that to its advantage. We've also seen, you know, it's also funny that we've seen, like, them try to sort of repeat this formula with other sports, and it hasn't really worked. They've tried with tennis. They've tried with golf. They've tried with, you know, cycling, pro cycling. And none of them have really sort of caught fire in the way that Drive to Survive did, you know, whether that's to do with the timing aspect, you know, the fact that the drive to survive dropped during COVID, or whether that's the fact that the people that make up the sort of cast of F1 are sort of uniquely well attuned

to deliver like great reality TV because they are generally young, very good looking, smart, articulate, vicious backbiders and like, you know, snipers. and constantly shit-talking each other. I don't think anyone really knows exactly why Drive to Survive has worked in a way that typical fly-on-the-wall sports documentaries generally haven't. And, you know, F-1 are pretty open about that and pretty open about the fact that they're just going to sort of ride this wave while they can. And, you know, I think that they're, so they sort of see this as a chance to kind of shore

up their popularity and sort of raise the floor so that if and when Drive to Survive does go away. You know, they've still got enough people who are willing to stick around. And like you say, I'm sure that they will find a way to put an F1 behind the scenes show somewhere else in the event that Netflix does pull a plug. What do you think? So Formula One famously on the cutting edge, you talk about how, what is it, even the truck drivers are the best truck drivers. Liberty Media has been at the forefront of changing the way people interact with Formula One. One example now is the, what is it, the virtual reality headset? where you're going to be able to look down on essentially a live race circuit and see where all of the cars are.

That's just one example. What do you think fans should, how should, how do you think, how do you think fans will interact with Formula One in three to five years? How do you think that'll change? Well, I think that's the next frontier for F1. And, you know, in the, as it prepares for a post drive to survive future, it's throwing a lot of stuff at the wall, trying to figure out what's going to stick, you know, and whether that is finding other ways for them to consume, like, you know, non-race content. So I'm thinking of projects like the Brad Pitt, Jerry Bruckheimer, Apple movie that's

due out in 2025, whether that's also changing the live race experience, which, you know, they've been pretty good about already in giving access to much more data. I think, you know, your real petrol heads who still watch F1 are now watching it with two or three screens where they have live timing and things like that and that was a that was already a major step for f1 which you know when liberty came in felt this is still too opaque people still don't know what's happening let's have the live uh the live list of positions on screen at all time so that you know what you're looking at um you know with the rise of virtual reality and things like that i think the one thing i've heard they they want to do is create a kind of erasing situation where

you in your, you know, with your rig at home or on your laptop, can race against live positions that the drivers in the race are taking up. So, I mean, there are a lot of options here in technology, maybe for the first time, kind of exists to do that, whether the appetite is really there for people who, you know, primarily interact with, if one, through Drive to Survive or, you know, drivers' Instagrams, remains to be seen. That's good. I'm going to take that on easy mode first before I jump in. and do a sim racing car against for stop and Sergio Perez and Lewis Hamilton in the bunch. Last question might be an unfair one, so you can feel free to swat it back at me. Liberty Media

got Formula One for about $8 billion. You're writing a sequel in 10 years. Maybe it's called the formula back and better than ever. Let's get down to Boogie in. I don't know. But you got a sequel coming out for your Formula One book. How do you think we'll look back on that deal and maybe Formula one in 2024. I'm not certain that Liberty Media will still own it by then in 10 years time. You know, there was a rumored Saudi bid for about $20 billion. Liberty kind of joke that it was probably, if it were true, it was probably a little bit low. But I think there is an element of truth to it. I don't think that, you know, the way we've seen the Saudi Public Investment Fund throw money around in global sports, that F1 is one that they can necessarily resist.

They're all, you know, through a Ramco, they're already one of the major sponsors of the sport. They just had a Grand Prix in Saudi Arabia and the Gulf footprint is expanding all the time in motorsport. So I think that'll come back at some stage. They are perfectly capable of making $8 billion look like a total steal. Joshua, John, thank you so much for your time. Thank you for your book. If it's not clear, I'm happy to recommend it to readers and listeners of Motleyful Money. I really had a good time with it.

The formula, how rogues, geniuses, and speed free. re-engineered F1 into the world's fastest growing sport. Thank you for your book. Thank you for your time. Thanks so much for having it. As always, people on the program may have interest in the stocks they talk about. And The Motley Fool may have formal recommendations for or against, so don't buy ourselves stocks based solely on what you hear. I'm Erin Long. Thanks for listening. We'll see you tomorrow.