A TikTok Ban and F1 is stagnant

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BEYOND THE HEADLINES - SPORT
The Decline of Formula One

We recently wrote about Lewis Hamilton’s switch to Ferrari, and the financial gain for Ferrari thereafter. This spoke both to the power of the Hamilton brand, but also to the value of Formula One as a whole.

F1 has a pretty big problem at the moment, though. It’s boring. I mean really boring. And that’s coming from a longtime fan of the sport. My friends who ask me what could be interesting about cars driving around in circles now might have a point.

What makes sport enjoyable is the competition. If there were no winners nobody would watch. So take away the competition and, well, it becomes more of a procession than a race. 

How did we get here?

The 2021 F1 season was one of the best sporting (or even entertainment) series that I can remember. Hamilton Vs Verstappen. Mercedes Vs Red Bull. Both men at their very best, and two teams with endless money to spend. The entire season was neck and neck, with the two last races being two of the most dramatic events in recent sports history. The last race ended in triumph for Verstappen, and heartbreak for Lewis due to an overzealous official making an illegal call and handing Max the championship.

This was the pinnacle of F1. The combination of a nail-biting season and Netflix’s Drive To Survive bringing in engagement the sport hadn’t seen in years. 

However, at the end of the year, there was a rule change and the teams had to redesign their cars this time Red Bull was streets ahead of the rest.

All the races in 2022 and 2023 were wrapped up by the time Verstappen went around the first corner still in first place. 

This is a problem for F1, the business, and the brand.

F1 is first and foremost a business - really a media business. Despite being the name of a sport, Formula 1 is also a company and is owned by Liberty Media. They provide entertainment (if we can now call it that), in exchange for sponsorship and advertisers. As with any media company one of the most important metrics is how many people watch/care.

The racing is their product and their product is suffering. When there is boring racing, fewer people watch, and fewer viewers means less money.

Relying on uncertainty

What can make F1 so exciting, is also what makes it most vulnerable - the unpredictability. The F1 bosses do not have underlying control of their product. This means that Formula 1 does not write the regulations for the cars and they do not develop the cars, which is done by the FIA and the teams respectively.

I can only imagine how frustrating it must be to know you have more eyes than ever on you, but provide a mediocre viewing experience despite being totally out of your hands. 

This is not a new problem either. Here is a list of the championship winners of the last 20 years.

Since 2000, excluding 2009, 4 teams have won championships and the last decade has seen complete domination from just 2 teams.

There is something fundamentally broken with the model that is leading to less and less competition at the winning end. This needs to be fixed or F1 as a business might begin to face a more existential risk.

REVISITING - SOCIAL MEDIA
Revisiting TikTok

What happened?

I wrote last week briefly about the TikTok ban but it has become more interesting.

To recap, TikTok is owned by a Chinese company called ByteDance and has over 1 billion monthly active users. It has been in hot water over the last few years as it has become clear that TikTok does two things:

1. Harvest data of US users (completely legal)

2. Share that data with the Chinese Communist Party (big no no)

Trump tried to ban TikTok in a typically Trumpian way but it got thrown out by the judicial system. But I think Trump was directionally right despite having now changed his mind.

Why was Trump mostly right?

Trump was only mostly right because I think a ban is too far. But this bill that has just passed the US House of Representatives, forces TikTok to divest from its Chinese owner ByteDance or face a nationwide ban.

This is a good idea for two primary reasons.

Firstly it is highly likely that the Chinese Communist Party is already accessing the data of Americans. The government can request information from any company and the organization is obliged to give it to them with evidence emerging that it has already happened.

We don’t want the Chinese to have our data.

On a more basic level, this bill makes sense because the current situation is unfair. All of the US social media giants are banned in China. An era of global trade operates under the premise of reciprocity and so it is a fair question to raise: Why should Chinese companies be allowed to compete in the US but not the other way around?

A divestiture means that TikTok can still operate in the US but it will need to be sold to a US entity.

What’s next?

This bill just passed the House. Next, it will go to the Senate where it will likely pass too.

One justified concern about this piece of legislation is who will buy them. There is no way the FTC will allow Meta or Google to acquire TikTok. But then who has the balance sheet to buy a business that is worth over $300bn privately?

CHART OF THE WEEK - POLITICAL DIVIDES

As the US speeds into the next election, Democrats need to face the fact that their traditional bases are becoming more Republican. What does this mean for the Trump-Biden rematch?