The Regulatory framework and the sustainability of sport organizations’ business models: evidence from Formula One

ABSTRACT:

Professional sport organizations are social businesses, which are rooted in popular and entertainment culture and whose economic sustainability is strictly related to the emotional support of the civil society. Competitive championships increase the attractiveness of the sport events, they are a product in themselves with their own brand value. The regulatory framework of the championship potentially determines the economic sustainability of the teams participating in the championships and thus potentially ensures the sustainability of the competitive balance within the championship. The sustainability of the championship’s competitive balance guarantees the attractiveness of the game for fans, and thus guarantees the value of the championship brand. The Formula One Championship offers evidence of the potential negative effects of the championship regulation on the attractiveness of sport and the value of the championship brand. Formula One is one of the most popular sports, rooted in the civil society as a source of entertainment and the Formula One Championship is classified among the major championships for revenues across United States and Europe. Despite the economic and social relevance of the Formula One business, there is limited and fragmented literature investigating this setting. Against this background, we aim to develop a conceptual discussion of the relationship between regulation and the economic sustainability of sport organizations participating in championships, by focusing on the sport of Formula One. We apply a semantic methodology to investigating the potential effects of the regulatory framework on sport organizations’ business models. The particular management structure of Formula One sport offers us the possibility of applying the agency theory in a bidirectional way. Previous sport management literature depicts the regulator as principal and teams as agents. In the Formula One context, in addition to the principal (regulator)-agent (teams) relationship, an inverse agency relationship emerges which depicts teams as principal and regulators as agents. Our findings show that the regulation of the Formula One World Championship can potentially negatively affect the economic sustainability of the teams participating in the championship and thus can potentially lead to a tendency towards competitive imbalance, which may generate negative effects on the attractiveness of Formula One and on the whole Formula One Championship brand.

KEYWORDS: Agency theory, regulator, economic sustainability, Formula One