Federation Internationale de l’Automobile (FIA) president Max Mosley has already called for cost-cutting measures and has said F1 is on a downward spiral far worse than any he has seen since his involvement in the sport began in the late 60s.
With the onset of the global recession and companies currently caught up in a deepening credit crunch, F1 is finding it hard to balance the cost of racing against a lack of sponsorship.
In the US, Mosley has warned that racing teams are increasingly finding it “impossible” to compete as potential sponsors are unlikely to fork out the US$50 to $60 million a year minimum required to be part of the sport.
Several key sponsors have already pulling out or cutting back. Honda drew first blood when it announced last December that it would no longer back the motor sport. The withdrawal will save the automaker almost US$291 million a year. So far the best hope for a replacement is Richard Branson’s Virgin Group, though no deal has yet been agreed.
Dutch bank ING followed Honda’s decision by announcing that it would be cancelling its F1 sponsorship, which may be worth as much as $132 million, following
a second consecutive quarterly multi-billion-dollar loss. Swiss bank Credit Suisse has also pulled its sponsorship of the BMW Sauber team.
The inaugural Singapore Grand Prix last year, which saw 40,000 fans attending and takings of $121 million in tourism revenue, was a major success. But with Singapore’s authorities bracing themselves for an 11 per cent drop in tourism this year, maintaining the profits will be a challenge.
F1 still has plenty of backers — Sir Martin Sorrell recently took a small stake in the holding company — and its competition is arguably more exciting than it has been for years. The question it faces is whether it still offers value for money at a time when brands need to make every dollar count.
With the onset of the global recession and companies currently caught up in a deepening credit crunch, F1 is finding it hard to balance the cost of racing against a lack of sponsorship.
In the US, Mosley has warned that racing teams are increasingly finding it “impossible” to compete as potential sponsors are unlikely to fork out the US$50 to $60 million a year minimum required to be part of the sport.
Several key sponsors have already pulling out or cutting back. Honda drew first blood when it announced last December that it would no longer back the motor sport. The withdrawal will save the automaker almost US$291 million a year. So far the best hope for a replacement is Richard Branson’s Virgin Group, though no deal has yet been agreed.
Dutch bank ING followed Honda’s decision by announcing that it would be cancelling its F1 sponsorship, which may be worth as much as $132 million, following
a second consecutive quarterly multi-billion-dollar loss. Swiss bank Credit Suisse has also pulled its sponsorship of the BMW Sauber team.
The inaugural Singapore Grand Prix last year, which saw 40,000 fans attending and takings of $121 million in tourism revenue, was a major success. But with Singapore’s authorities bracing themselves for an 11 per cent drop in tourism this year, maintaining the profits will be a challenge.
F1 still has plenty of backers — Sir Martin Sorrell recently took a small stake in the holding company — and its competition is arguably more exciting than it has been for years. The question it faces is whether it still offers value for money at a time when brands need to make every dollar count.
| FACT BOX |
| - Top teams on the F1 grid have to spend more than US$300 million to field just two cars for the race season. - Honda’s withdrawal from F1 will save the Japanese automaker at least $291 million a year. ING and Credit Suisse have also announced they are pulling out or cutting back from the motor sport. - F1 is believed to have lost up to $100 million in sponsorship, not including the nine brands that partnered with the Honda team. |
Chris Harrison, partner, invention and client leadership, Mindshare
Like most people, I hardly notice the busy scrapbook-pasting of brands slapped over racing cars, fireproof suits, racetrack signage, and so on.
Motor racing is littered with mostly dull examples of what some call “cheque-book sponsorship”. This is where a brand, often unrelated to motor racing, turns up with a cheque book and buys itself some exposure but fails to build a believable bridge between the brand and the sport, and hence offers little in the way of engaging activation.
I’m not surprised that in these difficult times, sponsors (particularly from non-motoring categories) are starting to back out. It’s a brave marketing director that tries to convince the board to renew its F1 sponsorship. The decline in sponsorship income wouldn’t be such a critical problem for the sport, were it not for the high running costs associated with competing.
If F1 needs sponsor income to survive, then it needs to dramatically bring its own costs down (everyone else has to these days) and then ask for less from advertisers. Meanwhile, those brands that want to stay in the sport need to have a rock solid, strategic brand reason to do so and an inventive agency business partner.
Mark Ingrouille, region director, Southeast Asia, McCann
F1 is becoming exciting again. After years of dull races and predictable outcomes, new cars, drivers and races have given more buzz to the sport.
From a sponsor’s perspective, global viewership is at its zenith and the series is now truly global in reach. And yet sponsors are pulling out. Why? There is no commonality between the highest-profile pull-outs other than the obvious impact of the economic malaise. But there are other factors too. The pursuit of global appeal by F1 has meant higher sponsorship costs — just when margins are getting squeezed. But this is happening in all sports. Kawasaki has pulled out of MotoGP and AIG has pulled out of its Manchester United shirt sponsorship.
While F1 will remain a fantastic brand, with a cost/return ratio out of whack, the best solution is for it to return to its roots. To simpler times, when expensive technology did not rule the sport — drivers’ skill did. And the cost of entry was much lower. This is already happening in motorsport. F1 could do worse than turn to the example of the Superbikes championship, which goes from strength to strength despite the downturn. Its formula: a simpler, purer, more enthusiast-based platform.
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