Sponsorship in Formula 1

in BUSINESS by admin — March 13, 2010 at 7:02 am | 0 comments

Formula One - a sponsorship dream or a dream of sponsorship?

2010 sees a new era in Formula One. New rules are implemented and new teams join to boost the grid leading to the potential for greater entertainment value and spectator engagement. Which also leads to enhanced competition within the business of F1, as more teams compete with global organisations for a share of the pie – sponsorship, in other words.

But how do the new teams gain this sponsorship? After all, we’ve plenty of examples of the difficulties existing teams have faced in attracting new companies to the sport, so why would these need organisations look at a new, unproven team, versus those who have established some credibility?

What it will allow is the new teams the opportunity to create their own niche, creating differentiation and innovation to ensure they stand out, regardless of their performance on the track. USF1, as an example, hopes to carve out their own space in the F1 fan base within the USA – small by US standards and other competitive forms of US-centric motorsport, but still substantial enough to warrant the development of a bespoke team very much in the spirit of the moniker ‘Made in the USA’. Only at the time of writing, it seems as if it’s more ‘half-built – in the USA’. But the ideas and concepts remain very valid and admirable.

But what is the value of a brand and more importantly what is the value to a sponsor? And will this additional on-track competition make any difference?

The issue with Formula One is generally cost. Sponsorship is about giving a brand the opportunity of partnering with another brand to raise its own profile through various exploitation and activation programmes. You use the brand (either Formula One or the team) as the conduit for advertising (a moving billboard if you will), marketing (various forms such as hospitality, brand association, technology transfer etc), and access to key F1 traits such as team building, factory tours, test sessions, meet and use driver images and personalities etc. But it’s global, so if you were a German company selling in three countries, Formula One is probably not the right vehicle and you’d probably struggle to afford it. Also, the generally accepted ratio of investment to activation is 1:2 – you should try to spend double your sponsorship investment in activation to truly ensure you reap the rewards, although this is all too often forgotten, with sponsors wishing to ‘buy the best, and hope for the rest’. So a true F1 sponsorship AND exploitation programme is never going to be cheap.

So really, you need a sponsor with deep pockets, a global footprint (or ambitions for one), and a willingness to embrace motorsport given environmental issues and safety – sponsoring a flower show is unlikely to be seen as unsafe and can be very environmentally friendly – but it does not engage the audience in the same way, nor hit the same numbers.

However, over the past few years we have seen most teams struggle in finding these sponsors. McLaren, Ferrari and Williams demonstrate it is possible to secure and keep substantial sponsors. The latter being an excellent case in point with the best selection of blue-chip partners supporting the team, despite limited recent success. After all, any good sponsorship should be built on participation, with success being a desired but perhaps unexpected bonus upon which to leverage. Williams do it right!

Torro Rosso, Force India, and Red Bull have shown the difficulties in attracting big sponsors. Even Brawn, in their maiden and massively successful first season, had trouble finding a good sponsor, perhaps a throwback to the days of Honda F1 when sponsorship was so hard to secure the team resorted in the Earth Dream philosophy, a short-lived marketing campaign. Even the addition of Virgin served only to throw up rumours of cheap deals and conflict leading to Virgin making the move and leaving the World Championship winning team.

So what now? With new teams competing for this limited market, at a time of companies slowly becoming braver but still nervous of substantial investment as the economy claws its way back to recovery. Bottom line – the sponsor who is brave enough has a golden opportunity. History has shown that those sponsors who carry on in times of recession generally come out far better off because of it. But for a sponsor on 2010, there are more teams to choose from and the knowledge the new teams (Lotus being the perfect scenario) will probably have a greater share of voice than the Torro Rosso’s and Force India’s of this world. Perhaps these new teams are worth a punt, and maybe, for a new team, any money is better than no money.

Then there’s the argument about price. Is it better to reduce your price, gain the sponsorship and hope to increase it later in the term? In my experience, this rarely works. Or do you reduce your price, gain the sponsorship, and then use this, hopefully prestigious, brand to attract others? Again, understanding the F1 market demonstrates that if a company is global and has the money to go into F1, they probably want to spend a larger amount and hit the big teams, if only because they have the funds available.

Then, there is the brand of the team to consider. The value of the Williams name is strong and powerful with an illustrious history. The value of the Lotus name is strong and powerful, with an illustrious history – but has been out of the sport for some time. But to the average man in the street, the argument could be that Lotus name carries more weight and recognition. Or, in the case of USF1, a team which has very limited brand identity or equity but the potential support of (and thus access to) the US market for a sponsor wishing to make an entrance into one of major global markets.

The bottom line is key in Formula One. And the bottom line is that without the support of sponsor’s money, the parent group or owner has to dig deep. It is therefore about creating your own niche, and the challenge there lies for the new teams. The successes, like Ferrari, McLaren and Williams highlight the importance of building relationships, creating value, pushing the partners to do more and keep them involved. The aim must be for the sponsor at the end of their contract to be so ingrained in the team and the sport that the view has to be ‘we cannot afford to leave Formula One – it’s too big a part of our marketing’.

The new teams have this golden opportunity to create their own space and platform – and be different. USF1 was to be about the American dream being realised in the highest form of motorsport in the world, with open arms and open access. Lotus can be about rejuvenating the prestigious brand, harking back to yesteryear with Dad’s encouraging sons by recounting tales of heroics and heroes. So for me, 2010 sees the biggest struggle is for those teams in the middle – the Force India’s, the Torro Rosso’s, the Renault’s of this world. The formers Indian connection does not seem to have paid the dividends the owners would have hoped for. Renault’s French connection is even more tenuous now ownership has changed, and with the departure of key sponsor ING mid 2010, truly joins the middle pack. So these are teams that perhaps have the biggest struggle, with established costs and less flexibility than the newer teams who have started from scratch.

There’s the old analogy, applicable to many sports, asking the question “How do you make a small fortune in Formula One?”.

The answer, for many, is start with a big one.

Success is about what happens on the track but equally about what happens off it – the less visible side of the sport. Brawn and Williams demonstrated this perfectly in 2010 and showed the two extremes. And in 2010, we have more teams competing. Great for the on-track, but let’s see how the off-track business goes over the year, and which cars change colours first. Because ultimately, the business of sport is still a business, and the bottom line counts.

Andy Philpott