Sponsors must be wary of risks before lapping up Formula One

Although returns on motor racing sponsorship are somewhat intangible, the sport retains an undoubted allure for marketers. By George Pitcher. George Pitcher is chief executive of issue management consultancy Luther Pendragon

There is a story doing the rounds of the Grand Prix hospitality suites about an international fashion retailer that wanted to participate in team sponsorship for the season that started last weekend in Australia. It quickly became apparent the would-be sponsor’s idea of budget was at some variance to the team manager’s, as they worked down the price-list from the helmet to the more esoteric areas of bodywork as potential sites for the brand name.

Eventually, the marketing director was forced to play his hand: “What do we get for 100,000?” he asked. The team manager snorted and joshingly replied that, for that price, the sponsor could have his brand name on the driver’s fireproof balaclava. “I’ll take it,” cried the marketing man. “But nobody will see it under the helmet,” explained the team manager gently. “Are you kidding?” replied the sponsor. “Nobody ‘sees’ motor-racing sponsorship anyway. We just want to say we’re associated with Formula One.”

It’s a story resonant of the unusual commercial criteria that attach to Formula One. To say that the business is full of flakes would be to insult Cadbury. But, then again, it probably has no more than the usual number of goons and poseurs in the world of high-profile sports sponsorship. To paraphrase the aphorism variously ascribed to Lord Leverhulme or Henry Ford about advertising budgets, half of sports sponsors don’t know whether their money is wasted or not – the other half are doing it so as not to miss out.

It is worth adopting this somewhat cynical mindset when addressing the news that Formula One, the itinerant corporation that stages the global March to October trade show, plans to raise 2.5bn by way of a share flotation in London and New York.

I speak as one who is far from cynical when it comes to the sport itself. For me it is the world’s last properly gladiatorial contest, fought out in the most demanding circumstances in romantic locations and steeped in a priceless heritage stretching back to Nuvolari and Fangio, combining the best in skill and courage with the finest in motor car engineering and design.

The trouble is that the business community appears to agree with me. There is nothing essentially wrong with investing marketing budgets on a whim – there is, to my mind, probably too much number-crunching and focus-grouping around these days and not enough hunch – but, given the sort of costs that are bandied about in Formula One, this is an extremely turbo-charged strain of Chairman’s Wife Syndrome (CWS).

CWS is that element of budget that is written off to the irrational whim of those who are in charge of it – the element that takes no account of relative cost, opportunities-to-see or effectiveness research, but which is spent anyway because the boss wants to spend it. As anyone in sports sponsorship will also tell you, the boss can just as impulsively cease to want to spend it – or, indeed, simply cease to be the boss.

This makes for a very fickle industry. Sports sponsorship is a hand-to-mouth commercial activity and that, in turn, makes for unpredictable returns and a tendency among participants to turn the screw on market forces as tightly as possible. By that last part, I mean that racing teams, understandably enough, want to coin it when the going is good, because success in motor-racing is almost always an unsustainable asset.

None of this makes for the sort of stability of earnings that institutional shareholders in public companies would look for, though admittedly there are no flies on Salomon Brothers, Formula One’s US investment bank adviser, so one would expect them to know what they are doing. It’s just that being a shareholder in Formula One would, I imagine, be not unlike being a sponsor – exciting but expensive.

Not that it is all bad for sponsors. Motor racing has, for example, long offered a home for oppressed tobacco companies. Last Sunday’s grid resembled nothing so much as a tobacconist’s shelf, with stacked tail-fins offering Rothmans, Marlboro, Gauloises and Mild Seven. And there can be little doubt that motor manufacturers can cull enormous engineering expertise from the circuit – Honda has just concluded a successful association; Mercedes has just stepped in.

But it is, nevertheless, an unstable and unpredictable business. It is enormously to the credit of Bernie Ecclestone, the founding father of modern Formula One, that he has kept this disparate commonwealth not only together but prospering (not to mention enormously to the credit of his bank account). But, like an international trading conglomerate such as Lonrho, which depended for so long on the global contacts of one man, one wonders who would drive and hold together the publicly-owned Formula One, if not Ecclestone. There is no heir apparent.

One more thing: it is said that Ecclestone wants to float Formula One so that he can develop a global TV service on a digitised, pay-per-view basis and that talks are underway with Sky Television to this end (ITV, which has just won coverage from BBC, must be over the moon). I wonder how smaller sponsors, such as Asprey, which sponsors Ferrari through M&C Saatchi, will greet the news that viewers can follow whichever car they like and may choose not to look at theirs at all.

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