Formula change to hit sponsors

With only one point between Jacques Villeneuve and Michael Schumacher and one Grand Prix to go, Formula One’s all-powerful sponsors will be delighted. The climactic finish to this year’s championship guarantees their brand names will flash repeatedly before a worldwide audience of, on this occasion, perhaps 450 million people.

Delighted, but also apprehensive: because their all-powerful status may soon be downsized. The threat comes from the proposed stock market flotation of the organising company behind F1. Quite simply, it will do to the sponsors what Hollywood agents like Mike Ovitz did to the studio system.

The official line is, of course, more delicately stated. The aim of the flotation is to bring institutional ‘stability’ to an overwrought structure which suffers from chronic financial haemorrhaging. Too true: and, at the moment, it’s the sponsors who apply the tourniquet. To be a team player (and there are only 11 teams), requires at least 30m a year. That guarantees state-of-the-art automotive technology and a place on the starting grid, but no more. For the winners – Rothmans Williams Renault, West McLaren Mercedes, Scuderia Ferrari Marlboro and Mild Seven Benetton Renault – the price is at least double. No wonder the sponsors are, financially speaking, in pole position.

But a successful flotation could change all that. For a start, it will make the team owners a lot richer in their own right. And more particularly, it will allow F1’s mastermind, Bernie Ecclestone, to exploit fully the sport’s seam of gold – TV rights. True, TV revenue already accounts for a sizeable 200m of the F1 companies’ annual revenues. But this is nothing compared with what it could be. While over 330 million viewers in more than 200 countries already tune into the average Grand Prix, most of them watch free broadcasts for which TV networks pay flat fees.

Pay TV, of the digital kind, would leverage such revenues immensely. But it requires the kind of funding that only flotation can provide. As do Ecclestone’s other money-spinning schemes, such as a global merchandising programme and the setting up of new races in Asia – where a vast pool of untapped fans awaits commercial exploitation.

Sponsors will have mixed feelings about this strategy. On the one hand, there are real advantages for the likes of Marlboro and BAT in F1 opening up Far Eastern markets – where tobacco regulation is practically non-existent. On the other, they will experience a loss of power under the new regime.

If, that is, it ever comes into being. For the moment the F1 flotation has foundered on the inability of the owners to agree on who should own what.

But sponsors, for one, are not writing it off. How else should we interpret BAT’s recent internal debate (albeit pre-Zurich merger) over buying directly into a team at a cost of over 50m?

Cover Story, page 44

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