Sponsors on crash course

The colossal sums of money that could flow from the proposed 1.9bn flotation of the company behind Formula One, plus the exploitation of digital TV rights, is good news for the sport. But its sponsors may well experience a frightening loss of

When Michael Schumacher closed the gap on rival Jacques Villeneuve in the fight for the world drivers championship on Sunday he left the title race hanging in the balance.

With one race left there is just one point between the two Formula One racing drivers – and a deciding race in Jerez in ten days’ time. It is one of the closest championships in years, making the sport’s bosses, sponsors and broadcasters happy at the prospect of an exciting finale.

Uncertainty over the destination of this year’s title mirrors the less happy position of the deal makers who enable the Formula One Grand Prix circus to haul its expensive way across the globe every year. For them, the crowning of the world champion means that the work has only just begun.

“Now is the time that you find out if the companies you already have on board will renew. And if they do not, you have to follow up many of the informal discussions you have had with other companies throughout the year,” says David Warren, marketing director at Benetton Formula Ltd, the holding company for the Mild Seven Benetton Ren-ault team.

Warren’s calmness could be put down to the fact his team is one of the four big players in F1. For the other seven teams, which need at least 30m to operate each season, this period is more tense.

Sponsors have for many years been the power brokers of the sport. Many sources talk of how money from tobacco companies has literally kept the sport on track. “Money is needed for driver transfers, or to cover the cost of new technology. It just circulates around,” says a source.

The implication is that tobacco sponsors are not just sponsoring their own teams but their rivals, to ensure that there is real competition, without which the companies would not have the opportunity to promote their brands worldwide.

But with the advent of digital television and the possible 1.9bn flotation of the Formula One Constructors Association (FOCA), the sponsors’ pre-eminent position is being threatened.

FOCA licenses the Grand Prix operation and is chaired by Bernie Ecclestone, the most important man in F1.

A marketing director for one of the major teams agrees that digital TV money and a flotation could affect the sponsor’s influence on the sport. He says: “If these two factors take F1 to a broader audience, and I think they will, that will bring a lot more money into the sport. This exposure will allow us to get more sponsors on the car.”

It is difficult to know where they will fit. The implication is that the more companies which sponsor a car, the less influential each individual sponsor will be.

In practice change will benefit the larger teams, and could make life more difficult for the smaller ones. But whether large or small, one constant remains for every team: “The thing you have to remember about this sport is that it just eats money,” says Ian Phillips, commercial director and chief sponsorship deal maker for the Jordan Peugeot team.

His view is echoed by Matthew Patten, chief executive of M&C Saatchi Sponsorship, which handles a range of clients including Benson & Hedges. “The way I always look at it is that 30m will just about run a team. But to be successful you will need a lot more money than that.”

30m may be enough to get new set-ups like Minardi or Jackie Stewart’s Stewart Ford team onto the grid. But for the sport’s biggest four players (Rothman Williams Renault; West McLaren Mercedes; Scuderia Ferrari Marlboro and Mild Severn Benetton Renault) it costs about 60m, in cash and kind, each year to compete.

For smaller teams like Stewart, its sponsors, including Midland Bank, Texaco and Ford, contribute the team’s entire 30m for the year because of the way F1 is financed.

In contrast, a major player like McLaren takes in 60 per cent of its annual income from West cigarettes, Mercedes, and its other sponsors. The rest of McLaren’s money comes from three principal sources: a percentage of revenues from televising the sport, prize money, and travel expenses met by FOCA.

The relationship between the McLaren team and watchmaker Tag Heuer, which first got involved with McLaren in 1983 to help finance a new engine, illustrates how ingrained sponsorship is in the sport. The F1 team is owned by the Tag McLaren Group – 60 per cent held by the watchmaker, with McLaren International managing director Ron Dennis accounting for the rest.

The group comprises four companies: McLaren International, the F1 company; McLaren Cars, which makes rally and road cars; Tag Electronics, which makes motor accessories like satellite tracking devices; and Tag McLaren Marketing Services, which handles the sponsorship of the company’s racing cars from F1 down.

However, the coming of digital TV and the on/off flotation of FOCA will reduce the dependence culture in F1. The float has stalled somewhere in the three-way talks between Max Mosley, president of the sport’s governing body Federation Internationale de l’Automobile (FIA), Ecclestone’s FOCA, and the major teams. The talks have apparently stumbled over who owns which rights and how much revenue the teams will be guaranteed.

For sponsors, the sport offers 17 races each season, over four continents, every two weeks from March to October. The FIA claims the total worldwide TV audience that sees each race, either live or through highlights, is 450 million people. Last year, the sport was broadcast in 201 countries, and as the FIA proudly points out, only 185 countries are members of the United Nations.

For ITV, which had seen its sports coverage decimated by the loss of live league football in the early Nineties, F1 represented a big investment – 60m over five years from 1996, when the deal was signed. The races have attracted an average audience of 4.5 million and the station claims the number of young ABC1 males who now watch the station on Sunday afternoons has risen by 300 per cent. As a result the network was able to sign its most lucrative sports sponsorship deal to date, 12m over three years, with petrol company Texaco.

Patten says: “Like all major sports, Grand Prix is delivering audiences. People want to see live coverage. And this sport has about three and a half hours of live coverage 17 times a year. Only football can match this, and on an international level only the World Cup brings in these kind of figures. But that is every four years, and Grand Prix, of course, happens ever year.”

The M&C Saatchi client B&H recently extended its two-year deal with the Jordan car for a further three years. A spokesman for B&H says: “We are building this brand across Europe and this is a way for us to get recognition for that brand. The two years have gone well for us, but we have not won a race yet. I would hope to change that soon, we have expectations.”

He is not the only one. The financial restructuring of F1 is designed to take uncertainty out of racing. The type of uncertainty which led to the financial collapse of the MasterCard-sponsored Lola F1 team on the first day of this season in Australia.

Rob Armstrong, commercial and operations director for Stewart Grand Prix, holding company of the Stewart company, another F1 debutant, says: “F1 is going to the market in order to get greater stability. In the past, there have been times when sponsors have pulled out of a team at short notice and left it without an alternative source of funding.”

When the Lola team folded a team spokesman said: “It was a timetable situation really. In our case we needed the money upfront because that’s where the investment is needed. The balance of finance as it stood was not favourable. We tried to get alternative funds arranged, including additional sponsors, but we were late in starting this programme, we were late in getting the cars ready and we have been late in getting on to them.”

It was in dramatic contrast to the previous month, when team founder Eric Broadley spoke at the official car launch: “I would hope by the end of four years we will be ready to win the championship. We are not expecting massive results this year. We have a lot to learn about F1.”

The changing power of sponsorship partly explains why British American Tobacco (BAT) is looking at buying its way into the sport at a cost of about 50m rather than become just another sponsor. The Minardi and Benetton teams are the most likely to sell, although some sources tipped BAT to start a new team from scratch for the 1999 season. But that was before a merger with another financial services group, Zurich, was proposed.

Brian Sims, a F1 agent for Alan Pascoe International and founder of the Motorsport Industry Association, says: “Sponsors are looking for equity in the sports they are buying into. The BAT move is a way of ensuring the company has an influence in the sport whatever changes occur. This is something we will see more of in the future.”

Whether Schumacher or Villeneuve wins in ten days time is almost incidental. The sport needs its stars. But over the next season the battle for control of F1, between its sponsors and its governing bodies, will be every bit as fascinating as the fight for the world championship.

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