Formula One has lurched from one problem to another over the last year, as it tries desperately to fight off accusations that it is dull and predictable.
The worsening commercial conditions facing the sport were illustrated by the news last week that Jordan, one of the more marketable teams on the grid, is unlikely to secure a title sponsor in time for the start of the new season in March (MW last week). It will be the first time since 1995 that Jordan will not have had a main sponsor.
That is just one of a number of negative stories that have sullied the sport of late. Over the last 18 months, media company Kirch – which owned the Formula One broadcasting rights – has collapsed; the Arrows and Prost teams have folded; and Formula One supremo Bernie Ecclestone has closed his digital pay-per-view service.
Formula One teams have also been accused of frittering away money, and the engine manufacturers – mostly mainstream car companies – have threatened to break away and set up their own Formula One competition. Formula One has also started to lose its appeal to viewers. The dominance of Ferrari and its lead driver Michael Schumacher has been mooted as the main reason for last season’s nine per cent year-on-year decline in viewing figures (Initiative Media). In the UK, the audience dropped by 5.3 per cent and as a result Toyota, the broadcast sponsor of ITV’s coverage, was able to claim a rebate on its sponsorship fee (MW October 31, 2002).
To combat the “yawn factor”, Formula One chiefs have drawn up a series of measures which they hope will bring excitement back to the competition. These include one-lap qualifying systems and an end to computerised driver aids and team communication.
Toyota general manager of communications Mark Hall says: “Clearly it was disappointing to see the audience decline and the general view was it had become a procession, but we are hopeful that we will see audience levels return to those of 2001.”
Media Planning Group head of broadcast Andrew Canter is more pessimistic: “Unless something is done, the only way the sport is going is down. The real problem is the lack of competition. Until they get around that problem, I don’t believe we are going to see significant growth in the foreseeable future.”
Despite last season’s slump in viewing figures, Zenith Alliance managing director Tim Brady claims Formula One is still a good property for ITV, which is understood to have paid about &£125m for eight years’ worth: “It does produce an extremely valuable audience.”
But Initiative Media director of sponsorship Richard Davies thinks that too much has been made of the competition’s decline in viewing figures and points out that Formula One racing is not the only sporting event to have suffered.
But viewing figures will have an effect on the total sponsorship revenue that teams attract. It is difficult to get an accurate figure for sponsorship revenue – payment-in-kind deals and the “talking up” of deals by teams cloud the issue – but for the 2002 season, estimates were between &£700m and &£1bn. This year, industry observers believe it will drop by ten to 15 per cent, excluding the effect of the demise of Arrows. The sport’s governing body, the FIA, wants to ban tobacco advertising worldwide by 2006, but an EU ban may be in force by 2005. As a consequence, the sport faces a hole in its finances of between &£200m to &£300m a year, by as early as 2005. The collapse of the IT and new media sectors and the slowdown in telecoms has exacerbated the problem, as these industries were seen as a potential replacement for tobacco.
Connexus Group managing director Alastair Macdonald believes that teams should become more accountable to sponsors by providing research and data. They need, he says, to realise that they are competing not only against other sports, but also other advertising media which employ sophisticated methods to track campaign effectiveness.
Macdonald says: “Formula One has not always had to work particularly hard to bring sponsors in. It has relied on the cachet and drama of the sport. What it needs to do more than ever is invest in credible data and analysis of what sponsorship can offer.”
But some teams seem able to rise above it all. Although Williams is having to deal with Ferrari’s dominance on the grid, head of sponsorship acquisition Christian Vine says things couldn’t be better: “This will be the best commercial year in our entire history. We haven’t had a decline in sponsorship at all.”
Ben Pincus, managing director of sponsorship agency The Works, says Formula One needs to attract younger fans, which will in turn open up new sponsorship opportunities as brands which target the youth market become interested in the sport. He says: “Formula One has never been good at marketing itself to a younger audience.”
But, at a time when high-profile companies are laying off staff and share prices are plunging, ploughing millions of pounds into Formula One sponsorship is not likely to be a high priority. So the sport will have to tighten its belt and create more excitement on the track if it is to weather the current economic storm.