Formula 1 drifts close to the crash barrier

Ford’s exit, talk of cancelling Silverstone and the threat of being shunted by A1 are driving Formula One into trouble.

Formula One is now facing several threats to its position as a pre-eminent UK sport and attractive sponsorship vehicle. The latest is the suggestion that the British Grand Prix could be driven from the calendar for the first time in 50 years. This follows closely behind news of a potentially exciting new rival in motorsport.

Silverstone is not cancelled for certain – industry opinion suggests the track will be saved by the end of the week – but the news comes at a particularly bad time for the sport. F1, so long dominated by Michael Schumacher and Ferrari, now faces a rival from the A1 grand prix season, which promises equally matched cars from up to 26 international teams. The A1 UK team is seeking sponsorship, and airlines Ryanair and Aer Lingus have been rumoured as possible candidates.

Meanwhile, Ford has announced it is withdrawing from F1 after being linked with the sport for more than 40 years. This has raised fears over the future of the Jaguar team, as well as Jordan and Minardi – whose cars rely on Ford to supply their Cosworth engines.

F1 is also being convulsed by a headline-grabbing conflict between Formula One Management (FOM) boss Bernie Ecclestone and the car-making team owners, who are demanding more control over the sport. One F1 team source warns: “The car chiefs are deeply unhappy and will follow Ford unless they are given a bigger voice.”

The onslaught of negative publicity is worrying F1 marketing chiefs (MW last week), who are finding their product increasingly devalued in a market where more sports are offering sponsors international audiences and sophisticated delivery.

A spokesman for Jordan acknowledges that there are problems, while Jaguar head of business development Mark Gallagher says his team will certainly see a drop in sponsorship next year (MW last week). His remit has been expanded to include the search for a new owner and an engine-maker, as well as sponsorship. Existing sponsor Red Bull, Russian billionaire Roman Abramovich and car-maker Hyundai are in the frame for the ownership, according to industry speculation.

Gallagher says: “Sponsors want a stable, strong sport. At the moment, there is concern and F1 needs to put its house in order. But we are still in talks with a new headline sponsor and right now I’m keeping it together.”

Gallagher says he’s outraged that F1 management could even consider knocking Silverstone off the calendar. “To think of ignoring one of the largest global markets by ending its Grand Prix is unbelievable. Like our sponsors, we use Silverstone as a significant domestic marketing tool.”

Williams marketing director Jim Wright agrees: “No one can pretend these aren’t challenging times for F1. All our sponsors are represented in the UK and want a British Grand Prix.”

For UK sponsors, it would mean the removal of the jewel in the crown from their corporate hospitality calendar, while for international companies it would mean the end of one of the most popular races of the season. Former ford Europe vice-president Karl Ludvigsen says: “This would not be a good time to invest a marketing budget in F1.”

Sources close to UK-based sponsors admit there are worries. A Vodafone insider admits Silverstone is used extensively for corporate hospitality and promotions and says the company would “make our views known” if it were cancelled.

Silverstone’s fate also affects future F1 deals. RBS was expected to make a decision on its headline sponsorship two weeks ago (MW August 26), but industry sources say the company has delayed the decision until uncertainty around the calendar has ended.

One source adds: “RBS is worried, of course. It is a British company that has just heard the British Grand Prix is under threat. Silverstone would be a major factor in coming into F1.”

Although F1 insiders are quick to point out the commercial potential of Asian tracks such as Shanghai, it remains just potential. This year, the race proved the second-least popular of the season, according to viewing figures from Initiative Media.

Indeed, viewing figures over the last season across the sport do not make comfortable reading. With two races remaining, but the championship already in the bag for Ferrari, the average UK audience has dropped by nine per cent to 3 million viewers compared with last season, according to Initiative, and global audiences are down two per cent to 47 million.

While part of the decline is attributable to the popularity of Euro 2004, during which key races in the US and Canada were scheduled, the fall is indicative of a worrying trend in UK viewing figures. Viewing dropped nine per cent in 2002 but remained static last year – possibly as a result of changes introduced by the Federation Internationale de l’Automobile, designed to make the tournament more exciting and less predictable.

Wright blames the Concorde Agreement, a deal between the teams and FOM, which governs how the sport is run and the revenue from commercial deals shared, for the recent crop of problems. He says the agreement’s inflexibility has allowed team costs to spiral and Ferrari to establish an almost unassailable dominance. The current ten-year Concorde Agreement is due to expire at the end of 2007.

Steve Madincea, group managing director of WPP-owned sports agency Prism, which represents several F1 teams, agrees that while the “negative publicity has blunted the momentum that F1 was gaining”, the sport should really be worried about competitiveness. “People are tired of watching Ferrari win. Next year, I can’t see anyone closing the gap.”

But F1 isn’t about to be written off. There is a clear commercial interest in the sport, and F1 is still the largest annual global sponsorship opportunity by far. While there have been few major new deals over the past year, Korean company LG Electronics is set to join after months of talks with various F1 teams (MW July 15), with sources saying it is close to a deal with either BAR, Jaguar or Williams.

Indeed, WPP chief executive Sir Martin Sorrell, recently named one of the 30 most powerful people in F1 by BusinessF1 magazine, says that F1 is as powerful an advertising tool as ever.

The sport is still relevant in the UK, he says, but it is the emerging markets in Asia that offer the biggest opportunities for sponsors. “There is a shift to the East, which is indicative of a wider business focus on the emerging markets. It is a healthy sport and still one of the most valuable sponsorship properties around.”

Meanwhile, this week, the Canadian-fronted Midland team, backed by Russian money and with an Italian car, announced it was entering F1. Midland team chairman Alex Shnaider is bullish: “The opportunity to create value is immense and it stuns me there are not more companies that have identified this.”

An influx of new teams and commercial backers is essential for F1 to stay in pole position. There are still a number of hazards to negotiate but with marketing supremo Ecclestone in the driving seat, few would bet against F1 just yet.

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