Formula One’s teams are losing sponsorship revenue at a rapid rate. Last year the 10 F1 teams raised $750m, down from $950m three years before. Switches to pay TV have also undermined audience in key growth markets such as Asia.
Teams’ finances do not solely depend on sponsorship and media deals. Fortunes also rest on their success in competing for annual prize money distributed by Formula One Management (FOM) which was last estimated at nearly $890m. That equates to an annual pot in excess of $1.6bn up for grabs to support 22 cars racing in 21 venues around the world in a season.
By failing to control costs over decades, and a tendency to skew payments heavily to the top teams, the F1 business appears to be perpetually on the brink of a crisis — and the problem is self-perpetuating. Observers paint a gloomy picture of a sport where the funding of smaller teams is under threat, and audiences are declining on TV and trackside, which in turn deters sponsors.
“The costs are, to me, the single largest issue and the one that then drives many of the others,” says Zak Brown, chief executive of Chime Sports Media, F1’s largest sponsor finder.
“We have an industry that is exploding in cost, and collectively they are not able to gather and get those costs under control.” He argues that rising costs in the sport are forcing up the cost of attending Grands Prix at venues such as Silverstone in the UK, threatening to make events unaffordable for many spectators.
Other industry leaders agree the sport’s appeal among fans and advertisers is under threat. Bernie Ecclestone, F1’s chief executive, claimed recently that the sport was in the “worst shape ever”, dominated by engine technology that relegated drivers to secondary importance. He added that he would not pay to watch it.
Yet for companies such as oil major ExxonMobil, which sponsors McLaren-Honda, the expensive technical demands of the sport are intrinsic to its appeal as a supplier.
Bruce Crawley, motorsports technical manager at ExxonMobil, says: “I’m not sure we’d be in racing if we did not have a technological justification. We are here for branding and marketing, business-to-business and technology. If you took out the technology side it would make it more difficult [to justify].”
Many companies are moving away from treating F1 as a pure branding exercise in favour of a more nuanced approach, according to Nigel Geach, of industry monitors Repucom.
“We’re seeing a real shift in the commercial landscape of F1, where once brands were really only concerned with logo visibility and the global TV exposure,” he says. Now, they are also focused on showcasing their own products and expertise through tie-ups with teams, as well as looking to exploit fully direct marketing and client hospitality opportunities over a race weekend.
Potential advertisers and sponsors are also concerned that the sport is not growing in the Asian market as had been hoped, despite the launch of Grands Prix in areas including China, Singapore, Korea and India over the past decade. “Asia has probably had the largest drop in reach,” says Mr Brown, “primarily driven by [broadcast rights] going to pay-TV, but that was the market most people were most excited in.”
He adds China has not emerged as a popular venue for corporate entertainment. “They’ve had their new anti-bribery laws that just cut it [corporate entertainment] in half.”
Summing up the challenges of “selling” F1 now, Mr Brown says: “Right now the racing is not very close and it’s too expensive for people to attend. But I believe the decline that F1 is in can be addressed and fixed.”
The sport’s own leaders admit that F1 has lost some of its lustre. But Mr Brown argues that it still stacks up well against rival branding opportunities in sport for a range of corporate clients.
“There is tonnes of opportunity. It is clear to me that live sport, and sponsorship of sport, continues to be the fastest growing advertising medium. People are always going to want and love live sport, whether that’s F1 or football. They are not going to tape it and watch it later. They want to consume it.”
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