Formula 1 is in the news, and not just because of the action on the
track. Renewed pressure for a European ban on tobacco sponsorship,
British American Tobacco’s plan to buy a racing team and Bernie
Ecclestone’s ambition to float Formula One Holdings (FOH) on the stock
market have forced teams and sponsors to make a fundamental reappraisal
of how much the sport is worth - and to whom.
Formula 1 is more popular and glamorous than ever, but, with so many
changes in the pipeline, the job of exploiting its marketing potential
is increasingly complex. It is also not an area for the financially
faint-hearted. The basic rule of thumb is this: ’How do you become a
millionaire in Formula 1? You start with pounds 100m.’
The core Formula 1 proposition is strong. Broadcast free-to-air in more
than 200 countries, the total audience has doubled since 1992 and
Formula 1 racing has become more attractive both to younger and to
In addition to the quantity and quality of the audience, Formula 1’s
regular exposure is an advantage over other global events such as The
FIFA World Cup and the Olympic Games. Instead of waiting for a big hit
every four years, the Formula 1 sponsor can exploit its involvement for
at least 36 weeks of the year.
For the tobacco industry, Formula 1 has proved an invaluable refuge from
the anti-smoking lobby. Every major team boasts a high-profile tobacco
sponsor, and current estimates put the industry’s investment in Formula
1 at around pounds 100m a year.
Although you will hear nothing but support for tobacco sponsorship from
racing bosses, they are shrewd enough to have begun the search for
alternative revenue streams.
Ecclestone, for example, has invested pounds 35m in cutting edge digital
television technology in expectation of generating massive pay-per-view
With digital platforms in France, Germany and Italy, viewers can already
watch a race via half-a-dozen television channels. In theory, this
allows fans to follow their own team car’s progress, flick to a race
update, watch slow-motion action, come in for a pit stop or check race
The potential of PPV has had a dramatic effect on the perceived worth of
FOH’s proposed flotation. Although there is confusion as to the timing
and the mechanics of the float, commentators estimate that the market
value of Formula 1 could be a massive dollars 2.5bn (pounds 1.6bn). A
third of this is attributed to PPV.
The implications of digital broadcasting for sponsors are, as yet,
Although the roll-out of the necessary technology is likely to be slow,
the ability to choose which team you want to drive with means that
sponsors of popular teams will bask in a heightened association.
Sponsors of the stragglers, however, will receive even less exposure
than they already do.
Sports Marketing Survey’s Nigel Geach says: ’When the viewer can be the
race director, the team has got to make sure it is attractive enough for
punters. Ferrari has no problem because of its fanatical support, and
there will always be human interest stories like the launch of Jackie
Stewart’s team. But there is a danger for sponsors if they don’t have an
attractive car or driver.’
There are three implications in this. First, inflation in the cost of
top talent. Recent speculation suggested that the Jordan team’s headline
sponsor Benson & Hedges would have to fork out pounds 5m to attract
Damon Hill to the team next year. In a digital environment, stars will
be at a premium.
Second, the sport will need attractive brands. For all their status
within the sport, names like Williams, Tyrrell and McClaren have to
consider how to broaden their appeal. As it is, many of the teams are
anonymous compared with the fame of the drivers and sponsors.
Third, Formula 1 will need to create a more evenly-matched field. As
long as half of the teams are incapable of securing TV exposure, there
will be pressure from sponsors and fans to restructure the race
In the short term, digital is not perceived as a major commercial threat
for sponsors. Sarah MacMahon, marketing director of Andersen Consulting,
which has a deal with Williams, believes there is still ’a big question
mark over digital. It strikes me that the flaw is that if you stick with
one car you don’t see the rest of the race. It needs a lot more
Jordan team commercial director Ian Phillips is convinced that ’digital
will revolutionise everyone’s ability to appreciate the sport. But we’re
talking about a long way in the future. Even then, I don’t think it will
affect the casual viewer, but the enthusiast will grab it with both
By contrast with digital, the tobacco question is of immediate
With top teams costing around pounds 20m to pounds 30m a year to get on
track, it is tobacco sponsorship that pays the lion’s share. If Europe
were to impose a blanket ban, Formula 1 would have to consider a
combination of three options.
The easiest thing would be to use designs that suggest the sponsor’s
identity without overtly realigning them. This has been pioneered by
Marlboro and Benson & Hedges. To many viewers a red and white car means
Marlboro, while Benson & Hedges uses plays on words like Bitten and
Hisses to suggest its identity. A ban on tobacco sponsorship would
encourage this trend.
Another option would be to switch race venues from markets where tobacco
sponsorship is under pressure. Eastern Europe, Malaysia, Korea and China
have been touted as possible future venues for Formula 1 races. And
teams seem keen to accommodate them. ’Promoters of any sport must be
alert to new commercial opportunities,’ says Phillips. ’Particularly if
it wants to be a truly world championship. We have to consider whether a
country like Malaysia offers a better proposition for our sponsors than
some of the existing venues.’
API’s Brian Sims, who negotiates sponsorship for the Benetton team,
agrees: ’Asia is a burgeoning market and Formula 1 can open doors to
Sims’s approach highlights Formula 1’s third option, which is to
encourage new categories of sponsors. So far, he has struck deals for
Benetton with Federal Express and Gillette. ’Federal Express is a
classic example of a sponsor that wants awareness and image transfer,’
says Sims. ’Formula 1’s attributes of speed, reliability, teamwork and
technology couldn’t provide a better synergy.’
Another non-traditional sponsor which has entered Formula 1 is
After an ill-fated partnership with Lola, MasterCard has linked up with
Jordan in a two-year deal, with an option to renew.
Stacey Nachtaler, vice-president global promotions and sponsorships at
MasterCard International, says: ’We have 400 million cardholders
worldwide and 58% of our transactions are outside the US. We are a
global company looking to be innovative, which makes Formula 1 an ideal
partner to encourage people to migrate to MasterCard.’ Talk of expansion
into Asia is also appealing, says Nachtaler. ’For Formula 1 to go there
would enhance the opportunity for return of the sponsorship’s
According to Nachtaler, aligning with a competitive team was
’It was important for us to deal with a team in the points. We wanted a
partner which understood that we need to leverage the sponsorship
property to build our business.’
This last point is of some significance for a sport that has shown
little ability to market itself. ’Ferrari is the biggest brand in
Formula 1 and is our equivalent of Manchester United,’ says Phillips.
’But Formula 1 as a whole has let itself down. I think we are getting it
together now because we realise we have to build a brand name.’
Nachtaler diplomatically says: ’There has been a lot of great marketing
around Formula 1.’ However, MacMahon is less convinced. ’Some teams have
surprisingly little sense of their own potential. The priority has been
getting the car on the track.’ In an environment in which observers
complain of sponsorship clutter, MacMahon believes that ’more thought
could go into design and logos’.
MacMahon says the value of Formula 1 lies in the depth of the
’We have had a very successful business partnership with Williams. When
Damon Hill became champion last year it boosted our brand awareness and
image, but we have also found it useful for relationship marketing and
Nachtaler agrees: ’MasterCard doesn’t intend to put a sign on the car
and walk away. Several marketing programmes will roll out in 1998.’
After its failure to get a Lola club concept going, MasterCard hopes
that it can help Jordan build a wider membership. ’We were on a bumpy
road with Lola and are still on a learning curve,’ admits Nachtaler.
’But Jordan has a successful club with a membership of 23,000. It is
heavily centred on Europe and we hope MasterCard can bring the team
access to its distribution network, evolving and expanding the
Innovations of all types are possible says API’s Sims. Gillette, for
example, is producing a six-part television series called A Year in the
Fast Lane, which it will distribute globally either for a licence fee or
airtime barter. ’There are also business-to-business opportunities,’ he
says. ’Hewlett-Packard has developed products and services for
There are no guarantees, but the perceived value of doing business with
Benetton is very high. All 37 Benetton sponsors talk to each other
regularly at workshops.’
Furthermore, Sims, who is also chairman of the Motorsports Industry
Association, says: ’Sponsors should look at what they might learn from
the way Formula 1 operates as a business. The reason it is a successful
dollars 1.5bn (pounds 950m) business in the UK is because it requires
teamwork and fast decision-making.’
No smoke without fire
While question marks have been raised over tobacco’s future in Formula
1, the two are so intimately linked that there are few observers who
seriously expect a significant change in the relationship.
An indication of this is BAT’s planned purchase of a team. It would not
be the first time BAT has made such a move. Previously, it has owned and
operated a motor rally in China through its 555 brand. Its current move
resembles the activities of clients like Nike, which are seeking both to
control their marketing communication and generate a second stream of
The bid for ownership receives mixed reactions, however. Phillips says:
’I don’t see ownership of teams by sponsors as the way to go. Tobacco
companies have been involved with Formula 1 for years and evolved a code
of practice that suits all sides. I think anybody who owns a team who is
not in the business is asking for trouble.’ Nachtaler agrees: ’The
Jordan team wants to make its decisions and we respect that. Cars are
not our core competence.’
Yet there is a precedent in Benetton, which made a successful transition
from sponsor to owner. ’These moves depend on whether a team wants to
sell,’ says Sims. ’But I think there will be an increasing demand for
the acquisition of equity if Bernie Ecclestone’s flotation goes
through.’ And not just from sponsors. BSkyB is already rumoured to be
interested in buying a stake in a floated FOH.
Despite the uncertainty surrounding the sport, there are few who doubt
Formula 1’s capacity to provide sponsors with a return on their money if
they leverage it effectively. ’The cost of entering the sport is not
artificially high,’ says SMS’s Geach. ’The return that sponsors get from
Formula 1 is very good and that will continue unless there is a major
With the way that Formula 1 has bounced back from the controversial
death of Ayrton Senna, it would need an event of catastrophic
proportions to stop Formula 1 in its tracks.
WHO’S WHO ON THE GRID
Ferrari: F1’s biggest brand with a fanatical fan club. Popular in
Germany because of its association with Michael Schumacher who is by far
the circuit’s highest-paid driver. Sponsors include Marlboro, Shell and
Williams: When Williams dispensed with Damon Hill last season, it had a
dramatic impact on the potential audience that ITV could achieve in the
UK. Sponsors include Rothmans, which pays pounds 15m a year, and
Andersen Consulting, which pays in kind.
Benetton: Switched from sponsor to owner in the 1980s. Currently has 37
sponsors including Mild 7, Fed Ex and Gillette. Ecclestone would like
Benetton to hire Hill for next season.
Jordan: Headline sponsor at pounds 10m a year is Benson & Hedges. B&H
unveiled a car design this year which de-emphasises the brand name where
tobacco advertising is banned. A snake head and the phrase Bitten &
Hisses are promoted in its place. Non-traditional sponsor is
McClaren: One of three teams (the others are Williams and Tyrrell) that
refused to sign the so-called Concord Agreement with Formula One
Holdings which lays out the division of income between F1 parties.
Agreement is now near. Lead sponsor is West.
Prost: The Prost teams gets a Mugen Honda engine on the understanding
that it uses Japan’s Shinji Nakano as a driver. Sponsors include
Gauloises, BIC and Alcatel.
Stewart: Like Prost, this team is run by a former world champion. Main
sponsorship deal is with HSBC bank - believed to be worth pounds 25m
over four years. A Ford deal is worth a further pounds 20m.
Tyrrell: One of the most established brands in F1. Sponsors include
Ford, Pakistan Airlines and Epson.
Minardi: Uncompetitive team rumoured to be an acquisition target for
BAT. Sponsors include Mild Seven.
Arrows: High profile in its first year, due to its association with
world champion Damon Hill. Likely to lose him, and a lot of PR, next
year. Key sponsors Danka and Parmalat.
Sauber: Yet another team rumoured to be interested in signing Damon
Hill. Key backer is Malaysian group Petronas. Red Bull has more than a
sponsor’s interest (ie equity) in the car.