Atlas F1 News Service, a Reuters report

Analysis: Global Recession Hits F1 Sponsors Hard

Monday August 13th, 2001

By Carmel Crimmins

For a Formula One team there is only one sound more comforting on race day than the roar of their car's engine on the track and that is the whirr of their sponsors' helicopters overhead. Corporate cash is the real wheel-turner at any Grand Prix circuit but in the past few months global economic slowdown has hit major sponsors hard, leaving teams fearful of fewer helicopters in the skies and less money on the table.

"The economic downturn, particularly in the United States, is going to have significant ramifications for sponsorship in Formula One in the short term," Mark Gallagher, head of marketing for the Jordan racing team, said. "I think if you came back to the Formula One paddock next year you would see half a dozen technology names absent that are currently in the sport," Gallagher told Reuters.

In recent years, the meteoric rise of technology, telecom and media (TMT) shares on the world's stock markets has changed the face of Formula One sponsorship. Technology and telecommunication firms became the new doyens of Formula One's corporate hospitality tents, replacing tobacco companies as the sport's predominant patrons. Companies such as Compaq Computer, Nortel Networks, Marconi and Lucent Technologies each shelled out millions of dollars to have their names plastered across Formula One cars, caps and shirts.

But the high-tech tide has turned. Technology profits and revenues have nosedived and companies have been axing thousands of jobs to survive. For example, Nortel Networks, one of the main sponsors of Williams, has said it will lay off nearly a third of its global workforce, eliminating some 30,000 jobs.

With chief executives under pressure to cut costs, the general consensus in the Formula One motorhomes is that sponsorship contracts with high-tech companies that end this year either will not be renewed or will be scaled back. "If people are making tens of thousands of staff redundant then you can be absolutely sure that sponsorship and marketing will be in the firing line as well," said Gallagher of Jordan, whose contract with Lucent Technologies expires this year.

According to calculations made by the monthly magazine Eurobusiness, a Formula One winning team will cost some $250 million a year to operate, with up to 90 percent of that cost recouped from sponsors.

Fearful that technology sponsors are likely to reduce their sponsorship, or in some cases withdraw it altogether, the Formula One teams are beginning to tighten their belts and the first stop is the VIP enclosure, where captains of industry and society hostesses mingle over flutes of champagne. "Last year in the United States Grand Prix we had over 600 corporate guests but this year we will have just over 200," said Gallagher.

But in spite of the glum stock market tidings, no-one in the Formula One paddock fears going under. Each team has a wide portfolio of sponsors whose contract lengths overlap and differ. In the long-term, however, the hope in the pitlane is that high-tech stocks will bounce back and in the meantime teams are hunting for non-technology companies to fill the gap.

The sport's trump card is the huge global advertising audience that it can deliver. Formula One is the biggest spectator sport after the Olympics and World Cup soccer, and unlike them it takes place every two weeks - not every four years.

Industry estimates suggest at least 300 million fans tune in to watch the thrills of the track on their televisions every second Sunday during the nine-month season. In Germany, television broadcasts of Formula One races have become among the top-rated programmes each year.

For this reason Jim Wright, head of marketing at Williams, is sanguine about the high-tech slump, despite the fact that three of the team's sponsors - Nortel Networks, Reuters and Compaq Computers - have announced a total of nearly 40,000 job cuts this year and the Williams's car has more high-tech names splashed across it than anyone else's.

"It wouldn't surprise me if those companies - Lucent, Marconi and Nortel - scaled down or even withdrew from Formula One, but that doesn't mean there will be gaping holes in the budget," said Wright. "Not everyone is having a rough time of it at the moment and we've got new companies coming into the sport all the time."

The financial services sector is seen by many as a cushion during the high-tech slump. Insurance giant Allianz entered the sport last year and HSBC Holding Plc announced last month the extension of their sponsorship of Jaguar to the end of the 2004 season.

Even in the beleaguered telecoms sector, there are signs of light. Britain's Vodafone announced in May they would sponsor champions Ferrari from 2002 in a three-year deal, which sources speculated was worth some $50 million a year. Likewise, Mobile operator Orange, now part of France telecom, took the title sponsorship of the Arrows team in March, renaming it Orange Arrows, in a deal worth 70 million over three years.

And while the tech stocks falter, the Formula One teams know they can always rely on tobacco - for another four years at least; in 2000, FIA passed a resolution that 2006 would be the last year that tobacco sponsorship would be allowed in the sport.

The uncertain future of high-tech sponsorship, however, has ensured that teams are reluctant to kick the tobacco habit until the bitter end. Ferrari have renewed their sponsorship deal with Marlboro until 2006 and McLaren have confirmed their West sponsorship until 2006 as well, giving both teams some breathing space before they have to get back on the sponsorship trail again.

Published at 08:24:27 GMT



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