F1 Finances and the Future 02/09/2008 Pitpass has an interesting article on F1 finance and sponsorship today. After pointing out how costs have increased for the teams, it then looks at the value sponsors and advertisers are getting for their money. And the answer seems to be pretty gloomy, with vast amounts being spent for not a great deal of return.I have often wondered how long it would be before advertisers realized that F1 does not give wonderful bang for their bucks and am quite surprised that it has taken so long for serious studies to be made in this area. One must presume that advertisers know what they're doing and get something for their sponsorship but, considering that I cannot remember ever being influenced in my purchases by a logo painted on a F1 car, it may be that intangible factors such as prestige and glamor enter the equation.In the past, tobacco advertising was forced into F1 as laws became ever more restrictive and this was the core of the teams' funding during the 70s, 80s and 90s. The eventual demise of tobacco company sponsorship has meant that funding has to be found elsewhere and so we have the banks, insurance companies and energy drink manufacturers becoming involved.These new sponsors are not there because they have no other outlet, however; it is natural that they should keep an eye on the return on their investment. This is probably what has sparked off such studies as Formula Money's, as referred to by Pitpass. And the news is not good, with the economic climate reportedly gloomy and F1 costs spiralling ever upwards.Pitpass wonders whether this means a crash looming for the sport and it is difficult to see any other outcome as long as things continue in this direction. That sounds as though it would be disaster but I am inclined to think that it might actually be a good thing for the sport. Bernie and others like him would suffer but I am not going to lose sleep over that. And drivers and teams would have to accept a greatly reduced income.Would this necessarily be a bad thing? Much fuss is made of F1 being the pinnacle of technical advance and innovation but the reality is that regulation has as good as killed the development of new engineering ideas. The likelihood is that the F1 car will increasingly be the test bed for systems that have nothing to do with performance and any claim to be the top form of motor sport will become dubious at best.A financial crash would, in fact, force the FIA to reconsider its aims and think again about how to run an international sport that is not overflowing with cash. Such things as stock blocks might have to be allowed or even enforced, costly and difficult materials would have to give way to the tried, tested and dirt cheap methods of making a chassis. Wind tunnels would definitely have to go and we might end up with a form of motor racing that small teams could compete in once again.The fact is that a financial crash would not kill off F1. It would be hugely disrupted at first but, as compromises and different solutions were worked out, it could be developed into a less refined but more watchable formula. The fans come to watch the skills of the drivers much more than the esoteric details of the cars and so it is probable that the fanbase would survive. If the races improve in quality as the designers are forced to abandon all their costly toys, they might even gain more viewers. Change is painful but sometimes for the best.And, who knows, F1 might become a sport again, instead of a complex means of making Bernie Ecclestone ever richer...
Clive
Steven Roy A very interesting article Clive. I have to say I was not aware of the Pipass piece so I need to read up on it before I have an opinon.Like yourself if it returned F1 to a sport again and gave us decent cars to watch then I could probably live with the thought that Bernie would be losing money.I think one of the reasons companies sponsor F1 and other events regardless of return is to do with the way big businesses are run now. Gone are the days when one man ran a company for 20 or 30 years. Now top executives plan to move every 3 or 4 years regardless of performance of themselves or the company. Most of these people have egos a mile wide and the idea of the company paying out a stack of money to allow them to swan about with celebs and make contacts which they can use in the future and which may open opportunities for them personally.Some great companies have been ruined by this short sighted management consultancy approach to running a business. For years Lord Weinstock( I am sure that is his name but I could be wrong) ran GEC and built up a huge pot of cash. He had an endless stream of management consultants and experts who told him he should invest it and make the money work for the company. When he retired these people got control of the company, blew the cash and after a name change we had the Marconi disaster.Add to that the Tyco directors who used the comapny's money like their own. The CEO blew $13million on a painting for his house and the finance director without telling anyone paid himself a huge relocation allowance but stayed in the same street.I have no doubt the odd huge cheque has been signed to sponsor F1 as a recruitment campaign by the exec concerned. Date Added: 02/09/2008
Clive That is unfortunately what is wrong with running F1 as a business, Steven. Modern business practices are so far removed from reality that they cannot be adapted to suit the needs of F1. Bernie is, in fact, an example of the old style of manager - someone who has built up the company and so understands how it works. With his sale of it to the money men of CFC, he effectively handed it over to the dictates of the market and it will crash when the market crashes.Of course, I realize that Bernie sold F1 at just the moment when it was to prove impossible to run it as a business without an ever-increasing clientele (the fans) and so passed an expensive but failing toy to the buyers. But our hope must be that out of its eventual collapse will come something we can recognize as F1 again. Date Added: 02/09/2008
chunter Not to repeat too much here, but I distinctly remember commenting in a thread where someone asked, "Does anybody actually drink Red Bull?"I -can't- drink Red Bull, the taurine does really strange things to my insides, but long story made short is that Red Bull sponsor a ton of things I enjoy, not just motor sport, and I suppose they sponsor a lot of things I don't enjoy too.Some sponsorships are intending to attract attention to the project, but other times it's really just a way of giving money to something you enjoy or would do if you had more skill at it. I have the impression that for some, motor racing is not supposed to be an investment that provides a monetary return. I agreeably doubt that many of that sort are supporting F1 in that way, though. Date Added: 03/09/2008
chunter As a postscript I'd like to add that in general, the "value" of advertising as a whole, not just in racing, has declined as more and more people have the power to research and make up their own minds about the things they buy. Any thinking person knows that commercials are rubbish, but they air and sometimes we watch them, don't we? Date Added: 03/09/2008
Lonny I admit if I'm faced with buying something and I must choose between 2 roughly equal products, I choose the one that sponsors a racing favorite if I can. The real problem is not that there is too much money in F1, it's that the top teams have so much they effectively price smaller teams out of the market. We have mused on other forums that it might become necessary to allow or even require Ferrari, McLaren and other top teams to run 3 or 4 cars to fill up the field. A financial collapse might be a better solution. In America however it has lead to most of the top series turning into spec series, one chassis, 1 or 2 motors etc. The racing gets stale and the teams with the biggest budgets still win most of the races. :-( Date Added: 03/09/2008
Steven Roy Chunter,I saw Red Bulls published annual accounts two or three years ago and the figures are stunning. They spent something like a third of their annual profit goes on promotion and sponsorship programs and it runs to a few $100 million. So someone is drinking gallons of the stuff. I bought two cans once and couldn't believe how horrible it tasted. So they were binned straight away. I am sure they have made a few million with others doing the same thing. Date Added: 03/09/2008
Nick Goodspeed I have a feeling money is reversely proportional to the real enjoyment of "our" sport. Oodles of money spoil those in the sport to a point that they lose sight of the intrinsic value of the very sport they are involved in. The huge amounts of money result in important decisions pertaining to a sport being made by people who know little of the sport and how it works. With the huge sums of money high international courts become involved in decision making. Ludicrous money grabbing goes on, as in the huge McLaren fine. There is so much money floating around that the actual racing becomes incidental. The game of manipulating the the fan to create ratings to sell to the highest bidder has become a soap opera. Drivers, engineers, even sponsors are totally mercenary. In the long run I think there could be nothing better for the sport than a great crash. The costs to attend races are outrageous. A great deal of the fans know little of what is going on. They are just extremely wealthy, and / or opportunistic people, there to rub shoulders with those higher up the ladder. Every venue becomes an open season for gouging. Those who hope to hold the race are gouged, the fans are gouged. Bernie and the Bean counters run to the bank, smiling from ear to ear. At the end of the majority of races there are what seem to be childish issues, finger pointing, bitchings of "Not Fair," mostly because of the ridiculous amount of money involved. The morals and ethics of F1 have been destroyed by a massive overdose of MONEY! Date Added: 03/09/2008
donwatters To paraphrase the oft used bible quote: It's not the money that's the problem with F1, it's the LOVE of money that's getting in the way. Date Added: 03/09/2008
Clive I have seen several comments about Red Bull tasting awful and, not having tried it myself, I have to go along with that opinion. Perhaps it is the taste that convinces some that it must be doing them good - rather like the common belief that, if medicine tastes terrible, it must be doing its job.Your thoughts on the decreasing effectiveness are interesting, particularly as British TV advertising now concentrates on making the customer laugh, rather than hammering away at the product name. There are many adverts that everyone remembers but cannot say what product they are actually pushing. Maybe it's a subliminal thing.Whatever the reason, it does seem that companies are still willing to pour huge amounts into advertising, even though the return is questionable, to say the least. My cynicism leads me to suspect that the bean counters have decided that it earns its keep through tax breaks and deductibles... Date Added: 03/09/2008
Mad I quite like red bull. It's great on long distance bike rides when the energy and concentration starts to flag. Date Added: 03/09/2008
Clive Lonny: I agree that money does tend to spoil the sports that come to depend on it - but that seems to be the only way international sport can continue these days. Whether a financial collapse would lead to a spec series replacing F1, I'm not sure, but suspect that there is enough diversity in the sport to ensure that many different solutions would be found. As the monkey said, it remains to be seen. Date Added: 03/09/2008
Clive Nick: I agree totally. Even though Don is correct in the biblical source for the expression, the fact remains that the huge amounts of money invested in F1 over the last decade have brought more problems than they have given benefits. Reality has a way of puncturing bubbles, however, and time will bring things back to a sensible level, no doubt. Let us hope that F1 manages to survive in recognizable form through all the upheavals. Date Added: 03/09/2008
Clive Mad: Amazing what some sugar and caffeine can do. ;) Date Added: 03/09/2008
John F Market driven economies like ours become very fickle when the economy is on a downslide like it is now. Companies will begin to really look at how they spend that advertising dollar. I agree that everyone brings up good points. Steven is right on with the ego and hob knobbing with the elite. Lonny is correct that if a fan has a product decision the product that supports F1 gets the business.As I said before Bernie was genius in his expansion of the sport to areas of growing economies such as the middle east and China. these two economies are where the greatest increase of consumption of consumer goods will occur for the next few years.If there is a crash I feel that when the dust settles there will be more then one series. Europe will have the elite. Travel costs will increase so they will race on local tracks (Spa, Silverstone ect..) only. Another series, that will have more money to spend, will be in the Middle east and china. This series may get the most corporate support because it will pay back the best.Of course I could be completely wrong and the money for support will dry up all together. I hope that the change that is inevitable is not as drastic and occurs slowly. Date Added: 03/09/2008
Kajik We, the one's who have been closely following F1 for decades, have seen a fair share of absolute erroneous and truly controversial rulings / penalties by the sports governing bodies. Yet, this decision is of such blatant disregard to the book of rules and thus a serious threat to the few & last remaining credibility's the sport has, namely, the honest virtuosity of proper head to head dueling in adverse weather, thus equalizing conditions.All parties must call on the powers that be to refrain from telling the public that black is blue. We have all seen the facts, a flawless and stellar driving to the exact letter of the rule-book.Racing stewards Nicholas Deschaux (France), Surinder Thatthi (Kenya) und Yves Bacquelaine (Belgian) need to be banned for all times from the sport for having signed this, "the worst ruling in the History of Formula 1" (Nicky Lauda).My fellow F1 aficionados I call on you to refrain from discussing the ruling and thus giving it credence, but instead to lodge your protest with all parties involved, the Mosley & FIA, Ecclestone & the empire, the racing teams and the media....let's not have the wool pulled over our eyes!Bernie tell Max to behave and hand back to the kid what is rightfully his!! Date Added: 08/09/2008
Lucian I wish for once that I can watch Formula 1 live without the cruel interruptions for those advertisings. I am not watching them, I always pause! Let that be known that we (I hope I speak for all of us who are deeply passionate about F1) don’t care to see any adds during a live transmission and miss half the race. In Spain they have NO ADDS during F1 and other countries are following suite. Please stop the ridiculous adds, we don’t care for those products and now I start boicoting them.!!!!!! Date Added: 18/10/2008
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