A transitional phase

A transitional phase: Formula One, geography doesn’t have much of an impact on sponsorship. F1 truly is a global sport with common fan characteristics around the world. I’ll speak about that more in a moment.

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I also don’t believe that geography has much of an impact on the likelihood of a business to undertake F1 sponsorship. Instead, the drivers for that decision will be things such as having a global footprint with operations or interests in a majority of the countries that host F1 races.

For example, in light of the news that there will be a Grand Prix in Azerbaijan, I can’t think of a single business from that country that ought to pursue an F1 sponsorship. But if I were a business from America or Europe that sold equipment to the oil and natural gas industry, then I might all of a sudden be interested in sponsoring the race or building a presence at the event.

So about those fans – does there need to be much difference in sponsorship across different countries? Other than being sure you comply with local laws about marketing, advertising, promotions and related activities, there’s not much need for different approaches.

Despite the good news, there appears to be hesitancy for major sponsors to make new agreements at this point.

Here’s why based on a comprehensive study done by Sport + Markt AG. This was executed in 17 countries around the world and included more than 15,000 telephone and face-to-face interviews with people aged between 16-69.

Amongst the people interviewed, the average level of interest in F1 worldwide was 32 per cent. So roughly speaking, about one out of three people around the world aged 16-69 will have an interest in F1.

Respondents that said they were interested in motorsport were also asked how well some attributes described F1, these were:

• Appealing
• Innovative
• High tech / High quality
• Dynamic
• Youthful / Trendy

The response across all regions was very much the same – roughly 60 per cent of these fans said that these attributes applied to F1, except 70-80 per cent of the fans said High tech / High quality should be ascribed to F1.

The only notable geographic difference is that the respondents in Asia were more likely to ascribe these attributes to F1 by a few percentage points. Said another way, about 10% more fans from Asia said that these attributes are good descriptors of F1.

Given this consistent perspective amongst F1 fans, it doesn’t appear that sponsorship approaches should vary across geographies. Again, just be sure to comply with local laws for the activation programs that are employed.

The business side

Formula 1 clearly is in a transitional phase at this time. Some of the pressures on the sport are quite significant and have major implications. It could be easy to say the sport is in trouble, but I don’t believe that. F1 has so much strength, tradition and promise that it will find a way through the current challenges.

Let’s look at three key areas to understand what is causing this current transition: 1) pressures on the sport, 2) changing markets, and 3) recent sponsorship developments.

Take your pick as to which item is causing the greatest pressure on F1 – the debate about team budget levels and distribution of prize money, the uncertainty regarding Bernie Ecclestone’s future leadership of the sport and if it’s not him, who will it be? One should also include the threat of intervention by European Union sports administrators, as well as the continuing economic stagnation in many countries around the world.

Team budgets absolutely are a major item, with four of the current teams struggling to keep appearing on the grid. And we’ve just heard that some of the Renault-powered teams are unable to make their payments to Renault, so potentially they won’t have fresh engines, oops, I mean power units. This is a serious threat for those teams. While it’s a shame to have lost the glamorous new car launches of recent years, we would really hate to lose two or three teams from the starting grid.

So what about the changing markets? Perhaps you’re thinking “I recall Bernie wanted to transition from dominance by traditional European venues to creating a presence in emerging parts of the world.” Let’s see how that is developing.

We are seeing a loss of some European venues – France has fallen off the calendar and there is uncertainty about the future viability of Germany and Britain. F1 did enter the market in India and South Korea, but those events did not see a renewal of their contracts. The race in Bahrain has been debated due to political unrest in that country, but the return to Singapore has been successful. Likewise, F1’s return to the United States, though not an emerging market, has also gone well. But now there is uncertainty about holding a race in Russia this is all due to the issues in Crimea. But don’t worry, because soon there will be a race in Azerbaijan.

A current or potential sponsor could look at this situation and see turbulence and instability. They might well question why the sport is interested in going to Azerbaijan’s nine million people while not being present in France, Germany or Britain. Granted there are different reasons for various races falling off the schedule, but they usually boil down to a financial issue of some sort. Sponsors will ask why, in a sport that pulls in a couple of billion dollars each year, do races in major markets disappear from the schedule? Sponsors will want stability and a presence in key markets.

Finally, let’s consider some recent developments in F1 sponsorship. It’s great to see Martini back in F1 and supporting Williams. Williams has also picked up sponsorship from Petrobras, Genworth and Banco de Brasil. Likewise, Force India have signed up Smirnoff, Claro, Astana and Roshfrans. There’s been speculation that the sandwich chain Subway may enter the sport. All good developments.

Yet we saw that the long-promised funding for Lotus from Quantum Motorsport never materialised last year. McLaren has not been able to announce a new title sponsor to replace Vodafone. This was due to be announced last December, but still no announcement. Also, the Ferrari/Ducatti Wrooom winter sports event was cancelled for 2014 as Philip Morris had to withdraw their sponsorship support.

So despite the good news, there appears to be hesitancy for major sponsors to make new agreements at this point. This is understandable given the continuing financial stress in many countries and the push from institutional investors for profitable financial results every quarter. Even if a global business wanted to invest in a major sponsorship they may be dissuaded by pressure from the financial community.

Yes, there are major pressures on Formula One at this time but it will find a way through these challenges. The sport is strong thanks to 500 million television viewers and a total fan base that is surpassed only by football. These fans expect a sport that surpasses all others in performance, technology and innovation.

Those are traditional characteristics of a sport that started in 1950, 64 years ago. Think for a moment about the condition of Europe in 1950. The Second World War had concluded only five years prior, with the loss of millions and the displacement of millions more. Cities had been obliterated and destruction was everywhere. Yet some passionate people worked out the design and production of racing cars, and very brave men drove the wheels off them. That sort of passion still exists; you see it in the commitment and drive of teams and drivers and in the enthusiasm of fans around the world.

If Formula 1 can emerge out of the rubble of World War II, it can make it through these challenges.

Improvements

Here’s what I’d change if I could change things in the sport.

Knowing that sponsors and business partners want a degree of stability and predictability where they invest their money and activities, I would first ensure that there is a clear succession plan in place for the job that Bernie Ecclestone has been doing. Regardless of the outcome of his current trial in Germany, there should be a good understanding of who will succeed Bernie simply due to his age.

Next, in an effort to avoid the involvement of European Union bureaucrats, I would push for transparency on F1 financials, business arrangements and agreements. It’s not only the EU that will want to see this, but the International Olympic Committee will also want this. Don’t forget that the FIA joined the IOC last year, and the IOC has a set of required governance standards. It may be messy getting there, but transparency and clear accountability will draw in more sponsors and help ensure the future of the sport.

To further ensure the future of F1, I would make sure a workable spending cap is instituted and sort out a new scheme for the sharing of prize money. Yes, the spending cap topic is a difficult one, but in our current environment how can a team expect to keep spending $400 million annually to see their drivers on the podium? Several competitors are faced with attempting the same challenge on half or even a quarter of that budget. There is so much disparity that the sport could suffer for it. Coming up with a “more fair” way of distributing prize money can help that to an extent, but it’s not a total solution.

One of the things that have been in the back of my mind is there seems to be an opportunity for the FIA and Formula One Management to work with the circuits around the world to improve the fan experience. We know how accessibility to drivers and the paddock has gradually been limited over the years. Combine that lack of accessibility with a rained out race or something like a tyre supplier tells its teams that they should not compete on the tyres provided (that would never happen), then some portion of the fans at the venue will feel ripped off.

Corporations have employees concerned with the customer experience, and so should the FIA and FOM. I would designate a small team to consider the fan experience and devise a set of guidelines with example programs or activities for fans at the circuit or in the host city. If you happened to visit a Pit Lane Park that was put on by BMW Sauber a few years ago, then you saw a great example of what I’m referring to. The Fan Fest in Austin is a current successful example, with 200,000 people attending over the race weekend. Or visit a NASCAR race and see the immensity and success of their fan experience. Really. It’s huge. Then farm out these ideas to not only the circuits but also to the teams and sponsors. Providing great value, entertainment and some education will serve to create loyal fans and customers.

Wait, I’m not done yet! I would also put some focus on improving the television viewing experience. This topic has been kicked around a lot, but I think the sport should provide live and free online video streaming of all practise sessions and the race. And that should be optimised for viewing on a laptop, tablet or smartphone. Just do it.

What next – oh yes, we had one of the biggest-ever rules changes for this year and not many people outside of the sport know about it. So as the boss I would see that we worked out a good story to fill people in on the impressive changes. There’s enormous potential in telling the world that right now, our cars are nearly as fast as last year yet they use about a third less fuel. I bet later in the season there won’t be a performance gap. It’s a huge success story, even if the cars sound different, and the FIA and teams could be getting the word out. Who knows, that might even attract new fans that are interested in the efficiency angle.

Last but not least, the FIA, FOM and the teams could stand to make it easier for interested sponsors to engage with F1. If one is not already a fan of the sport, there is a steep learning curve to the business aspects of F1. Some basics should be available such as who the players are and what roles they fill, fan demographics, print and broadcast audience reports and analysis, etc.

Make it easy for sponsors to engage with F1. Let them know – how do I sponsor a team, a driver, a race, a circuit, the entire series, and what should I expect? What if I just want to advertise at a given race? Then provide them with reasons for doing so.

There, enough said, except Formula 1 is the greatest sport in the world.