Formula One sponsorship at the chicane

High-profile, high investments, high-speed, high budgets.  These are all words synonymous with Formula One, however recent figures have shown that the recession has taken sponsorship in the sport to a new low.

This year sponsorship investments are down $115m on the previous year, bringing totals down to $705m for the 12 teams , the lowest level in the past five years.  Furthermore, average sponsorship revenues per team have fallen 28.4% on 2009 to $58.8m.

It’s clear that all the teams have had a tough time this season.  USF1 were faced with financial ruin and failed to make it to the starting line due to their inability to raise funds.  The four new teams – Lotus, Hispania Racing Team, Virgin and Sauber – have also all struggled to secure enough funds to cover their budgets, which average at $64m.  Lotus, who was in fact the most successful at securing sponsors, still had to receive an estimated $35m contribution from its owners.  HRT looked uncertain in making it to the starting blocks due to only attracting $500,000 in sponsorship.  The rest of the money, $32m, came from its owners and its two drivers; Karun Chandhok and Bruno Senna.

What is fueling this significant drop?

The departure of Panasonic and ING, two of the biggest-spending sponsors, who together spent $125m annually, caused a large shift in levels of investment.

Despite some existing sponsors such as Petronas and Santander increasing spend in sport (contributing $55m and $50m to Mercedes and Ferrari respectively), most of the 29 new sponsors are small spenders and it is believed that none are paying more than $10m annually.

Looking at the breakdown of sponsorship in more depth we can see there is a disproportionate amount across the teams. Ferrari represents 35 per cent of total sponsorship revenues.  They have boosted that sponsorship level to a record $245m, thanks to Sandander moving from McLaren.   Red Bull Racing has also been highly successful in securing big name sponsors from Pepe Jeans and FXDD, bringing their tally to $32.2m.  The energy drink giant still pours in an estimated $100m annually into the team to boost funding.

The lack in funds within sponsorship therefore affects the smaller teams who have had huge dents in their budgets.

Formula One Team Sponsorship Revenues 2010:

(Reference)

But looking at the wider picture, surely it’s unusual that there has been such a drop in sponsorship? It’s is obvious that many brands are cash-strapped, but surely most can see the benefits of aligning themselves with the sport?

F1 has a global reach that is wider than football, last year attracting 520m viewers (according to the Formula One broadcast report).  The viewers are male dominated and some sponsors have been keen to capitalise on this.

According to sponsorship consultant Nav Sidhu, “[Formula One] sponsorship has changed over the past few years. Tobacco has exited and in its place is the arrival of consumer and technology brands.”

Watch manufacturers such as Hublot, named the official F1 watchmaker, are keen to exploit the benefit of the male dominance of the sport.  As Jean-Claude Biver, Hublot’s chief executive, says, “People who love cars usually love watches, so we have an enormous amount of direct customers there.”  TW Steel, the newly launched watchmakers, are working with the Renault team and are using the assocation to launch two new brand ranges.  Ferrari’s Felipe Massa has worked with watchmaker Richard Mille on a range of highly engineered watches.

Big fashion names are also entering the sport.  Premium sports-wear brand Henri Lloyd is sponsoring the Mercedes GP Petronas team, who were sponsored by Brawn last year.  They are joined by Gieves & Hawkes who are seeking to appeal to a younger audience.

Sponsorship of F1 allows a unique opportunity to target a core customer base. “From a sponsorship perspective, high-end hospitality programmes centred around the F1 paddock attract a wealthy male demographic, and enable brands to create meaningful relationships with consumers over the three-day race weekend,” says Rob Bartlett, of brand communications agency 23red, which works with Ferrari and McLaren. “Combined with its exclusive VIP audience, F1 forms the perfect environment to launch premium men’s lifestyle brands.” (reference)

Hugo Boss is the perfect example.  Their association has lasted over 20 years and recently they have increased their Formula One activities.  Jensen Button and Lewis Hamilton featured in a Boss Black fashion shoot, modelling the company’s autumn/winter range; Button attended their catwalk show at Berlin fashion week; and the drivers and technicians are now enlisted to trial new fabrics.

But has this alignment been successful?

According to Tim Pohlmann, the head of sport sponsorship at the fashion label, “When we started two decades ago the brand was not present in many countries, but now we are in all five continents and over 120 countries.”

Likewise, shaving manufacturer Philips says that their sales have grown by 10 per cent in the second quarter of 2008, compared to the same period in 2007, because of its sponsorship of the AT&T Williams team.

There are clear advantages to sponsoring the sport but commercial interest has been dented by the economic downturn.  Serious measures are going to have to be brought in to boost sponsorship levels as small teams suffer to survive in this big budget sport. New brands need to be introduced to the advantages and sponsorship activation around the association needs to be creative and fully exploited to develop high levels of ROI.

What are your thoughts?