Is 2010 the time to invest in Formula One?

June 15, 2009

The F1 civil war over the proposed budget cap has shaken the motorsport world in more ways than one. Not only have the incumbent teams been awoken from their extravagant slumbers, but the rest of the Formula racing world has been made aware of the opportunities that are opening at the pinnacle of motor racing.

With a total of ten teams having now submitted their entries into F1 for 2010, the grid could feasibly be made up of entirely new outfits, with the exception of Williams and Force India – two teams whose only business is Formula One and as such, their entire livelihood is dependent upon participation in the sport.

The ten teams who have submitted their cost-capped entry to Formula One for 2010 (including names like Lotus, Prodrive, Brabham, March and Lola) could make up the vast majority of a very different looking grid. With such a raft of new teams, questions remain over the funding of their participation.

If we suppose that the cap will remain at around the €45m mark, the TV revenues and prize money from FOM will cover the majority of the associated costs. What necessity then for sponsors of the participating teams? Virgin has proven this year, even without a cost cap, that smart sponsors can invest in Formula One at a relatively low cost.

Irrespective of the level of commercial investment in the sport, however, the sponsors will still demand a return on investment that can only be achieved in Formula One. I believe that the role of agencies or in-house specialists in leveraging the sponsorship properties will be amplified to achieve these results. In the same way, I think that the rights holders themselves will have to allow far greater access to their assets to generate the return that they will demand.

If this is accurate, it could completely change the way that teams and sponsors interact. Previously investment in the team directly contributed to the development of the car and would therefore form part of their overall budget. Now, with the cap in place, less of the money from sponsors can or will go on car development – even less if the plans to place a ‘value in kind’ on supply deals also goes through. As such the teams will have to justify the spend on sponsorship as simply marketing spend, thereby placing even more emphasis on the return on investment expected.

In addition to this, the role of agencies will have more emphasis on the objectives of the organisation. WilliamsF1 claimed British Leyland as a sponsor in the 1980s. A seemingly unexpected sponsor of Formula One, Williams simply understood that the company wanted to have conversations with a key figure in the Russian Transport industry – another WilliamsF1 sponsor. The conversations were had and a deal was struck between the two sponsors, WilliamsF1 giving both companies the platform to achieve their objectives.

With money at a shortage and expectations ever growing, Formula One may well be in a position to exploit its global audience better now than ever before, but only if the spend can be justified by the returns.

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2 Responses to “Is 2010 the time to invest in Formula One?”

  1. […] Is 2010 the time to invest in Formula One? […]

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