Downturn limiting Formula 1’s commercial ambitions

September 28, 2009
Singapore Democrats

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Sharanjit Leyl
BBC News

Formula 1 isn’t just about the world’s fastest cars, it is a billion dollar business.

That’s the amount estimated to be brought in by advertising, race fees and television rights each year.

But the global recession has started to change that. The race controlled by Bernie Ecclestone took to its Singapore leg this weekend.

And despite the din of the loud engines that reverberated through much of downtown Singapore from the race track that winds through the city centre, on the corporate front, it was a quieter affair than last year.

Many companies were reluctant to commit the dollars they did in 2008 when the race enjoyed the distinction of being the first that took place at night.

This year, senior executives at many of Singapore’s biggest firms talked of being cajoled into buying corporate hospitality suites by organisers. Many such suites were still available a week before the event.

Discounts

Even the person charged with putting it all together in Singapore admits that demand hasn’t been as brisk this year compared to last.

Michael Roche from Singapore GP, the organisers who look after the logistics of putting the race together, says early bird discounts were offered up as a way of enticing companies to take part.

It’s a view shared by sponsors who say they have been restricted by what they can do because of the economic slowdown.

James Thompson, the main marketing man for Diageo in the Asia Pacific region, says the company is focused on brand building but has had to cut back spending on its smaller brands.

Diageo has been involved with Formula 1 since 2005 in its ‘Join the Pact’ campaign against drinking and driving. It sponsors the Vodafone McLaren Mercedes team, which features brand ‘ambassadors’ Lewis Hamilton and Mika Hakkinen.

“We are trying to do things more efficiently…of course during a recession, we have had to scale back, but it’s been on more small things and things that are peripheral to our business.”

‘Controlling costs’

The global downturn has hit financial firms that had previously been big sponsors. Banking group RBS, which had to be rescued by the UK government this year, had a much bigger presence at last year’s Singapore Grand Prix. But it played a smaller role this year after a decision to cut sports sponsorship by half in 2010.

Team sponsorship is expensive business, but even more expensive is the cost of running a team itself.

Well established teams can often spend as much as $400m (£250m) a year, just to fine tune and build their cars. Honda left Formula 1 at the start of this season and BMW will not compete next season.

But McLaren boss Martin Whitmarsh says even though the costs are high, his team remains committed to the race.

“We are very aware that we are part of a business that relies on sponsorship and advertising and that clearly has had a significant downturn globally. We need to ensure that, as a sport, we can control costs and look ahead to ensure that we can sustain a minimum of 10 or 13 teams in Formula 1.”

DHL is a sponsor that is well aware of how much teams are now scaling back.

It takes care of the logistics of transporting the cars and equipment and, according to Richard Owens, a senior vice president of the firm’s Asia Pacific operations, much less is being transported now versus just a year or two ago, though some of this is a reflection of new rules that restrict how much a car can be rebuilt in between its qualifying rounds.

X factor

To bring some sponsorship and corporate interest back into this year’s Singapore F1 grand prix, a three day music festival called F1 Rocks made its debut, sponsored by Korean electronics firm LG.

It featured some of the biggest names in music: Beyonce, the Black Eyed Peas and No Doubt, among others. A tie up between Bernie Ecclestone, a Universal Music joint venture and Singapore Tourism Board, it rivals Live Aid in its reach and will accompany other Formula 1 races overseas.

Paul Morrison, the chief executive of All the Worlds, the Universal Music unit that has brought the event here, says the idea for the festival was agreed in March, but it was fast-tracked to make its debut in Singapore this September.

With enticing extras like discounts and rock music festivals – the focus may start to shift away from the race, already flagging by diminishing corporate interest. They could also prove too much of a distraction from who crosses the finish line first.

http://news.bbc.co.uk/2/hi/business/8277602.stm