Formula One, perfect television, imperfect future

Michael Hedges May 24, 2009 Follow on Twitter

Formula One racing is considered a perfect television event. Without those really expensive tickets and a yen for the high octane smell the best seats are in front of the digital screen in the living room. Last year 600 million watched, 3 million more than in 2007. But, maybe, 2009 is different.

In January the FIM (Fédération Internationale de l'Automobile) published its annual Global Broadcast Report showing another increase in television audiences. More Italians, naturally, watch, Ferrari being a national icon. The Brits watched more, Lewis Hamilton winning a few drew fannies to the couch. With Michael Schumacher retiring, Germans watched less.

Television rights, though, have fallen behind race fees paid by venue promoters in F1’s never ending race for cash, according to trade paper Formula Money. Last year race fees brought in US$ 403 million, US$ 23 million more than TV rights. And that included fees paid by the BBC, out bidding ITV for this and the next four seasons. Team owners spent the big money, US$1.6 billion in 2008.

And F1 has come to the smallest screen. Spanish broadcaster La Sexta’s main partner Mediapro paid US$ 265 million for F1 rights through the 2013 season. A deal with Vodaphone and Moviestar brought the current season to mobiles, streaming practice and qualifying for fee and the races for fee.

Ticket sales for the June 7th Turkish Grand Prix are affecting the local organizers accounts, reported Hurriyet (May 23). "This year there is a decrease in corporates buying tickets,” said IstanbulPark general manager Can Güçlü, “but the number of individual ticket buyers is better than last year." ING sponsors the Turkish Grand Prix. Discussions about the event’s future are on-going. The Istanbul venue was added to the F1 circuit in 2005.

Formula One Management (FOM) boss Bernie Ecclestone keeps a close watch on his money. FOM is the commercial rights management company. FIA, run by ‘Mad’ Max Mosley, is the race sanctioning agent. The Canadian Grand Prix was dropped last year in favor of the Abu Dhabi Grand Prix because of “a funding thing,” reported Globe & Mail (October 7 2008). The US Grand Prix in Indianapolis was also dropped leaving North America without a Formula 1 race this year. FIA contracts require venue promoters to pay freight costs from European teams’ home-bases, a bit pricy for the Canadians.

Eccelstone recently visited Argentina, trying to scare up a new race venue.

The big F1 teams are, of course, very rich. Toyota, Ferrari, Renault, BMW and Red Bull spend hefty amounts keeping cars running and drivers well paid. Smaller teams struggle to compete. Eccelstone caused a fury among the big teams by announcing new rules capping annual expenditures to $40 million. All the big teams, save BMW, have threatened to quit.

Automobile manufacturers have enthusiastically supported racing, not limited to F1, for decades. Ferrari has become the icon of Formula 1 racing, its expensive, high performance ‘consumer’ vehicles inextricably attached to fast and flashy red cars on the race course. Toyota, Renault and BMW racing teams are wholly, or mostly, owned by their respective automakers. Honda Motor Company left F1 at the end of the 2008 season, selling the team, which was renamed Brawn GP. Honda cited dismal economics for its final exit from racing, annual costs running to US$ 400 million per year.

Fast cars provide the flash for auto racing but sponsors, mostly, provide the cash. Consumer electronics manufacturer Panasonic generously sponsors Toyota Racing.

Red Bull Racing is owned by Red Bull owner Dietrich Mateschitz and participates in F1 and US stock car racing. The Red Bull F1 team evolved when Ford Motor Company sold the Jaguar racing team to Mateschitz for a symbolic US$1 in 2004.  The following year Red Bull bought the Minardi F1 team, renaming it Scuderia Toro Rosso (STR), Team Red Bull in Italian. STR and Red Bull Racing are, somewhat, separate. Red Bull, the energy drinks company, is a marketing powerhouse. Auto racing fits perfectly.

Other big sponsors haven’t fit so perfectly. Big tobacco companies spent huge amounts attaching logos and other more obvious marketing efforts to auto racing, including F1. That unraveled as national and European Commission rules clamped down on tobacco adverting and marketing. Under EC rules logos for tobacco products can no longer appear on European television. Similar restrictions do not encumber tobacco sponsors in Asia, the Middle East and South America; hence, Bernie Eccelstone’s diplomacy in those regions.

Since public relations is tied to any sort of event sponsorship, financial institutions are rethinking auto racing. Dutch bank and insurance giant ING announced its exit at the end of the current season from the Renault F1 team sponsorship. Credit Suisse withdrew from sponsorship of the BWN Sauber team and the Royal Bank of Scotland (RBS) withdrew support from the Williams team.

RBS had other strong ties to F1, perhaps more than its shareholders liked. FOM’s Eccelstone began a financial partnership with private equity firm CVC Capital Partners for nearly US$2 billion. Financial stress being what it is, CVC is reportedly having difficulty servicing the debt, originally owed to RBS, now sold off to other investors.

Glamour and aspirational advertising go only so far when consumers feel pressed. The automobile industry is working through a number of trials, financial being the most immediate, demands for energy saving products replacing the energy wasting. As we’ve noticed, things change.

F1 won’t quickly fade from television screens. Attractive iconic events like the Monaco Prand Prix and the Grand Prix de France offer great Sunday afternoon fare for broadcasters, particularly when the home team is winning.  But F1 is rooted in the last century and people move on. Wait; the Grand Prix de France was also cancelled.