Slowdown puts brakes on F1 racing sponsorship

Carmel Crimmins

HOCKENHEIM; (Germany): For a Formula One team there is only one sound more

comforting on race day than the roar of their car's engine on the track and that

is the whirr of their sponsors' helicopters overhead.

Corporate cash is the real wheel-turner at any Grand Prix circuit but in the

past few months global economic slowdown has hit major sponsors hard, leaving

teams fearful of fewer helicopters in the skies and less money on the table.

"The economic downturn, particularly in the United States, is going to have

significant ramifications for sponsorship in Formula One in the short

term," Mark Gallagher, head of marketing for the Jordan racing team, said.

"I think if you came back to the Formula One paddock next year you would

see half a dozen technology names absent that are currently in the sport,"

Gallagher told Reuters. In recent years, the meteoric rise of technology,

telecom and media (TMT) shares on the world's stock markets has changed the very

face of sponsorship of Formula One racing.

Technology and telecommunication firms became the new doyens of Formula One's

corporate hospitality tents, replacing tobacco companies as the sport's

predominant patrons. Companies such as Compaq Computer, Nortel Networks, Marconi

and Lucent Technologies each shelled out millions of dollars to have their names

plastered across Formula One cars, caps and shirts.

Tech tide turned



But the high-tech tide has turned. Technology profits and revenues have
nose-dived and companies have been axing thousands of jobs to survive. Nortel

Networks, one of the main sponsors of Williams, has said it will lay off nearly

a third of its global workforce, eliminating some 30,000 jobs.

With chief executives under pressure to cut costs, the general consensus in

the Formula One motor homes is that sponsorship contracts with high-tech

companies that end this year either will not be renewed or will be scaled back.

"If people are making tens of thousands of staff redundant then you can

be absolutely sure that sponsorship and marketing will be in the firing line as

well," said Gallagher of Jordan, whose contract with Lucent Technologies

expires this year. According to calculations made by the monthly magazine

Eurobusiness, a Formula One winning team will cost some $250 million a year to

operate, with up to 90 percent of that cost recouped from sponsors.

Fearful that technology sponsors are likely to reduce their sponsorship, or

in some cases withdraw it altogether, the Formula One teams are beginning to

tighten their belts and the first stop is the VIP enclosure, where captains of

industry and society hostesses mingle over flutes of champagne.

"Last year in the United States Grand Prix we had over 600 corporate

guests but this year we will have just over 200," said Gallagher. But in

spite of the glum stock market tidings no one in the Formula One paddock, fears

going under. Each team has a wide portfolio of sponsors whose contract lengths

overlap and differ.

In the long-term the hope in the pit lanes is that high-tech stocks will

bounce back and in the meantime teams are hunting for non-technology companies

to fill the gap.

Trump card



The sport's trump card is the huge global advertising audience that it can
deliver. Formula One is the biggest spectator sport after the Olympics and World

Cup soccer and unlike them it takes place every two weeks not every four years.

Industry estimates suggest some 300 million fans tune in to watch the thrills of

the track on their televisions every second Sunday during the nine-month season.

In Germany, television broadcasts of Formula One races have become among the

top-rated programs each year. For this reason Jim Wright, head of marketing at

Williams, is sanguine about the high-tech slump despite the fact that three of

the team's sponsors, Nortel, Reuters and Compaq have announced nearly 40,000 job

cuts this year.

"It wouldn't surprise me if those companies - Lucent Marconi and Nortel

- scaled down or even withdrew from Formula One but that doesn't mean there will

be gaping holes in the budget," said Wright. "Not everyone is having a

rough time of it at the moment and we've got new companies coming into the sport

all the time."

The financial services sector is seen by many as a cushion during the

high-tech slump. Insurance giant Allianz entered the sport last year and HSBC

Holding Plc announced last month the extension of their sponsorship of Jaguar to

the end of the 2004 season.

Even in the beleaguered telecom sector, there are signs of light. Britain's

Vodafone announced in May they would sponsor champions Ferrari from 2002 in a

three-year deal, which sources speculated was worth some $50 million a year.

Mobile operator Orange, now part of France telecom, took the title sponsorship

of the Arrows team in March, renaming it Orange Arrows, in a deal worth 70

million pounds over three years.

And while the tech stocks falter, the Formula One teams know they can always

rely on tobacco for another couple of years at least. In 2000, FIA passed a

resolution that 2006 would be the last year that tobacco sponsorship would be

allowed in the sport.

The uncertain future of high-tech sponsorship, however, has ensured that

teams are reluctant to kick the tobacco habit till the bitter end. Ferrari have

renewed their sponsorship deal with Marlboro until 2006 and McLaren have

confirmed their West sponsorship until 2006, giving both teams some breathing

space before they have to get back on the sponsorship trail again.

In an exclusive interview, F1 champion Michael Schumacher talks on how technology

has changed the face of racing. Click here to read more.

(C) Reuters Limited 2001.