Formula One's economic downturn

Formula One's economic downturn
Formula One has lost some of its buzz, big team budgets are running out of control, sanctioning fees and ticket prices are too high and historic European races must stay on the calendar.

Zak Brown, the American boss of the world's largest motorsport marketing agency, is running through a check list of where Grand Prix racing is going wrong and what needs to be done to put it right. If overall the tone remains positive, it comes with a clear health warning.

“From our (company) standpoint, interest is as strong as ever,” the founder of Just Marketing International (JMI) and chief executive of Chime Communications-owned CSM Sport and Entertainment, told Reuters. “But if you separate how we are doing and look at the sport as a whole...other people aren't announcing deals, the McLaren car is pretty blank.

“The overall sponsorship economy, while we are bucking the trend, is very down in Formula One,” added the former racing driver who some have tipped as a possible successor to F1 supremo Bernie Ecclestone. “That's a fact, just look at the cars.”

McLaren, whose cars have very little branding, have not had a title sponsor since 2013. Struggling Sauber have swathes of space available for backers while the Manor Marussia car is almost a blank canvas. They compare unfavourably to the pictures adorning the office walls of some of the historic F1 cars Brown owns -- an ex-Ayrton Senna Lotus 98T and Michael Schumacher Benetton B191 among them.

The sport is beset with arguments about governance, how to cut costs and give teams more money and fears that historic races like Monza in Italy face the axe while exotic new destinations are added. The German Grand Prix has already been cancelled for 2015 while Monza is out of contract after 2016. France went in 2008.

While the sport enjoys annual turnover in excess of $1.5 billion, half of that goes to the commercial rights holder while the remainder is split between teams based on performance past and present. Brown said the challenges were fixable, although he recognised that was easier said than done in a sport where the stakeholders rarely agree on anything.

“The potential for the sport is untapped. I think it needs, as an industry, to be much better marketed. It's not where it needs to be,” he declared. “The budgets are out of control. And that then forces the whole eco-system of the sport to be financially strained...the expense of the sport is out of balance with the commercial value of the sport. Budgets now are $200-300-400 million. It's nuts.”

“We don't need $400 million budgets. And if we don't need $400 million budgets, we don't need the same size of sanctioning fees which are putting tracks out of business, which then means we don't need to charge the consumers as much.”Brown said some existing sponsors had voiced concern that the calendar was moving too far from traditional markets. “Losing Germany: I haven't had anything other than disappointment from sponsors on that,” he added. “With Italy there will be the same reaction.

“Some of the new markets, Mexico, are fantastic. Some of the other markets that are new, less so. We are adding some good ones...but then there is speculation of a third race in the Middle East. How can you have three races there and none in Germany?” asked the 43-year-old.

“I think the two they have are outstanding and contribute a lot to the sport but a third? I don't think the market can support that.” Brown said companies already involved in Formula One understood the natural ebb and flow of the sport but others might be holding back.

“What I'm seeing is...attendance is down, TV ratings are down, car count (the number on the starting grid) is struggling. So your key performance indicators are all on a downward trajectory right now,” he said. “Every single client we had that was up for renewal has renewed. Every client we have that is in Formula One, is happy they are in Formula One. But even though the sport is massive, marketers do like things that are hot and buzzy. And right now Formula One doesn't have the buzz it's historically had. I think it can come back but they need to work on the product.”

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