SPONSORSHIP IN F1 Alex Rogers

SPONSORSHIP IN F1

Formula one, a modern ‘travelling circus’ and the world’s largest marketing campaign. With the average spending of an F1 team being well over £150 million (and some spending upwards of £400 million) there is a lot of money floating around at the cutting edge of motorsport. There is some prize money involved in the competition however it is often not even enough to cover half the yearly spending of the teams never mind turning an actual profit. Despite this, each year new sponsors and investors shell out millions to buy shares in teams and to stick their logo on the sides of the cars and the shirts of the drivers despite the fact there’s seemingly little profit to be made from this and therefore, on the surface, little incentive. Which makes you think: where do these billions come from and why is there so much investment into something which seems so irrational?

There are 4 main sources of revenue in Formula 1: team sponsorship, trackside advertising, series sponsorships and payments from team owners. In 2018, 44.7% of total revenue came from team sponsorships alone and over the past 15 years it is estimated around $30 billion in sponsorship revenue has come into the sport. Firms dish out millions a year to stick their logo on the side of the car with no guarantee of a return on their investment (mainly an increase in sales and therefore revenue), it would seem completely irrational to do so, yet so many do; but why? You would assume that the main reason would be brand exposure, as is the aim of most sponsorships. However, in F1, the focus of sponsorship seems to be less focused on brand exposure and more focused on increasing brand preference. Many of the main sponsors in F1 are already well known, established brands such as Honda, Tommy Hilfiger, Ray Bans, Rolex, Heineken and many more. The aim of their sponsorship is not to increase their overall reach but instead increase their consumer preference through means of association with something like F1 which is seen as an elite sport. A marketing strategy like this is particularly useful in times of economic growth and especially when there is increasing average incomes as it makes consumers perceive your good as more luxurious and will therefore, they’ll be more willing and able to spend a larger proportion of their new income on your product which in turn will hopefully increase total revenue (which is the main aim of pretty much all firms).

Sponsors are vital to the survival of Formula One teams and because of this, F1 has become increasingly advertising driven throughout the years. The peak amount of money spent on Formula One sponsorship was in 2007 and saw the net income from team sponsorships nearing $3 billion that year but even after the 2008 financial crisis, the amount of money sunk in by sponsors only saw a minimal decline and was at a level even higher than we see today. However, with the budget cap coming into play at the start of the 2021 season, the sponsor driven nature may be set to change with teams requiring less money than they did previously.