Sponsorships in F1: The Worm is heading downwards?

Sponsorships and sponsoring in general is a very important part of Formula One. Teams and drivers need sponsors to receive more money to use for their resources, and sponsors need Formula One to get better marketing areas and to get their logos on the cars that will be seen by millions of people around the world. Sounds like a symbiotic relationship between sponsors and teams, right?

Though it sounds like both sides will receive what they need, gaining sponsors in Formula 1 is getting more and more difficult. The financial situation around the world isn’t the best, and it can also be seen in the Formula 1. Money is needed, but how to get it? How to get sponsors who are ready to put such a huge amount of money into a motorsport series?The amounts are often huge and are going around millions. It’s risky, but it might work out well.

We don’t need to go back in time for many years to notice how number of sponsors has gone down in recent years, especially with the midfield teams. Bigger teams still have quite a lot of sponsoring partners, but the smaller teams are struggling.

Williams and Sauber are good examples in this situation. Both are teams who have quite a long history in F1. If you look at their cars from back in 2008, they still had many known sponsor names on their cars. Sauber was BMW-Sauber back then and turned back into Sauber in 2010, but the difference can be seen. Since then, the car has had space for sponsors.

During the transition period from BMW-Sauber to Sauber, the team had its worst season in terms of finances as well as on track performances. The Sauber C29 was unveiled quite shockingly without names on the sidepod, engine cover or even at the front and rear wings. The only place where the C29 was crowded with names was at the nose cone, which doesn’t offer a sweet deal on the finances side.

The same goes with Williams today. This season the team is having problems with their pace and the car isn’t what was expected. Last year the team even won a race, but this year, even fighting for points is proving to be difficult. But nevertheless, the team revolves around a particular driver who brings tons of money from his nation, and that’s one of the major names to be labelled across the FW35. This legendary team surely deserves a better place on the financial side, but for sure, sponsors wouldn’t prefer a non-performing assets!

One example for gaining sponsors today is through drivers. Both Sauber and Williams have drivers who are bringing sponsors to the team and who are making these sponsors to stay with the team. Young drivers with sponsors has been a big topic in the past couple of years, but this is how times have changed. If a driver has a big sponsor, it will be helpful for the team to contract a driver.

If a team needs to make a decision between two good drivers, they are likely to pick the one who has sponsors. The situation is unfortunate, but young drivers know how it is. Companies seem to be more likely to sponsor a driver from their own country and helping the driver forward, which will lead the sponsor’s name to F1 if the driver gets in there.

Sauber got a Mexican telebrand Telmex thanks to Sergio Perez back in 2011. Perez moved to McLaren, but Telmex continues their partnership with Sauber as another Mexican driver, Esteban Gutierrez, entered the team this year. In Williams it was Pastor Maldonado who helped the team by bringing Venezuelan oil company PDVSA as a new sponsor. Brazilian Bruno Senna was bringing sponsors to the team too, but Senna couldn’t keep these important sponsorships. Senna was changed for Finnish Valtteri Bottas, who also has some support from Finnish companies Vihuri and Kemppi behind him.

Another example about the difficulties with sponsors is HRT’s story. The team didn’t have anymore resources to continue in Formula 1 after the 2012 season. The team was always on the back of the field and didn’t manage to get much steps forward as there were no resources, and also it is difficult to get sponsorships when the cars are back on the grid. At the peak of their struggles, HRT was rumoured to run with outdated components, some of them running beyond their specified mileage. Although the team were in talks with investors from Middle-East, they just couldn’t finalise their plans for the 2014 season as the potential investor backed out.

HRT’s inability to find a new investor could also lie with the fact that the new investors faced a steep road ahead, with their newly constructed headquarters located at Spain which isn’t enjoying conducive financial conditions.

Marussia and Caterham also continue at the back of the grid and financial status could not be better for both, but at least it looks brighter for these two teams than what it was with HRT. This was possibly also one of the reasons for Caterham to drop Kovalainen and Petrov after 2012. Kovalainen wasn’t ready to find any sponsors for a drive and Petrov’s possible sponsors weren’t sure at all.

The much-talked about potential ‘merger’ of the two teams failed as the respective parties couldn’t come to terms over the course of the winter season.

For the bigger teams, finding sponsorships isn’t too difficult compared to smaller teams. Teams like Ferrari, Red Bull and McLaren are big names in the series today. Mercedes and Lotus can also be added to the list.

For Lotus it hasn’t been the best situation financially, but the success in the last couple of years and Räikkönen’s comeback have helped the team a lot. Their French driver Romain Grosjean brings moolah to the team by asking French oil company Total to sponsor the team. But the lack of ‘title sponsor’ is clearly hurting the team’s cause as the team has put up a massive £56.8m after- tax loss in their accounts until December 2012. The amount is quite massive, it’s even bigger than Marussia-Virgin Racing in 2011, who had stated a £46.3m after tax loss. It’s understood that Lotus has lost a huge backing from Proton Group who have sold the entity to Genii Capital. Although the team uses the name ‘Lotus’ which they won after fighting a legal battle with Team Lotus, ‘Lotus Cars’ have stopped spending on the team.

Lotus faces a massive challenge at the end of the year- they have to repay the amount which was given as ‘Group Loan’ at the beginning of 2012. Kimi Raikkonen’s contract is up for renewal, and the amount that Lotus would be offering to the Kimi for the renewal would certainly be bigger than what is being offered at this stage. The one escape road would be the title sponsor but Gerard Lopez has insisted that he would not rush up the deal with a particular company that may ‘undersell’ the team.

“At this stage it’s a choice. There are a number of title sponsors we can sign up, but anyone you sign up is for three to five years, The value we have today in the championship and the paddock is one that should be recognised. So we’ve refused to sign certain things we could have done because we believe we shouldn’t undersell ourselves. So it’s a choice, and whenever you make a choice you have to live with the consequences, and the consequence for us is we (as owner) essentially finance more of the team. But that doesn’t mean the budget has come down. On the contrary the budget has actually been increased (for this season).” – Gerard Lopez speaking to Sporting Life

The costs for the sport were high a couple of years ago and were cut a lot from what it still was back in 2008. There are now more limits for testing, engine usage, gearbox usage. This helps teams a little bit, as the costs aren’t that high anymore as they used to be. Testing is limited to 15,000 kilometers per year now and there are no proper testing sessions during the season. There are some winter test days before the season, but when the season starts, it’s all about what teams can make in their wind tunnels. This puts costs down in many fields.

The free practice sessions at Friday were also extended to one-and-an-half hour thanks to the testing limit, so teams will have enough time to find right setups. Although the first half hour of the Friday session is always idle due to green track conditions that normally exists. Alongside testing, there’s no need to go many years back when the number of engines per year wasn’t limited. It, of course, was very expensive as those engines didn’t last very well always, and engine failures were quite common. Both these problems were fixed with the engine usage limit. All drivers can have only eight engines for usage per season. Getting the ninth engine will cause grid penalties to all those races where the spare engine is used. Also, one gearbox should last five races, and a gearbox change causes a five-position grid penalty for the driver.

It’s also notable that it’s not allowed to take smoking brands as sponsors any more. Till 2007, it was still fine to use smoking sponsor outside of Europe, but was fully banned in the sport from 2008 forward. Marlboro was a long time partner of Ferrari and even the main sponsor. Though that advertising isn’t allowed anymore, Ferrari now has the Santander bank as their new big and very important sponsor. It also pleases the Spanish bank that a driver from their country drives for the team, as Fernando Alonso keeps the Spanish colours up. Nationality seems to be very important for many sponsors today, and sometimes it’s the key for gaining sponsors: driver’s home country.

Let’s not forget that Finnish game developer company sponsored Lotus and Kimi last year, and also had Heikki Kovalainen’s helmet fully in the Angry Birds theme thanks to their sponsorship. For some reason the company’s interest to F1 only lasted one year, but surely was successful for both sides: team, drivers and the company itself.

Formula 1 is an exciting platform to promote, everyone knows it. But the only reason, we have seen the lack of attraction is because the big Teams charge at a steep rate, and not many prefers the low profiled Teams. Close Racing is what is needed, Not the Artificial One. If there is a downward trend in the interest of sponsors, it again falls back at the regulations and those who sets the regulations.