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Why F1 needs to market itself with immediate effect

Muktesh Swamy
2.03K   //    28 Feb 2015, 20:02 IST
F1 needs an image makeover!

F1 is facing a crisis! Falling attendance at combined spectator and TV-audience levels, increasingly disillusioned fans, a raft of struggling suppliers (teams), reducing sponsorship base and, crucially, dwindling outlets (race promoters and TV transmitters). 

Last year Spa officially hosted just 44,000 paying attendees – 10 per cent down on 2013 – on Sunday, despite the grand prix venue having a catchment area comprising Paris (Elf, Renault), Amsterdam and northern Germany (Sebastian Vettel, Nico Rosberg, Mercedes), the last-named due to the Nurburgring sitting out 2014 due to its illogical rotating deal with Hockenheim.

Alarming drop in TV audience

TV audiences proved equally alarming: The average UK live audience, for Sky and BBC, dropped below the three million mark, with Germany's RTL (free-to-air) failing to hit its golden five million figure. Sky Deutschland? Less than half a million.

All this begs the question: where has F1 gone so wrong of late? Worryingly, a meeting called by F1 tsar Bernie Ecclestone in Spa to discuss this very aspect missed the sweet spot. "It was a bit like the blind discussing the latest fashion in sunglasses," said one attendee. "No one has a clue what to look for."

Pirelli motorsport director Paul Hembery admited to being concerned about the sport's apparently knee-jerk reactions in its attempts to spice the show as it seeks to reverse the trend. "When you're in business, the first thing you do is try to understand your customer," he said. "I think it's very dangerous for a sport like F1 to invent rules, regulations and ideas without extensively understanding what the customer expects from it."

True, new circuits are joining the fray; but, over the past decade, F1 has lost no fewer than five of the 10 new venues it attracted. In primary markets the broadcast landscape has changed dramatically since CVC Capital Partners acquired the majority slice of F1's commercial rights in 2006. Customer service (fan engagement) is basically non-existent.

The reason for F1's malaise is historical. When Ecclestone's Formula One Management operation eventually sealed the deal to acquire F1's commercial rights in 2000 when McLaren Mercedes driver, Mika Hakkinen, was reigning world champion, prompting the German car company to trumpet its achievements.

Ferrari had taken the constructors' title, a tale told by every pack of Marlboros. BMW made its entry, Jaguar bought Stewart, Toyota was about to join, while Renault negotiated to acquire Benetton. Not only did they throw the might of their global ad spends at F1, but these powerhouses brought in blue-chip partners, who in turn screamed their F1 links.

The Tyre war

Bridgestone and Michelin were engrossed in a tyre war every bit as ferocious on-track as it was on billboards.Collectively they bought ?3000 Paddock Club passes by the hundred, signed for "bridge-and-board" circuit signage packages and took expansive and expensive merchandising areas.

Toyota is estimated to have blown upwards of ?10million on rental alone for its enormous merchandising palaces during a nine-year tenure in F1, while stands erected by the rest were not much smaller. Advertising came in the form of double-page spreads everywhere.

Dealers, too, joined in when F1 came to town, running local promotions and feting VIPs and key customers during events. Thus F1 enjoyed staggering exposure on a truly stratospheric scale, all paid for by teams and their commercial/technical partners. When F1 folk needed to consult market research, some company somewhere had commissioned the numbers.

In short, FOM had no need to spend a brass bean on marketing, instead enjoying the luxury of suppliers and third parties funding all such activities, who told its message. Then manufacturer teams left in droves, disillusioned by the lack of return on (massive) investment and taking their partners with them.

An anecdote linked to Bridgestone goes some way towards illustrating the protection/exploitation-of-rights dilemma: when the Japanese tyre company entered the sport in 1997, it planned to distribute doormats bearing the words 'F1 – The Challenge' to thousands of outlets globally.

The commercial rights holder allegedly demanded a licence fee running to many millions, prompting Bridgestone to destroy its mats. Forget Bridgestone's benefits from the campaign: what price free F1 awareness in virtually every tyre outlet across the world?

Simultaneously, tobacco advertising had been outlawed in Europe (and elsewhere), and as the baccy ban neared, so cigarette companies ramped up their activities. This initially created greater awareness for F1, but not without causing a massive vacuum upon their departure post-2007. Did FOM step into the breach? Of course not. At that point CVC began leveraging its two-thirds majority on F1's commercial rights and, with eyes firmly on a Singapore listing within five years, the investment fund set out to dramatically boost short-term profitability through a combination of cost-slashing and maximisation of turnover. What long-term marketing strategies? 

Instead, hosting fees shot through the affordability ceiling, causing ticket prices to rocket, while TV gradually migrated to pay-per-view channels. This meant that sponsors and partners no longer enjoyed massive audiences, forcing most to negatively reconsider their engagements. Withdrawal resulted in reduced activation, followed by reduced awareness. 

The shift to PPV TV has been drastic for another reason. Where once free-to-air stations – usually national channels – regularly promoted upcoming F1 broadcasts as part of regular scheduling breaks, bringing the sport to the attention of the entire audience spectrum, the current arrangement of shared oft-delayed broadcasts means channels such as BBC and TF1 who take back seats to Sky and Canal+ respectively are no longer enthralled by F1.

After all, why should they carry promo previews that ultimately benefit their opposition? Equally, when Sky or Canal+ run previews, they are preaching to the converted, who have in any event already subscribed.

So F1 gradually slipped down the awareness order, and the only wonder is that it took five years for the effects to wash through the system, which bears testimony to the deep-rooted passion of the sport's fans, but is equally an indictment of the sport's commercial owners.

Need to make it a global sport

F1 apologists blame the economic crisis, but their 'facts' simply don't stack up. Porsche and Audi commit F1-level budgets to the World Endurance Championship; Volkswagen and Hyundai spend massive amounts on World Rally Championship campaigns. BMW commits an estimated ?75million per season to the DTM, in real terms a national championship, while the respective spends of Mercedes and Audi cannot be significantly less.

Yes, Honda returns in 2015 – marking the first return of a major marque in six years – but, crucially, as engine supplier only. No others are on the horizon, despite most motor manufacturers being bullish about their immediate and longer-term futures.

Global sport spend too is up: Manchester United recently signed a record 10-year shirt deal worth ?90million per annum, while the top five European football leagues last year turned over a combined ?20billion, probably five times F1's 2013 cumulative turnover. According to reports, F1's TV audience is shaded by Turkey's football league.

Yet F1 does not seem to accept that it's staring a crisis in the face. This, though, stands in stark contrast to findings of the world's largest professional network, auditing giant PriceWaterhouseCoopers, which foresees global sports spend increasing at the rate of four per cent per annum. PWC estimates the market to be worth ?110billion annually, and in a recent report foresaw a "resurgence of financial services and automobile companies to sponsorship". 

A global survey undertaken last year found that over the five years from 2009 – the exact period of the global economic crisis – the sport-sponsorship market grew by almost 20 per cent, thus further contradicting the claims made at noon last Saturday.

The underlying message to F1 is clear: establish a structured, strategic marketing department PDQ, or the downward spiral will continue, particularly if new/social media are excluded from the equation.

"Adapt or die", it's called.

Muktesh Swamy
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