What role does sponsorship play in Formula 1?
Every livery on the grid is logo’d up, but how important is sponsorship for the sport?
Money makes the world go round in Formula 1 in a similar way to most other sports. For the vast majority of F1 history, liveries and overalls have been plastered with logos of brands ranging from luxury watchmakers to logistics providers. There’s over 200 sponsors and partners involved in F1 across traditional pay-per-logo type arrangements to the more collaborative and increasingly popular technical partnerships. Nonetheless, a livery without the logos would almost look out of place nowadays but that was very much the reality for the first decade or so of Formula 1’s existence when external branding on the cars was banned. Clearly, a huge amount has changed since then and sponsorship is now synonymous with the sport and plays a key role.
Sports sponsorship annually is estimated to be worth around £35bn – that’s billions, with a b – globally across all sports. Companies choose to shell out millions to have the privilege of having the Olympic Rings next to their logo, gracing the sleeves of a Champions League club or appearing on the side pod of a Formula 1 car. Out of all of the sports, F1 is arguably the most global platform. The Olympics has a huge world-wide reach but is limited to once every four years, the same as the Football World Cup, and other series such as NBA and NFL tend to be more America-focused.
F1 on the other hand has 23 opportunities a year to visit different countries on most continents, broadcasting the sport to every corner of the world with an estimated fan base of 500 million. With that audience size, even the most expensive sticker space on a car can seem reasonable for a company looking to get their name out there.
As an added benefit, F1 attracts a higher end clientele. Apart from just the regular viewers and fans, a huge amount of corporate hospitality is on offer and many B2B businesses benefit from this due to the logo and branding but also networking at Grands Prix. It’s usually the reason why some businesses with obscure product offerings sponsor F1 as their target demographic are commercial customers rather than retail. For example, in Zak Brown’s ‘Beyond the Grid’ appearance he divulged that there were more CEO’s present at Singapore’s GP than anywhere else and this made it an appealing business destination for sponsors to network.
A sponsor who has been vocal about the value created by association to Formula 1 is ROKiT - a telecommunications and drinks company who secured a previous title partnership with Williams F1 Team. The founder of the team, Jonathan Kendrick, said that even though the team didn’t do well in 2019, it opened doors for them in acquiring small companies and launching new products. He believed appearing in F1 had given them credibility and that sponsoring the sport had given ROKiT the perception that it was a huge company and peaked consumers’ interest as such. This rings true for many sponsors as the sheer association with F1 can give brands the aura of being larger than they truly are and this is attractive for both B2B and B2C customers, explains why sponsors like Rich Energy are so keen to get in.
The value doesn’t stop there and it runs both ways. Sponsorship is integral to Formula 1 because the costs of running a team and developing a car are substantial. For most teams, sponsorship might make up half of their budget. Get rid of that income stream? It’s no longer feasible for many of the teams to run. Of course, some teams are funded by wealthy individuals, large automotive manufacturers or investment groups but above the entertainment and competition, the teams are businesses and it must remain viable for them to take part in the long term. Lack of sponsorship due to lack of on-track success has been the reason as to why teams such as Caterham have left the sport previously and so sponsors are incredibly important to keep the teams’ books healthy.
There is a general acceptance that there’s a budget required to compete in F1, and there’s a budget required to be competitive which is where the disparity kicks in. The budgets of the larger teams can be around 3x that of the smaller which ends up in a consistently growing performance gap. This is where sponsorship can offer a boost in finances. It’s a win win situation as the sponsor ends up with a worldwide advertising platform and the team ends up with the finances needed to compete in Formula 1.
The first official sponsor in Formula 1 was Gold Leaf in 1968 for Team Lotus which has since paved the way for a whole raft of iconic tobacco sponsors – think Marlboro and McLaren/Ferrari - and even more non-tobacco sponsors. Many teams were dealt a blow in 2006 when an EU directive banned the promotion of tobacco during sports events which left a gaping hole in some teams’ finances. However, companies tried their best to get around it. ’A Better Tomorrow’ is displayed on McLaren cars which relates to British American Tobacco, and Marlboro’s owner Phillip Morris International has had a very difficult time trying to say goodbye to Ferrari - it‘s just decided not to. PMI instead buys up all the space on the Ferrari cars and sells it off.
When the Marlboro logo initially had to be removed from the Ferrari, they attempted to use a barcode image instead but this was eventually overruled too. Most recently, ‘Mission Winnow’, again the brainchild of PMI, was under investigation by the Italian authorities and Ferrari ended up pulling the advertisement from its livery by choice. All of this drama however, highlights how key some sponsors think it is to be in Formula 1 and the sheer lengths they will go to to make it happen.
DHL signage. IMAGE CREDITS: DHL.
Businesses can choose between sponsoring the sport in its entirety, a team, track or driver. General F1 sponsors such as DHL, Rolex and Emirates benefit from extensive track signage which equates to guaranteed air time across all of the races and greater brand awareness and recall. If DHL had instead chosen to sponsor Ferrari, and an incident like Styria 2020 happened into turn 1 with both cars retiring within a couple of laps - that was a very expensive few minutes. If the performance, or lack of, is sustained - Haas for example - then partnering with a team who isn’t doing well can also be detrimental to the sponsor and so choosing to be neutral and sponsor the sport as a whole or a track can be a safer choice. By doing this, DHL is shown throughout the race on signage with no negative affiliations, and has also sponsored the ‘Fastest Lap‘ and ‘Fastest Pit Stop’ awards to increase the amount of exposure.
If a sponsor is potentially looking for more targeted or engaging brand activations, then sponsoring a team or track can be more effective. Signs and billboards can’t talk to customers and lack interaction so that is where the objective of the sponsorship becomes important. Businesses can still achieve engagement with a general sport sponsorship with examples such as Johnnie Walker who have set up successful customised bar experiences at various Grands Prix, but a majority of businesses opt for a team partnership instead. The risk that a specific amount of air time or success is not guaranteed is one that many accept as its usually cheaper and sponsoring a team can allow for other benefits including aligning with a teams personality and/or benefitting from popular drivers.
A recent example is Huski Chocolate which appears on the rear wing of a McLaren and is a name most McLaren fans will recall as it’s very noticeable on the car in comparison to a small logo lost in a sea of others on the side pod. However, McLaren have also produced Huski branded content with one of the Christmas videos uploaded to its YouTube channel featuring a hot chocolate making challenge using and promoting the product which yields more value and exposure once again. The cost of these partnerships will vary per team with historic and successful teams such as Ferrari usually charging the largest amount due to its loyal fan base and the connotations of being associated with the brand of the prancing horse.
Shorter term collaborations or one off activities are also an option with clothing and accessories regularly being examples of this - e.g Ray Ban and Ferrari releasing branded glasses or the Haas pit crew being dressed in Jack & Jones denim. A Bathing Ape (Bape) and Anti Social Social Club - goliaths of the streetwear world - have produced limited collections with F1 itself in the last 3 years, and Tommy Hilfiger produced a collaboration collection with Mercedes as a partner of the team. In the case of the former, collaborating with streetwear brands with strong and loyal footholds in younger demographics mainly situated in the US, China and Japan, was a clever way to get F1 in front of potential fans in the areas where the sport wants to grow its reach. Bape mutually benefitted by having its signature camo print mask the podium backdrop in Suzuka 2018 and thus was exposed to hundreds of millions of potential customers. These types of collaborations achieve more engagement and buzz due to usually limited stock numbers and increased sales/sell out collections.
Bape branded podium ceremony in Suzuka 2018
The stage at which a company is in also plays a part here as newer brands may just want to exploit the quick and easy mass reach which is achieved through F1 advertising. On the other hand, large and established companies may be less bothered by the exposure as they may already have the brand loyalty. However, competitors also contribute to the decision and this explains why there are so many luxury watch makers as sponsors, or why there used to be a long list of tobacco sponsors. If Rolex is sponsoring F1 and consistently in the eyesight of the higher end target clientele, then of course Tag Heuer, Richard Mille and co want to make sure that their brand names are at the forefront of consumers minds too.
Recently however, in an era where social media advertising is cheap, targeted and effective, sponsorship is losing its appeal for many. A larger proportion of brands fail to see an adequate return on investment (ROI) on large sponsorship payments where just a logo appears on a teams livery. Instead of solely being a sponsor, partnerships and more specifically, technology partnerships, are appearing to be the preferred choice with both parties actively trying to extract value from the relationship by utilising each other’s technology, knowledge or people.
Partnerships can offer more than just marketing and awareness for businesses as there’s many examples in the paddock where businesses have been able to showcase what they can do and this in turn provides value for the F1 team and also unique oppportunites for partner businesses to test their own products or services. For example, when BT sponsored Williams, they provided all of the wireless infrastructure in the pit lane for the team to process and share data which helped with monitoring the cars and making decisions. Similarly, Kaspersky are currently providing Ferrari with cyber security software as displayed in the adverts that usually follow F1 broadcast on Sky Sports.
Perhaps the greatest technical partnership there is is that of Mercedes-AMG and Petronas. Petronas is an oil and gas company and provides the fuel to the Mercedes team. Their partnership has spanned the decade in which Mercedes has participated in the sport and continues to be renewed and extended as the duo enjoy a seemingly endless amount of success. The value of the title partnership is estimated to be around a staggering $75 million per year. Working together, Petronas developed the optimum fuel for the Mercedes concept engine and this collaboration has delivered 7 back-to-back Constructors’ and Drivers’ Championship titles. The reliability of the engines is also arguably the strongest with Bottas only suffering one DNF in 2020, and Hamilton none. To complement this technical work, Lewis, Valtteri and Toto appear in Petronas marketing regularly to praise Petronas for the work they have done together and so this partnership has enjoyed the best of both worlds.
A new example of a partnership would be that of Unilever and McLaren which is rumoured to only sit around the £1 million value mark. Again, the value isn’t derived solely from the names and logos being linked in this case. Unilever hopes to benefit from McLaren’s engineering expertise to bring about efficiencies and help to solve some of their own engineering problems which is logical as F1 is thought to have the best and brightest. It’s also a calculated move from the McLaren camp as to have a sponsor of the scale and pedigree of a household name like Unilever will help to build its credibility amongst other potential sponsors. McLaren has also dealt with a similar sponsor previously in GlaxoSmithKline where it was able to bring about operational efficiencies which yielded an incredibly impressive 6.7 million extra tubes of toothpaste per year. Case studies like these are great press for the team and again prove that there is more than just exposure to be gained from brand partnerships.
Similarly, in 2019 Williams announced a partnership with the Financial Times. The hope was that FT would benefit from the global audience and alignment to the high performance sport along with its huge B2B reach, and Williams would be able utilise FT’s world class, targeted storytelling. Aligning with a media outlet who has achieved growth in subscriptions and is traditionally marketed for the business audience would also be an attractive benefit for Williams’ potential sponsors as the coverage and ability for the team to perhaps control parts of the narrative would be advantageous.
Finally, the importance of selecting the right partners remains incredibly important. Of course, some teams need the money more than others. Using McLaren as an example again, they haven’t had a title sponsor since the relationship with Vodafone ended, but they haven’t been quick to assign a new one and won’t do until right one comes along. On the reverse side of that, not every team is afforded the same luxury. The infamous story of Haas’ ties with Rich Energy and its termination showcases what can happen when it goes wrong and a similar situation with ROKiT pulling out of the Williams deal (although, no reason was ever given) also withdrew significant and important revenue for the independent team. Relying on sponsorship revenue from anyone who can give it naturally isn’t the healthiest place to be in for a Formula 1 team and the implications of losing it can be disastrous for teams with lower levels of finance. This is the point where teams tend to opt for pay drivers which, if not talented enough, can prolong periods of lower performance and again the cycle of lower sponsorship. However, hat’s not to discredit some pay drivers - for example, Sergio Perez - who come with racing quality and financial backing.
In summary, sponsors and partnerships are vital to making Formula 1 participation viable for most of the teams on the grid. More money translates to more car development and theoretically, more on-track performance. With a lack of sponsorship due to poorer form in recent years, teams like Haas and Williams have struggled, and the likes of Mercedes and Red Bull are thriving. However, sponsorship has moved past the traditional model of payment, logo, done. There’s been many sponsors leave in recent years after not seeing the appeal anymore including Infiniti, ROKiT and Jack & Jones in 2020. It now requires more engagement and collaboration between the two parties for it to be beneficial and yield practical, tangible or financial improvements in both parties businesses. F1 will remain an attractive proposition for years to come due its global reach and higher-end brand image but the onus will be on teams to continue to focus more on building longer standing relationships with sponsors and enjoying the stability that comes with it.