Who benefits the most from F1 sponsorship: The team or the sponsor?
In this long read, I investigate whether sponsorship in Formula One changed to now benefit the teams more than the sponsor.
Before you start reading this, it is important to know that this is quite a long read, so maybe just skip to the conclusion if you're in a rush. It is also a lot more formal that what is usually posted on this tribe, as it was originally written for a college assignment. This also explains why parts of it are a bit "dumbed down", as the original reader would not have known much about the sport.
With the out of the way, lets begin.
When the Formula One World Championship was first started at Silverstone on May 3rd, 1950, no sponsors were present on the cars. This is because it was initially banned by the FIA (Fédération Internationale de l'Automobile). The FIA is the governing body of many motorsport categories, with Formula One being both the oldest and the largest. This meant that the cars raced in their national racing colours: Ferrari were of course in the Italian red, with British teams often opting for a dark green which became known as “British Racing Green”. The only branding that was present on the cars at this time was a small manufacturers’ logo on the nose.
Credit: F1 Fandom
However, after a few years small logos started to appear on the driver’s overalls, but these were strictly from the tyre and oil companies that supplied their products to the teams. This is by no means the commercial sponsorship we are so familiar with in sport today, so it was allowed. However, the FIA were forced to change their position on this issue however, as in 1968 both BP and Shell withdrew from the sport and Firestone decided to charge for their tyres. These changes were significant not only because the teams now had to pay for their tyres, but they also had to find a new fuel supplier. BP and Shell both withdrew for the reason that they did not see the financial or commercial benefits of providing the teams with free fuel only for a very small logo on the driver’s overalls, and neither did any of the (potential) new fuel suppliers that teams were approaching. In response to the threat of teams being forced to pull out of the sport over a lack of funding, the sport’s governing body permitted commercial sponsorship for the first time.
The introduction of commercial sponsorship is regarded as the most influential and important decision in the history of the commercial side of the sport, as in 1968 Lotus arrived at the famous Monaco Grand Prix with the cars sporting the red and white colour scheme of Gold Leaf. After this, many more deals followed in quick succession, and some of them were so influential that they are how people remember the teams. For example, Ayrton Senna drove the McLaren MP4-4 on his way to the world title, and this iconic car is remembered for it’s red and white colour livery – this was only the case due to the large amounts of money that Marlboro were paying the team.
The heavy influence on the livery of the car is what I will refer to as the ‘traditional’ sponsorship model in the sport, and I will research and discuss how this has evolved over time. I will show why teams are moving to a new type of sponsorship model which moves beyond a payment and a brand name into something which is much more beneficial to both parties. However, I will also be asking the question of whether the new sponsorship model is more beneficial to the teams than it is to the sponsor?
Firstly, the traditional model of sponsorship in Formula One, since commercial sponsorship has been legal, has been for a sponsor to approach a team and then agree between them how much they are willing to pay into the team per year. When this has been agreed, the two parties will then discuss how much branding will appear on the car and the driver’s overalls. As you would expect, the more money that the sponsor is willing to pay determines how much recognition they will receive. With a relatively small payment (this is still in the region of a few hundred thousand up to a few million pounds per year), a sponsor could expect to see a small version of their logo on the car. This would typically be on the nose of the car, or below the sidepods. They might also receive a space on the driver’s overalls, but this would only be for the higher payments within these boundaries. As the contribution to the team is increased, the sponsor’s presence both on the car and the drivers is going to increase. For example, a brand called ‘Huski Chocolate’ was announced as a sponsor to McLaren in 2019, and the team have larger logos on the car, most notably the rear wing. The rear wing is often shown on television during races, and due to this it costs in the region of £17 million to place your logo there. This will vary depending on the size of the team, and this is just the baseline figure. For example, a team such as Ferrari would charge a considerable amount more than other teams due to their larger fanbase and prestige.
The highest tier of sponsorship in the sport is what is known as being the ‘title sponsor’, which is where companies can pay north of £100 million each year for the right to control both the livery of the car as well as be a part of the team name. For example, up until the end of the 2018 season, Williams’ car was painted in the colours of alcoholic drinks firm, Martini. The team were also officially known as ‘Martini Williams Racing’.
This traditional sponsorship model is more beneficial to the sponsor, as they are expected to see much increased revenue due to the promotion. This is shown in the research paper that investigates the effectiveness of image transfer in Formula One, stating that the team will obviously benefit due to the money that they receive. However, when sponsorship was first introduced into the sport, it was done so that teams had enough money to survive. In recent years as sponsorship has grown, teams can now quite easily afford to take part in the sport, so it is the sponsor that has the most to lose. A quote from the ex-team principal of McLaren, Eric Boullier, gives evidence to support this: “We can afford to run without a title sponsor; that's a privilege. We want it because it's another step we can go, and we have many projects we would like to do, but to be honest, today, we can afford to run without.”
This traditional model has been the default position of many teams since 1968, and this soon transitioned from a mix from both manufactures and other companies to cars being dominated by liveries representing tobacco firms which was most prominent in the 1970’s and 1980’s, and although slightly restricted from the start of the 2000’s, it continued until it was banned at the end of 2006.
Tobacco sponsorship was where commercial sponsorship in Formula One began, with Lotus racing with the colours of Gold Leaf, and it then began to dominate the sport. This fast transition to tobacco sponsorship occurred because the teams were desperate for a title sponsor, and tobacco firms had the money and the willingness to provide it. For example, many people will remember the iconic colours of Marlboro McLaren, the black and gold of JPS Lotus and the blue and yellow of Camel Williams Racing.
To demonstrate the extent of tobacco sponsorship, the list below shows which teams dramatically changed their livery to correspond with the colours of the tobacco manufacture:
• Gold Leaf – Lotus
• JPS – Lotus
• Camel – Lotus, Benetton, Williams, Tyrrell
• Marlboro – McLaren, Ferrari, BRM, Alfa Romeo
• West – McLaren, Zakspeed
• Benson & Hedges – Jordan
• Rothmans – Williams
• Winfield – Williams
• Lucky Strike – Lotus, BAR, Honda
• Gitanes – Ligier
• Gauloises – Ligier
• Mild Seven – Benetton, Renault, Tyrrell
• Barclay – Arrows, Williams
However, this kind of sponsorship could did not continue past 2006, where an new EU directive banned the commercial sponsorship by tobacco companies at all sporting events. This meant that many teams lost a large amount of money, money which they had to make up somewhere else or risk failing to afford to compete in the sport. For example, British American Racing was a team owned and operated by British American Tobacco (BAT) and competed from 1999 until the end of the 2005 season – when the tobacco ban came into force. They were forced into a buyout by the car manufacturer Honda, as the company’s main ambition was to use their car as a billboard for their ‘Lucky Strike’ brand. Without this, they could not justify continuing to compete in the sport.
Phillip Morris International, which is the company behind Marlboro, refused to end their sponsorship with Ferrari. Even to this day, they remain as the major sponsor of Ferrari. They are believed to pay for all of the advertising space on the car, and since they cannot put any of their own branding on the car they then sublet this out to other companies. In 2007, the traditional Marlboro design of Ferrari had to be changed, but the team changed it to what was described as an “evolving barcode design”.
Phillip Morris first introduced a ‘barcode’ design of vertical red parallel lines (with and without the word ‘Marlboro’) in 1972, when they sponsored the British Racing Motors F1 team in 1972. The problem of the 2007 Ferrari livery arose when these same barcodes (or very similar) were placed in the same areas of the car and the driver’s overalls as the standard logos were in the past, which lead to the FIA launching an investigation. They came to the same conclusion as the researchers at the University of Nottingham, who concluded: “The Ferrari ‘barcode’ designs are alibi Marlboro logos and hence constitute advertising prohibited by the 2005 EU Tobacco Advertising Directive.” (Bruce Grant-Braham, 2011)
This conclusion brought the complete end to any sort of tobacco related branding in the sport, up until the same company (Phillip Morris International) began placing logos for “Mission Winnow” on the Ferrari car, something which the team have faced heavy criticism for. BAT have also followed suit and signed a deal with McLaren to place the logo for “A Better Tomorrow” on their 2019 cars. These companies and teams have been able to evade the ban on tobacco sponsorship as they are technically advertising a separate company which are not producers of tobacco products. For example, Mission Winnow describe themselves as: “Mission Winnow is a PMI-driven initiative inspired by the drive and dedication of our partner Scuderia Ferrari. The initiative draws parallels between Scuderia Ferrari’s laser-like focus on constant improvement in performance and reliability, and PMI’s journey to transform our business through science and technology to achieve a better future.”
The recent resurgence of this kind of sponsorship in Formula One is evidence to show how important a presence in the sport is as companies will go to extreme lengths in order to either subliminally advertise a product (Mission Winnow’s logo has been criticised for being very similar to Marlboro’s) or to remain at the forefront of the sport in one way or another. This could be because of the global audience of Formula One, which is around 600 million people per year.
As a consequence of the ban of tobacco sponsorship, teams were forced to lower their prices if they were going to keep their cars covered in brand logos. Many other companies either did not have the money to pay what the tobacco firms were, or they were not convinced that the return on investment was enough to justify sponsoring a major team. The return on investment was the subject of a research study in 2007, where each one of the 257 sponsors in Formula One were analysed, and then their return on investment was calculated. It found that 122 out of the 257 sponsors did receive brand exposure via the race television broadcasts, and that only 26 of the sponsors managed to have a positive return on investment by the end of the season. This group included was mostly comprised of multinational corporations, such as:
• Shell Oil
However, it was found that the largest beneficiary of sponsoring a Formula One team was the sponsor that paid the most money, and that was Vodafone. At the time, Vodafone was the title sponsor of McLaren Mercedes. McLaren are not only one of the largest teams in the sport, they also come with a large amount of historical value and prestige, much like Ferrari. This is the reason that they were one of the only teams in 2007 that were able to secure a good title sponsor. This sponsorship cost Vodafone £57.2 million per year, and they managed to earn £135.44 million by then end of the season. This evidence clearly shows how much more the sponsor benefits than the team when they use the traditional model of sponsorship.
Further evidence is shown by the average positive return on investment in 2007 was £19.24 million after spending an average of £8.37 million on sponsorship. However, this is only shown when the brand earns enough exposure to have a positive return on investment, as the remaining 231 sponsors paid an average of £7.81 million into their corresponding teams but only had a return of £2.11 million.
The study concluded: “Sponsors affiliating at the ‘top’ promotional level—higher than official suppliers, but lower than team title sponsors—realized a higher probability of positive ROI (25.35%) than team sponsors at other levels (12.56%). However, as foreshadowed by our analysis of sponsorship prices, achieving a positive ROI was particularly improbable for sponsors in the automobile industry, where the likelihood of televised brand exposure exceeding the price of sponsorship was only 2.71 percent.” (Jensen & Cobbs, 2014)
The likelihood of producing a positive return on investment is therefore very small for any sponsor that is not willing to pay lots of money for a large influence on the team’s livery and clothing, which is why in the early 2010’s the sport started to see a rise in the popularity of what are known as ‘pay drivers’. Pay drivers are Formula One drivers that have a considerable personal sponsorship and backing, which they can bring to a team in return for a race seat. For example, Sergio Perez was awarded a race seat with the Sauber F1 team in 2011, with a large part of that decision due to the backing that he has. Perez has backing from both the Mexican government as well as one of the richest men in the world, Carlos Slim. The team did not pay the price for this decision however, as Perez had lots of natural talent and went on to impress the team in his debut season. However, in extreme circumstances a team may choose to go for a pay driver over a driver that is more talented. For example, Manor F1 team was on the verge of collapse at the end of 2015, so they decided to sign a relatively unknown driver called Rio Haryanto who brought massive financial support from his home country, Indonesia. He was dropped by the team mid-season however, when his funding ran out.
The pay-driver sponsorship in Formula One received lots of criticism however, which inevitably meant that the so-called ‘era of pay drivers’ has come to an end, with many teams opting for a new sponsorship model, leaving them free to choose the drivers that they want rather than the drivers that they need. Nico Hulkenberg, a Formula One driver since 2010 that came into the sport with very little/no backing from sponsors, has gone as far to say that he is “proud” to have survived in the sport during this era.
"In a way that is an achievement. To still be here and have survived that, I think it does say something about me and the driver I am. At the same time that sounds a bit shit also. And boring, you know? I want more.”
This is evidence to show that this new sponsorship model of pay drivers may be a quick-fix for a team that needs more funding, it is not a sustainable way to go about business in the sport. This is because prize money is a big factor in how much money the team can spend in the season, and this is determined on results. What this means is that if your team is comprised of pay drivers, then although there is immediate funding available when they join the team, they are not likely to score good results, and this will cost the team millions of pounds – this could be more than the drivers are bringing to the team in the first place.
It is established that the new pay-driver model is flawed, but there is evidence to suggest that the traditional model is as well. As well as the research study which showed that the chances of a positive return on investment for the sponsor is very low, another research paper investigates whether the advertising strategies that go into Formula 1 are working, and whether the sponsor sees any improvement on their market value following the announcement that they have agreed to become a sponsor of a Formula 1 team. It showed that although announcing a sponsorship deal with a Formula One team can temporarily increase the shareholder value, it is likely to lose the company money both by brand exposure as well as when the team performs badly, the shareholder value can be affected. (Rosenberger & Donahay, 2007) (Cobbs, Groza, & Pruitt, 2012)
A case study was taken at the 2014 Singapore Grand Prix to examine the effectiveness of sponsorship in Formula One. This study found that “sponsorship in the motorsport is an effective marketing tool, and this brand exposure produces positive influence on consumers’ impression and memory of the brands”. However, this conclusion was limited to sponsors that had high visibility on both the cars and driver overalls, as smaller brand logos did not have a lasting impression on the viewers of the race both at the track and watching on television. This was summed up by: “The identification of prime locations which easily capture people’s attention is important for marketers when deciding ad places for such F1 events. Particularly a high visibility location is very crucial because it is a direct indicator of brand awareness.” (Tan & Pyun, 2018)
In 2010, three new teams entered the Formula One grid, which brought the number of teams up to 12. By the end of 2016, all of these teams had entered into administration and a buyer was not found. These teams were HRT, Manor and Caterham. All three teams came into the sport in 2010 with a good level of backing from their corresponding founders, with Manor originally entering as Virgin Racing with the backing of Richard Branson. However, after a point-less season for all three teams, they not only lost a lot of funding from their original backers, but due to their poor results they all failed to secure any major sponsorship deals as brands knew that the poor results would have a negative effect on their brand image.
A study into how team sponsorship in Formula One affects brand perception was carried out, and it found that: “The findings of this study confirm that sponsorship recall is significantly influenced by perceived brand prominence (brand equity) and both product- and event-related involvement.” (Woisetschläger, 2007) This shows evidence that the traditional model of sponsorship will not benefit new teams onto the grid, as it often takes a few years for them to catch up with the rest of the grid in terms of knowledge and development of the car. This means that new teams will have a perceived bad image at the start of their time in the sport, which will only make them struggle more as they try to compete without money from major sponsors. For example, the newest addition to the Formula One grid, Haas, have only secured a title sponsorship deal in their fourth season. They have managed to stay in the sport long enough to attract ‘Rich Energy Drinks’ to be their title sponsor, something with HRT, Manor and Caterham failed to do.
Credit: Haas F1
There is also the problem that only large companies can afford to enter Formula One as a sponsor, as the results from a research study showed that the “likelihood of incurring a reduction in shareholder value upon announcement of a F1 sponsorship is influenced by the level of investment committed by the sponsoring firm and the nationality congruence between the firm and the sponsored team.” (Cobbs, Groza, & Pruitt, 2012) What this means is that most small companies will almost certainly face a drop-in share value when they announce a sponsorship deal with a Formula One team, unless the amount that they are committing to the team is significant. This causes inherent problems because it means only large, multinational corporations can justify entering the sport (this is why tobacco sponsorship was so popular), and these companies will decide that if they are going to spend their money on a team, it would need to be a high performer. This then means that the smaller teams must rely on prize money alone to decide their budget, and if they have no money to start with it’ll mean that they can’t perform well, which lowers their prize money at the end of the year.
I have now presented enough evidence to show that the traditional model of Formula One sponsorship is flawed, and companies are starting to realise this. In recent years, there has been a push towards more technology-based partnerships, not sponsorships as we know them. There has been a rapid increase in the number of ‘technical partnerships’ that have been announced, all of which are designed to benefit the team much more than the traditional model. Technical partnerships are where the resources of both the ‘sponsor’ (the partner) and the team can use each other’s resources in order to improve one another’s performance in their particular fields. There are numerous examples of technical partnerships in the sport:
Williams Racing and BT
British Telecoms may not be the obvious choice for a partnership with a Formula One team, but there is good reason behind this relationship. As well as paying the team a fee, much like the traditional sponsorship, BT provide methods to transfer data to and from the car and the garage. Every second that a Formula One car is racing around the track, there are hundreds of sensors that can give up to 100 readings per second, all of which must be transferred from the car to the garage and then back to the base in Grove in real-time. BT provide the wireless infrastructure to enable this data transfer, in an arrangement which they also benefit from. This is because every race weekend, they have the ability to test their equipment in a high pressure and demanding environment, which will benefit both their industrial and consumer products.
Claire Williams, the deputy team principal, provided evidence that this partnership is beneficial to BT and the team:
“Formula One is such a great destination for an IT brand to come in and partner because of the very fact this car is effectively a data centre. There are stories that IT companies can tell because not only can they integrate their products and help drive performance, which provides lovely case studies and invariably forms the backbone of their partnership with Formula One, but they also get all the ancillary benefits of being associated as well.” (Sylt, 2017)
McLaren Racing and Dell Technologies
This is another example of a technical partnership in Formula One that is designed to benefit both parties. In this relationship, Dell provide McLaren with the ability to better analyse their data from the car, as well as to make predictions of future races based on advanced simulations. Formula One teams are restricted with the amount of time that they can spend designing their car using Computational Fluid Dynamics (CFD), which is where they use a combination of data from the wind tunnel and computer simulations to predict airflow over their car. Due to the time restriction, it is vital that they have access to efficient and powerful computers and it is this demand that helps Dell to improve their products at such a rapid rate.
This quote from Dell shows that they are fully committed to the partnership, and there is not one mention of the branding on the car in the press release – something which was unheard of just a few years ago:
“Dell Technologies is partnering with the McLaren Technology Group to maximize speed and agility across their organisation. From faster data insights and faster speed to market, to faster data-enabled cycles of innovation that create better data-driven design and decision-making in a world where technology powers human progress.” (Dell, 2018)
Mercedes and Petronas
This is possibly the most successful example of a technical partnership in Formula One to date. Petronas is the fuel supplier to Mercedes, but they have been working together with the German team ever since they re-joined the sport in 2010. However, it was not these early years that proved crucial, as in 2014 there was a huge overhaul in the technical specifications of the engine. Petronas worked very closely with Mercedes to deliver the perfect fuel for their engine concept, and this helped to produce one of the most successful and reliable engines in the history of the sport. They have won 74% of all races since 2014, and the collaboration with Petronas keeps getting stronger and stronger. The partnership is described as “a state-of-the-art technological partnership to deliver cutting-edge Fluid Technology Solutions for the Hybrid Power Unit and chassis of the works Silver Arrows cars.”
Not only do they have a very successful technical partnership, they also have a very strong traditional relationship, with both drivers taking part in various advertising campaigns for Petronas on a regular basis. (Mercedes, 2014)
McLaren and GlaxoSmithKline
This is an example of a technical relationship where the benefits of the ‘sponsor’ have out-weighed that of the team. This is because since they began the partnership in 2011, McLaren have been able to use their knowledge from their McLaren Applied Technologies subsidiary to reduce GSK’s production time by 60%. This is due to McLaren’s expertise in processing such a large amount of data coming from the car so quickly. This development allows GSK’s £15 million production system to fill an additional 6.7 million tubes of toothpaste per year. (McLaren, 2011)
Williams and Unilever
Williams and Unilever announced in late 2018 that they had joined forces in order to scout and train the next generation of engineers. This is especially beneficial to Williams as there is a shortage of engineers that have the knowledge and the desire to work in Formula One. It is said that the “high-profile programme will give up to ten students from around the world a head start in a competitive job market by providing advice, mentoring and guidance.” (Williams, 2018)
Credit: Williams/Unilever/Formula 1
There is a lot of evidence to show that the new form of sponsorship, the technical partnership, is far superior to the traditional model of paying to have a brand name on the side of a car. This is quickly becoming the default position for potential sponsors, as they look at how the sport can improve their products or services. This is not to say that the traditional model is dead however, but it does not exist in the same magnitude as it once did. For example, out of the six Formula One teams that have a title sponsor, only two of those sponsorships follow the traditional model:
• Mercedes-AMG Petronas → Technical Partnership
• Aston Martin Red Bull Racing → Technical Partnership
• Rich Energy Haas F1 → Traditional
• SportPesa Racing Point → Traditional
• Red Bull Toro Rosso Honda → Technical Partnership
• ROKiT Williams Racing → Technical Partnership
To finish, I will start with my original question: Has sponsorship in Formula One changed to now benefit the teams more than the sponsor?
To begin, I feel that there is now enough evidence to say for certain that sponsorship has definitely changed in order to benefit the teams more than it did previously. This is shown by looking at the research study that showed the return in investment back in 2007 where the traditional model was in full effect, and we saw that for big sponsors the sponsor was earning much more from the partnership that the team was. When this is compared against any of the technical partnerships that I have detailed, it is clear to see how much more the team is now benefitting than in the past.
However, I do not think that in every situation the evidence suggests that it is fair to say that the team benefits more than the sponsor. This is because if the company was not seeing a positive return on investment, then a technical partnership is also a huge improvement for them as well as the team. What is fair to say though that for companies that would have had the ‘title sponsor’ status ten years ago, then they certainly have less brand recognition than they did previously, but this perfectly illustrates how the sport has changed. As Claire Williams said: “No longer is Formula One just about sticking a logo on a race car – that is the icing on the cake, it’s the cherry on the top.”
I do not believe that with this new phase of sponsorship, there is a losing party – and the evidence that I have presented supports this conclusion. This shows how the times have changed, and it can be used to bring more sponsors into the sport that were not interested previously. It also means that smaller and newer teams have much more of a chance to survive in the sport, as although they do not have the ideal brand image, what all the teams to have is amazing resources that would be beneficial to many companies in all industries.
In the future, the evidence suggests that this type of sponsorship will continue as the traditional formula will begin to be phased out until it is only a small part of the team’s revenue. Formula One is about people collaborating to produce a better product, and I think that I have shown that technical partnerships are the best way to do this.
• Bruce Grant-Braham, J. B. (2011). Motor racing, tobacco company sponsorship, barcodes and alibi marketing. Motorsport Research Group.
• Cobbs, J., Groza, M. D., & Pruitt, S. W. (2012). Warning Flags on the Race Track The Global Markets' Verdict On Formula One Sponsorship. Journal of Advertising Research.
• Dell. (2018). McLaren form technical partnership with Dell Technologies. Retrieved from McLaren: corporate.delltechnologies.com/en-gb/about-us/sponsorships/mclaren.htm
• Jensen, J. A., & Cobbs, J. B. (2014). Predicting Return on Investment in Sport Sponsorship, Modelling Brand Exposure, Price, ROI in Formula One Automotive Competition. Journal of Advertising Research .
• McLaren. (2011). Case Study: GSK. Retrieved from Mclaren: www.mclaren.com/group/case-studies/case-study-gsk/
• Mercedes. (2014, May 23). Mercedes AMG Petronas builds for a decade of partnership with Petronas . Retrieved from Mercedes AMG: www.mercedesamgf1.com/en/mercedes-amg-f1/mercedes-amg-petronas-builds-decade-partnership-petronas/
• Rosenberger, P. J., & Donahay, B. (2007). Using Brand Personality to Measure the Effectiveness of Image Transfer in Formula One Racing. Marketing Bulletin.
• Sylt, C. (2017, December 8). F1 Sponsorship: More than Just a Logo. Retrieved from Forbes: www.forbes.com/sites/csylt/2017/12/08/f1-sponsorship-more-than-just-a-logo/#4cb60d07293d
• Tan, S., & Pyun, D. Y. (2018). The effectiveness of sponsorship of the F1 Singapore Grand Prix: recall and recognition. International Journal of Asian Business and Information Management.
• Williams. (2018, September 10). Williams and Unilever launch engineering academy . Retrieved from Williams : www.williamsf1.com/racing/news/2018/09/williams-and-unilever-launch-engineering-academy
• Woisetschläger, D. M. (2007). Team-Sponsorship in the Formula One–Does it affect Brand Perception? An Empirical Assessment in the German Car Market. University of Muenster.