Monday, December 26, 2005

Paddy's Sports View 26th December 2005

As published in the "Bahrain Tribune"

It was the American genius and iconoclast R. Buckminster Fuller who said “Those who play with the devil's toys will be brought by degrees to wield his sword” and whilst it was not Formula one that was in his sights when he said it, it might well have been. The growth of modern F1 has been built on the devils toy of tobacco sponsorship and there were few more vocal defenders of the rights of the tobacco giants to promote their brands than the leaders of the sport. It is no exaggeration to say that the commercial basis of Formula one, and the billionaire wealth of its presiding spirit Bernie Ecclestone, has been mostly built on the willingness of tobacco company sponsors to allocate almost unlimited funds to the sport. But this is changing as legislation gradually takes its grip and this is one of the reasons (but not the only one) that the future of the sport is so uncertain.

When the Formula one circus begins its long 2006 trek in Bahrain in March all the participants will know that the future of the sport is cloudy, to say the least. Federation Internationale Automobile (FIA) President Max Mosley has recently bemoaned the fact that it is extremely difficult to reach any agreement with all the Team owners as to the future of the sport once current arrangements expire at the end of the 2007 season. The difficulties are directly attributable to the disappearance of tobacco company sponsors and the opportunity that this has given to the motor manufacturers to tighten their grip on the sport. When the tobacco giants ruled the roost their business case was predicated on the fact that other brand promotion outlets were being increasingly closed to them. Nobody, not even the motor manufacturers, could compete with that sort of money. Ten years ago, for example, all of the main teams in the world championship (Williams, McLaren, Jordan, Ferrari, and Benetton) were backed by tobacco dollars. The involvement of car companies was only as the supplier of engines, not as prime sponsor. In the 2006 season five of teams are in business overtly to promote a motor manufacturers brand (Mercedes, BMW, Renault, Honda and Toyota) and the independents are in decline. From ten years ago only McLaren and Williams remain, and it is clear that the former is more and more a works Mercedes team. Ferrari, as ever, remains a special case!

In many ways you might think that the increasing involvement of motor manufacturers in F1 has to be good for the sport, after all those with very long memories will go back to the days when most of the teams were car companies, albeit rather special ones (Alfa Romeo, Ferrari, Maserati, Mercedes, Lancia…). The difference is that today the sport is so international and so visible that it is primarily a vehicle (no pun indented) for the big car companies to promote their brands. And the funds that they allocate to this almost defy belief. Some of the constructors have budgets in excess of $400 million for 2006 and this is the sort of money that is not sustainable in the longer term and which is a huge barrier to entry to new teams. Whilst the new “Midland” team may also have plenty of money from its Russian owners they, and the other remaining independents (Williams, Red Bull and 'Super Aguri') have little chance of securing many points in 2006.

The FIA is struggling to sign up teams to their preliminary proposals for a new agreement to take effect from the 2008 season largely because the motor manufacturer teams won’t play ball and continue to threaten to set up their own championship. Recent events have shown that the propensity of these car company teams to throw money after success has not declined. Fernando Alonso did not leave Renault for any other reason than that he was, quite literally, made a financial offer that he could not refuse (and who could blame him?).

The position of Ferrari amongst all these power struggles is interesting. They are signatories to the FIA’s proposals, and this suggests that they are not really willing to continue to provide unlimited funding. In recent years Ferrari has been the best financed F1 team, but their owners (Fiat) get no brand value from Ferrari’s presence and the economics of allocating F1 costs to their luxury Ferrari car brand don’t stack up. Like the independents it is in Ferrari’s interest to have a rather leaner F1 model in the future.