F1's unending financial woes; or "It's the income, stupid."

[Pup]

I've wanted to have a thread on the income side of F1's finances for a while, but there's never been any one bit of news that seemed worthy of a thread starter. Regardless, anyone who's paid attention to any of my comments on F1's finances knows that I'm stubbornly insistent that the problem lies primarily, if not entirely in FOM's inability to increase the value of the sport for sponsors, leaving the teams struggling to find income. That is, it's the income, not the expense that the sport (and the media) needs to concentrate on.

Anyway, there's a story making the rounds this morning about how Infinity got a billion dollars worth of value from it's sponsorship of Red Bull last year, and how it shows just how valuable F1 is to sponsors, etc.

Bullshit, says I.

If the ONE BEEEELION DOLLAR hyperbole didn't raise some suspicion, the fact that the company who did the research lists Red Bull as one of it's customers might. I mean, why would Red Bull's advertising company want to make it seem like their main sponsor is getting an unbelievable deal on their advertising? Anyone?

Of course, the numbers are completely unverifiable, and even if they were, they involve things like counting up how many times the Infinity logo was flashed on the screen, or mentioned in a press release or an interview, etc.

It comes down to this: if Infinity were really getting a billion dollars worth of advertising for ten or twenty million (whatever the figure is), then sponsors would be knocking one another out of the way to get a spot on a side pod. They aren't.

Here's the full press release:

INFINITI CLEAR WINNER OF VISIBILITY RACE IN FORMULA ONE 2013 SEASON

INFINITI RED BULL RACING TEAM PARTNER THE FIRST TEAM SPONSOR TO GENERATE OVER $1BILLION IN TV EXPOSURE IN F1.

INFINITI – Title Partner and Vehicle Performance Partner of the Infiniti Red Bull Racing Formula One team created another milestone in becoming the first F1 team sponsor to pass the 1 billion US$ AVE TV value in the 2013 season – according to global sports research experts REPUCOM.

The luxury car maker, which entered F1 in 2011, is now the number one most exposed team partner in the sport, measured by calculating the amount of on-screen branding of the official qualifying and race broadcasts.

Nigel Geach, SVP Motorsport at REPUCOM commented:

“Excellent positioning of clear branding on both the Infiniti Red Bull Racing car, team and drivers in addition to significant airtime thanks to the team’s strong on-track performance throughout the year, gave INFINITI advertising equivalency value of over $1billion from Global TV coverage – an amazing achievement.

“TV audiences which drive this value across the world are holding up well and with the increase of second screen activity and changing consumption of media – Formula One is still proving to be one of the biggest value returns in global sport.”

Andreas Sigl, Global Director, Infiniti Formula One added:

“One of our key objectives for the program is to build global brand awareness for Infiniti, so these results really showcase the power of harnessing the global pull of F1 with a modern marketing approach. These figures only tell part of the story however, as they do not account for the significant additional exposure we get from an intensive schedule of F1 marketing and PR activations away from the track.

“When this is combined with the TV coverage garnered from the races themselves, it is clear we have a very powerful asset when it comes to delivering our broader global business objectives.”

[Mandrake]

The question for me is, how is that value calculated? Does it mean they got airtime for the value of $1bn?

I'm pretty sure they have created a massive awareness, I don't think though that it translates into sales etc. I like Infinity, I would buy an Infinity but I can't since I don't have the money.

[wesley123]

So for the amount they are sponsoring Red Bull it would have cost them one billion dollars somewhere else to get the same amount of coverage. Although it doesn't say where or how, or pretty much anything about that. All it really says is that they'll sponsor Red Bull for as long they are winning, you aren't going to get the "billion dollars worth of coverage" at a midfielder or backmarker.

It shows that you can only get your financial security when you are at the front of the field(or when you found some weird rich guy who wants to spend his money at nothing). Red Bull has had large troubles of finding sponsorship before they were winning(who wants to have his company logo on a driving soda can?) and STR is pretty much a money hole because they are not winning.

Which comes to the point that no one wants to sponsor something that has no value, you'll hardly get on TV when you sponsor Caterham for example. And with that, it is quite different compared to any other sport. With football, you'll get your brand on TV anyways when the team plays a game, or in their stadium. With F1 you only get your brand on TV when the broadcasters feel like showing your car, which will hardly happen when you are not at the front. And then, who wants to sponsor it anyways when the crowd can't pay for an event ticket and even if they can would not be close enough to actually see the company logo.

But there is very little wrong with F1's income, I mean, Bernie and the owners of F1 can get their pockets filled with the money, and with the cost cutting there will be even more left for Bernie & co. And that was always the point of it anyways. A stable revenue platform for Bernie & Co. That is why Bernie wants teams to stay and sign to stay, because that gives a stable revenue. without that, one day you'll get a much smaller field than the next day, which will cut in the revenue streams.

[Jersey Tom]

Never know. Sponsors may be trying to get some affiliation with Red Bull Racing, or some organization they know are going to get tremendous amounts of exposure - be it TV or print. Certainly not knocking each other out of the way to sponsor the back end of the field where it's just money out the window with little exposure.

And yes, all the $$ figures are a bit silly, of course. And even if you get some big number of "equivalency value" (a pretty vague / dubious term) ... it's still not cash flow in. If you spend $50 million and get $1 billion of "equivalent value" in print and TV space.. but it amounts to $0 in sales.. then you've a $50 million loss at the end of the day. Cash is king.

Clearly they're going to want to spin their involvement in the most positive light possible - this should be no surprise.

[lebesset]

hope bernie hasn't read this ..can just see him demanding a series of chicanes down the finishing straight so the cars slow , greater exposure for the sponsors so that he can increase his fees !

[tuj]

Infiniti huh? Good to know they're making the engines now...oh wait, its Renault? lol....

[Pup]

Well, Bernie doesn't care about car sponsorships. They make him no money. To see value in them, he has to look into the very long term, and assume that stronger competition makes for a more valuable sport that then allows him to extract more money from venues and media.

One of the problems, as pointed out, is that performance disparity = exposure disparity = income disparity = performance disparity.

One way out of that cycle might be revenue sharing among the teams, but right now there probably aren't enough haves to balance the have nots. Another way would be for FOM to subsidize the teams, which they do, though not in a very egalitarian method.

Were the field/races tighter, the smaller teams would have more exposure, therefore more income. And the bigger teams would have less. FOM could artificially give equal amounts of exposure to each team of course (and they do that to an extent) but the result would be complaints from fans about the coverage.

I've always thought that this was one of the keys to NASCAR's success - the races are very tight and often (artificially) bunched, so even the losing teams get lots of airtime. More airtime = more money = more competitive. The inverse of F1's spiral.

But there is very little wrong with F1's income, I mean, Bernie and the owners of F1 can get their pockets filled with the money, and with the cost cutting there will be even more left for Bernie & co. And that was always the point of it anyways.

You need to separate F1 from FOM. There's nothing wrong with FOM's income, at the moment. But F1 wasn't started by FOM and it was never the intent that the sport's income go primarily to the promoter.

[xpensive]

There are no "financial woes" in Formula One, never was, what it's all about is that F1's manager is stealing 50% of the money.

Pretty much like Elvis Presley and "Colonel" Tom Parker.

[tuj]

I would posit that the more cars on the grid that are capable of winning the race, the more fans you will draw, both in person and in tv ratings. This is just conjecture, but hey, it works in American football and NASCAR. I think one of the problems is that there are no cost controls. Another problem is that travel is subsidized only for the top X teams. Another problem is that Ferrari gets a subsidy no matter what, and that they have a veto power.

I say put in cost controls, resource controls, but at the same time open up the rules. Look what some relatively low-powered teams did when the rules were more free: FW14B, or the Chaparrals like the 2J in CAN-AM. Heck, Super Aguri was the team that basically designed the Brawn GP car. Open up the rules and you get innovation and money can only buy so much innovation.

[Pup]

There are no "financial woes" in Formula One, never was, what it's all about is that F1's manager is stealing 50% of the money.

Pretty much like Elvis Presley and "Colonel" Tom Parker.

FOM doesn't "steal" any money, with or without quotes - at least not from the teams. Just because one party makes a disproportionate amount of money doesn't mean that they are obligated to share it with others.

If FOM is "stealing" money, it's from the FIA, not the teams.

That's not to say that it wouldn't be in FOM's long term interest to share. But they aren't morally obligated to do so.

We're talking about two different streams of income - FOM get's one, and shares half of it. The teams get the other. Ideally, both parties would be selling the same thing - the value of the sport. But the value that Bernie has created as the promotor is disproportionately favorable to his end of the sport. That is, he sells exclusivity and bragging rights to countries who feel they need it. The teams can do that - they can sell out to new money billionaires, manufacturers, Arab partnerships, etc. But as we've seen, that isn't a viable long term strategy. It's more of a "get out while the gettin' is good" strategy. And we're also seeing that it probably isn't a good long term strategy for FOM either, since their venue deals of late are getting less lucrative and more uncertain.

The key is that Bernie has done very little to promote the value of the sport as sport.

[xpensive]

Give it a name, but MrM and the FIA gave F1's commercial rights to an entity which through various further transactions today takes 50% of the sports financial revenue, this being in a sportsworld where 10-15% for the manager would be seen reasonable.

Unless you are Don King or Vince McMahon.

Without this "FOM" arrangement, Formula One would be healthy as hell and that is all there is to it, anything else is a h*rse.

[Pup]

FOM isn't managing the teams, so to compare their take of the sport's total income to that of a manager is silly. It would be like me complaining that a real estate developer takes more money from a project than I do as their architect. If the income disparity were reversed, would you be insisting that the teams give FOM money?

The problem with FOM isn't what they do with their money - it's that they have been charged with promoting the sport, and aren't promoting the sport in a way that helps the teams. They have no (short term) incentive to do so. One would think that there are performance clauses in the FIA's contract with FOM. I imagine that those clauses involve the number of races, number of teams, etc., and I suspect that was why Bernie was willing to subsidize the new teams.

You can rant about Bernie, Max, and why the F1 rights were given away all day long, but really, aren't you tired of that discussion by now? I know I am.

[xpensive]

Again, and I will try to xplain this without coming across as patronizing, the "FOM" has been given all commercial rights to everything related to Formula One, Formula 1, F1 or whatever abbreviation you can put together for 99 years.

This means all income from races, TV coverage, promotions and whatever MrE can dream up, out of this the teams gets 50%.

The teams' own income in the form of sponsorship or whatever is of course theirs, as far as we know I should say, wouldn't be surprised if "FOM" wants a cut of that as well. Where are you in the time of need WB, you use to be good with this sh*t?

And no, for the record, I will never tire from whining about this bizarre situation, an economical abomination.

[turbof1]

“Excellent positioning of clear branding on both the Infiniti Red Bull Racing car, team and drivers in addition to significant airtime thanks to the team’s strong on-track performance throughout the year, gave INFINITI advertising equivalency value of over $1billion from Global TV coverage – an amazing achievement.

I read it slightly, but significantly, different.

They are obviously not getting 1 billion dollar out of it. I think what they want to say that the market value of the 'sponsorship in view' would be one billion dollar. If they would have had to make a regular commercial and send it out for the equivelant amount of time and have to reach to equivelant amount of people, the price for such a commercial might be 1 billion dollar taken over a year.

[Pup]

Again, and I will try to xplain this without coming across as patronizing

I'm fully aware of FOM's agreement with the FIA, thank you though. This thread is about the teams' income, not theirs.

It's fine if you think they should get a portion of FOM's income, and free pie at the races. But they don't.

The problem with your argument, x, is that if the agreement between FOM and the FIA didn't exist, then it would be the FIA making all of the money, not the teams. It's their championship after all.

Now you could then argue in that case that the FIA should give the teams money to compete, which is a plausible structure, but completely different to how F1 has ever operated, or to how most every other series is operated. The question then would be that if almost all other series can survive without subsidies, then why on earth should the top series be different?