With the ongoing coronavirus outbreak and pandemic, behaviours and social activities have been impacted beyond imagination; amongst making pivotal changes to once-standard lifestyles and habits in a bid to improve safety, the world has seen a halt to many sporting tournaments and events. However as most of these events were nearing the final whistle prior to lockdown, Formula 1 was just about to begin.
Having amassed a worldwide audience of almost 2 billion people per year, Formula 1 has positioned itself as a multi-billion dollar venture, and an elite within the sporting world. With such a high profile, the sport provides a great opportunity for brands to gain international exposure, drive sales, increase awareness and generate custom; but such an opportunity comes at a cost.
Research and insight indicate sponsorship revenue for the ten competing constructors, including motorsport heavyweights Ferrari, Mercedes and McLaren, surpasses $1bn per annum. Sponsorship attained by Formula 1 itself, plus specific track sponsors for each of the 21 circuits on the calendar double this figure, with the sport having brought in circa $30bn in the past 15 years from sponsorship alone.
This current lack of racing ultimately leaves a $2bn sponsorship hole for this season, and has put F1 associated brands and their marketing strategies in disarray. With Formula 1 reporting a 93% reduction in sponsorship revenue, it is evident that the F1 Group running the sport are taking the hit over their clients, but the same cannot be guaranteed for sponsors of the race teams. Ultimately, brands across the world are facing a considerable financial burden and loss from a halt in progression.
With the absence of sport over the past couple of months, the esports (video games) industry has gained traction and taken a significant leap forward. As many sports have taken to their electronic form, sportspeople, celebrities and influencers have taken to competing on video games from FIFA to iRacing. Not only has this created parallels with traditional sport, but a resurgence in esports has allowed for continued promotion during the shutdown. With its own video game, Formula 1 has taken to this medium of entertainment and has actively been showcasing sponsors of the F1 Group to bridge the sponsorship gap and search to fulfil contractual obligations.
And it has been good news for the race teams too; given they are running the official game, car liveries and sponsors are reflective of reality – well, that would be last year’s reality. With the game cycle running six months behind real life, the 2020 version is yet to reach the shelves, and so the outfit of cars racing the circuits are that of last year. With sponsorship agreements changing every season, many brands previously linked to the sport are retaining exposure in which they didn’t pay for, and on the flip side others are not receiving the attention in which they are entitled to. Haas maintains Rich Energy as their title sponsor despite a controversial exit last year, and the rebrand of Toro Rosso (Red Bull’s sister team) to Alpha Tauri (the company’s new clothing brand) is nowhere to be seen in this version of the game.
It cannot be argued that the rise of esports during this pandemic has been one obvious success; after all, despite these issues, something is better than nothing. There is potential for a new audience to be brought across from the virtual world to the live sport, and a chance that esports will continue its accelerated growth as we emerge from lockdown. However, even if F1’s electronic counterpart were to be perfect, it still doesn’t attract the same reach as the live sport, and so simply cannot sustain the level of brand exposure that sponsors pay teams, tracks, and the F1 Group to provide to them.
There is however light at the end of the tunnel, with contingent plans set in place to attempt a return to racing at the beginning of next month alongside other sporting events across the globe. Though given the expense companies face to compete in the F1, it is left to wonder whether the financial pressure of a prolonged shutdown may prove too much for some competing teams – many of which are already struggling in other major business ventures; such the slump in new car sales for motor manufacturers witnessing road car sales plummeting to war-time levels.
Only time will tell what lasting impact COVID-19 has on global economic activity and we will wait to see the likely damage to the value of the brands focused on the F1 market. With brand confusion caused by F1 esports and a shortened racing season upon return of the sport, the associated brand “winner’s podium” may look a little different at the end of this year’s season.
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Author: Fergus Horne, Junior Analyst