Features - Financial
JULY 1, 1993
Who pays for Formula 1 and why?
BY JOE SAWARD
Ask a Formula 1 marketing man why companies are involved in Grand Prix racing and before you can say: "Positive interface situation" they are firing tracer bullets of jargon at you. They talk of "corporate motivation" and "image transfer", of "synergy" and "global brand awareness" and of "positioning in the market place", just like they used to do with stalls in vegetable markets.
And when you wake up, all they have really told you is that they want people to recognize their names.
There is a lot of waffle, but occasionally companies come to the point.
Why is Gitanes Blondes involved in F1?
"To target the young male general public," is the refreshingly simple company line. No synergy, just straight sales.
There is no doubt that F1 is a very good way of bringing the name of a company to the attention of people all over the world. But it depends on how much you spend, and where you spend it.
Some say that F1 sponsors get US$50 million dollars a year free advertising in newspapers and magazines. This is mostly in the specialist press, so it is natural that there should be a lot of car-related sponsorship deals.
And then there is the television. There is no doubt that F1 has a lot of viewers, some estimates (and they are not necessarily believed) talk of 300 million people per race across 60 countries; of 3400 hours of broadcast time per year.
This is all fine and dandy until you look up the world's population. Are all Kalahari bushmen, Amazon tribes and Eskimos tuned in every fortnight? Of course not. If you watch 16 races a year, you have saved 15 others from having to do so...
Whatever the real figures, it is still a massive audience at which to pitch your products. If you spend $10 million to promote a product worth $1 and just 1% of, let's say, three billion people buy your product because they saw it on the telly, you are already $20 million richer than when you started.
F1 is an impressive marketing tool.
But what happens if you, like most of the population, don't have $10 million? How much does it cost to get on the side of an F1 car?
When you ask questions like that in F1 you get the some kind of response as when you ask politicians to list their extra-marital affairs. F1 people don't like to talk about money for fear that someone will rush along to their sponsors and undercut them. F1 is a competitive world on and off the track.
Nonetheless, we asked Eddie Jordan to spill the beans: Who pays for his team and how much do they pay?
"The budget varies from year to year," says Eddie. "I won't tell you what we have this year, but what we need to have is $16m. The main costs are the engines and manufacturing the cars. To make and build five cars and all the spares costs about the same as paying for the engines.
"The first car costs about $1.2m to build, taking into account the moulds, the models and the wind-tunnel work, but not including the wages and the long-term investment in machinery."
So current engine bills are between $2-3 million per year?
Eddie nods.
"The next biggest expenditure is the salaries," he continues, "and after that you get into things like tyres. The differences between the big teams and the small teams are the costs of the drivers and of research and development. Make no mistake the more money you have, the better you are going to go. And any compromise on that $16m figure is a compromise on performance. It is a fact of life.
"Motor racing is no different from any other economy: you get what you pay for. There are always the odd occasion when you come up with something which is a lot better than what you paid for it, be that a good driver or a good car. That represents good value for money, but you cannot do it all the time and you can forget competing against Williams and McLaren on this scale of budget. Even if you have kind of the money they have there is no guarantee that you can compete against them because they have a lot of experience."
But how much does one have to pay to buy a sidepod?
"I can turn round and say the sidepod costs $8m. It doesn't matter. It is what you can make that money do for you that is important. You have to see what you want to achieve. If you are looking for a world class awareness programme then it is going to cost a certain amount of money."
So what about the recession, is it as bad as people say in F1?
"It is very difficult for everybody," says Eddie. "It is difficult to expect sponsors to come up with huge amounts of money without a guarantee of results. The rate card will come down with the bigger teams, but there is a point you cannot go below without going out of business."
Okay, Eddie, let's put it this way. If I had $225,000 to spend, could I get my name on your car?
Eddie won't say, but there is the hint of a nod.
We tried the same question on Jordan's commercial manager Ian Philips: "If someone wants an involvement in F1 with Jordan we will find a way, whether it is for $1000 or a million. On our notepaper there are probably 25 names but probably only 10 appear on the car. The other 15 are people who are having an involvement in the team and it is beneficial to them and to us.
"We have a wine company called Cascina Castlet. We get plenty of wine and the team endorses their products and does a photo shoot for them. It's a very simple thing and at the end of the day if it stops us having to spend money it is as good as having money in the bank. I don't know how may bottles of wine we serve during a year if you add up receptions at the factory and entertaining at the circuits. Maybe you are talking about 100 cases, but if you can get it for free in exchange for a photograph. Why not? They are happy. We are happy."
But what does a sidepod cost?
"As a general rule? Take $16m and divide it by the surface area of the car..."