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The fragility of Formula 1 sponsorship deals

THE announcement that Telefonica is to withdraw from Formula 1 highlights the tightrope on which Formula 1 teams have to walk when they are dealing with big corporations. A change in management or a takeover bid and the sponsorship can simply disappear. This is not new and there are examples of it throughout the modern history of the sport, the best known being in 1986 when Carl Haas lost his budget from US consumer company Beatrice after just 14 months when the company fell victim to a leveraged buyout by Kravis Kohlberg and Roberts company. The team was folded when Haas failed to find a replacement sponsor. There was a similar story in 1993 when Camel withdrew after RJ Reynolds fell victim to a hostile takeover (again by KKR) and in 1998 Arrows fell foul of the corporate world when Danka Business Systems ran into financial trouble.

The recent wave of consolidation in the motor, oil and telecommunications businesses can still have an effect on F1. Formula 1 is waiting to see if Arrows's Orange sponsorship survives the takeover of the company by France Telecom. Telefonica's backing of Minardi has not survived the demise of chairman Juan Villalonga and there is no real reason to suggest that Orange will keep going in F1 without Hans Snook.

And it is not simply the direct takeovers which have to worry the Formula 1 teams because the reaction to takeovers of companies not involved in Formula 1 can be just as damaging. How will Agip and Repsol react to the news that Chevron is taking over Texaco? The takeover means that Agip's parent company and Repsol are increasingly on their own in a market where there are now five huge oil companies and then a collection of small fry. In order to compete Eni, Repsol and others may have to merge their operations and that will mean that there will be a reduced need to advertise individual brands in Formula 1.

There is a similar situation with Formula 1 engine supply because there are now only six big car companies in the world and they are not planning to use more than one brand in F1. As long as middle-ranking companies such as Honda and BMW survive as independent companies there will be enough engine to go around but if they are taken over or forced to withdraw from Grand Prix racing, there is a danger that the gap between the big teams and those using renamed old engines such as Supertecs and AMTs will grow.

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