Features - Financial
JUNE 1, 1992
Pressing on regardless: Formula 1 and the recession
BY JOE SAWARD
A year ago Dennis Nursey of the Brabham team summed up the feeling of F1 people perfectly.
"I think recession has hit F1 for the first time," he said. "It's tough, but it isn't fatal. I think there will be some losers - but Brabham will not be one of them."
A year later Brabham has gone.
Optimism, sometimes misplaced, is what keeps F1 ticking over: You are forever hearing the same old cliches: "It'll be all right", "Something will turn up", "Tomorrow is another day". Frank Williams is a good example of this press on regardless school. For years he was the joke of the paddock, struggling to survive, doing deals in telephone boxes. Today Frank is winning - and very comfortably off.
Last year Jordan's Ian Phillips was preaching the same kind of optimism: "I wouldn't say there will be three or four less teams next year," he said confidently.
In fact F1 has lost AGS, Coloni (you could count it twice if you include Andrea Moda Formula), Modena Team, Brabham and Fondmetal. Several new teams have been promised and never materialized: Reynard, Dhainaut, Konrad and Trebron.
Several other teams have collected huge debts to survive, or massively under-sold their sponsorship space to survive. The most graphic example was March F1 in Canada, which was selling space worth millions of dollars to some teams at $5000 a shot. It was widely criticized by rival F1 marketing men.
"We justify the prices in the fact that - at that particular time - that was what we had to do to survive," explains March's Nick Underwood. "If we hadn't done those deals we wouldn't be here now. Montreal was the most difficult time this year. We had an immense amount of money owing and although there were companies prepared to stick with us we still needed the bare necessities to pay for hotels, caterers and hire cars. If we had had to drop out because we were US$30,000 short it would have been ridiculous. We had to make deals attractive enough to guarantee raising the money to cover the expenses. We had no other choice. I am sure it pissed a lot of people off, but the fact is that we don't care. We're still here."
Fighting talk. But then that is the way in F1. It's a dog-eat-dog world, survival of the fittest - or the most devious. Generally people in F1 don't agree about anything but this year there is unanimous agreement on one thing: the money supply has been cut back severely because of the recession.
"When times are hard and you have the worldwide economy in recession a lot of companies' first reaction is to cut such things as sponsorship and marketing programmes," says Camel's F1 manager Richard Grundy. "That is the first area they look to make cuts. I think we are seeing the effects of that in the middle of the grid and at the back. It is becoming harder and harder for teams to find the necessary budget and the gap between the haves and the have-nots is growing. Those with money can move ahead, those without tread water and stay stationary at best."
Team Lotus, however, is proof that this does not always have to be the case. The team has been put back on its feet with borrowed money, keeping costs to a minimum and using technology, aggressive young drivers and engineers to get results with which to sell sponsorship. It is a risky game.
"Borrowing is something you have to do in any business when you are building it up," says team boss Peter Collins. "F1 is no different. The programme we are putting together will give us stability over a long period so we can pay our debts and recover our investment. Our rationalization of the use of resources has been very productive. It's been a very difficult year but I believe we have now done all the groundwork necessary to be sure we have a full and professional operating budget for 1993."
But will this foundation be enough to bring the dollars flooding in?
"I have no doubt whatsoever that come December this team will be funded for a proper three-year assault on the World Championship," says Lotus marketing director Guy Edwards. "What they have done this year is little short of a miracle on fresh air, a lot of determination and a lot of skill and technical expertise. My job is to fund Lotus to a level where it can truly maximize all the talents. F1 is a unique global road show and has no equal in so far as it happens 16 times a year, every year. Perhaps its nearest comparison would be the Olympic Games or World Cup football but they happen only every four years and then it is only in one market."
So why aren't a lot of people bringing money into F1, despite the recession?
"I think you have to look at the level at which it is sold," continues Edwards. "There is nothing wrong with the product. It is neither more difficult nor more easy than it ever was. My view is that F1 represents a hell of an opportunity if you are marketing the same product in a lot of different markets. You actually have to do very little, You don't need to build up a world event - like a lot of sponsors do. That's enormous hassle. In F1 it exists already. How it is represented needs addressing a bit more and various teams need to look at who they employ to sell their sponsorship. I think there are an awful lot of so-called sponsorship people who don't know anything about it.
"Sponsorship is the new kid on the block compared to conventional advertising. To a certain extent there is a long education process. You have to explain: this is the playing field; this is where the goal posts are; this is what you can achieve; this is what it will cost; this is what the benefits are. It's a long-term process."
FOCA boss Bernie Ecclestone, the man who runs F1, agrees.
"Some of the teams are professional and some aren't. I think a lot of things lately from the press have been negative and totally unnecessary. It seems to be the thing to do to knock F1."
Yes, but teams are going out of business and everyone is feeling the pinch.
"There is a recession worldwide and there are people going out of business worldwide," says Ecclestone. "We are no different to anyone else. This is still healthy. The people who are in trouble in F1 are the people who shouldn't have been here in the first place. Maybe should have been in Formula 3000. I think the sponsors will pay - they always have and they always will - because it is cheap advertising with the right teams.
"I think that all that really needs to happen a little bit is that the teams need to think a little about cutting down a bit. I think some of the teams waste a little bit of money."
Jack Oliver of the Footwork has similar views to Ecclestone. According to him, it's all down to statistics.
"If you talk to any service industry you will find that there has been quite a large downturn in business," he says. "To expect F1 - which is the epitome of the service industry - not to be affected is unrealistic. Yes, there are a lot of problems down the pitlane and even the well-funded top teams are not unaffected. It's causing big trouble to the teams which do not have such strong sponsorship, but that doesn't necessarily mean that there is a problem with F1. Margaret Thatcher was renowned for saying that you cannot buck the market. The market will dictate what the budgets are. It's as simple as that. Grids will shrink. If you look at the number of companies which have gone bankrupt in England, it's quite a large percentage in each industry. If you apply the same principle in F1, we have to expect to lose 20% of the grid. That is realistic, but is only a reflection of the world economy. And when the world economy picks up again teams will reappear. It is wrong to say something is drastically wrong with F1 or that it is going broke because it's priced itself out of the market. The market sets the pace."
Oliver's message is look to the future with optimism - and stop knocking F1.
Tyrrell's marketing chief John Newcombe thinks that this is the way ahead.
"I would say it's probably got as bad as it will be. Now it might be going on an upward curve. We are in a good position. We are not a debt-ridden. We have always been very careful and whilst the recession is hitting F1 we can still - hopefully - find companies which will market their products through sponsorship in F1. You have to show them what benefits they can get from it but in general I think F1 people are quite good at that. There is always room for improvement, but most teams are very professional in the way they approach people."
The mood, then, is that times are hard, but the product is good. But is it really domination by one team has made the racing dull as ditchwater. Nigel Mansell wins, breaks down or gives the lead to his team mate. The World Championship was settled early in August. This must have had an effect on interest in the sport?
"I don't think people go to a race saying: "Let's go because of the championship"," says Ecclestone. "I think they go to see a motor race and the side-effect of that race is the world championship. I don't think the championship as such makes any difference.
"I think it's a good show and I think next year will be a lot better, a lot closer racing."