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SBD Global/August 15, 2013/Finance
Formula Money’s Christian Sylt Says F1 Teams’ Struggles Sign Of Global Economic Uncertainty
Published August 15, 2013
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TOUGH TIMES: The current economic uncertainty also makes it more difficult for teams to attract sponsors. F1 is one of the most expensive sports to sponsor, with an average price between $5M-$10M. In a healthy economy, the high price tag does not discourage brands from entering F1 as it is the world’s most watched annual sport. Sylt: "However, when the economy is going down as it has been in recent years, F1 becomes a bit of a sore thumb because it sticks out from quite a distance as being one of the most expensive sports in the world that sponsors don’t gravitate to as much as they would when things are going well in the economy." He added, "When the economy is in a weak state but improving, as it is at the moment, you have a situation where brands want to get involved in F1 but they don’t necessarily want to throw huge amounts of money at it without consideration, as they previously would have done." Another problem of an F1 team sponsorship is that if a team does badly, a company’s exposure decreases, and if a team’s cars crash out the sponsor gets no exposure at all. It’s a risk that not many companies are willing to take in the current economic climate. To limit their risk of uncertain exposure, companies have gotten involved in F1 through an official partnership with the series itself. Such a partnership provides companies with trackside advertising and hoardings around the track as well as the right to use the F1 brand and certain footage. Sylt said, "This is, generally speaking, guaranteed static exposure versus the teams, which is uncertain exposure. So companies such as Rolex, Emirates, and in recent years Tata Communications have gravitated toward sponsoring F1 itself, whereas in previous years they would have gone to the teams."
FINANCIAL SUCCESS: It is a trend that has helped Formula One, which has sold the commercial rights to host races, TV stations, corporate hospitality and trackside advertising, to increase its revenue from $729M in ’03 to $1.5B in ’11, according to Formula Money data. F1’s revenues are higher than ever before, and it is one of the very few companies in any business sector which is having increasing revenue and increasing profits basically for the past five to 10 years. Formula One itself does not operate in the same manner as F1 teams, it operates in a completely different method. Sylt: "The actual costs of running F1 are somewhere in the order of $300 million a year. That’s spending on staff, transporting equipment all over the world, etc., that kind of thing. The revenues are about $1.5 billion, so you essentially have an operating profit of about $1.2 billion. The teams then get $700 million in prize money so you have about $500 million left. And then there are finance costs of somewhere in the order of $100-$150 million a year, leaving a bottom-line profit in the range of $300 million."