Archive for the ‘Formula One’ Category

No more Earthdreams

News of Honda’s imminent withdrawal from Formula One motor racing made the front page of the Financial Times on 6 December.

Formula One teams come and go. In fact, Honda itself first withdrew from competition in 1968, re-emerging in the 1980s. However, since 2006 they had been one of the highest spending teams (an estimated £300m per season) and had also supplied engines for others. This year Honda promoted environmental projects through their Earthdreams programme rather than raising large amounts through sponsorship. As a company deeply involved in racing, their departure is a major blow for motor sport.

Funding a Formula One outfit, a Barclays Premier League football team or an Indian Premier League cricket team is only possible for those with very deep pockets. The highly competitive nature of top level commercial sport leads owners and sponsors to spend extravagantly in the hope of gaining that crucial edge which can make the difference between winning and losing.

Unfortunately the law of diminishing returns applies: a player or driver costing £5m per season in wages is not necessarily five times more effective than one costing £1m. Despite generous funding and undoubted expertise, Honda had disappointing seasons in 2007 and 2008.

Even if Honda finds a buyer for their team Formula One’s governing body, the FIA, seems committed to trying to reduce costs by changing the regulations.

Meanwhile, the recent unsuccessful attempt by the French government to move the financial regulation of sport (mainly football) from national to European institutions was also aimed at curbing expenditure. 

A certain amount of tension between regulatory bodies and the funders of professional sports teams is probably inevitable because of their differing objectives. The regulators should be focused on the overall health of the competition, including financial sustainability, whereas the owners and sponsors of teams want to win at all costs and make money. 

The unavoidable truth in commercial sport is that in every league, in every race, someone has to finish last. And whoever is last is likely to lose a lot of money.

It is the big American sports who have come closest to solving this problem with their closed franchise system, selling broadcast rights collectively and giving weaker teams the first pick of talented young athletes each year.

In difficult economic times it will be interesting to see how effectively governing bodies, teams and sponsors manage to work together. Honda is unlikely to be the last big brand to exit in a hurry from an expensive, unsuccessful sporting partnership.