Catching a commercial cold from the COVID-19 Pandemic March 18th 2020
When the COVID-19 virus hit the motorsport world at the end of last week, it undoubtedly prompted a rush of commercial directors and legal teams to their filing cabinets to check their commercial partnership agreements. Understanding the commercial implications of losing race events whether you are a Formula 1 team, a Formula E team or an IndyCar team is of prime importance right now and the consequences may vary more than you think. Let me explain.
In Europe, most commercial partnership agreements will be based on a full season of exposure for sponsors with rights deals priced and measured across the full schedule of the racing calendar. This is entirely logical; F1 and FE Teams race in global locations and sponsors are therefore, in the main, international organisations with multiple geographical locations that can access and leverage the series in which they are partnering both locally and globally.
Usually, an F1 or FE commercial partnership agreement will specify a minimum number of races over which their partner will receive brand exposure and other rights and benefits which allows partners to activate over a full 12 months period. And this is why, in the main, you see consistency of liveries in F1 & FE and far more consistency of sponsor logos displayed on cars, drivers and team equipment over the course of the season than in some other racing series.
Having said that, a number of sponsors may rotate a specific brand message according to different markets ( think Unilever’s recent F1 sponsorship programmes where Unilever’s brand positions alternated between their “Rexona”, “Sure”, “Degree” and “Clear” trademarks ) but the sponsorship dollars were at all times in place for the whole season, only the market messaging changed.
If the race team lawyers and commercial personnel have done their jobs, then payment over a season with a minimum number of races with a pro-rata reduction in sponsorship fees for any races below the minimum will provide adequate protection for rights holders and sponsors alike.
Increasingly, F1 and FE Teams, with unsold inventory, may seek to try to gain one-race or multi-race sponsorship deals for certain markets and these would obviously be far more likely to be affected by any COVID-19 cancelled race events although even then, depending on your contract wording relating to force majeure and any insurance policies, you might still be paid and the sponsor may ( depending on their insurance policy ) suffer no losses.
But in the USA, NASCAR and IndyCar commercial deals are sold in a very different way. In fact, there are few season-long deals and sponsors tend to contract for a multiple of races from the season race schedule and some for just the blue-riband events like the Daytona and Indianapolis 500. Here, the effect of COVID-19 is likely to hit race teams much harder where contracts are based solely around exposure, rights & benefits relating to specific events which are then cancelled. Again, the legal terms of individual sponsorship agreements could provide commercial comfort as could any related insurance policies but these will come at a cost to the affected rights holders and sponsors.
As a European, I have long questioned the USA model and how selling rights based on individual race events is better than the European season-long system. I was informed that the US market much prefers the ability to enter and exit from sponsorships over the season according to State location and marketing / distribution requirements. And this is why, by way of example, the #27 Andretti Honda of Alex Rossi will be presented in the blue/yellow NAPA Autoparts livery in around half of the 2020 IndyCar races and the pink/grey hues of Autonation in many other races. That doesn’t make it any easier for the fan or the media but it’s the way Andretti have to sell their sponsorship rights to meet USA sponsor expectations.
The USA model is therefore, in my opinion, much more likely to place a strain on a team’s commercial income because the sponsorship is focussed on rights delivery at certain race events rather than over a whole season.
Either way, motorsport rights holders will be re-thinking their sponsorship selling strategies and their standard terms and conditions whilst lawyers and insurers will be reviewing their go-to-market propositions based on the effect of COVID-19. But racing being racing, we will adapt, survive and eventually prosper.
Jim R Wright
Published in www.the-race.com 19.03.20