Changes in the past, such as restriction on advertising and improved safety for drivers, have affected company profits – though some companies have continued to see a healthy return. The big question facing the industry now is can it survive in an eco-friendly future?
The sport has undergone a series of adaptions designed to make it more ethical, safer and greener. In 2005, the EU banned the advertising of tobacco products on F1 cars. Up until that time, many F1 companies relied heavily on tobacco sponsorship, with some teams receiving 80-85% of their total income this way and the remaining 15% from prize money and television revenue. Some teams are still sponsored by tobacco companies, but the new restrictions prevent their brands appearing on the car’s livery.
In 2009, two years after the total ban on tobacco branding on F1 cars, ESPN reported that Formula One profits had fallen by $200 million; the fall in profits came almost entirely after major manufacturers and sponsors withdrew from the sport.
Today, some of the top sponsors still come from companies selling products that may be harmful to health. For example, sponsorship from energy drink companies has replaced tobacco, despite recent studies linking energy drinks with childhood obesity. Other sponsors include the telecoms, automotive, fashion and finance industries.
Sponsorship issues aside, there is another problem facing the industry, and it’s one that’s liable to create a few headaches in constructors’ engineering and marketing centres everywhere. All motor sports have a very high carbon footprint. The cars and motorcycles rely on high-grade fuels that are used in extremely demanding engines. The average race fuel consumption of a F1 car is 75 litres per 100km. This is the equivalent of 4 mpg, which is around ten times less efficient than a modern, family car that runs on unleaded petrol.
Motor sport engineers are only interested in decreasing fuel consumption for one reason; to allow cars to go longer on a single tank of fuel. In the present climate, overall performance will never be sacrificed to provide improved fuel economy.
Eco-friendly motor sport?
Although motor sports only represent a tiny fraction of total automobile usage, the commitment to high octane, high speed thrills that characterizes the industry sends out a message that fast, powerful cars and bikes are still the best.
Many people argue that if motor sports switch to technologies such as hybrid or electric vehicles, they will not be able to provide the same brand of entertainment. For the time being, hybrid cars cannot compete in terms of speed and acceleration with current F1 cars. Motor sport companies are trying to address this, although it is still not clear whether the motor racing industry can successfully re-brand themselves with eco-friendly credentials. F1 managers fear that increasing the emphasis on fuel efficiency will lose the hearts and minds of the people who really matter – the fans.
If changes are forced upon the motor sport industry, the fear is that it could affect the stock prices of motor sport companies and affect investors’ willingness to part with their money.
The motor sport industry is facing a moral dilemma: does it reduce its carbon footprint to appeal to the greens, or does it continue to construct the world’s most powerful racing engines to appeal to fans?
Despite doubts from some quarters, green motor sports (a term that many petrol heads feel is an oxymoron), is making progress, and many investment professionals are confident that it will continue to prosper in a greener future. Where some see an ethical issue with investing in a “high-emission” industry, others have enough foresight to play a longer game, judging the political mood and working out what is likely to become incentivised as the world looks for solutions to environmental issues. Seasoned financial professional Todd Bliman of Fisher Investments explored this issue further on TheStreet where he discussed how global warming is affecting stock selection.
If that doesn’t conclusively answer the questions around the industry’s long term profitability in a leaner age, then consider this: Fans of F1 have already witnessed a reduction in power, which means that the cars race at a slower pace. This has not affected the size of the crowds or the marketability of the product. A change to greener fuels may result in further reductions in speed and power, but the excitement will remain, and as long as there are fans, there will be sponsors on hand to finance the industry. And of course, a more eco-friendly motor sport may also help encourage people to buy hybrid cars and strive to leave a smaller carbon footprint.