Effects of Tobacco Advertising Ban on Formula One

Effects of Tobacco Advertising Ban on Formula One The effects on Formula One of the European directive banning tobacco advertising and associated sponsorship. Abstract In this piece we set out to try to determine the effects on the Formula One organisation that would be brought about by the European Unions ban on tobacco advertising. We investigate the issues by firstly attempting to establish whether Formula One tobacco advertising actually does pose a threat to health. We then look at the actual evolution of the European Unions ban on tobacco advertising with the various responses that the FIA and Formula One management have made and contrast that to the actual actions which we can see that they have taken. An examination of the actual amounts of money involved helps to put into perspective the difficulties faced by the Formula One management in trying to deal with the potential losses of revenue from an advertising ban. We try to analyse the political issues that are relevant to the decisions that the FIA have to make and also examine the mechanisms that they have used to try to influence them. Finally, having examined and quantified these issues, we outline the impact of the European Unions ban on tobacco advertising an the effects that it has had, and probably will have, on Formula One racing. Introduction Formula One racing is a major player on the world’s sporting stage. It is considered both glamorous and exciting. As such it is watched and followed by millions of people across the globe. Because of this popularity it enjoys huge influence in our collective consciousness. Over the last 37 years it has courted controversy by balancing the enormous advertising revenue it receives for tobacco products against the various ethical and health considerations that are obviously consequent on that decision. The history of tobacco advertising and Formula One stems from the original decision in 1968 for Gold Leaf to sponsor the Lotus 49, in return for prominent displays of its logo. The so-called â€Å"fag packet on wheels† achieved a certain notoriety in the press and in doing so generated far more positive publicity and awareness than the tobacco company could ever have dreamed of. We do not know what the value of this original sponsorship was in financial terms but in terms of the publicity generated, the value was colossal. This comparatively modest beginning started 45 years of controversy which is still both raging, and indeed possibly gathering momentum even today. The implications of that first black and gold logo appearing on the side of a racing car would be the precursor of the selling of colosally valuable real-estate (in terms of car panels, driver’s overalls and helmets) that would shape decisions as basic as just where and when Formula One Grand Prix races were held – if they were to be held at all – as Canada, Germany, Belgium France and Austria have all found to their cost. It has involved the governments of most of the Formula One participating countries. It has involved the European Union in making legislation specifically tailored to tackle the Formula One problem, and it has involved Formula One making public pronouncemen ts while clearly pursuing an alternative agenda behind the scenes. It has nearly brought down Tony Blair’s government and certainly has left a very unpleasant stain on his reputation and credibility. (see on) In this piece we are going to try to evaluate the effects of the impending ban on tobacco advertising in all sports imposed by the European Union, particularly in its relevance to Formula One. The first question that we have to consider is â€Å"Why all the fuss?† Just why is the European Union getting involved in an ostensibly minor issue which, on the face of it is only relevant to a small proportion of the sports-following public? Is advertising on Formula One cars a real threat to the Public Health? The issue of whether smoking is a personal health risk has been so well rehearsed over the recent few decades that it scarcely needs repeating here. Some factors are undoubtedly relevant to our considerations however. Smoking trends have varied greatly over the past few decades. The actual prevalence of smoking has declined, as far as the general population is concerned, by about 40% since 1960 (CDC 1993) As far as the UK is concerned, this diminishing trend has actually levelled out over the last 15 yrs. (Dobson et al. 1998). It is particularly relevant to our considerations here that, with specific reference to the adolescent and young adult fraction of the population, the actual trends in cigarette consumption has actually increased (Nelson et al. 1995) (NCHS 1995). The age range which has the current highest prevalence of smokers is the 20-24yr. age group where 42% of men and 39% of women report regular smoking (NCHS 1995). Many other studies have produced consistent and corroborating results, so we can have a considerable confidence in their validity. The peak incidence of smoking is generally found to be at about 21 yrs. (Paavola et al 2004) which contrasts to the peak age for alcohol intake which occurs at about 28yrs. The relevance of these points will become clear later on in our considerations. One interesting, and possibly very relevant observation, that also came from this same study, was the fact that the incidence of smoking correlated highly with individuals who watched large amounts of television. There is possibly a link here as Formula One is clearly a prime time occupant of some television channels. Also of relevance to our considerations here, is the study by Van Den Bree (2004) who found that the single biggest predictor of smoking and drinking in the adolescent years was the endorsement of that particular activity by the teenager’s peer group. There is little doubt that one of the major attractions of Formula One is the aspirational qualities that it appears to possess. Fifty years ago the aspiring teenager typically wanted to be a train driver. One could argue that a similar reverential status is now held by the racing driver who is perceived as glamorous, skilled and dashing and risking his life in his chosen career – all qualities that are commonly perceived as worthy of adoption in a peer-group scenario. The thrust of this section is to try to establish the evidence to support the view that by sponsoring Formula One, the tobacco companies do pose a threat to the public health. There seems little doubt that the young adult (being the largest smoking group) and the adolescent (being the most impressionable group) are the two most important and potentially profitable targets for the tobacco companies in their advertising campaigns. (Teague 1973) This has been clearly demonstrated in the wake of some very prominent lawsuits in the USA. As a result of these lawsuits a number of tobacco company documents were ordered to be released into the public domain. (Phelps 1998) (Schwartz 1998) these confirmed beyond a shadow of doubt that the tobacco companies were deliberately targeting the young adult and adolescent market in order to try to create a brand loyalty and they were using Formula One as a suitable medium (For reasons already outlined) to do it. Three examples are given here from the documents released at the trial 1957: A Philip Morris Executive writes that Hitting the youth can be more efficient even though the cost to reach them is higher, because they are willing to experiment, they have more influence over others in their age group than they will later in life, and they are far more loyal to their starting brand . 1971: An internal RJ Reynolds document outlines that the lower age limit for the profile of young smokers is to remain at 14. (Pioneer press 1998) 1973: Claude Teague, Assistant Chief in RD at RJ Reynolds, writes a paper: Some Thoughts About New Brands of Cigarettes for the Youth Market; At the outset it should be said that we are presently, and I believe unfairly, constrained from directly promoting cigarettes to the youth market if our company is to survive and prosper, over the long term we must get our share of the youth market. 1974 Claude Teague also said in a memo to other executives: Importance of Younger Adult Smokers Why, then, are younger adult smokers important to RJR? Younger adult smokers are the only source of replacement smokers. Repeated government studies (Appendix B) have shown that: à ¯Ã¢â‚¬Å¡Ã‚ · Less than one-third of smokers (31 percent) start after 18. à ¯Ã¢â‚¬Å¡Ã‚ · Only 5 percent of smokers start after age 24. Thus, todays younger adult smoking behavior will largely determine the trend of industry volume over the next several decades. If younger adults turn away from smoking, the industry must decline, just as a population which does not give birth will eventually dwindle. In such an environment, a positive RJR sales trend would require disproportionate share gains and/or steep price increases (which could depress volume) (Schwartz 1998) The whole area is clearly targeted at the young adult population – which is the best represented at a typical Formula One meeting. Formula One sponsorship is clearly therefore a very important asset to the tobacco advertising industry. (Phelps 1998) The whole area of tobacco advertising being attached to Formula One is primarily to raise brand awareness, reinforcing the brand image and (hopefully) increasing the market share of the product. By association of the particular tobacco product with the image of Formula One that we have described it is hoped that the product will be perceived as â€Å"Cool, glamorous and exciting† ( Cornwell et al 1998) (Irwin et al. 1994) In a document which we shall comment on further later in this piece, the FIA (World motor Sport Council) commissioned a report (December 1998) to look at the evidence to support this view. The key findings in this report can be summarised as follows: that the tobacco companies were driven by an obsessive need to recruit young smokers to satisfy their market demands which required vast numbers of new smoking recruits in the UK alone they need 300 new smokers a day and that for decades tobacco companies marketed their products to young people, including to children too young to purchase the products legally that this obsession with new, young smokers is evident in companies market research on teenagers, some as young as 12-, 13- and 14- years old and in one instance as young as five years old that studies showed that the majority of smokers start using tobacco while in their teenage years, and that hardly anyone starts smoking in their twenties but that those who started at around the ages of 12 or 13 years old often want to quit by the age of 16, concerned that smoking was damaging their ability to participate in sports. Knowing this, the tobacco companies sought to lure and addict children to cigarettes before the desire to stop grew strong, and sought sponsorship deals with sport to counteract any concerns they may have about the health dangers of smoking that tobacco companies knew that lifelong brand preferences are formed in the early teenage years and that increased visibility for their products could shape these preferences that sponsorship of Formula One is the jewel in tobaccos crown it is the pinnacle of successful, glamour-laden global events with a massive potential to reach the young through both the televised events and the spin-off merchandise. This evidence seems self explanatory. There is clear benefit for the tobacco companies to promote their goods to the young on the basis that they are the most susceptible to their advertising and that once smoking they are likely to continue. Their strategy is to present smoking as an acceptable pastime endorsed by a glamorous high profile sport that effectively negates the plentiful and contrary messages that smoking is bad for sporting performance. There is further evidence to support this view. A survey of adolescent boys (Smee 1992) found that the boys who had stated that their favourite broadcast sport was Formula One, were more likely to name Marlborough and Camel cigarettes (brands associated with Formula One) than any other brand and were also more likely to have begun smoking within the following year (Andrews Franke 1991). This same survey also found that in the age range of 12-13yr old UK boys, only 7% smoked, this proportion rose to 13% in those boys who said that their favourite sport was Formula One. Further, and extremely important retrospective studies, looked at the effects of removal of tobacco advertising in the four countries France, New Zealand, Finland and Germany between the years of 1975 and 1993 and they found that the cigarette consumption (per capita of the population) had fallen from between 14 37%. It follows from the evidence presented so far, that we can reasonably conclude that tobacco advertising associated with Formula One racing does form a threat to the Public Health. It poses a threat to the impressionable youth who may well wish to emulate their peer group by appearing â€Å"Cool, sophisticated and glamorous† which is exactly the inference that tobacco advertising seeks to imply by associating itself with the â€Å"cool, sophisticated and glamorous† sport of Formula One motor racing. There is no reasonable doubt that tobacco smoking is a major deterrent to health. It clearly follows from this argument that the policy currently pursued by Formula One is having a deleterious impact on the Public Health on a global scale (See on) How much money is involved? The whole issue of Formula One advertising only really became an issue of public concern and debate when the whole area of tobacco advertising on terrestrial television became a censorship issue. This occurred in the UK in 1965, the USA in 1971 and Canada in 1972. It has since occurred in the vast majority of western countries although it has to be noted that a significant proportion of the far east (where Formula One racing is now starting to spread) there still is no effective curtailment of any type of tobacco advertisements in any of the differing forms of media. The tobacco advertisers therefore had to turn to other mechanisms for getting their products into the public consciousness and sponsoring major sporting event that were to be broadcast seemed the way forward for them. (Ledwith 1984) (Stoner 1992). Formula One has a virtual monopoly of the broadcasting rights to their races worldwide and they have the ability to dictate a great deal of exactly what (and how) we, as the viewing public, see their races One study on the subject discovered that Marlboro managed to obtain nearly 3.5 hours of â€Å"In-focus† exposure during the 15 races of the 1989 Formula One season. (Blum 1991) The same report stated that during the same season the name Marlboro was either seen or mentioned 5933 times. To equate that to a financial basis, between 1997 and 1999 the tobacco companies collectively managed to achieve 169 hours of advertising exposure in the USA alone which equates to about $411 million in advertising value. (Siegel 2001) To put this figure into perspective it should be noted that tobacco companies themselves are seldom the only sponsor of a team or an event. In Formula One the running costs are enormous. We can quote the figures for the 2001 season for the top three teams as Ferrari at $284.4 million; McLaren at $274.6 million and BAR Honda at $194.5 million. (Formula 1 Magazine 2001) The actual spending of the money is harder to quantify in terms of figures but a fairly accurate estimate is thought to be that Philip Morris (Marlboro) in its sponsorship of Ferrari spends $23 million on Michael Schumacher’s salary and a further $65 million for the privilege of having their logo placed strategically on the car and the overalls and helmets of the drivers (Saward 2001) (Donaldson 2001) Similar orders of money are spent on the other teams Reemtsma (West) sponsors the McLaren team spending $37 million to have their brand name prominently displayed( Saward 2001). British American tobacco who are the prime sponsors of BAR invested about $47 million during the 2000 season (Donaldson 2001) The collective total of tobacco sponsorship money invested in Formula One in the 2000 season was thought to be $250 million (Grange 2001) Despite all that we have outlined above, it is not only the exposure at race-day that is important to the tobacco advertisers, but there is also the visibility obtained by all of the â€Å"third party† pictures and co-sponsors. The tobacco product attains an added prestige boost when seen in the company of other high prestige products. A classic example of this came when Philip Morris (Tobacco) was a co-sponsor of a Formula One team along with TAG Heuer watches which provide the time keeping at Formula One races. TAG Heuer place a lot of newsprint and poster adverts and these show the Philip Morris logo on the Formula One car which, if it were advertising tobacco, would be prohibited but as it is purporting to advertise watches it bypasses this particular restriction. In just the same way Benson Hedges share sponsorship of the Honda BAR and Jordan teams so Benson Hedges gain significant visibility through Honda advertising. This kind of relationship is quite risky from a Public Relations point of view (Both from the co-sponsor perspective as well as from the Formula One racing team’s viewpoint). Again if we consider the impact that the withdrawal of tobacco advertising revenue would have from Formula One then we should consider the recent case of TAG Heuer and Reemtsma (Makers of West cigarettes) the fall out from which did nobody any favours. In June 2001 the premier French newspaper Le Monde raised an objection to a TAG Heuer advertisement which prominently displayed a Formula One carbohydrate with an equally prominent West logo displayed upon it. (Anon En France 2001) TAG Heuer was accused of violating French laws regarding tobacco advertising. It did manage to successfully defend itself by asserting that as an official sponsor of McLaren it was contractually required to use official team images. It was a situation that did not bring any particularly favourable publicity to any of the protagonists. Certainly none to TAG Heuer or West and it did not show Formula One in a particularly favourable light either. (Anon Tag Heuer 2001) Although the financial impact of tobacco advertising on Formula One racing is quite clear from these figures There is also the converse argument which we have not considered yet. The sponsorship agreement locks in a sponsor for a certain finite period of time for a certain fee. But these agreements also impel the sponsors to utilise the racing team’s photographs and other images on any piece of promotional material that links them with the sport. This represents another, less well publicised impact that withdrawing tobacco advertising sponsorship would have on Formula One. It is curious that high prestige brands such as Hewlett-Packard and TAG Heuer find themselves locked into a sponsorship agreement with products that, on the face of it, you would not expect to share a particular brand image. The value of tobacco advertising to Formula One, or indeed the value of Formula One to tobacco advertising, can hardly be understated. It is only when one considers the absolute magnitude of the sums of money involved that one can fully appreciate the difficulties that Formula One would face if the tobacco advertisers were stopped from continuing their sponsorship of the industry. Despite their posturing and public statements, one can begin to understand the enormous cash vacuum that would be left if Formula One voluntarily detached itself from the tobacco industry The evolution of the current tobacco ban by the European Union The European Union’s Directive on the banning of tobacco advertising in print, radio advertising and event sponsorship by tobacco companies is due to come into force on July 31st 2005. This is the culmination of a prolonged multifaceted campaign from many sources and has many potential ramifications for both the sport and its followers. We will highlight some of the important events in the evolution of this Directive. The Directive was originally published in 1997 with the intention that it would come into force in 2005 In November 1997 The then Health Secretary Frank Dobson announced on Radio while being interviewed by John Humphries, that the government would ban all sports sponsorship by tobacco companies In March 1998 the FIA announced at the Australian grand Prix of that year that it was going to ban tobacco advertising from 2002. That would have been four years ahead of the time that it would have been required to do so by the European Unions ban on tobacco advertising. This was the so-called Melbourne Declaration. The Melbourne Declaration was a timely statement put out by the FIA as a result of pressure form the world’s media after the European Unions ban on tobacco advertising was first mooted. In essence it said that: â€Å"if presented with evidence of a direct link between tobacco advertising / sponsorship and smoking, it would act to eliminate tobacco advertising / sponsorship from Formula One†. It went on to discuss its stance of agreeing to take a responsible look at the issues involved after being presented with evidence form the British Government and other agencies and said that it was discussing the issue with the World Health Organisation (Hills 1996). It set the date of 2002 as it happened to be the date of the expiry of the Concorde Agreement between the teams and the FIA. It also stated that such a ban would apply to all Grands Prix whether in the European Community or not. By way of a reply to this, and other pressure from various Governments and pressure groups the Chairman of the FIA (Mr Max Mosley) published another document at a press conference at the Monaco Grand Prix in May 1998 which outlined the proposed mechanism for examining the evidence. One could be forgiven for suggesting that the FIA was playing for time, as there appears to be a dilution of their Melbourne Declaration, the date of 2002 is replaced with a reference to the date of the European Unions ban on tobacco advertising in 2006. â€Å"To remind you, we said that if convincing evidence were to be offered to show that the promotion of tobacco through Formula 1 racing is responsible for persuading people who would not otherwise smoke to take up the habit, then we the FIA would ourselves eliminate it before 2006. We have received a certain amount of evidence to this effect, and we are now considering the best way to evaluate that evidence. Rather than leaving the final judgement to myself, or the FIA generally, we are looking into the possibility of raising a formal inquiry, under the direction of an independent assessor, to study the evidence that has been offered.† In July 1998, ASH (action on smoking and health) wrote to Mr Mosley, who was the chairman of the FIA, to ask that Formula One should place a voluntary ban on tobacco advertising. It points out the evidence gained from documents used in various tobacco trials in the USA, that tobacco firms were targeting Formula One racing as a suitable outlet for their advertising with the â€Å"specific intent and rationale† to market cigarettes to the young. The thrust of the letter was to ask the FIA to consider the health risks that it was running by accepting the $300 million that the industry was paid in total during that year as tobacco advertising revenue. ASH asked the FIA to consider appointing an independent assessor to evaluate the evidence that tobacco advertising was a risk to health and to â€Å"take the necessary steps to end tobacco sponsorship of Formula One in 2002. â€Å" In December 1998 the FIA issued another Document in the form of a communiquà © in response to pressure for a decision from various quarters. It purports to be reasonable as it concedes that there will never be absolute proof that tobacco advertising in Formula One is responsible for young people starting to smoke. They commit themselves to an assessment on the â€Å"balance of probabilities† – he same test that is applied in a civil court of law. The FIA also states that it has not yet appointed an independent assessor. By July 1999 the FIA were still prevaricating and had not made any significant progress towards making a decision. ASH sent the FIA a well publicised and open letter in which they rehearse the rationale for the various options of decision, pointing to the fact that the balance of probabilities – although undoubtedly giving the answer that ASH wanted was not the best approach and they suggested that, in these circumstances, a precautionary approach would be appropriate. The main question facing the FIA assessment is therefore, given the very serious consequences and the authoritative views from Governments, the World Bank and others, how much evidence is needed to justify action? As in all disputes, a test of evidence is required. The FIA has asked for clear and convincing evidence but the level of conviction required to justify action is not stated. There are three possible tests: balance of probabilities basis the same test used in civil legal action. In this case the assessor would decide if it was more likely than not that tobacco advertising through Formula One increased smoking. beyond reasonable doubt basis the test used in criminal legal action. The danger with using beyond reasonable doubt is that the FIA could continue to act as if there was no relationship between advertising and increased smoking, when in fact the evidence suggested it was more likely than not that there is a link and more likely than not that lives would be lost. precautionary approach the approach increasingly used in regulation where the consequences of being wrong are serious and the evidence is complex to establish. With this approach those claiming that tobacco promotion in Formula One does not increase overall consumption would be required to make their case beyond reasonable doubt. In our view, the precautionary approach is the right way to assess the evidence. The great danger posed by smoking, and the obvious common sense idea that advertising influences teenagers and increases smoking suggests that the evidence should be evaluated to give the benefit of doubt to evidence suggesting harm. The situation is still far from clear as a fax from the Turkish National Committee on Tobacco and Health shows. Turkey has applied to have its own Formula One fixture. It is clear that the Formula One owners have put pressure on the Turkish Government as this fax shows. The Turkish Government had previously enacted a legal ban on all tobacco advertising in sports in 1996, so in order to host its own Grand Prix with tobacco advertising, it had to rush through legislation to make Formula One exempt from its own legislation. The public outcry was such that it subsequently had to withdraw this exemption and its application would have to proceed in the face of the prospect of a tobacco-advertising-free race. It is interesting to note that the FIA replied to this messeage with a totally unambiguous statement: â€Å"We always obey the law in each country we visit. In most countries, the laws are decided by elected representatives, as you say. In some countries tobacco sponsorship is allowed. In others it is not. We would not attempt to hold a Formula One race in a country where it is not allowed. The two exceptions are France and the UK, where respectively a law and a voluntary agreement are of long standing and the cars have raced without sponsorship for many years. We have ourselves voted a complete ban on tobacco sponsorship in motor sport from 1 October 2006.† The FIA clearly would not consider having a race where tobacco advertising was not allowed, but it again commits itself to the implementation of a complete ban in 2006 although it has to be said that the language of the letter strongly implies that it is a voluntary arrangement rather than one that is forced upon them by the European Unions ban on tobacco advertising Political consequences Soon after this exchange the matter took on a completely unexpected turn of events with the embroilment of the UK Labour party in the whole debacle. Both before and after the last election, the Labour Government had made manifesto promises that it would ban both tobacco advertising and tobacco sponsorship from sports in general. After a private meeting between the Prime Minister, Bernie Ecclestone and Max Mosley, the government subsequently backtracked, and announced that it had agreed that Formula One specifically was exempted from the ban as it was so heavily dependent on tobacco advertising revenue that to ban the revenue would effectively mean that the sport would be starved of cash. The move was also justified on the grounds that British employment would also be hard hit. Because Formula One is largely based in the UK, and a great deal of British technology is involved in the sport, it was argued that a ban on tobacco advertising would result in the sport leaving the UK with the loss of 50,000 jobs. They also pointed out that this would not help the anti-smoking campaigns as the sport would then move to tracks in Eastern Europe and the Far East where advertising was not banned. We should observe at this point that this statement completely ignored the contents of the Melbourne Declaration in which the sport had agreed to a voluntary ban in any event. On the face of it therefore, these arguments did not seem to be totally convincing. This was compounded by the fact that other prominent politicians such as the European Commissioner for social affairs Padraig Flynn argued against this stance by saying that Formula One leaving the UK would not cost anything like 50,000 jobs and also the market place, being what it was, new sponsors would be queuing up to take therefore place of the tobacco companies. The significance of this posturing came into the public consciousness with the hugely embarrassing revelation the Bernie Ecclestone (effectively the boss of Formula One ) had made a donation to the Labour Party of  £1 million just before the last election. It was also the case that Mr. Mosley had made a number of smaller donations as well. It later emerged that the Prime Minister had known about these donations when he had his private meeting with Mr Ecclestone and Mr Mosley. It is a well known fact that it is extremely difficult to get a private meeting with the Prime Minister in normal circumstances. The actual timing of these events is worth a closer examination, The spin-offs from this payment were obviously large as, a short time after the donation was made Frank Dobson (as we have already recorded) was paving the way for a way out for the Formula One industry He is quoted as saying â€Å"We recognise that sports are heavily dependent on tobacco sponsorship. We do not wish to harm these sports. We will therefore give them time to help reduce their dependency on tobacco† The mechanics of the negotiation seem transparent if we consider (with the benefit of hindsight) that the donation was made in August, by October 14 Dobson had sent a memo to Tony Blair advising him that there should be a comparatively longer transition period for Formula One than for other sports and two days after that was Mr Blair’s meeting with Mr Eccles