Crunch time on the Grand Prix circuit

THIS WEEK'S news that the Arrows Formula One team is on the verge of collapse confirmed what even the most hardened of petrolheads have known for at least two years - that the real race for survival in this glamorous sport is taking place well away from the track.

The Tom Walkinshaw-controlled team responded to months of speculation about its precarious financial position by saying it was in talks with potential investors and would not compete in this weekend's Hungarian Grand Prix.

But even those with only a passing interest in motor sport would have been unsurprised by confirmation of the industry's worst-kept secret. The trackside gossip has suggested all season that Arrows' future could be short, with more-informed followers citing its uncertain relationship with mobile phone operator and key sponsor Orange as evidence of its troubles.

They say Orange has long been seeing red over its £50m sponsorship of Arrows and is about to bring down the chequered flag on its three-year deal with the struggling group. The speculation that Arrows could be about to follow competitor Jordan Grand Prix in losing its 'title' sponsor (Benson & Hedges is now a secondary sponsor at Jordan) cuts to the core of the financial hardship hitting some members of motor racing's global elite. Orange, whose industry knows all about financial pain, admits it is questioning whether the international exposure gained by having its name splashed on the side of the 200 miles-an-hour openwheeler is the best use of its £50m.

'We are undertaking a big spending review and where we go from here has not been decided,' an Orange spokesman says. 'When we started we were a UK-centric company and wanted to create a global brand so we could expand. But now we are in Thailand and Scandinavia and the onus of sponsorship has changed and we have to look at other ways of making the marketing dollar work for us.'

There is obvious logic in the Orange approach. Just because phone users around the world recognise the name does not mean they necessarily like the product and Orange may well do better to spend its money on promotions that convince them otherwise. But Arrows' competitors dismiss this as commercial waffle aimed at covering the fact that Orange, which battles for a share of its own extremely competitive market, is tired of being associated with the underperforming Arrows team.

The contrast between Arrows and Ferrari, which is sponsored by Orange's arch rival Vodafone, highlights the growing polarisation which many believe is threatening to kill Formula One's value as a spectator attraction. The Italian team's obvious superiority has already made many of the races into the world's most expensive procession. While teams at both ends of the spectrum agree this has the potential to bring the sport (does anyone still think that is what it is?) to its knees, the question of what to do about it is attracting an equally wide range of answers.

The smaller teams - Jordan, Arrows and Minardi - argue the solution lies in making it possible for them to first compete on the financial stage. Bernie Ecclestone, F1's multimillionaire controller, appears to have some sympathy for this view, asking team leaders recently to 'put their heads together' over ways to pare back the cars' technology in a bid to cut costs.

Ecclestone argues that nobody will notice the minor reduction in performance but the smaller teams will benefit richly from the savings they stand to make in areas such as testing, where trials could be restricted to the workshop rather than the more costly trackwork.

But F1's wealthier members say the smaller teams' efforts at crying poor are largely a facade for their campaign for the introduction of technical changes that will help them close the performance gap. They argue that such restrictions will do little to lower overheads, with leading teams such as Ferrari finding other ways to spend money.

'We are aware that, as in football's Premier League, there are problems,' says Jim Wright, the head of marketing for Williams, one of Formula One's most successful teams. 'We recognise the problems that some teams have but we would like to see a thorough review of everything rather than cost-cutting. If you stop Ferrari from spending £1m on testing, they will spend it on a simulation budget, so where is the gain? I don't think it is possible to police costs. Do you say to them they can't pay Michael Schumacher $40m a year?'

Wright wants the sport's governors to study ways of ensuring greater TV coverage of smaller teams during a race, saying this would help them sell advertising space on their cars. 'But this is a competitive business and the strongest will survive. While some of those teams are giving interviews about cutting costs, others are doing good sponsorship deals.'

Gap between track's rich and poor to widen

THERE is still plenty of money chasing the tiny sponsorship slot on the front of Michael Schumacher's crash helmet, but in these times of economic uncertainty the sport's lesser known competitors can expect a far rougher ride. The financial advantage that comes from working with the sport's top teams was brought home starkly to Chris Akers, the former Leeds United chairman, whose Sports Resource Group dipped into the red last year thanks to the financial crash of Team Prost.

'Last year we placed Adecco, one of the world's largest employment agencies, with Prost. We did a good job but we didn't get paid our commission by Prost because Prost went into administration,' Akers says.

His company was forced to write off £250,000 from the collapse of Prost, headed by former world champion Alain Prost, after it went into financial meltdown in January, putting 200 people out of work and sending shock waves through F1.

Akers, whose group has also arranged sponsorship for Ferrari, Toyota and McLaren, says the reverberations from the Prost debacle mean the gap between the sport's haves and have-nots is now set to widen. The big money wants the sport's major names, and teams that traditionally stack up at the back of the grid can expect a far harder time attracting sponsorship.

'What Prost taught us is that you have to be absolutely sure that the team, or franchise you are retained by, is financially robust. What we do now is represent the top teams,' Akers adds.