By Ashford Fernandez
Ad and branding guru Elie Khouri explains why F1 is big business for the corporates
Few things are better at igniting passion than sport. At its best, it unites the world and provides a break from conflict — the basis of the Olympic Games in Greek antiquity — at its worst, it incites violence between supporters of rival teams. But what is the real attraction?
Some would say it’s the drama of human achievement — bodies being pushed to the limit and the display of tremendous skill — or the thrill of incredible speed, be it human or mechanical.
In these respects, Formula One has it all. But there’s something else. There is one additional attraction that makes it the imperative sport to be in, not just for spectators, viewers or enthusiasts, but for cities or even countries: cold hard cash. The economic windfall of staging an F1 Grand Prix is attraction enough for cities to outbid each other for the right to host one. Abu Dhabi is reportedly paying between $45-60m a year to host a GP. Russia will pay $40m from 2014. The reason for them to do this is that the return is significantly greater.
Now wonder the competition between countries to stage a race is as fierce as it is on the track. Just consider a few numbers: Shanghai’s first F1 Grand Prix in 2004 generated some $650m in revenues, Japan, an F1 host since 1963, generates an estimated 1,750 percent return on its investment. Australia, on the other hand, generated a revenue of $62m on an investment of $46m in 2010. Next year’s first ever Indian GP is expected to net a minimum of $100m for Delhi. According to a report by Formula Money, hosting cities can expect to see a return on investment of around 553 percent on average.
Global revenues have been estimated at close to $4bn a year, $1bn more than football. If you wonder why that is, just remember that as the highest class of single seater auto racing, Formula One is considered the pinnacle of motorsport. It is a truly global sport with twenty races in eighteen countries across five continents. It is an event that runs almost throughout the year, as the season starts in March and ends in November. It combines human skill and engineering achievement. Visually, either on the grounds or on TV, with speeds of up to 320kph, the spectacle is breath-taking. Did I mention the noise?
It’s therefore little surprise brands see it fit to join this travelling circus, be it through drivers, racing teams, events, tracks or the Formula One management. In fact, more than 200 brands are associated with the sport.
The reasons for these partnerships are many but usually brands benefit from the association it creates in their consumers and/or stakeholders’ minds. It can be for the engineering and technological dimension of the sport, so precision, performance and technology are strong attributes for them to capitalise on. It could just be the speed and the action, even drama. For some, it will be the cutting edge design, for others it will be the glamour and passion. On a more concrete level, it’s about the audience Formula One generates. It is the most watched annual sports series and often seen as on a par with the once-every-four-years FIFA World Cup Soccer and the Olympic Games. Who would turn their backs on a global TV audience of over 520 million viewers per year in close to 190 countries, enthusiastic enough to watch hours of cars chasing each other on a circuit? Maybe it’s the modern take on coliseum games of antiquity, today’s chariot races.
The profile of this audience is also very attractive. While predominantly male, it also is of interest to females, and while it cuts through socio-economic classes, it reaches very high circles in very high numbers, something many other sports fail to deliver.
Consider the case of ING, a financial services company. ING entered the sport in 2007 for three years and in 2008 published its first year results of the sponsorship. It surveyed 16,000 respondents in 32 countries and found that, as a result of the F1 sponsorship, it had achieved a seven percent increase in perception of being a leading and global financial services firm, a 25 percent increase in positive perception of ING and a 29 percent increase in willingness to do business with ING within the next twelve months.
Obviously it all depends on how a sponsor executes its association, whether it’s PR, advertising or promotions. In many cases, it involves corporate hospitality. Sponsors, as well as others, entertain guests and business partners at all races, be it within the paddock, in team motor homes or the exclusive Paddock Club hospitality village. It is where the glamour, passion and drama are the most palpable and therefore where the association with the sport is the strongest.
There are many reasons why the sport is now growing in emerging markets. One of the issues is that tobacco advertising regulations have made it more difficult for such brands to carry on supporting the sport and less regulated markets were initially seen as a way to still have them involved. Now that these regulations are fairly global, the focus is much more in delivering the full audience potential to sponsors and advertisers. All forthcoming Grand Prix, India (Delhi) from 2011, USA (Austin) from 2012 and Russia (Sochi) from 2014, as well as the most recent additions, are all in highly populated countries or regions. In India alone, some 400,000 spectators are expected to make it to the Grand Prix weekend, even before we factor in the TV audience.
Such a development also gives rise to a number of outlets, attracted by the significant advertising investments, seeking to reach the audience of sport fans, be they car brands, other male oriented and lifestyle products and services. Corporate advertising is also fairly significant, even in the B2B sector.
Taking a specific race, like the Etihad Airways Abu Dhabi Formula One Grand Prix as an example, it all starts with the advertising of the event itself, which kicks off several months ahead of the race to sell tickets as quickly and as broadly as possible, in massive quantities. As we get closer to the event, the communication focuses on other dimensions, such as the concerts for race goers, to ultimately end on logistical considerations.
Obviously, brands, be they sponsors or otherwise, will seek to get some attention from people following the race, be it in print, on TV, on air or online, from the build-up to the race and the analysis of the results. Whether it’s live at the circuit or in media outlets covering the event, brands’ advertising and merchandising goes into overdrive. Needless to say people lap it up and F1 is as much about shopping as it is about racing.
Sport is well and truly a business, as large sums of money are in play hoping to back the right athlete or team. Formula One is definitely a front-runner in this and could teach other sports a few lessons on how to win gold.