Show me the money

When F1 comes to Abu Dhabi the real action will be taking place in the Paddock and the VIP suites
Show me the money
Look familiar?: Marlboro was banned from advertising in F1, so now the car wears a suggestive barcode.
By Damian Reilly
Sun 14 Nov 2010 09:09 AM

Seth Holmes is the Middle East’s sponorship guru. Regional Head of Consultancy at global sports marketing giant IMG, he knows everything there is to know about monetising the human drama of sport. Tennis, football, golf, cricket, mud wrestling: if people watch it, he can sell your product through it. Put him in charge, and Holmes won’t rest until every available inch of advertising space is branded and the VIP boxes heave with corporate types in expensive suits swapping business cards and dentist recommendations. Holmes loves what he does, but it’s Formula One that makes him come alive. Because Formula One, for everyone who has something to sell and can afford the astronomic cost of a ticket, is the best party on the planet —and it happens every fortnight. It’s almost too good to be true.

Holmes says: “Branding is hugely important, it’s all about how much visibility you can get. Because the genius of what Bernie Ecclestone has done in F1 is he has created the greatest TV branding opportunity there is. And I would include the World Cup in that comparison. Globally, week in week out, month in month out, he gets more than two 200 million unique viewers a race.”

In fact, many would say that 200 million figure is very conservative. Other industry analysts put it as high as 600 million, twenty times a year (in 2001 the cumulative audience over a season was put at 54 billion) — an audience that comprises affluent petrolheads from every corner of the globe. Every race captures the imagination of its audience for about three hours at a time. In fact the whole jamboree, when practice and qualifying is factored in, lasts a weekend. And fans of motor racing are generally educated and wealthy — the type of people who fill the very best and most lurid dreams of marketing executives and advertising men the world over. Holmes continues: “F1 and its teams are fantastic at qualifying their audiences; they can tell you demographics, affluence levels, even the paper they read in the morning — if you can define your audience in sports sponsorship then you will increase its value.”

Formed in 1946, Formula 1’s inaugural racing season was in 1950. The formula to which the title refers is the ever changing rule book to which all teams must abide, but it might as well refer to the magic formula supremo Bernie Ecclestone has hit upon to make incredible sums of money. It was Ecclestone who transformed F1 into the multi-billion dollar carnival it is today when he persuaded the teams back in the 1970s to unite and take on the circuit owners, allowing them to retain or acquire the rights to host races in return for surrendering rights to any form of advertising. It was probably the shrewdest piece of business in the history of sport.

And today, aside from the teams who fail to pay the rent and fall by the wayside, or the circuits that are no longer deemed to be suitable for races, it is hard to see who loses when F1 comes to town. No wonder everyone in the Paddock looks so happy. The teams, almost universally, are desperate for money – it costs in the region of $200m-$500m a year to go racing and be successful, and so they are ecstatic to greet sponsors with big wallets prepared to underwrite their F1 dreams.

Likewise, the corporate sponsors are beside themselves with joy, not just because their wealth allows them a day out of the office behind the velvet rope in the domain of the colourful, passionate, noisy types who race the fastest cars on earth for a living, but because they know the products or services they provide are getting exposure on a measurable scale that no other form of advertising can offer. The glad-handing and back-slapping, then, is genuine: down there in the Paddock everyone is very busy, winning. Life is beautiful.

Holmes says there are three ways a corporate entity can associate itself with F1. It can sponsor a team, as hundreds do, or it can sponsor a driver — Reebok and Tag Heuer currently have deals with former world champion Lewis Hamilton — or it can become an official F1 partner. All three offer variously attractive ways for big brands to position themselves advantageously.

“For most businesses entering F1 as a sponsor it is a statement of big brand status, a demonstration that it is a global player,” he says.

Take global logistics firm DHL, which is an official F1 partner.

Holmes says: “DHL is quite an interesting one. They are the official F1 logistics partner and they do all of the transport of the F1 cars, teams, and so on from race to race. As you can imagine, that is an unbelievable logistical challenge. The precision needed to do this, to get everything from one race to the next is out of this world. DHL don’t pay much to be a partner, what they do is do the transportation as a value in kind deal. It’s kind of the ultimate brand statement: they’re saying ‘look, if we can do all the logistics to move F1 from race to race, imagine what we could do for your company.’ So the cachet of DHL is certainly enhanced by being associated with F1.”

The cash tills that measure the upfront sponsorship money flooding into F1 rang to the tune of some three quarters of a billion pounds for the 2010 season, the lowest amount raised in the last five years and $115m down on the previous year. The global recession hit the sport as hard as might be expected, given the perception of money spent on motor racing as money spent on fun. ING and Panasonic pulled out altogether, taking, between them, $125m out of the sport, and they weren’t the only ones. Average team sponsorship was down 28.4 percent to $58.8m.

Ferrari leads the sponsorship field, bringing in $245m this year. McLaren are second best, but a long way behind Ferrari, on $142m. At the back of the pack, Sauber raised $4.9m, and new boys Hispania a paltry half a million dollars.

Sponsorship may be down, but it is certainly not as bad as many had feared it might be. F1 insiders furrow their brows as they talk, somewhat dramatically, about the days a decade ago when the advertising markets “went dark,” by which they mean the days when tobacco advertising was banned from the sport.

Dominic Reilly, head of marketing at Williams F1, says sponsorship is not the game it once was.

“Ten years ago we would have been able to go to a company like Rothmans and they would almost singlehandedly fund the racing operation. Tobacco sponsorship was banned and then the economic crisis hit,” he says, adding: “Luckily most of our sponsorship contracts run for three to five years so we have been able to ride out most of the economic storm.”

There is always drama of one sort or another in F1, it is what the sport of famous for. Holmes, in his assessment of the sports recent financial ‘troubles’, though, is phlegmatic.

He says: “When the advertising market went dark on tobacco sponsorship beginning in the early 80s, many feared it would be the death of the sport. In reality they have continued to invest right up to the present day. Many believed the banking crisis might spark the same panic and it’s true to say that it has felt the pinch with high profile withdrawals such as ING, formerly one of the highest spenders in the sport. Ultimately they are replaced and F1 rolls on.”

It is not hard to see why sponsors wish to affiliate themselves with Formula One. For starters there’s the glamour of the thing. And then there are the characteristics that F1 embodies — characteristics many companies believe they share.

James Hogan, CEO of Etihad Airways — the UAE’s national carrier — is an enthusiastic supporter of Formula One. Etihad, under him, sponsors Ferrari and is an official F1 partner for the Abu Dhabi Grand Prix. He says the association works both for Abu Dhabi and for epitomising the spirit of the airline.

He says: “If you think of the F1 race here in Abu Dhabi, I think to have an event in the capital that is so significant means over the next week the global spotlight is on Abu Dhabi. That is good for us as an airline because you get to Abu Dhabi with Etihad. It is a best in class event and we are a best in class airline. And Abu Dhabi, with the opening of Ferrari World and the hotels and museums, is going to become a best in class destination. So I think an event such as this where the world watches over a weekend is great news for the all the stake holders.

“If you think we’re only a young brand, partnerships such as this help us position the style in regard to product. If you think of F1 as a sleek vehicle, if you think of teamwork in F1 — that is the type of business that we have. If you think of winning, that is the type of business that we are. Internally and externally it works well for us.”

Teams will bend over backwards to keep their sponsors happy, and it is not hard to see why. Holmes believes no other sport compares to F1 in terms of the efforts made to understand the needs of those who write the cheques — citing only top football teams such as Manchester United or Liverpool as favourably comparable marketing partners. After tobacco sponsorship was banned, an influx of car manufacturers entered the sport, throwing half billion dollar sums of money around in their effort to capture the Constructor’s or Driver’s Championship crowns, making it harder than ever for smaller teams to compete. Sponsors became more important than ever for teams without the might of a Honda or BMW behind them. Many of those manufacturers have now exited the sport, but still the legacy of cherishing sponsors endures.

Reilly says: “Williams as a team is unusual in that we are an independent team. So we don’t have the corporate backing of a Mercedes or a Ferrari or anyone like that. And so for us sponsors and partners are absolutely our life blood. Without them we simply don’t go racing. Because say our annual budget is in the region of $120m, of that about 80 percent comes from our partners.

“Williams has a slightly different modus operandi to other teams in that, without any disrespect to other teams, we tend to feel we look after and nurture our partners better than most teams in F1, and a testament to that is the length of relationship we have had with some of our partners. Accenture have been with us for sixteen years, Thomson Reuters for eleven years. Alliance for ten years. They are long term relations. We deliberately call our sponsors partners, because they do develop very deep relationships with us.”

To hear Reilly explain how it works, it does sound as if partnering with Williams is a smart idea, although as networking events go, it must rate at the top end of the scale in terms of expense. He says the team does everything in its power to make sure that when top level executives attend races they are introduced to the right people —people with whom they might be able to strike big deals.

He says: “If you look at our portfolio of partners they general join us for all the branding benefits you normally get associated with a Formula One team but also for the association with like minded companies — major blue chip companies — that not only come to enjoy the usual benefits you get with a Formula One team, but also to do business together. So it is very common for AT&T to do some business with Thomson Reuters, and Thomson Reuters with RBS, our banking partner, etc etc. So they see it not just as a brand building exercise, but also as an environment where they can do business.

“At Williams we try to understand what their objectives are, what their brand’s positioning is, and what their individual aims and ambitions are. We then try to develop a pretty tight brief to fulfill those objectives. So, for example, if Thomson Reuters is interested in developing relations with international companies to promote their business intelligence services, we will introduce them to business leaders and champions of industry at individual race events so that they can develop their business through association with us.”

But of course it isn’t all just about business meetings. Brands want to be associated with winners. Vodafone has just spent $75m to have its name on the McLaren car in 2011, and management there will be far from happy if they find, come next year, that they are backing — or worse, part of — a team that is underperforming. Every team can’t win every race, but with money comes pressure, and winning teams, obviously, can charge higher premiums for branding opportunities.

“The intrinsic media value of being on the car is proportional to the coverage that car gets. Thus successful teams can charge significantly more based purely on the return they can offer their sponsors. In this way it doesn’t differ to any other sports sponsorship,” says Holmes.

The initial, massive, outlay a brand pays for its spot on an F1 team – say Vodafone’s $75m, or even UBS’ $200m five year official F1 partnership deal — is only the start. It’s an entrance ticket. After that, millions of dollars will be expended on what marketing men call “activating” that sponsorship — by which they mean staging schmoozing events and media opportunities all over the world.

Annual sponsorship of F1, when everything is factored in, is a billion dollars a year spent, and not a single asset to show – branded t-shirts and balloons excluded.  Is it all worth it? That is to say, do people really notice the brands? It’s a question for marketing psychologists to answer… but frankly who cares? The fans are happy to see the cars race, the teams are happy to be on the track, and the men in suits can measure very precisely the time during which their company’s name was broadcast via television to 600 million people a race, or 54 billion people a season — information that has a notional value.

Holmes says: “You tell me: when a car zooms past at 200kph, can you tell me what branding is on it? My job is to make the visible and emotional connection between brand and fan. Sometimes I wish they would slow down…just a little.”

Long may it continue.

A dream sponsor marriage

Shell’s sponsorship of Ferrari is one of the oldest in the sport. The oil company’s head of global sponsorship Richard Bracewell talks about what the relationship means to the company:

“Shell’s relationship with Ferrari dates back to 1929 when Shell was sponsoring Enzo Ferrari, who was then a race driver. This relationship has evolved to become one of the most renowned partnerships in motorsport history. What was initially a fuel and lubricants supply deal over 80 years ago has turned into almost a symbiotic relationship today, a true technical partnership. What we measure in every Shell market is not the Shell brand awareness, as it is one of the most established brands in the world, but the awareness of Shell’s technical partnership with Ferrari which currently sits at approximately 30 percent globally. The global awareness has grown significantly since we started using the technical partnership with Ferrari as a platform to push our premium products Shell V-Power and Shell Helix Ultra back in the mid-1990s.

Shell has a strong heritage of technology and innovation. Formula One, as the pinnacle of motorsport, is an extreme and unique test bed for our products. Shell invests approximately 18,000 man hours every year into developing fuels and lubricants for Scuderia Ferrari. The learnings from this research and development programme are transferred directly to our road products — Shell V-Power fuel and Shell Helix Ultra lubricant. The biggest benefit from our involvement in Formula One is the technology transfer to our customers around the world.

The main objective of Shell’s technical partnership with Ferrari is to increase awareness and sales of Shell’s premium products, Shell V-Power fuel and Shell Helix Ultra lubricants, by demonstrating that Shell’s involvement with Ferrari is far more than just a logo on the side pods of the Ferrari F10. We want our customers to consider that the effort and resources invested by Shell year after year in our technical partnership with Ferrari is the reason to believe in the quality of our products. The recent contract extension with Ferrari until 2015 is a strong testament of our belief in the partnership.”

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