Business of Motorsport For April 1, 2022-The Complexities of Motorsport

This week in the Business of Motorsport I look at some of the major developments in the business of Formula One, highlight some of the latest motorsport sponsorship partnerships, bring you some general motorsport industry news and take a look at three teams and how their plans for 2022 and beyond are progressing.

Formula 1

Calendar Conundrum

Literally a mere hours after I published my last Business of Motorsport column with the discussion of Saudi Arabia and Formula 1 did a missile destroy an Aramco fuel depot near the track during FP1, reigniting (pardon the pun) the whole debate of what countries should and should not host F1 races. The arguments for and against racing in Saudi Arabia (or China or Russia or Azerbaijan) often center around the appalling human rights records of these countries and it is therefore morally wrong to essentially enable these countries further. The arguments for center around increasing the global visibility of F1, offering F1 in “destination cities” thereby enhancing its value and presenting new and exciting tracks for drivers to race on.

As the name of this column suggests, F1 is a business and business is all about managing risk vs reward. In the case of Saudi Arabia, do the risks outweigh the rewards? In some ways F1 and Liberty Media have painted themselves in a corner by portraying themselves as a shining light that will encourage change, but what impact can they truly have? With the issue of sustainability, F1 can at least impact the manufacturers, cities and perhaps even the countries they race in by demonstrating new, more sustainable ways of doing things but societal change is a harder argument to make. What Olympics has ever positively impacted the society it has competed in? Arguably none. Dieter Rencken has done as good a job as any in explaining the financial implications of the Saudi Arabian Grand Prix in Why calls to cancel the Saudi Arabian GP fell on deaf ears. “Forget all about F1 being a sport – it is a global business operating to strict sporting and technical structures, just as other industries have peculiar strictures. That is the point: F1 is a voracious monster that needs to generate well upwards of $2bn per annum just to keep its 10 teams fed and in business and its shareholders sweet, with a mix of race hosting fees, TV deals, hospitality and licencing providing the wherewithal. Individual team sponsorship is on top of that and not included in F1’s $2bn turnover.”

Liberty Media has even highlighted the risk factor of racing in places like Saudi Arabia to shareholders. As Joe Saward points out in his latest Green Notebook, “The general risk of a terror attack has increased recently in a number of the countries in which events are held,” the F1 group advises, without naming names. In other words. We are going to dodgier places.”

So again, as in any business decision, is the reward worth the risk? Will your customers be so alienated by your decisions that they will abandon your product and move elsewhere? What will the market decide? In the case of Saudi Arabia, it is perhaps too early to tell. The on track action seems to have dimmed the debate slightly but early reports are that the F1 Saudi Arabian Grand Prix race attracted cable’s largest F1 audience since 1995. “TV ratings for the first two races of the season are 52 percent larger than the first two races of the 2021 season. According to ESPN, the race is the 10th most-viewed F1 event in the U.S. on record.” Many will scream at the top of their lungs that it is “all about the money” but while the FIA regulates the sport, the commercial rights holder runs the business and by definition it is in fact all about the money. Interestingly, when previous owners CVC Capital owned the commercial rights, people complained that they were sucking all the money from F1 without giving anything back. Liberty have taken the opposite tact and are aggressively working to expand the footprint of the sport which brings up a whole different litany of complaints.

Not only does F1 have to take the fans into consideration but possibly more importantly its their sponsors they need to worry about. As Paul Poole points out primarily in reference to the Olympics and World Cup in As large sports events become increasingly politicised, sponsors are feeling the heat, “The companies argue that sports should not be politicised and that they have contracts spanning multiple Olympic Games, not just the ones in Beijing. According to the New York Times, the top 13 Olympic sponsors have contracts with the International Olympic Committee that add up to more than USD1 billion. In a comment to the New York Times, Omega, the official timekeeper and data handler of the Olympic Games, said that since it started its partnership with the Olympic Games in 1932, “it has been our policy not to get involved in certain political issues because it would not advance the cause of sport in which our commitment lies.” Granted as one of F1’s biggest title sponsors is Aramaco, this may not be as much an issue in relation to the Saudi Arabia race, what about Heineken, or DHL or Amazon?

There is no doubt that Liberty Media is walking a fine line in developing the F1 calendar. While demand is high and the risk to traditional Grands Prix continues to grow, balancing the needs of long term fans while working to attract the new era of Drive to Survive fans could leave the sport high and dry if that demand wanes when people inevitably move on from Netflix. The just announced 3 year contract for a Las Vegas Grand Prix is probably an acknowledgement of that fact. Liberty is taking advantage of the demand and interest in F1 to mainstream the sport in one of the largest market’s in the world but whether the Vegas race is sustainable long term is debatable, hence the short contract. It seems that everyone wants a say in where F1 races, the drivers being the predominant ones and Stefano Domenicali has indicated that there are no longer any sacred cows on the F1 calendar so it will be interesting to see what the calendar looks like in 2023 and beyond, something that Liberty has indicated they will be announcing soon.

Another point to understand is that Liberty Media is in fact a public company and so in a very real sense the market will vote on whether their calendar decisions are right or wrong. As I mentioned last week, not only do public companies like Liberty Media have to contend with the fiscal realities of their business, they must also factor in various ESG factors as well. So F1 fans can in fact vote with their wallets and stop attending races, watching races on TV or online and refuse to purchase goods and services from F1 sponsors, but there is another way for fans to put their money where their mouth is. Shareholder activism is on the rise as shareholders are starting to hold public companies accountable for their decisions, especially when they involve ESG issues. This is always an avenue that truly concerned F1 fans can engage in if they would like to influence the future direction of the sport.

Does the fan in me have concerns about where Formula 1 is racing and why? Absolutely. But the lawyer and business person in me does at least understand the reasoning behind some of Formula 1’s calendar moves. Do I have to agree with them? Absolutely not but complaining about it on social media will not make any difference to a company like Liberty Media. The only way to instigate change is to do something constructive. If we are not willing to do that then don’t expect things to change.

Viva Las Vegas

So Formula 1 is finally getting a new race in Las Vegas, on a Saturday night no less. While we knew the announcement was imminent, Joe Saward has with his usual thoroughness illustrated how long F1 has been interested in racing in Las Vegas. Is this a positive development for Formula 1? Luke Smith at Autosport seems to think so and it is not hard to see why. Getting to watch the stars of Drive to Survive hurtling down the Strip at full speed at night has its obvious attractions. Already I am hearing friends and relatives looking into booking their rooms in Vegas when they have never been to a Grand Prix in their life. If Liberty Media was looking for destination cities, you don’t get more destination than Vegas. Whether this is something that is sustainable in the long term is hard to tell, much like whether three races in the United States makes sense for the reasons I outlined above. But it has and will make a splash both in the US and around the world so let’s see how things evolve over the next three years.

If you are interested in the financials of Formula 1 in light of the Vegas announcement, Huddle Up has you covered in Formula 1 Is Headed To The Las Vegas Strip. You can get a taste of their coverage in the graph above. Further details can be found in the article.

The Complexities of Freight

With news Thursday morning that MotoGP has cancelled all Friday activity due to freight planes being stranded in Kenya due to technical issues, the complexity of moving around a global sport like F1 and MotoGP should not be underestimated. Dieter Rencken explains how and why the logistics of freight in F1 are so complex and how the increasing number of Grands Prix, coupled with F1’s stated desire to reduce their sustainability impact has created the Perfect Storm. “There are widespread fears amongst teams, RacingNews365.com spoke to six paddock folk with in-depth knowledge of the situation, that one or more teams are at risk of finding their kit delayed such that they miss a race, which raises questions about how F1 best handles such a situation – particularly given that once a team hands over it shipments the matter is out of its control.”

Joe Saward also does a deep dive into the complexity of F1’s freight issues and what might happen in 2022 in his column a hint from MotoGP. “Formula 1 needs a lot of aircraft, with around 160 planes required in the course of a year, as each long-haul race requires seven 747s to take equipment to a race, and another seven to take it away afterwards. The sport uses 747s, which are old but efficient. It can also use 777s which have a bigger freight capacity but have a much lower take-off weight than the 747s, and consequently a smaller fuel capacity, which means that they need to make more stops on the long-hauls. The diversions around Russian air space means more stops, more crews, more potential for delays and so on…“

Motorsport Sponsorship News

• When Scott McLaughlin hits the track at Long Beach this month he will have a new livery to look forward to. According to Speed Cafe, the #3 Team Penske car will carry primary backing from Snap-On Tools, with red and black hues, per his entry’s rolling sponsorship model.

• Not to be outdone, Rinus VeeKay’s IndyCar will run in a one-off orange livery in May’s road course race at Indianapolis as part of a charity tie-up. The #21 Ed Carpenter Racing Chevrolet will sport the branding of ‘Building Tomorrow’, a not-for-profit organization which supports literacy and numeracy in Uganda, at the fifth event of the season.

• The Haas Formula 1 team has not had an easy time of it over the last two years but how are they faring in 2022 on the sponsorship front? RacingNews 365 looks at the latest on Haas’ search for a sponsor after Uralkali split. “Gunther Steiner says that the American squad have received interest from potential new sponsors, but insists that they are not “desperate.””

• Throdle, the automotive social network, has been announced as an official sponsor of the 2022 Formula DRIFT season. The Throdle app allows car and motorsports fans to connect through their passion for cars, groups, and experiences “without ads or unwanted content.” The partnership will include a $1000 contingency fund for each of the four Formula DRIFT PROSPEC Championship rounds.

• Richardson Racing has announced a new title partnership with Comline Auto Parts (Comline) for the 2022 Porsche Carrera Cup GB season. The new deal will see the Corby-based team rebranded to Comline Richardson Racing this year as the team enter their third year in the series with Will Martin and Jack Bartholomew.

• Alfa Romeo F1 Team ORLEN will make a huge step towards its presence in the metaverse as it unveils a partnership with Everdome, the world’s first hyper-realistic metaverse, to provide a digital home for the future of their community and fan engagement. Through this partnership, “Everdome will be providing Alfa Romeo F1 Team ORLEN with the most powerful metaverse experience in existence – a place where fans and the wider racing community will come to interact with the team and brand in the team’s own real estate.”

• McLaren Racing have announced a multi-year partnership extension and expansion with Cisco, as an Official Technology Partner of the McLaren Formula 1 Team from 2022. Cisco and McLaren will collaborate to explore and pilot new and emerging technologies, including Wi-Fi 6E to enable fast and reliable connectivity both on race day and at the team’s headquarters.

• United Autosports announced at Sebring that Valkyrie will become their official AI technology partner as they compete in the FIA World Endurance Championship. Valkyrie, a company that builds custom AI solutions for businesses across the world, will join United Autosports “to bring cutting edge AI capabilities to their organisation to assist with all elements of the team across their multiple projects and race series.”

• Deluxe Corporation and Porsche Motorsport North America (PMNA) have established a long-term, multi-faceted partnership that will positively impact not only the Porsche Carrera Cup North America, but Porsche auto racing efforts on the continent as a whole. The relationship extends to the presenting rights of Porsche Motorsport North America TV, the dedicated PMNA YouTube Channel providing the latest Porsche content from across the region (https://www.youtube.com/c/PorscheMotorsportNorthAmerica). The agreement brings not only branding and activation initiatives but a direct working agreement as Official Partner and Official Supplier across the PMNA program.

• Classic & Sports Finance have been announced as a series partner in the ROKiT F4 British Championship certified by FIA. Already a funding partner of Motorsport UK, the national membership organisation and governing body for four-wheel motorsport in the UK, Classic & Sports Finance are able to help facilitate the purchase of race cars, transporters, pit and garage equipment, or help with new start-ups, including race teams.

• Forbes as an interesting article on how one Nascar ‘Superfan’ is looking to make waves with his business in the sport. “I mean, honestly I was a fan, I’ve been a fan my whole life,” he said. Adding with a chuckle: “So, when I started with the track, I really started small, I wanted a good parking spot in the infield for where I parked my bus, like by the driver lot. So, I became a sponsor, a very, very small track sponsor.”

• Can Motorsport Partnerships help your business grow? Rich Wharton believes that they can. “Motorsport has really taken off in recent years, especially with the excitement of last year’s Formula 1 and the rise of Sim Racing (Online computerised simulation racing). So what makes it so attractive?” Read the article as he elaborates on the five reasons why he believes they can help your business.

Motorsport Industry News

• Praga Cars confirms it has expanded its dealer network into the Middle East with the addition of Praga Racing UAE as the newest international partner for the R1 race car. The newly contracted dealership, run by the renowned Dragon Racing team in Dubai, will supply R1 race cars and provide customer support across the GCC (Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates). Praga’s global network of dealers already includes Australia/New Zealand, Benelux, California, Poland and the United Kingdom/Ireland.

• Applications are open for the second annual Rod Campbell Award. “We are very excited to launch the Rod Campbell Award for the second year in a row,” expressed motorsports executive Jeff Swoboda. “Last year’s recipient earned a wealth of knowledge and experience and now is employed in a top marketing position in the world of motorsports. Applicants should be in the ages of 18-23 with an aspiration to work in the motorsports / mobility fields of marketing, public relations, sponsorship, or business development.” More details can be found at Racer.com here.

• Racing News 365 looks at the first 100 days of the presidency of Ben Sulayem in Where do the FIA stand after 100 days of Ben Sulayem’s presidency? It is a fascinating look at some of the things going on behind the scenes. What especially caught my eye was this nugget of information: “The Financial Position states that “after seven years of steep decline, FIA operating losses in 2021 reached over €25m and the approved budget for 2022 will result in a further €23m loss”. In a sideswipe at Ben Sulayem’s predecessor, Jean Todt, the report states that the situation is not sustainable, and that “tough decisions will need to be made in the way the organisation is structured and works.””

• Formula E has officially revealed its list of manufacturers for the Gen3 era. Seven manufacturers have been accepted by the FIA. These are DS Automobiles, Jaguar, Mahindra, Maserati, Nissan, NIO 333 and Porsche AG. According to the article in The Race, “The FIA and Formula E have been approached by several other manufacturers in recent months about the possibility of entering as manufacturers for the second homologation period which will be in the summer of 2024 for FE’s 11th and 12th seasons in 2024/25 and 2025/26 respectively. One of these is known to be Lucid Motors, the California based specialist EV automotive and technology company.”

• Also related to Formula E, the Indonesia E-Prix has announced that they have had to reduce capacity from 50,000 to 10,000 spectators. “Irawan Sucahyono, a member of the Executive Committee preparing the Formula E race, was in charge of making the announcement. Despite the large reduction in capacity for fans, the executive did not rule out the possibility that as work on the circuit progresses, this number could increase. “We could have 10,000 live fans, although this number could increase depending on how the project develops and the evaluation made by Formula E later on,” Sucahyono said.”

• It has been announced that Wild Horse Pass Motorsports Park will be closing in 2023. A new overpass/roadway for the Interstate 10 extension will use the space that is currently occupied by the track.

• The closure of Australia’s Sandown International Motor Raceway has edged closer with the lodging of a rezoning application by the Melbourne Racing Club according to Speed Cafe. “The historic circuit, which first hosted the Australian Touring Car Championship in 1965, is located on prime land within Melbourne’s southeastern suburbs and has long been considered ripe for development.”

• While it seems like a long time ago, the issue of Brexit is still with us. Autosport looks at how Brexit has changed club racing.

The Business of Running a Race Team

• Pfaff Motorsports team manager Steve Bortolotti speaks to Sportscar 365 on the team’s rapid progression with Porsche. We are “ahead of schedule” in our five-year plan. You can watch the interview in the video above.

• With Mercedes leaving Formula E and McLaren rumored to be taking over, The Race looks at what has to happen in their checklist for McLaren’s Mercedes Formula E team takeover.

• Setting up a sports car racing program presents “an opportunity” for Prema to further support its established single-seater activities, according to team principal Rene Rosin. As he explains to Sportscar 365, “Rosin believes that adding LMP2 to the business plan, with a view to entering Hypercar in the future, enables Prema to provide a career option for any of its drivers who are unable to reach Formula 1.”