Business of Motorsport for March 25, 2022-ESG Factors and Formula 1

This week in the Business of Motorsport I discuss how ESG factors may influence Formula 1 in more ways than one, how Saudi Arabia is attempting to change through motorsport, the challenges facing Formula E’s Gen3 car, developments in motorsport sponsorship, general motorsport industry news and more. The one thing constant in motorsport, both on and off the track, is change. And the business of motorsport is always in a constant state of change.

Motorsport Industry News

ESG & Formula 1

Formula 1 is undergoing an unprecedented boom and commercial rights holder Liberty Media is doing their best to maximize their property while it is hot. A night race in Las Vegas incorporating part of the Strip near the Bellagio is almost guaranteed, fresh on signing a five year extension, the Austin race at COTA has sold out for 2022 and Stefano Domenicali has indicated that he has enough interest to hold 30 races. But at what cost?

While most of the talk about F1’s relentless drive to expand their calendar focuses on their expansion into the Middle East and the thorny issue of human rights in that region and China, or about the toil it could take on the people that make the show happen, namely the mechanics and support people that have to set up, maintain and take down the show around the world, or even the dilution of the product. But one aspect that is rarely touched upon is how ESG factors could and will influence F1’s expansion.

Investopedia defines Environmental, Social, and Governance (ESG) criteria as “a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. ESG criteria are an increasingly popular way for investors to evaluate companies in which they might want to invest.”

As Mark Gallagher explains in his Autosport Plus column The issues F1 must consider amid its ruthless expansion drive, Liberty Media “are dealing with a world in which investors, shareholders and customers demand the highest standards of governance in order to protect the climate, society and business sustainability in the broadest sense.” F1 has outlined a series of extensive initiatives in their drive to a net zero future but it is not just about the environment. It is about how the sport treats its workers, how it interacts with the countries it races in and how and why it chooses to do business with these countries. While it is a tall order, Liberty Media and by extension the F1 ecosystem has no choice. Being a public company means that the initiative to change, if not coming from the management of F1’s stakeholders voluntarily, will be pushed towards it by a combination of government regulation and investor and public pressure. The next few years will be both exciting to watch on the track and fascinating to observe off of it. The end result should be worth it.

Formula 1’s Logistics Challenges

Not only does Formula 1 have to deal with ESG pressures, it has some very real pressures on the ground and in the air right now as a result of the brutal Russian invasion of Ukraine (a topic which I have covered extensively in the “Unprecedented Times” edition of the Business of Motorsport). As Joe Saward points out in his recent Green Notebook from the A Lounge at DXB, F1’s extensive and complicated logistics operations are under pressure. “The war in Ukraine has significantly reduced the world’s air freight capacity with one of the biggest freight operators being the Volga-Dniepr Group’s AirBridgeCargo (ABC) operation, which has a fleet of 17 Jumbos. They have all been withdrawn from international operation. There are still about 250 others but there is huge pressure in the market and so prices are rising. Other airlines have been forced to reroute to avoid flying over Russian air space and so fuel costs have gone up and delays have increased. Added to this the price of fuel has increased so it’s a double whammy. Freight prices have gone through the roof. “

Of course, the difficulties that Formula 1 face pale in significance to the very real human tragedy playing out in Ukraine and it is heartening to see the motorsport world responding in appropriate fashion, but motorsport in general, and Formula 1 in particular have a lot on their plate in these rapidly changing times. Is Formula 1 up to the task? I would never doubt a bunch of racers faced with seemingly insurmountable obstacles. They will in the end find a way. It is what they do.

The Red Bull Marketing Juggernaut

Red Bull had a brutal first race of the year in Bahrain with (spoiler alert!) both cars failing to finish due to mechanical failure, but their marketing machine is humming at full throttle. In Red Bull’s Race To The Top over at Front Office Sports, they look a bit closer at Red Bull’s impressive marketing machine and how it has allowed the energy drink manufacturer to grow to be such a colossal name in global sport.

An F1 Full House?

Finally, in the wake of Michael Andretti announcing his intention of fielding an F1 team, Formula 1 CEO Stefano Domenicali thinks that ensuring the current grid is as competitive as possible is more important for the spectacle than bringing new teams in. According to Autosport, “Domenicali thinks that there remain big challenges to ensure the viability of the current 10 teams, especially amid the backdrop of rampant inflation and rising costs.”

General Motorsport Industry News

• Carlo Boutagy is the promoter of the Diriyah E-Prix, the opening round of the Formula E season as well as the Extreme E season-opener in Saudi Arabia. In the key to improving motorsport engagement is fan access, he expounds on how motorsport needs to constantly engage the motorsport fan. “The main thing with fan engagement is access, you have to give the access to everybody. And be more repetitive; Formula One comes once a year, if you look at football or ice hockey, a team will have about 40 matches at home every year. So you need to do activations throughout the city or the country or here the Kingdom throughout the whole year, activations whether it’s in shopping malls, fairs and stuff like that.”

• Speaking of Saudi Arabia, there has been a consistent critique of the Kingdom’s human rights record, and justifiably so, but is Saudi Arabia changing? Or is this an example of sportswashing? While it is important to retain a healthy dose of skepticism, the Kingdom insists that it is changing. Discussing their new motorsport venue to Motorsport Week which they promise will be spectacular (“We have spoken to Formula 1 and have said if there were no restrictions, what would be your ideal facility and we will create that. And it will be more than just a racetrack,”) they have addressed these human rights concerns. “The world has been critical of Saudi Arabia for not opening up and for not modernising,” said Saudi Arabia’s Minister of Sport Prince Abdulaziz Bin Turki Al-Faisal. “But the fact is we are now doing that. We are not perfect, but I don’t think anyone is. We are moving in the right direction. We don’t mind the criticism if you at least acknowledge the focus and change we are making in the Kingdom.”

• Dominic Tobin at Motorsport Magazine doesn’t buy it. In F1 claims it will help change Saudi Arabia’s ‘terrifying’ human rights laws. Can it really? he argues that F1 and sport in general has done nothing to change things in the Kingdom. “The accusation levelled by groups including Amnesty International is that F1 isn’t bringing progressive values, but helping the Saudi authorities in sportswashing, by diverting attention from human rights abuses and painting a flattering image of the country.”

• This brings up another issue that I mentioned in a past Weekly Debrief. Increasing concerns about human rights in countries like Saudi Arabia, China and Qatar are being voiced by a number of sport stakeholders and activists. Sport Business looked at the issue and asks the question of whether sport is being asked to do something more suited to governments instead of sports federations. As could be expected, not everyone agrees.

• Perhaps things are slowly changing, at least as they relate to motorsport as Saudi Arabia recently hosted an all-woman rally while Abbi Pulling and Aseel Al Hamad became the first women to drive a Formula 1 car in Saudi Arabia ahead of the series’ second race in the Middle Eastern nation this weekend. Change may not be fast enough or comprehensive enough for some, but there are signs of change and that is at least something to be guardedly positive about.

• Ahead of the Bahrain Grand Prix, the FIA posted a video of an interview of FIA President Mohammed Ben Sulayem conducted by Tom Clarkson. You can watch the full interview above.

• John Doonan explains to Sportscar365 how he believes that the convergence of top-class prototype racing between IMSA and the ACO will be remembered as a “legacy moment” within the sports car racing world. “The amount of collaboration that has happened since that first very first announcement is something that I think will go down in history as one of the most special moments for our sport,” said Doonan.

• Formula E has only started the season but as they prepare for the launch of their Gen3 car, The Race looks at five key challenges for Formula E’s new Gen3 car. A great insight into the complications of running an international motorsport series.

• In last week’s Business of Motorsport I discussed how MotorDAO wants to use blockchain to democratize motorsport funding. Blackbook Motorsport has some more information on their plans.

• As sports car racing prepares for what many are calling a new “golden era” for the sport, driver Harry Tincknell discusses with Motorsport Magazine the fight for top seats in this new sports car golden era as he positions himself for 2023.

• Honda has opened a brand new wind tunnel facility in Ohio, which is able to help develop the next generation of race vehicles as well as the company’s road cars. Located inside the Honda Research and Development facility in central Ohio, the wind tunnel has the ability to produce wind speeds over 190 MPH and has a rolling belt system that matches that speed. Motorsport Week has all the details on the facility in what is still an essential tool for building race cars.

• Professional Motorsport World has a fascinating article on new low-cost carbon fibers with isotropic properties. “Researchers at the Massachusetts Institute of Technology, in conjunction with other institutions including the Oak Ridge National Laboratory in Tennessee, recently detailed a process for producing lower-cost carbon fibers. Rather than using high-value precursors such as polyacrylonitrile, which can account for around 60% of the value of finished fibers, they instead turned to petroleum pitch.”

• PRI has a comprehensive business profile on Flis Performance of Daytona Beach, Florida who became the exclusive car builder for the Idemitsu Mazda MX-5 Cup series in January 2020. “Todd Flis, who owns the business with his brother Troy, anticipates “a pretty big percentage increase in new teams and new drivers for 2022.”

• Finally, Hagerty and the SCCA have extended their partnership for three more years. “In addition to a discount on Hagerty insurance for SCCA members, Hagerty will remain involved in some of the most enthusiastic programs in the SCCA. In addition to visibility at the Tire Rack SCCA Solo National Championships, the championship-crowning days at the SCCA National Championship Runoffs will continue to be known as Hagerty Race Days, and SCCA’s top-level Time Trials program will continue to be known as the Tire Rack SCCA Time Trials National Tour Powered by Hagerty.”

Motorsport Sponsorship News

• According to Drive Sports Marketing, F1 sponsorship’s golden era is now. “Quoting Bruce Springsteen, for many years sponsorship experts have defined the early 2000s as the glory days of F1 sponsorship when tobacco and financial companies were investing tens of millions in the sport. Today, after a decade of struggles for F1 teams to sign big deals, we are witnessing a new golden era for F1 sponsorship and the main players are without a doubt technology companies, but they are not the only ones.”

• You might have noticed this during the Bahrain Grand Prix but if not, F1 has signed MSC Cruises to a multi-year agreement as a global partner.

• This is an interesting partnership. Sport Techie reports that Formula 1 team Mercedes-AMG Petronas “has a new deal with Eight Sleep to supply its drivers with the company’s smart mattress and temperature-controlled bedding products. Eight Sleep raised $86 million last August, and its investors include retired and current MLB stars Alex Rodriguez, Kris Bryant and J.D. Martinez, as well as former NBA player Matthew Dellavedova.”

• German sportswear giant Puma has become the official kit supplier of the Alfa Romeo Orlen Formula One team from the start of the 2022 season.

• Forbes has an illuminating article on how Richard Rawlings and his Gas Monkey Garage have pivoted away from NASCAR to sponsoring other forms of motorsport. “When it comes to motorsports sponsorships Rawlings said he doesn’t look for any sort of ROI. “Well, I don’t call it ROI. OK. That’s return on investment. I call ROA, ‘Return on Aggravation’” he said chuckling. “When you decide to do something like this, it is a pain in the rear. But you know, they’ve all been great; it shows that we’re out there.”

• The TotalEnergies 24 Hours of Spa announced that the race will have “unprecedented protection from cyber threats in 2022 and beyond,” thanks to a new presenting partnership between SRO Motorsports Group and CrowdStrike, a leader in cloud-delivered protection of endpoints, cloud workloads, identity and data. 

• The latest results of the ESA Sponsorship Sentiment Tracker (SST) showed a minimal rise in confidence in the health of the industry, returning to Wave 12’s score of 7.5 out of 10 in Wave 14. Rights holders were unusually the most optimistic, with their level of confidence rising from 7.0 to 7.5, a significant 0.5-point increase wave on wave. More details can be found here.

• From 2019 to 2021, the number of crypto, blockchain or NFT sports sponsorship deals has increased by more than 1,000%. You can learn more about the shifts in fan behavior and their impact on sponsorship models in Nielsen’s latest report which you can access here.