With tobacco revenue now forbidden, F1 turns to high-tech
In the last few years, F1 teams have been working to form partnerships with companies in the technology industry that would bring not only high-tech expertise, but also revenue
For decades, Formula One was synonymous with tobacco. Not only was the sport awash with money from cigarette companies, but the cars’ liveries were also reflections of their sponsors, from the red and white Marlboro McLarens to the black and gold of the John Player Special Lotus.
Tobacco brought in an average of $350 million per year for Formula One earlier this decade, and companies like British American Tobacco and Philip Morris International helped pay for the sport’s continuous cycle of development, the technological arms race that often ensured that those who spent the most won the most.
But that all ended late in 2006 after Formula One banned tobacco advertising. In 2015, the last year for which public figures are available, the sport’s 10 teams raised about $750 million from sponsorships, a $200 million drop from 2012. That loss of income hit the sport about the same time as the financial crisis, which forced the Honda, Toyota and Renault teams to shut down, although Renault eventually returned. And now Formula One is reconsidering whether to continue to accept advertising from alcohol, fast-food and snack companies.
So the sport has been looking for a new vein of money, and in the last few years teams have been working to form partnerships with the deep-pocket companies in the technology industry that would bring not only high-tech expertise, but also revenue.
Technology and Formula One are natural partners, and companies like Microsoft and Dell have long invested in the sport. Mercedes, the current champion, has a number of technical partners, including wireless technology company Qualcomm and audio experts Bose, as well as Tibco, Pure Storage, Rubrik and Epson. Microsoft Dynamics has partnered with the Renault team since 2012, and Dell returned to the sport this year with McLaren, having previously worked with the now-defunct Caterham team.
McLaren has been aggressive in obtaining partnerships over the past decade.
James Bower, McLaren’s marketing director, lived through Formula One’s sponsorship upheaval.
“Towards the end of that era—between 2001 and 2006 when the new directive kicked in—what you did see was some brands (and I would say West and Lucky Strike were probably the more innovative) pushing harder into lifestyle and pushing harder into what we recognize now as the deeper activation levels, as opposed to just slam Marlboro on the side of the car, throw a few parties, entertain some B2B trade retailers and call it a day,” Bower said, referring to business to business.
“That was making the dollar work harder, because they knew at that point the legislation was coming and they needed to just continue to deepen their relationships with their consumers,” he said. “That drove a more innovative state, and it coincided with Red Bull’s entry into Formula One, which kind of almost took over the mantle of the lifestyle.”
The loss of tobacco, the advent of lifestyle branding and active consumer engagement have also had teams like McLaren change their sponsorship focus, abandoning the old model of a big-ticket title sponsor for a series of smaller but longer-term deals. In 2018, McLaren has raised about 25 million pounds ($32.4 million) in new deals with partners including Dell, HTC, Logitech and Airgain. Exact financial details are heavily guarded, but McLaren said the money came in the form of longer contracts of five to six years.
McLaren’s roster of new partners is too recent to have made a difference to the team’s racing results, but the four-time world champion Mercedes has already proved that the right technical partnership can increase performance and income.
Because of Qualcomm, Mercedes in 2016 became the first team in the sport to wirelessly transmit data from the car to the garage, saving vital seconds as its rivals were forced to park and plug in. In a sport where the difference between success and failure is measured in tenths of a second, two seconds saved can—and did, in the case of Mercedes—help win championships.
Over the course of a Grand Prix weekend, each race car will generate more than 3 terabytes of data gathered from more than 200 sensors. Information like tire temperature and the health of mechanical components will be analysed by trackside engineers and battalions at each team’s home factory.
Teams have been seeking partnerships with data storage and data security companies. The Williams team works with Acronis, while Ferrari has worked with Kaspersky Lab since 2010.
It is not only the teams that benefit from technical partnerships. Thomas Been, chief marketing officer for software company Tibco, a partner of the Mercedes team, said the Formula One environment had a singular appeal.
“What attracted us to Formula One is the level of competition, which I think is a very good analogy to what most of our customers are seeing; the level of technology, which I guess is just a laboratory in which you create the technologies that are going to be used in the cars of tomorrow; and that everything is in real time,” Been said.
The speed of development was also what attracted Qualcomm to the sport, said Derek Aberle, a former company president.
“It’s the ability to have an environment where you can do rapid prototyping,” he said. “We can test things out. If it doesn’t work we can change them.” The engineering team, he said, is very strong and moves quickly. “It’s the environment that we have here in the racetrack—I think it does push us.
“The pace at which they move is impressive. Our guys at first were like, ‘Wow.’ They like that challenge. You get a problem, you’ve got a week to do something. They jump on it, and it’s exhilarating for them. We’ve learned a lot, and I’m hoping the Mercedes guys have learned a lot from us here. Eventually, we want to see that translate into breakthrough stuff for our business. That’s where the future is coming: cellular connectivity to the car, then the vehicle.”
Whether called sponsorships or partnerships, the deals bring money to the teams.
At McLaren, the combination of a broader business—McLaren Applied Technologies, a separate technology company linked with the race team—and a rich racing legacy has been a core element of the sales pitch.
“Obviously with Formula One it is a technical sport, so you are always going to have those authentic stories on the technical side,” said Henry Chilcott, group marketing director for the McLaren Group.
“Now it’s about us as a team here finding those more authentic stories in other areas of business, whether that is outside of technology in turn or lifestyle, conversations and elsewhere. That’s where I feel like we’re unique in the sense that we’ve got this multidimensional storytelling platform that perhaps another F1 team or another sports property won’t have.”
That storytelling is a core aspect of McLaren’s new approach, Chilcott said.
“We’ve moved away from that traditional model. In essence, the brand that you see on the car is just the bridge between one brand and McLaren. Then it’s beneath that overarching branding, it’s what we’re doing underneath the surface. That’s where we’re being unique and successful in the sense that we’re approaching things with a more ‘agency’ mindset. Discussions always lead with their objectives, rather than how much we seek to secure financially.”
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