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Formula One is unique among sports, where a teamís success is often measured by the return on investment to sponsors rather than its success on the track.
Formula One is unique among sports, where a teamís success is often measured by the return on investment to sponsors rather than its success on the track.

The pounding heart behind F1

Success in Formula One is often measured in sponsorship rather than on the track.

As the cars whiz by the Yas Island grandstands at hundreds of kilometres an hour this weekend, many fans will be awed by the sheer spectacle of the race. It is what they expect in exchange for the price of the ticket.

But throughout the event, they will also be bombarded with logos and not-so-subtle product placements, and revel in any number of the branded parties and booths surrounding the circuit. A privileged few will be feted in private VIP tents in the paddock, or maybe on yachts in the marina, where smiling executives will ply them with refreshments and pitches for expanded business relationships. At the same time, tens of millions of fans will be watching from home, remotely absorbing the blur of promotional materials that flash across the screen.

This well-oiled marketing machine is the heart of Formula One.

As much as it is a closely watched competition, F1 is just as much designed as a forum for big business. Explicitly geared to brand promotion and networking opportunities, F1 is unique among global sports in that a team's success is often measured less by the number of trophies collected and more by the return on investment delivered to sponsors.

"This is the biggest platform you can get in sports marketing," says Brett Volker, the head of brand for Virgin Racing, on a recent visit to Abu Dhabi. "This is something that a lot of people outside the sport need to understand and appreciate a little bit more."

Mr Volker's company did not join F1 until last year, but almost immediately saw dividends. At the season's opening race in Bahrain, Virgin founder Richard Branson met executives with the Abu Dhabi-based Aabar Investments, which led to Aabar's commitment to invest up to US$400 million (Dh1.46 billion) in Virgin Galactic, Mr Branson's space tourism company.

The Virgin team's performance on the track has thus far been a disappointment, but earning a profit in the form of prize money is almost immaterial if the sponsors are happy with the media exposure and the other perks they are able to offer customers as a result of their connections to F1. Most teams are cash-flow neutral at best, but the media exposure from one race alone can be worth millions.

At last year's Abu Dhabi Grand Prix, Panasonic received media exposure calculated at $6.6m, according to the research firm Formula Money, thanks to a surprising finish by the Toyota team driver Kamui Kobayashi. Formula Money calculates down to the dollar the value of a car's television exposure, the number of times its sponsors are mentioned by broadcasters and its appearances in the print media, researches it, then sells to corporations interested in potential sponsorships.

"Long gone are the days when you could slap a sticker on a car and hope for the best," says Mark Hankins, the business development officer with KHP Consulting, another firm that helps to match potential sponsors with teams and quantify the return on investment. KHP is based in London, but also has offices in Bahrain and Abu Dhabi.

Other sports also attract huge sponsorship deals, but in most other sports the dollars (or euros or pounds or rupees) are almost directly correlated to performance. To the victor goes the spoils. Because F1 racing is such a hi-tech, capital-intensive operation, with the average team requiring a minimum investment of $20m, the teams must be more proactive in attracting sponsors.

Mr Hankins says raising money is "intrinsic to the sport".

"It is different than football teams and the like, which pay for the best players, but the spending essentially stops there," he says. "In F1, it has to keep on going and going and going. The pace of development is so extraordinary, if you do nothing, you go backward."

In many cases, this means even the drivers are asked to interact closely with sponsors. Most do so gladly because they know that bigger budgets lead to better finishes on the track.

"The more money you have in motor sport, the more successful you can be as a team," says Karun Chandhok, a driver with Hispania Racing.

Mr Chandhok says he is intensely aware of what his sponsors want and is constantly trying to maximise his team's exposure, although he does not adhere to the "all publicity is good publicity" line.

"All of it has to be done in a way that is not detrimental to the team's image. It's great to get your name in the paper, but there has to be a strategy to it," he says.

Mr Chandhok comes from a racing family, which means his father understands when he is asked to perform a job as simple as making sure that his son does not forget one of his main sponsors, the energy drink Red Bull. His father hands Mr Chandhok a sport bottle of Red Bull each time he gets out of his race car.

"That bottle is glued to my hand," Mr Chandhok says.

All told, teams and their sponsors will invest almost $1.3bn this year on F1, according to Formula Money. KHP Consulting estimates that more than 200 companies will be involved in sponsorship on som level.

But as with most businesses, F1 was hurt by the financial crisis. After several years of escalating spending, much of it driven by teams bankrolled by car manufacturers, the sport is more economical. BMW, Honda and Toyota pulled out of the series, replaced by teams such as Virgin and Hispania, which are hoping to compete with more streamlined operations.

At Virgin, the team utilises its sister brands as much as possible, hosting autograph signings for drivers at Virgin Record stores, arranging interviews and promotional segments on Virgin Radio stations and getting pop stars to perform at private parties for Virgin clients.

"Our whole model is doing it on a limited budget," says Mr Volker of Virgin. "It is very much a new world where [all spending] needs to be accounted for."

Mr Hankins, of KHP Consulting, says brand visibility is only one way that sponsors benefit through F1. Many technology and engineering companies primarily want their products to be used by racing teams, which they can then show potential clients in visits to garages and demonstrations.

"There are a lot of misconceptions that the sport is expensive" for sponsors, he says.

Other companies merely use F1 weekends as exclusive networking events. Mr Hankins told of one software firm, which he declined to name, that budgeted $5m to lure 25 of its top clients to the Monte Carlo race recently. It partnered with a team to give the clients intimate tours of the paddock and secured a luxury yacht for evening entertaining. The software firm later calculated that it acquired $200m in new business throughout the weekend.

In one of the more creative approaches, the investment firm Genii Capital bought out 75 per cent of the Renault team and then created what it calls the Genii Business Exchange. In essence, the exchange attempts to broker deals among Renault, team sponsors and local businesses that may be looking for more affordable exposure to F1.

Steve Lopez, the founder of Genii, told The New York Times that it was "a mini-Davos at every Grand Prix", in a reference to the World Economic Forum's annual meeting in the Swiss town of Davos.

But at least one powerful person is reportedly not a fan of the sport's new austerity. The F1 "supremo", Bernie Ecclestone, was quoted last week as saying F1 needed to "get rid of a few of those cripples", referring to teams such as Virgin that are attempting to compete on limited budgets.

The new financial landscape has only underscored the Gulf's importance to F1's future.

In 2008, Gulf states were estimated to be planning as much as $12bn in motor sport-related business. Some of those projects were undoubtedly cancelled or scaled back after the financial crisis, but the Gulf remains a major growth area for the sport along with India, which is hosting its first F1 race next year.

As a host for the race, Abu Dhabi is looking for a long-term return on its investment. In the most recent study of the economic effect of hosting an F1 event, Bahrain said it benefited from almost $600m in additional spending as a result of its first race in 2008.

In addition, several local companies, including Aabar and Mubadala, have developed major partnerships with F1 teams.

"It showcases what the Middle East and Abu Dhabi can do," says Mr Hankins. "Worldwide, the response has been extraordinary. If you speak to anyone in Formula One, they will tell you that Abu Dhbai has been extremely successful."



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