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Brands that partner with F1 teams pay big bucksand get different types of bang for their money

Businesses in the UK can learn valuable lessons from the management of top motorsport

Sir Jackie Stewart, the three-times champion whofounded an F1 team, shares his views on the sport

FORMULA 1 HAS A HISTORY OF ACCELERATING RETURNS

TWO-WAY TRAFFIC WITHPARTNERSHIP DEALS

F1 CAN SHOW BUSINESS SOME TWISTS AND TURNS

WISE WORDS FROM A FORMER CHAMPION

F1 is often seen as more of a business than a sport – with big money at stake

03 05 06 08

THE BUSINESS OF F1

Formula 1 revenue races to new record As the cars line up for the start of the 2016 Formula 1 season at today’s Australian Grand Prix in Melbourne, F1 is accelerating towards future growth, despite controversy on and off the track

Formula 1 seems to thrive on con-troversy. Just weeks before the start of the 2016 season it was unclear what format qualifying

would take and new regulations for 2017 were being tested in the face of complaints from competitors.

But whatever happens on the track, the sport’s parent company is heading in the right direction of profit – not loss.

The latest accounts available, for the year ending December 31, 2014, show F1’s parent, Jersey-based company Delta Topco, made operating profits of $519.8 million on reve-nue which accelerated 3.2 per cent to a record $1.8 billion. There are several tricks under its bonnet which have fuelled this growth despite a stagnating economy.

F1 doesn’t own any tracks or teams so its costs are kept under tight control. The com-pany only has around 352 staff and its biggest single cost is a pay-ment of 63 per cent of its gross profits to the teams as prize money. Over the five years to 2014 the prize money payment rose by 31 per cent to $863.1 mil-lion due to a boom in interest in F1. It is a staggering sum, but as it is a profit share, it mitigates risk for Topco. That’s not all.

Only 10 to 20 per cent of Topco’s con-tracts need to be renewed annually as they have an average length of around five years. To insulate against inflation, the key contracts also contain an escalator clause which increases the amount paid by 10 per cent annually.

This makes F1 very different to other sports companies and teams as its performance is not related to the events on track. It gives it a stable outlook and has driven Topco’s valua-

tion to $8.6 billion, according to figures from minority shareholder Ferrari.

The Italian motor marque listed on the New York Stock Exchange in October and this led to an increased level of financial disclosure for the company. Its main in-volvement in F1 is through its famous racing team which features former cham-pions Sebastian Vettel and Kimi Räikkö-nen as its drivers.

However, Ferrari also has options on a 0.25 per cent stake in Topco and has had to release a valuation of it under its IPO obligations.

It shows that between December 31, 2014 and September 30, 2015 the valuation of the options increased 1.7 per cent to $12 million giving Topco an equity value of $4.8 billion. The company had around $4 billion of debt

last year with at least $200 million in cash in the bank giving a net of $3.8 billion. Added to the equity this gives Topco an enterprise value of around $8.6 billion.

It surprised many in F1 with one sports writer wrongly sug-gesting the value is inflated and claim-ing that “the price is clearly too high”. This overlooked the fact it

is based on an independent valuation from Ferrari, which is required by the stock ex-change, so it is far from inflated.

F1’s fortunes have actually been boost-ed by a steady stream of new races. Russia and Austria joined in 2014, while Mexico returned after a 23-year break in 2015 and Azerbaijan is the new entry for 2016.

It is part of a savvy strategy from F1 chief ex-ecutive Bernie Ecclestone who has taken the sport and its 425 million television viewers to emerging markets where it is used to drive tourism. The limited number of slots on the F1 calendar has fuelled a bidding war in the amount countries are prepared to spend to get a race with the highest hosting fees rising to more than $60 million annually.

F1 chief executive Bernie Ecclestone has taken the sport and its 425 million television viewers to emerging

markets where it is used to drive tourism

Together, fees from race hosting and broadcasting amount to $1.2 billion of F1’s total revenue with a further $161 million coming from TV production, as well as travel and freight services to the sport’s ten teams.

Revenue from the sale of tickets to F1’s corporate hospitality outfit the Paddock Club grew 4.9 per cent to $110.9 million last year. It attracts some of the world’s wealthiest high rollers with recent guests including Michael Douglas, film-maker George Lucas and Mexican billionaire Carlos Slim.

Growth last year was driven by increased corporate demand at the new races. The Russian Grand Prix was particularly well attended with President Vladimir Putin watching the race.

Corporate hospitality revenue increased by $5.2 million to $89.2 million. F1’s chief fi-nancial officer Duncan Llowarch says it was “largely driven by the effect of 2014’s calen-dar changes, with results from new races in

Austria and Russia outperforming results from non-recurring prior-year events in Korea and India”.

Advertising and sponsorship received a similar boost. F1’s portfolio of partners in-cludes luxury watchmaker Rolex and the Emirates airline which get benefits such as hoardings at the tracks and the right to use the sport’s logo in advertisements. Al-though F1 lost technology partner LG last year, it more than made up for it, according to Mr Llowarch.

“While the prevailing economic con-ditions continued to result in a difficult environment for advertising and spon-sorship sales during 2014, the company was successful in renewing one signifi-cant contract on improved terms which, along with annual uplifts in other con-tracts and the sale of a small number of additional advertising packages, more than offset the loss of one material ad-vertising partner. These arrangements allowed the company to report advertis-ing and sponsorship revenue of $254.4 million in 2014, which was $13 million (5 per cent) higher than the prior year,” he says.

The power under F1’s bonnet has boosted its revenue by around 80 per cent over the past decade and, with long-term contracts in place, there is no suggestion it is slowing down. No doubt the naysayers won’t slow down either, but they’re unlikely to cause F1 to crash.

Although this publication is funded through advertising and sponsorship, all editorial is without bias and spon-sored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 8616 7400 or e-mail info@raconteur.net

Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net

The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be repro-duced without the prior consent of the Publisher. © Raconteur Media

JOE DIAMONDMotoring journalist for Dennis Publica-tions, he also writes for online motor-sport publications Rumble Strip News and Badger GP.

CHRISTIAN SYLTSpecialist writer and broadcaster on the business of Formula 1, he contributes to The Daily Telegraph, The Independ-ent, The Guardian and The Wall Street Journal.

LUCY MORSONMotor racing specialist, she contributes to Autosport magazine and Inside Line Media.

CHARLES ORTON-JONESAward-winning journalist, he was editor-at-large of LondonlovesBusi-ness.com and editor of EuroBusiness.

CAROLINE REID Co-founder of F1’s trade guide Formula Money, she was staff writer on the first official F1 Magazine and contributes to Racer and ESPN F1.

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CONTRIBUTORS

FORMULA 1 CONSTRUCTOR VICTORIES

Source: Formula 1

OVERVIEWCHRISTIAN SYLT

The power under F1’s bonnet has boosted its revenue by around 80

per cent over the past decade

Ferrari Williams McLaren Red Bull Racing

Mercedes Sauber Renault Force India Toro Rosso Haas ManorRacing

PODIUM FINISHES

CONSTRUCTOR TITLES

16 9 8 4 2

521

240

391

85 5126 20 3 1

TEAMS COMPETING IN THE 2016 SEASON

SAM HALLSports journalist, he writes for pub-lications including Rumble Strip News, RichlandF1 and L&T Motorsport.

KATE HEWITT Specialist writer on F1’s feeder cham-pionship GP2, she writes for Rumble Strip News focusing on the junior motor-sport series.

THE BUSINESS OF F1 raconteur.net2 RACONTEUR20 / 03 / 2016

COMMERCIAL FEATURE

What unique IT challenges does Williams face?

The biggest challenge that we have is the constant need to im-prove, and to innovate, to remain ahead of the competition. The team that works on the car is used to this, of course, and so this is expected across the board from everyone at the company. Race tracks also tend to have very little IT infrastructure in place prior to a race, so we need a fl exible partner, such as BT, who we can trust to get the job done to a high standard in a short space of time.

How important is IT to Formula 1?

The right IT infrastructure is critical to our success because

COMMERCIAL FEATURE

When BT joined forces with Williams Martini Racing a year ago, it was clear from the start that they were

a perfect match – two classic British brands which combine speed and technology in their quest for success.

Despite the obvious synergies, it was BT’s fi rst foray into Formula 1 and is the start of an exciting collaboration between the two companies. This is not simply a sponsorship deal, but a true partnership designed to re-turn Williams to the top of the podium.

“Our partners are our lifeblood,” says deputy team principal Claire Williams. “Without them, we don’t go racing.” And in a short time BT has made itself an integral part of the line-up.

The partnership comes at a crucial stage in the team’s history. With 16 world champi-onships and 114 grand prix victories, Williams is F1’s third most successful team. However, by its own admission, 2013 was its worst year ever on track, scoring a mere fi ve points and managing no race fi nish higher than eighth. For a team that had dominated F1 in the 1980s and 1990s, it was a wake-up call.

Williams resolved to change everything around. In the wake of that season, a new leadership team came together and put in motion a series of plans to make some big changes at the team, resulting in structur-al improvements, a new engine partner, Mercedes, and new personnel, including new drivers Felipe Massa and Valtteri Bottas.

A proactive strategy to connect with strong new partners was also instituted with a focus on brands that would support the team’s technical and digital transformation.

It was this programme that brought BT in to collaborate around how technology could support the team’s ambitions. “BT has played a really important part in our transformation,” says Ms Williams. “When we started this in 2013, the big part we were missing was the digital part. We discovered that in an industry which is so fast moving and so reliant on data, we had allowed our IT capabilities to fall behind.

“The technologies and services that they have provided to us have already had a ma-jor impact on our performance and we can see this on the race track.”

In the world’s most technologically ad-vanced sport, data is king. BT enables mem-bers of the Williams Martini Racing team to communicate and collaborate with any team member wherever they are in the world – at the race track, in the race operations room or even working remotely – which is key, given current Formula One Management rules that restrict the number of engineers allowed to be trackside during a race.

BT’s end-to-end global IP infrastructure facilitates secure high-speed communica-tion between team members at the track with engineers as far as 10,000 miles away in the team’s factory in Grove, Oxfordshire. Thanks to BT, huge quantities of data can be shared and analysed in real time from race tracks in locations ranging from Melbourne to Montreal and São Paulo to Singapore.

It’s a highly competitive environment. Each F1 car is fi tted with around 200 sensors which send out real-time information. These sensors measure everything from engine performance to fuel levels to oil tempera-ture and tyre pressure. Teams predict their fi nishing positions long before the lights go out and the team often knows that a car is about to su� er a problem several laps before anything becomes visible to TV viewers.

“I don’t believe you can ever have too much data,” says Ms Williams. “Data is what helps us win. The data that we receive from the car, and how our people interpret that data and develop the car, is what separates us from the competition.”

Williams is now enjoying its best run of performance since the early-2000s and with 13 podium places in the last two sea-sons, it is looking to continue pushing for-ward. Speed is everything in F1, both on and o� the track. Data must be analysed quickly to give the driver an opportunity to react to it, and information that shaves just a few thousandths of a second o� a lap time can make the di� erence between winning and losing a race.

BT’s network plays a crucial part in this, allowing the team to run up to 1,000 race simulations per minute. It also enables quicker remote access to information, and improves the performance and reliability of demanding computing processes, including applications which rely on video, telemetry and voice. As a result, the team can now interrogate its remote systems and export the required information to the race track in a matter of minutes, allowing for re-al-time decision-making.

The new network infrastructure has been further optimised through the deployment of WAN acceleration capabilities, remov-ing latency issues and helping the teams prioritise certain data so that the most im-portant data is always processed fi rst. The infrastructure is also intelligent, self-heal-ing, and enables streaming of high volumes of data across multiple datacentres and numerous device types. This is important for Williams Martini Racing’s IT team which needs the right infrastructure to transport, store, secure and analyse the enormous vol-umes of data generated at each race.

After the race, updates are made to the car based on analysis of the data, which means the car on the grid at the end of the season can be substantially better than the one that lined up at the fi rst race. As each team makes improvements, its rivals are also changing their own car, so the ability to an-alyse data quickly and accurately is critical.

Gavin Patterson, chief executive of BT Group, says: “This is a partnership that al-lows us to showcase and test our technology in the most demanding of conditions. It is a great way to demonstrate to our customers what technology can bring to their business, but we are also learning more about what we are capable of ourselves.”

Across the 2015 race season, 2.5 ter-abytes of car and video analysis data was transferred by the Williams Martini Rac-ing team, equivalent to more than 4,300 HD television programmes. BT’s network securely carries up to 140GB of this data per race at speeds of 100Mbps. BT’s faster network connection makes a tangible dif-ference during the race weekend and devel-opments such as real-time video analysis of pit stop practice have enabled quicker de-cisions that can improve car performance.

Prior to Williams joining forces with BT, video analysis of pit stop and practice per-formance had to be conducted overnight. Computation of some performance data has improved by 200 times.

Constant improvement is necessary in F1 to stay ahead of the competition. “Technol-ogy in the past ten years in Formula 1 has re-ally moved along, and now it’s all about the new technologies that a team can develop and bring to the race,” says Ms Williams. BT is playing a crucial part in that.

In Grove, BT provides a campus LAN to ensure a stable high-capacity service across the entire Williams operation, from the analysts working in the heart of the race support room to non-racing services, such as the team’s conference centre and sister company, Williams Advanced Engineering, which is located on the same site.

The capability to carry big data is particu-larly important for operations of the team’s wind tunnel which, according to Formula One Management rules, can only be oper-ated a limited number of times per season. This means that every session has to pro-duce the maximum amount of feedback and data about the car’s aerodynamics.

And it’s not just about high-tech solu-tions that wouldn’t be found in an ordinary o¢ ce. BT One Phone was recently installed at Grove to give Williams sta� the function-ality of their desk phones from a mobile.

The team’s drivers have also felt the dif-ference. Brazilian Massa, an 11-times race winner and one of the most experienced drivers on the grid, notes that nowadays, when he climbs out of the cockpit, he is im-mediately presented with all the analytical reports he needs for the team debrief.

“From my perspective, the di� erence be-tween before and now is that when I come into the garage after a session, everything is already on the screen – the data is there to analyse,” he says. “Also, during a race, the pit team can see any mistakes straight away, like if I brake too early or too late. I can’t hide anything!”

Q&A SESSION WITH GRAEME HACKLAND

GRAEME HACKLAND

It’s a big change from when he fi rst joined F1 back in 2002, but one which continues to encapsulate the ethos of the sport. “It’s all about speed,” says Massa. “The messages that we give to the team and the messag-es they send us back need to be the fastest possible. We are not here to participate. We are here to win.”

BT’s technology connects everyone at the team, from Massa and Bottas to the junior mechanics. “Team work is absolutely critical to what we do,” says Ms Williams. “Success comes from a really great group of people who work well together, and can communicate and collaborate e� ectively.”

One of BT’s most important roles is to pro-vide a platform which enables the passionate team members to perform at their optimum level. “Our role is all about enabling the peo-ple at Williams Martini Racing to be the best they can be and to deliver the best perfor-mance,” says Mr Patterson. “Technology on its own doesn’t win races. It’s how it gets used that makes things really exciting.”

It’s experience which will enable BT to im-prove its services to benefi t clients in other areas of its business. It works with compa-nies in diverse sectors, including engineer-ing, healthcare and aviation, which all re-quire real-time connectivity to solve critical problems. The experience with Williams will boost what BT can o� er clients.

Ms Williams is in no doubt the partnership has already been a success. “I think it’s in-credibly exciting to see where our partner-ship with BT is going to go in the future,” she says. “We have a great platform from which to work, and we’ve already seen that the technologies BT has integrated within the racing environment have driven improved performance. It’s enabled our engineers to work harder, to work smarter, and this is ex-actly what we need them to be doing if we are to close that gap.”

now we are moving data around the world – data that has been generated by a Formula 1 car going around a track at 300 kilo-metres per hour. Being able to move the data in real time, over a secure and reliable network, allows our engineers to work on that data and to feedback to improve the performance of the car.

What are your other key IT concerns?

With around 650 people working at the company, the ma-jority of them based at our HQ in Grove, we need to support every one of them and all their com-munications, networking and re-mote-working requirements. Our campus network needs to be able to withstand high capacity data

peaks so that when we are oper-ating our wind tunnel or receiv-ing data from the race track, this doesn’t impact upon our day-to-day computing needs.

What is the one thing that you always keep in mind when making IT decisions?

Teams of our size in For-mula 1 need to be really clever about where to direct invest-ment and resources, and the thing I always ask myself is “will it make the car go faster”. If it makes the car go faster, then we do it, and if it’s not contribut-ing to that in some way, then we don’t do it – it’s that simple. In fact, for all types of businesses there is the equivalent of “mak-ing the car go faster” and tech-nology should be driving that.

RACING ON THE INFORMATION SUPER HIGHWAYBT is helping Williams Martini Racing improve the speed of its digital technology and data processing

This is a partnership that allows us to showcase and test our technology in the most demanding of conditions

21grand prix races around the world

200sensors on a Formula 1 car sending out real-time information

140GBof data generated each race at speeds of 200Mbps

of car and video analysis data transferred by Williams Martini Racing during the 2015 season

2.5TB

Williams Martini Racing IT director

20 / 03 / 2016RACONTEUR raconteur.net 3THE BUSINESS OF F1

As the on-track action electrified it made F1 even more attractive to TV stations and in 2001 Schumacher’s success brought it to the attention of German media giant Kirch. It borrowed $1.6 billion from three banks to acquire a 75 per cent stake in F1. State-owned German bank BayernLB loaned $987.5 mil-lion with Lehman Brothers and J.P. Morgan each providing $300 million.

However, Kirch lacked the key to a fortune as the terms of a 1999 bond issue prevent-ed F1 from paying a dividend. By the time Kirch collapsed under the weight of its debts in 2002, it had not made any money from the sport and, to this day, remains the only shareholder not to have received a return.

The loans from the trio of banks were secured on the F1 stake and when Kirch went into administration they enforced their security. However, in the vacuum, they lost control of the business. When CVC, the private equity firm, bought the business from the banks, it didn’t make the same mistake twice.

CVC bought F1 in 2006 in a leveraged buyout funded with two loans – $965.6 mil-lion from its investment Fund IV and $1.1 billion from the Royal Bank of Scotland. It covered its back.

Buried in the articles of association of F1’s parent company Delta Topco is the revela-tion that CVC’s shares entitle it to appoint representatives, known as I directors, who can “exercise one vote more than the total number of votes exercised by the other di-rectors”. The articles add that the purpose of this is “to ensure that the I directors will always have sufficient votes to pass a resolu-tion of the board”.

This control puts a huge premium on CVC’s stake and its riches were unlocked with a debt refinancing which allowed divi-dends to be paid.

Over the past decade CVC has halved its stake to just under 35 per cent and reaped a $4.4-billion reward which comprises 31 per cent of the total generated for F1’s owners. It has given CVC a 351.8 per cent return on in-vestment and its remaining shares are worth another $3 billion at the latest valuation of the business from $8.6 billion to $10 billion.

To put this in context, CVC had made 314 per cent on its €184 million investment in British bookmaker William Hill by the time it exited through share sales and an IPO in 2002. Likewise, the £30 million CVC in-vested in stockbroker Collins Stewart gen-erated a return of 292 per cent from share sales and a 2002 IPO. Its biggest return is believed to have been from the 2005 sale of Spanish hospital operator IDC which came to 831 per cent. F1 may overtake it if CVC actually sells up.

According to CVC’s co-chairman Donald Mackenzie, there is no need to do this. “There is no end date. We have 12-year funds, which we have to return the original money. We have already done that. So the pressure’s off. We like owning it [F1]; we don’t want to sell it. There are always some people who’d like to buy it – it’s a very good business.”

F1 has a history of accelerating returns For good reason, Formula 1 is often seen as more of a business than a sport – with big money at stake

PROFITS RACE

CHRISTIAN SYLT LUCY MORSON

The core revenues of Formula 1’s parent company come from selling the rights to host and broadcast races as well as ad-

vertising and corporate hospitality at the tracks. In the early days of F1, teams made separate deals with grand prix promoters and television coverage was sporadic as it could be cancelled at the last moment if there were not enough cars to fill the grid.

F1 chief executive Bernie Ecclestone, who was then owner of the championship-win-ning Brabham team, saw that cash would come from television. In 1981 he convinced the teams to sign a contract committing them to race. He then took it to TV com-panies so they could guarantee coverage. His company Formula One Promotions and Administration negotiated the deals and took a share of the proceeds with the remainder going to the teams and the gov-erning body the Fédération Internationale de l’Automobile.

With guaranteed TV exposure, spon-sors’ rates increased giving the teams more money to spend on cutting-edge technology in a bid to win. In turn, this attracted the best drivers which made the series even more appealing to broadcast-ers. Big name car manufacturers, such as Honda, Renault, Porsche and Lamborgh-ini, became involved through supplying engines to the teams.

Fierce rivalries and intense battles for championship supremacy were the norm in the 1980s with Alain Prost, Nigel Mansell

and Nelson Piquet all vying for glory throughout the decade. However, it was Bra-zil’s Ayrton Senna driving for McLaren who got everybody talking. Arguably one of the most iconic images of the era was his contro-versial clash with team mate Prost in Japan in 1989. It put both drivers off the track and although Senna made it back on to win the race, he was later disqualified for using an escape road to rejoin the circuit, handing the title to Prost.

The Brazilian also dominated the ear-ly-1990s, winning consecutive world champi-onships in 1990, following yet another con-troversy in Japan with Prost, and in 1991 after a dominant season with McLaren.

British hopes too were reward-ed at last in 1992 when, after years of frustration and retirement threats, Nigel Mansell stormed to championship glory, becoming the first Brit to do so since James Hunt in 1976 and setting the scene for the rest of the decade, which was to be largely dominated by his team Williams. A new era beckoned in 1993 as Prost, now also racing for the British marque, claimed his fourth and final title before taking the decision to leave the sport before the start of the 1994 season.

Things were changing in F1, and with fresh new talent in the form of Michael Schumacher and Mika Hakkinen on the horizon, to many it seemed as good as it could get. Then Senna was killed at the San Marino Grand Prix in 1994 after crashing out from the lead and it looked like the sport was facing its darkest hour. However, Senna’s death drew the world’s attention to F1 at a time when there was plenty of drama on the track and the sponsors were pumping in significant fi-nancial support.

Over the next few years, television au-diences soared, particularly in Germany where fans were rewarded with their first champion when Schumacher took the 1994 crown for his Benetton team.

Another dominant title for Schumacher followed in 1995 in his final year at Benet-ton before heading to Ferrari. It heralded the beginning of a career that, though often shrouded in controversy, would earn him a place among the legends of F1 thanks to a re-cord-breaking total of seven titles.

His first win at Ferrari came at the 1996 Spanish Grand Prix in poor conditions, showcasing his skill and allowing audiences worldwide a glimpse at his superstar status. Schumacher went on to finish his first season for Ferrari in third position, behind the seemingly unassailable Williams. He was able to take the fight to Williams’ Jacques Villeneuve in 1997, just a single point behind when the championship rolled into Spain for the finale. But a shunt with the Canadian put Schumacher out of the race and ultimately he was stripped of all championship points for causing the collision.

He was runner-up in 1998 behind Hakkin-en and a broken leg in a crash at Silverstone the following year kept him out of the title fight. By 2000, Schumacher and Ferrari were back on form and their dominance of the 21st century began, cementing Schumach-er’s position in the history books with five titles from 2000 to 2004.

KEEPING F1’S WHEELS TURNING

It may seem like the biggest decisions in Formula 1 are made on the track, but in fact the most powerful people in the sport are found behind the scenes.

F1’s nerve centre is the paddock, an oblong tarmac space between the teams’ mobile offices and their transporters which back up to the pit garage rear doors. The area was historically a working environment for team staff, but F1 chief executive Bernie Ecclestone has made it one of the most sought-after places to be in world sport.

The motorhomes are where team bosses discuss race strategy, and drivers eat, drink and wind down. They are essentially

the drivers’ locker rooms and passes to the paddock cannot be bought. In itself this adds to the allure and exclusivity of the paddock, but that’s just the start. As interest in F1 accelerated so too did the desire for celebrities and VIPs to be seen at the races, and the paddock is the place to find them.

It shouldn’t be confused with the Paddock Club which is where corporate guests network and fuel F1’s multi-million-dollar budgets. Teams give passes to their sponsors who, in turn, invite clients to do business and close deals in the Paddock Club. Potential sponsors are also invited

by the teams so that they can get an inside look at what is on offer from a partnership. It keeps F1’s wheels turning.

The Paddock Club is managed by Austrian catering firm Do&Co, which has an army of staff to make the venue work. Hundreds of staff are involved at each race including chefs, catering staff, electricians, security, entertainers, florists, therapists and cleaners.

Security, logistics, construction and catering tend to be handled by the same contractors throughout the season meaning that teams and sponsors know what they will get at any race no matter where in the world it is held.

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With guaranteed TV exposure, sponsors’

rates increased giving the teams more money

to spend on cutting-edge technology

in a bid to win

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F1 SHAREHOLDER RETURNS BY TYPE IN 2014

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*Ferrari SpA has one redeemable longest standing team share

Stake sales

Dividends

Bond issue

Other

F1 TEAM PRIZE MONEY 2010-2014

WHERE F1’S REVENUE COMES FROM

2010 2011 2012 2013 2014

$659m$699m

$752m $798m$863m

Operating profit

$519.8mRace hosting

and broadcast fees

$1,200.8m

$254.4mAdvertising and sponsorship fees

Other

$161m

$89.2m

Corporate hospitality ticket sales

Vending and concession sales

$39.2m $29.4m

GP2series sales

Total$8.26bn

Total$3.38bn

Total$1.4bn

Total$1.07bn

$8.6-10bn

$14.1bn

latest F1 valuation

has been returned to F1's shareholders

$4.4bnhas been returned to CVC on its investment in F1 since 2006

TOTAL$1,774m

TOTAL$14.11bn

Source: Formula Money

THE BUSINESS OF F1 raconteur.net4 RACONTEUR20 / 03 / 2016

COMMERCIAL FEATURE

How much does it costto stage a grand prix?With just 21 races on the Formula 1 calendar, staging a national grand prix gives the host nation the keys to a very exclusive club

COSTCHRISTIAN SYLT

There is good reason why countries are so keen to host a grand prix. With 425 million television view-ers every year, Formula 1 gives

host nations high-octane exposure and it puts them on the global sporting map alongside exotic venues such as Monaco and Singapore. Unlike the Olympics and football World Cup, F1 is associated with glitz and glamour, and takes place every year. However, it doesn’t come cheap.

On the face of it, Formula 1 races seem like they should be inexpensive to stage. After all, the only facilities required are seats for spectators and a stretch of tarmac for the cars to race on. In reality this couldn’t be fur-ther from the truth.

There is no such thing as hosting a grand prix on the cheap, but the quickest way to pull it off is to run a street race. They tend to be located on public roads in cities or on the outskirts of town, while permanent circuits are purpose-built venues designed specifi-cally to host high-level motor races.

Street races are cheaper to stage than those on purpose-built tracks since they don’t re-quire construction of a new venue. They also promote the host nation more effectively as local city landmarks are seen by the millions of TV viewers.

However, the annual running costs of a street race are far greater than those of one on a permanent circuit. This is be-cause temporary grandstands need to be built and the roads need to be upgraded to F1’s high safety standard, which is known

as grade 1 homologation and is set by its governing body, the Fédération Interna-tionale de l’Automobile.

At a total cost of $16 million, staffing is the biggest single expense for operators of street races with the marketing and organisation team alone requiring a budget of around $6.5 million. In total, running a street race requires a crew of around 600 with the vast majority being temporary workers. That ex-cludes 120 firefighters and 550 marshals who are often volunteers.

Next comes rental of grandstands which costs around $14 million for structures with 80,000 seats. Securing a 3.2-mile street course with safety barriers and fenc-ing costs in the region of $8 million which is also how much it costs to rent the pit buildings. Vehicle, office and utilities pay-ments are around $6 million, with a fur-ther $4.5 million of miscellaneous costs, including cranes and approximately 350 fire extinguishers which need to be placed every 15 metres around the track. Capping it all off is a payment of around $1 million for insurance.

In total, the annual operating cost of an F1 street race is in the region of $57.5 million. Then comes the hosting fee. The average F1 race hosting fee is around $30 million, but the sting in the tail of the contract is that the price increases by as much as 10 per cent every year. Most new F1 race contracts are for ten years so by the end of the agreement the annual fee comes to $70.7 million thanks to the escalator clause in the contract.

It means that over the ten-year race dura-tion, the bill for hosting fees totals an esti-mated $478.1 million with the costs of run-ning the race amounting to $575 million. It brings total expenses to a cool $1 billion.

One way to avoid the high annual running costs is to host a race on a permanent facility. While this doesn’t require repurposing roads and building temporary facilities every year, it does incur a huge upfront cost.

There are two possibilities. The first is using an existing circuit, but this means the promoter has to settle for whatev-er flaws it comes with and, unless it has been designed with F1 in mind, it could also require significant conversion costs to ensure it is up to grade 1 homologation. This alone can run into tens of millions of dollars, but the rewards can be rich.

Last November, the Mexican Grand Prix returned to the F1 calendar after a 23-year absence with a race on the Autodromo Her-manos Rodriguez track in the heart of the country’s capital Mexico City. It was home to the previous race and has been given a new lease of life, with the highlight being a new section of track weaving through a baseball diamond which was packed with fans on race day.

A total of 90,000 fans flocked to the track on Friday, 111,000 on Saturday and 134,850 for the race on Sunday, generating an over-all attendance of 335,850. Eye-catching “Back in Mexico” banners were draped all

around the circuit, but the real impact was felt further afield.

According to industry analysts STR Global, the night before the race the av-erage daily rate in Mexico City hotels was $258.79, a 128.1 per cent increase on the same day the previous year. Occupancy in Mexico City hotels was also up and rose 64.4 per cent on the same day in 2014 to 81.8 per cent. Hotels, therefore, benefit from the race being in the heart of the city, which usually isn’t possible when build-ing a track from scratch as so much space is required.

The most successful example of this is F1’s newest purpose-built track, Circuit of the Americas in Austin, the capital of Texas. It has hosted the United States Grand Prix since 2012.

Designing a track from scratch gives the promoter complete creative flexibility, which can make all the difference when it comes to attracting interest in the race. In its first two years, the US Grand Prix had the second-highest attendance of any race, but slipped to fourth in 2015 as it was awash with torrential rain.

Building the track cost around $270 mil-lion and then comes the hosting fee as well as the annual running costs which, at around $18.5 million, are far lower than those for a street race.

It means that over a typical ten-year period, building a grand prix circuit and hosting an F1 race costs around $933.1 million. Ironically, paying this is the easy part of the process. The race organisers then have to sell all the tickets, promote the event and ultimately showcase the host country to the world. That is F1’s grand prize.

Share this article online via raconteur.net

There is no such thing as hosting a grand

prix on the cheap, but the quickest way to pull it off is to run

a street race

$1bn+

$933m

is spent on hosting fees and operational costs for an F1 street race over a typical ten-year period

is spent on building a new circuit from scratch and hosting races over ten years

Source: Formula Money

The British Grand Prix should logically be the most secure race on the Formula 1 calendar as its home of Silverstone hosted the first race of the championship in 1950 and has the

highest attendance. However, talks are now underway about selling a lease on the track to luxury car manufacturer Jaguar Land Rover to secure the future of the race. So how did this happen?

Built on the site of a former airfield, Silverstone is owned by the British Racing Drivers Club (BRDC), a group of 850 racing luminaries including Nigel Mansell, Damon Hill, Jenson Button and current F1 champion Lewis Hamilton.

Over the past six years, the BRDC has tried to sell a long lease on Silverstone to reduce the club’s exposure to risk. The British Grand Prix is the only event on the F1 international calendar to receive no government funding. Instead,

Silverstone has to use the proceeds from ticket sales and has had to boost prices to match annual increases in the F1 hosting fee, which comes to an estimated £17.6 million this year.

The track has also been suffering from a loss of rental income after leasing 280 acres of surrounding land in 2013 to business park operator MEPC to clear is debts. The BRDC’s plight has led to it paying the hosting fee for the British Grand Prix in arrears meaning that a letter of credit from bankers is necessary for the race to go ahead. As every year goes by the pressure on Silverstone increases because the price of its F1 race hosting fee rises by 5 per cent annually.

REVERSING SILVERSTONE’S FORTUNES

COSTS OF BUILDING A FORMULA 1 CIRCUIT

$75mTRACK

$50mPIT BUILDING/

PADDOCK CLUB

$30mMAIN

GRANDSTAND

$50mEARTHWORKS AND INFRASTRUCTURE

$30mSPECIAL

ELECTRONICS

$15mTEAM

BUILDING

$15mMEDIA

CENTRE

$5mMEDICAL

CENTRE

TOTAL

$270mSource: Formula Money

COMMERCIAL FEATURE

What do sponsors get from Formu-la 1? Most fans think the answer is pretty short. Sponsors get a logo

on the car, plus a few tickets for guests, a marketing hook and that’s about it.

In fact, the relationship between teams and sponsors can run deep. In the case of Williams Martini Racing and Randstad it’s a technical partnership which covers everything from knowl-edge-sharing to developing the next generation of global engineering talent. The logo on the car is merely a symbol of a successful relationship.

Randstad is a great example of how sponsorship really works. Randstad is a world-leading HR services provider, founded in the Netherlands in 1960. It finds jobs for all sorts of workers, from temporary labourers through to sen-ior management at the world’s biggest companies. The partnership with Wil-liams began ten years ago, during which time Randstad has repeatedly extended and expanded the deal. It’s been a huge success for both parties.

“The relationship began because of our mutual need to understand the future of engineering and IT,” says Randstad direc-tor international marketing Joost Schriev-er. “We are one of the world’s biggest re-cruiters in engineering and IT. It is vital that we understand what technologies and skills are going to be needed in the future. For-mula 1 gives us that insight.”

Fans of the sport will give you chapter and verse on racing technologies which have later filtered down to the main-stream. Carbon brakes, sequential gear-boxes, hybrid powertrains and traction control began in Formula 1. Today they are commonplace in road cars.

Furthermore, the fine tuning meth-odologies used by the teams is a decade ahead of anywhere else. Look at the aer-odynamic computer simulations or the use of industrial 3D printing to manu-facture futuristic components. Being a partner keeps Randstad immersed in the innovations which will be shaping engi-neering and IT in the years to come.

“It’s vital we know these things,” says Mr Schriever. “It means we can give in-formed advice to our clients and candi-dates. That elevated knowledge puts us above our rivals.”

There is a pay-off in terms of corpo-rate culture. The electrifying energy of the sport is the stuff of legend. It lifts and inspires everyone involved. “We love that we have shared values,” says Mr Schriever. “Employees at Williams and Randstad have the core goal of striving for perfection. They need the best drivers, the top engineers, peak strategy and a great team to win.

HOW SPONSORSHIPS REALLY WORKSponsoring a Formula 1 team is much more than getting a logo on the car

“At Randstad we work to get the best candidates, the top talent and the opti-mum recruitment strategy for our clients so they can achieve their ambitions. Get it right and magic happens. The F1 connec-tion is a way for us to communicate this mindset throughout our organisation, not only in the UK but all over the world.”

Above all, the partnership offers a radical way to deal with the biggest prob-lem in the STEM (science, technology, engineering and maths) sector, namely how to encourage new talent to enter. The UK alone has a shortfall of 40,000 science and technology graduates a year, according to the government. A Department for Business, Innovation & Skills survey revealed only 15 per cent of British children would consider a career in engineering, with 40 per cent calling it “dirty” and half calling it “boring”.

The problem is so severe the F1 teams are worried it will affect their ability to innovate. “I think that engineering has a very poor image in the UK,” says Pat Symonds, Williams chief technical of-

ficer. “That isn’t helped by the fact that when you book someone to come and mend your washing machine, they call themselves an engineer.”

To address the issue, Randstad and Williams created an elite institution. The Randstad Williams Engineering Academy is designed to identify talented young engineers from around the world and provide them with advice, mentoring and guidance to secure a job in Formula 1 or the career path of their choice. The cur-riculum focuses on e-learning through a web portal. Students must submit an an-nual essay-based project. And through-out the experience they are mentored and tutored by the engineers at Williams.

Mr Symonds says he believes the ex-perience can have a real impact on the lives of the students enrolled. “I think at Williams we have recognised there are some very good graduates coming out of university these days who are very specialised and very on top of their sub-jects, but sometimes lacking the over-view some of us older engineers have gained over the years,” he says.

“These days it gets more difficult for students to get that overview. So we de-cided to target students who have those elements of leadership and cross-func-tional engineering, who in themselves could motivate others – essentially looking for the students who will be-come top F1 engineers in the future.”

Entrants come from all over the world, including Portugal, Bahrain, Aus-tralia, United States and UK.

The experts at Williams adore the Acad-emy. Mr Symonds says: “It is a real joy to see employees, who not that many years ago were students themselves, putting so much work into helping their younger colleagues and thoroughly enjoying the experience. It gives me a lot of pleasure.”

And the good work extends far beyond the small number of lucky individuals participating. Students globally will be inspired to see engineering in a new light, one that reflects the high-tech nature of the job, which is as advanced, challeng-ing and rewarding as anything in financial services or coding, for example.

“The Academy shows what Formu-la 1 can achieve,” says Randstad’s Mr Schriever. “Our partnership has the power to change perceptions across the world and inspire a new generation. That is why we get so excited about our in-volvement with the sport.”

It may also get a few fans to think again about the role sponsors play in the sport. The logo on the car? It really is just the start.

www.randstad.co.uk

The relationship began because of our mutual need to understand the future of engineering and IT

10yrs

20 / 03 / 2016RACONTEUR raconteur.net 5THE BUSINESS OF F1

Two-way traffic with F1 partnership dealsConsumer and business-to-business brands that partner with Formula 1 teams pay big bucks and get different types of bang for their money

PARTNERSCHARLES ORTON-JONES

QUARTER PAGEADVERTORIAL

COMMERCIAL FEATURE

Sponsors or Formula 1 partners get a global television audience to mar-ket their brand. But it’s hard to see the value of having a tiny logo on a

car usually found ten places off the lead in race far from the TV cameras. So, what’s the payback?

One man who knows is Mark Gallagher. As head of sponsorship for Jordan Grand Prix between 1991 and 2004, and then founder of Red Bull’s sponsorship department, he has experience of getting some big brands to hand over some awfully big cheques.

“For starters, we don’t talk about sponsor-ship,” cautions Mr Gallagher. “It smacks of patronage. We want a partnership. Teams need to provide a wide range of benefits. These will vary depending on the brand.

“For example, Vodafone is a consumer brand, so it wanted visibility on the car and at circuits, and a chance to market to the wider public. Other sponsors, the majori-ty in fact, are business-to-business. They don’t have major branding needs. They use the sport for other reasons. Companies in data storage or analytics use F1 to create a technical case study to impress clients. The logo is not a big deal for them.”

A classic example of the latter is Ferrari partner Infor. This privately held Ameri-can software company builds industrial IT systems for multinationals. Anna Wright, Ferrari sponsorship manager for Infor, con-firms that the image of a mutual working partnership is totally true.

“Ferrari use Infor software for the building of their GT cars. The CIO [chief information of-ficer] of Ferrari has just done an interview with a manufacturing magazine talking about their four-year plan using our software,” she says.

Trips to the Ferrari HQ in Maranello max-imise the connection. “We take customers and potential customers to the Ferrari fac-tory. We do events at Maranello. They get to drive cars around the track. Being able to talk to our customers about our work with one of the most respected brands in the world is a very big deal. It has a huge impact,” says Ms Wright.

Even consumer brands take F1 partner-ships way beyond the obvious advertising stuff. Take the deodorant brand Sure Men. It supported Lotus in 2014 and this year is with Williams Martini Racing. Yes, Sure Men has a snazzy Williams special edition product coming out. But there’s so much more to the deal.

“There are three pillars,” says Willem Dinger, F1 manager at Unilever, which owns Sure Men. “From a brand per-spective, F1 and motorsport gives us a great way to engage with men and their passion points. Our campaign is about protection and performing under pres-sure. Motorsport allows us to land those messages.” The drivers and engineers will all be applying Sure Men at races to assist this campaign.

The second ingredient is the tie-in with the Williams Advanced Engineering, the skunk works of the team focused on the commercial sector. “This is a two-way knowledge-sharing exercise between Unile-ver and Williams,” says Mr Dinger.

“They are helping us improve our spray drying towers, using thermal modelling to cut energy consumption, so this relation-ship gives us a chance to share best practic-es and learnings.”

And the F1 connection gives Unilever more clout when negotiating with super-markets. “In Brazil and Russia we do barter deals. We give them assets to get ourselves better shelf position and visibility in-store. It’s just another example of the benefits we get from our involvement in F1.”

The sport is fun. Partners get to bring cli-ents to races. It’s a major benefit. Mr Gallagh-er recalls “wild days” at Jordan: “I am Irish, Eddie Jordan is Irish and we played on that. We were known as the party team. We did the Silverstone rock concerts and they were massive. We had George Harrison coming. At our Monaco events we had Bono and U2.”

Brands tap into this. In the 1990s, teams like Jordan did risque photoshoots with

Being able to talk to our customers

about our work with one of the most

respected brands in the world is a very

big deal

young models dressed in the livery. To-bacco companies such as Benson & Hedges achieved incredible exposure. “It was very nineties, but the tabloids and lads’ mags lapped it up,” says Mr Gallagher.

These days, events are a little more taste-ful or sensitive and far more imaginative. Natalie Krushner, founder of NKrush, an agency which helps teams and grand prix host cities generate publicity, says imagi-nation is the limit when it comes to promotion-al events. “We’ve done things like drive-in movie cinemas at the track or hosting a fash-ion show there. We’ve held roundtables at universities to engage the students,” she says.

The essential point is that brands can get whatever they want from a deal. Ferrari sponsor Kaspersky Lab Anti-Virus has used its deal to learn about cyber security in cars, which is a growing concern as vehicles get hooked up to the internet. It has also launched into cyber security for factories and component makers.

“We have learnt how to speak the auto-motive language from Ferrari,” says Alex Moiseev, European managing director of Kaspersky Lab. “We are now talking to car vendors and OEMs [original equipment manufacturers] about our products.”

German technology company SAP has

made huge strides through its tie-up with McLaren. SAP provides cloud storage and resource-intensive computing. It offers McLaren use of its ultra-fast SAP HANA platform to give the F1 team advanced da-ta-crunching capabilities.

McLaren provides an angle for countless case studies and magazine articles looking at the platform. It’s a good way to show-

case the technology to potential clients in the corporate world. Again, there aren’t too many consumers who make the connection between the SAP logo on the car and the world of in-memory computing. It doesn’t matter.

Ultimately, it’s the brands that decide what they get out of the sport. “My old mate David Coulthard is forever being asked to do incredible things,”

says Mr Gallagher. “Red Bull got him to drive an F1 car on the helipad of the Burj Al Arab [Dubai skyscraper]. They put it on You-Tube and it’s one of the most-watched clips they’ve ever done. It shows the creativity that goes on.”

In F1 anything is possible. That’s why brands keep coming back.

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They are helping us improve our spray drying

towers, using thermal modelling to cut energy

consumption, so this relationship gives us a chance to share best

practices and learnings

01 Jenson Button of McLaren, whose partners include Mobile1, SAP and Johnnie Walker 02 Lewis Hamilton of Mercedes, whose partners include Petronas, Qualcomm, Pirelli and Bose03 Sebastian Vettel of Ferrari, whose partners include Kaspersky, Hublot and Shell

01

02

03

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ty Im

ages

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ty Im

ages

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ages

COMMERCIAL FEATURE

SINGAPORE IN POLE POSITION FOR HOSPITALITYSeptember’s Singapore Grand Prix is a date for your business diary

Every race in the F1 calendar has a different mood. Australia is the curtain opener. Monaco is about drinking champagne

with supermodels on superyachts. Monza is all about the tifosi morphing into a cacophonous sea of red for Ferrari fans.

But if you want to make deals, meet industry leaders and discover contacts from across the globe, then Singapore is the race to be at.

The nation’s status as a major financial and commercial hub with many multinational corporations headquartered in the republic makes it an ideal venue for business networking. In fact, Singapore was crowned by the World Bank as the “world’s easiest place to do business” for the tenth consecutive year in 2015.

The island boasts one of the best airports in the world which is served by many leading airlines. It’s a mere 25 minutes’ drive from numerous downtown five-star hotels, shopping malls and coveted restaurants, all which form the surroundings of the iconic Marina Bay Street Circuit.

Set against the backdrop of heritage buildings, modern architecture and a stunning skyline, it’s not hard to see why the “jewel in the Formula 1 crown” continues to attract record crowds and attention across the globe.

Since the inaugural event in 2008, the grand prix draws a myriad of audiences from business executives looking to reward

their clients and employees, people who appreciate great music and entertainment, to Formula 1 race fans keen to witness the world’s finest drivers go wheel-to-wheel under lights at speeds of up to 320km/h.

Having the race at night also means executives can make full use of the day to conduct their business activities before convening at the Singapore Grand Prix in the evening to wine, dine and network. Many clients plan their company’s key activities during the race week, leveraging the appeal of the night race to reward loyal customers and forge stronger business relationships.

The entire experience is orientated towards the more discerning traveller. There is room for more than 10,000 hospitality guests daily at the Formula 1 Paddock Club, Sky Suite, Club Suite and The Green Room where guests enjoy world-class meal services, free-flow wines and dedicated service by suite ambassadors, on top of the spectacular views of the race action from air-conditioned trackside suites.

Guests are spoilt for choice by a wide spectrum of food and beverage offerings. Previous editions of the night race showcased signature dishes from celebrity chefs Jean-Georges Vongerichten and Nobu Matsuhitsa, as well as award-winning modern fusion cuisine from local culinary talents. Specially built bespoke spa facilities at selected locations allow hospitality guests to enjoy a head-to-toe pampering experience.

Once the sun sets, the Circuit Park transforms into a massive party, complete with mega-concerts in between track activity – all complimentary for ticket holders as part of the unique event experience. Katy Perry, Maroon 5, Noel Gallagher, Robbie Williams, Pharrell Williams and Tom Jones are just some of the superstars who have performed at the Formula 1 Singapore Grand Prix.

The atmosphere can be felt at the Paddock too. “The whole weekend feels different. You can feel the vibe – and the tension and anticipation climb higher and higher as we get closer to the race itself on Sunday night,” says McLaren-Honda driver Jenson Button. Reigning world champion Lewis Hamilton adds: “This race is always a highlight of the season: a great city which looks really spectacular under the lights with the tricky street circuit below – my favourite kind of track to drive.”

Come September 16-18, downtown Singa-pore will once again host the Formula 1 night race with a vibe so incredible, nothing else comes close. For a hospitality experience that’s second to none, e-mail hospitality@singaporegp.sg or call (+65)6731 5900. For general tickets, visit www.singaporegp.sg

The F1 FORMULA 1 logo, F1, FORMULA 1, FIA FORMULA

ONE WORLD CHAMPIONSHIP, GRAND PRIX and

SINGAPORE GRAND PRIX and related marks are

trademarks of Formula One Licensing BV, a Formula One

group company. All rights reserved.

If you want to make deals, meet industry leaders and discover contacts from across the globe, then Singapore is the race to be at

LOGO

THE BUSINESS OF F1 raconteur.net6 RACONTEUR20 / 03 / 2016

directly into road cars. We are using some technology for cooling invented here and that technology is being used in the next generation of S-Class as well. It is all be-cause of the development on-track abso-lutely,” he says.

“So that is happening. It is a reality and this is why the hybrid six-cylinder turbo engines are so important for us.”

Mr Wolff has experience on both sides of the fence. He drove in both the Austrian and German Formula Ford championships between 1992 and 1994, when he scored a class win in the Nürburgring 24 Hour. Shortly afterwards his driving career came to an abrupt halt as his sponsorship was

withdrawn through no fault of his own.Countryman Karl Wendlinger had crashed

heavily at the Monaco Grand Prix and, with both Ayrton Senna and Roland Ratzenberger having lost their lives just a fortnight earlier, Mr Wolff’s sponsor Alu König Stahl didn’t want to remain in motorsport.

Mr Wolff made his return to racing in the early-2000s when he finished sixth in the 2002 FIA GT Championship with further vic-tories in both the Italian GT Championship and the 2006 Dubai 24 Hours.

However, the main focus throughout the second stint of his career was on manage-ment. Investing in the Williams F1 team set him on his way, until he got to Mercedes.

Engineers from Mercedes and its parent company Daimler are placed in the team to broaden their experience and vice versa. It benefits both sides in a unique way. “The benefit is getting experience in a different level. If you are a high-po-tential engineer in Stuttgart, you have the ability of diving for a year into the F1 world which is a much smaller organisa-tion and is less hierarchical. It gives you a different edge,” says Mr Wolff.

Although Mercedes owns 100 per cent of its F1 engine division, it has a 60 per cent stake in the team with 30 per cent in Mr Wolff’s hands and the remainder owned by former F1 champion Niki Lauda. Its real impact is felt far beyond the team itself. Re-search in 2013 revealed that the Mercedes F1 team and its engine division spent $195.6 million with 1,500 UK-based suppliers, cre-ated 125 jobs during the year and had a total wage bill of $109.4 million, bringing the eco-nomic benefit to $305 million.

COMMERCIAL FEATURE

TECH TRANSFER CHRISTIAN SYLT SAM HALL

TOP TIPSCAROLINE REID

The eternal question in Formula 1 is whether the cost of competing pays off. Car manufacturers spend hun-dreds of millions of dollars annu-

ally on racing in return for brand exposure and to help develop their road cars. If anyone knows whether it works, it’s Toto Wolff.

Mercedes bought its F1 team in 2009 for an estimated $120 million from former boss Ross Brawn and other management members. For the past two years it has raced to victory with British superstar Lewis Hamilton at the wheel and Mr Wolff at the helm. It hasn’t just dominated the standings with its own outfit, but also with all the teams that use its engines.

Grand prix spin-offs impact road carsHow much is winning the Formula 1 title really worth? A lot, according to Toto Wolff, boss of reigning champions Mercedes

Williams is powered by a Mercedes and finished in third place last year; as were Force India and Lotus that finished fifth and sixth respectively. Mercedes made the most of changes to F1’s regulations in 2014 which saw 2.4-litre V8 engines switched to more-efficient 1.6-litre V6 turbo hybrids. None of the teams had any experience with the V6 so it levelled the playing field and Mercedes came out on top. It didn’t just help it on track, but off it too.

Mr Wolff reveals that the development work on the new V6 at the Mercedes F1 engine shop in England has led to advancements in the road cars it manufactures in Germany.

“Many people say technology transfer is just a marketing story – I can tell you from here, it is not. The S-Class is running on a six-cylinder turbo engine, and the way we optimise our engines in terms of effi-ciency and power deployment translates

Many people say technology transfer is

just a marketing story – I can tell you from

here, it is not

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Track record can teachbusiness a thing or twoThere are few working environments quite like the high-speed, high-pressured world of Formula 1, but that doesn’t mean there aren’t lessons to be learnt by other businesses

1. NEVER UNDERESTIMATE THE PERSON SITTING AT THE TABLE OPPOSITE YOU Former Ferrari driver and ten-time race winner Gerhard Berger explains: “I re-member as a racing driver going into the season, you could easily think that you were great and everything was under con-trol. But someone else comes good and strangely you realise that you don’t have it. So you must make sure you always re-spect the competition. It’s the same when you do business – you need to make sure to always keep your eye on the other side of the table.”

2. TEAM WORK IS FAR FROM EASY According to former Jordan team head of marketing Mark Gallagher there is more than one type of teamwork and under-standing how they interact can be the key to a successful business. Mr Gallagh-er says it’s not just about the impressive ability of a group of mechanics to build a car or undertake a pit stop, or of engi-neers to design and develop a car. “I’m talking about the complete team from senior management down to factory floor sweeper and the degree to which everyone understands the leadership vision, buys into it and genuinely works together to succeed,” he says. This is something that a Formula 1 team must get right if it is to make it to the top step of the podium. “Team work is easy to talk about, difficult to unlock,” Mr Gallagher adds.

3. PLAY A LONG-TERM GAMEIt’s no accident that the most successful teams in F1 have been around for a long time. Predictions of quick success have typically met with failure and usually demonstrate a complete ignorance of the

complexity of the sport, says Mr Gallagh-er. He cites the example of the BAR team, which debuted in F1 in 1999. The team management foolishly predicted they would win their first race. “They not only showed how little they knew about F1, but ultimately set themselves up for a huge and immediate fall, which is of course what happened,” he says.

Mr Gallagher also draws attention to big-spending car manufacturers who have entered the sport, only to quit when they failed to match the success of their rivals. “To some extent several of the car manu-facturers who entered F1 during the 2000s also showed they didn’t understand the importance of building a long-term plan

for success, learning from mistakes and developing strategies to compete effec-tively against teams which had dominat-ed the industry for 20 years,” he says. “So when success continued to elude them, and then the economic going got tough, they were gone.”

Mr Berger agrees: “You just have to stay with it and keep pushing. That was the case when I was on the race track and that’s the same on the business side of things. The real success stories in F1 are the stayers who are there year after year, like Ferrari, McLaren and Williams. They all have good years and bad years, and they accept those difficult years and this is an important strength. It’s heavily competitive and the good times will come – and that’s the same in business.”

4. DESIGN IS KING“Small businesses tend to innovate to try to steal a march on the bigger opposition, especially in terms of entering the mar-ketplace,” says former Jaguar team prin-cipal Tony Purnell. “This approach needs a degree of brilliance in product develop-ment, something which tends to be a mix of engineering cleverness coupled with a razor-sharp perception of what’s important to the marketplace,” he says. Just occasion-ally these two skills combine in one person. Mr Purnell witnessed this following exten-sive changes to aerodynamic regulations in 2009. He says: “[Red Bull Racing technical director] Adrian Newey acted like Steve Jobs at Apple in seeing what was really required and not just following everyone else, cou-pled with a big war chest of money to fund the development. After nearly five years of failing at product refinement, Newey leapt over everyone.” Red Bull went on to win the next four championships.

Toto Wolff in the pit during practice for the Austrian Grand Prix in June 2015

Danii Kvyat and the Red Bull team in the pit during the Malaysia Grand Prix in March 2015

COMMERCIAL FEATURE

Industrial 3D printing is one of the most exciting breakthroughs in manufacturing. It’s used by Nasa to build space shuttle

parts. And it’s economical enough for engi-neering students to play with as they gener-ate their own innovative prototypes.

Formula 1 has been a fanatical user of in-dustrial 3D printing for a while. All F1 teams rely on it both in the development phase and to make race parts. It allows the teams to create components which would be im-possible to craft using traditional methods.

Williams grand prix engineering opera-tions director Simon Wells is a vocal evan-gelist. “Industrial 3D printing allows us to bypass traditional methods for manufac-turing prototype parts, such as producing patterns, moulds and set-up tooling,” he says. “This enables us to go straight from a CAD [computer-aided design] model to the machine. Within a few hours you have this physical part ready to test.”

By now most people are familiar with how 3D printing works. The most common version at the industrial level is laser sinter-ing. Layers of powder are fused by a laser (hence the acronym AM or additive man-ufacturing). It’s ideal for making compo-nents of all sizes from micro-scale to large and complex parts.

Mr Wells says his F1 engineers use laser sintering for all manner of jobs. “AM ma-chines are used for producing low-volume complex prototype parts, mostly for aer-odynamic development, but also for some full-size F1 car parts. This technology allows us to produce these parts in incredibly short time frames,” he says.

Williams’ new spin-off operation, the Ad-vanced Manufacturing skunk works, is also a big user of industrial 3D printing. Mr Wells reveals: “In Williams Advanced Engineering we use the machines for producing proto-type parts for a variety of applications. These range from automotive and motorsports projects to aerospace and defence projects. In this area the technology allows us to pro-duce prototype working models without in-curring high tooling and set-up costs.”

Naturally, F1 teams demand the absolute best of any technology they endorse, which is why Williams uses AM machines by EOS. In November 2015, Williams acquired a third EOS machine to complement its two EOS polymer printers. The EOSINT P 760 is a modular plastic AM system capable of building components of 700mm x 380mm x 580mm. Two lasers fuse the polymer powder at an astonishingly quick rate of 700cm3 an hour.

“We chose EOS because we identified them as a world leader in additive manu-facturing technology,” says Mr Wells. “We want to work closely with EOS to establish focused areas of development where we can realise the benefit that this technology delivers and use it to improve the perfor-mance of the Formula 1 car.”

For EOS, the Formula 1 link is proof of the maturity of the technology. Stuart Jackson, EOS regional manager for the UK and Ireland, says: “There is a perception that F1 takes risks in the pursuit of glory. That is completely wrong. F1 is an arena where the slightest mistake would be ex-tremely costly, both in terms of human life

SHAPING THE FUTURE OF DESIGN WITH INDUSTRIAL 3D PRINTINGFormula 1 and the aerospace industry are blazing a trail using industrial 3D printing to create innovative engineering parts

and in financial outlay. These teams can’t mess around. They need standards of re-liability which exceed any other industry. Maybe only aerospace is similar. Which is perhaps why aerospace was currently the fastest adopter of industrial 3D printing and a huge market for us at EOS.”

Other sectors are following close be-hind. These include medical devices, auto-motive, consumer goods, logistics, oil and gas, and even field sports. Athletes are de-manding bespoke casts for broken bones and using industrial 3D printing to utilise the optimum materials.

A wonderful demonstration of the pow-er of industrial 3D printing can be seen in F1’s little cousin, Formula Student, a race series run by the Institution of Mechani-cal Engineers for undergraduates to help them learn a variety of technical skills in a fun environment. In 2012, the Rennteam Uni Stuttgart won support from EOS. They used CAD software from Autodesk Within to design a new type of “knuckle”, which connects the wishbones, axle, track rod and breaking. It’s a key component.

The goal was to make the knuckle more rigid, yet lighter. Yannick Löw, from Rennteam Uni Stuttgart, explains that the old method was exhausted. “We produced the part using the classic precision casting

process. This, of course, led to limitations in freedom of form, which meant that the part’s potential could never be fully real-ised. Even back then we’d decided that for the 2012 season we’d investigate new, inno-vative ways of manufacturing the steering stub axle,” he says.

Industrial 3D printing meant proto-types could be churned out without lim-it. Each iteration can be subtly tweaked. By contrast, metal casting needs a fresh cast each time, which is time consuming. Furthermore, 3D printing permits new shapes deemed impossible with casting. Lattice micro-structures of variable den-sities, found in nature, are a forte.

“Our machine honed powdered metal granules with the help of a laser, layer by lay-er, into the required part,” explains Nikolai Zaepernick, director of strategy and busi-ness development at EOS.

The weight of the part was reduced by 660gms, saving Rennteam Uni Stuttgart 35 per cent, and at the same time the en-gineers succeeded in increasing rigidity by 20 per cent – big numbers in motorsport, which translate into faster lap times and re-duced fuel consumption.

The result? Rennteam Uni Stuttgart won the Formula Student Germany 2012 title.

This sort of technology is now accessible to all, says EOS’s Mr Jackson. “If a com-pany wants to experiment with industrial 3D printing, they can get parts made by a third party. For example, Digits2Widgets in Camden Town will print on demand in a variety of materials.”

The first step is to call EOS. “There is a list of third-party service providers on our website,” says Mr Jackson. “It covers 50 machines in the UK alone. We can talk you through the whole process and introduce you to a partner who owns the right ma-chine for you.”

When companies become habitual us-ers then they can think about acquiring a machine.

“We would encourage anyone involved in cutting-edge design to take a look at in-dustrial 3D printing,” advises Mr Jackson. “It offers forms and shapes which have nev-er been done before. The cost is incredibly low. And the speed of production is so fast.

“That’s why F1 teams are relying on it. All you need to do is get in touch and we can talk about the potential of industrial 3D printing to change the way you think about your products.”

To find out more visit www.eos.info/en

We would encourage anyone involved in cutting-edge design to take a look at industrial 3D printing

Laser sintering build process in action

EOS

Powder-based layer-by-layer additive manufacturing process

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20 / 03 / 2016RACONTEUR raconteur.net 7THE BUSINESS OF F1

TV audienceand marketingkeep F1 goingAccording to the latest figures, Formula 1 teams made a combined £217-million net loss in 2014 – so why would anyone want to invest in them?

FUNDINGCHRISTIAN SYLT

Formula 1 teams are considered to be the glitziest trophy assets of them all. With logos on the cars of some of the world’s most well-known

brands and hundreds of millions of dollars of prize money flowing into their coffers, teams appear to be turbocharged cash cows for their owners. In fact, it’s not so simple.

F1 teams are usually either run to break-even or at a loss which involves the owners pumping in more than the teams make in revenue. And they do it in pursuit of victory. The additional funds tend to come from the owners’ pockets or debt and it is invested on the understand-ing that it is better to win on the track and make no profit rather than make money and finish low down the standings.

Victory on the track increases a team’s abil-ity to bring in more money from sponsor-ship since brands are prepared to pay more to be associated with a winner. While team owners can get a finan-cial return from selling a team in the long run, what do they get when it is running to break-even?

The answer is that if the owner is a private individual, such as Sir Frank Williams who has a 50.8 per cent stake in his eponymous team, they can take an annual salary.

If the owner of a team is a company which sells products, such as Mercedes, Ferrari, Re-nault or Red Bull, the benefit they get while the team runs to break-even comes from tel-evision exposure of their logos on the cars.

It keeps the owner happy, but it is tougher to keep the team ticking over.

The teams’ revenue generally comes from three sources with each providing a similar amount. They are all fuelled by F1’s global television audience which totals 425 mil-lion viewers annually, according to the latest figures. The first key revenue source is sponsorship and in this field money usu-ally talks. The higher the cost, the greater the exposure on the car.

However, some sponsors do not even get presence on the cars and are instead known as suppliers. This is a cheaper alternative and often does not involve a cash cost. In-stead, the brand supplies equipment or

services and, although they don’t get exposure on TV, they usually receive many of the perks which come with on-car sponsorships, such as passes into F1’s exclusive paddock, use of the team logo in advertising and some-times even driver ap-pearances at company functions.

Sponsorship com-prises around 37.2 per cent of the teams’ rev-

enue with 34.9 per cent coming from their profit-share with F1. The series pays them a total of 63 per cent of its annual profits as prize money which amounted to $863.1 mil-lion in 2014. Winning the title that year gave Mercedes an estimated $109.2 million.

Payments from owners provides around 19 per cent of revenue and the market-ing benefit from the exposure of the team on TV compensates for this investment despite it being intangible income. The remaining 8.9 per cent of team revenue comes from miscellaneous sources, such as drivers who pay to race. They are a hall-

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Victory on the track increases a team’s ability to bring in more money

from sponsorship since brands are

prepared to pay more to be associated

with a winner

This year the Haas Formula 1 team becomes the first American outfit in F1 since the 1980s and has already made an impact.

Before the season began, Haas completed a total of 474 laps in testing which is roughly the equivalent to the distance covered in eight races – not bad for a new team.

Time has been the key to Haas’s success so far. In mid-2014 Gene Haas, the American tycoon who is bankrolling the team, decided to delay his F1 entry from 2015 to 2016. In turn his team didn’t have to sign up to racing regulations until late last year, which meant that it could test for longer without restrictions.

It also gave Haas time to snap up equipment at bargain prices from the Manor F1 team, which crashed into bankruptcy late in 2014.

His shopping list included Manor’s factory in Banbury and around 250 staff work for the Haas F1 race operations there. The design division is based in North Carolina at the premises of the championship-winning NASCAR stock car team which Haas co-owns.

He is also taking advantage of a new regulation which allows teams to buy more parts than before from established F1 marques. Buying in more parts reduces start-up costs and Haas is using a Ferrari engine with a chassis made by Italian manufacturer Dallara.

Initial costs of its UK division were £10 million, in its first five months, which is low by F1 standards. However, according to F1 boss Bernie Ecclestone, Haas will need to spend much more than that. “A billion would last a new team owner four years,” he says. Time will tell whether Haas has got what it takes.

CASE STUDY: BANKROLLED BY A TYCOON

FORMULA 1 TEAMS’ NET PROFIT/LOSS 2010-2014 (£M)

Source: Team accounts/Formula Money

mark of teams at the bottom of the grid and there is a huge gulf between their budgets and those of the top performers.

In 2014, a total of nine of the teams filed publicly available accounts with the only exceptions being Ferrari, as its team is a division of the famous motor marque, and Sauber which is based in Switzerland. The nine teams together made £1.4 billion in revenue and the biggest winners were former champions Red Bull Racing which alone accounted for 22 per cent of the total. The team’s biggest benefactor is Austrian drinks company Red Bull which poured in £60.5 million of its £204.6-million revenue.

Although Red Bull had the highest reve-nue, it only grew 3.6 per cent on the previ-

ous year as the team already had the biggest budget. It hasn’t translated into on-track success as Red Bull struggled with F1’s switch in 2014 from a 2.4-litre V8 engine to a more environmentally friendly 1.6-litre tur-bocharged V6 hybrid. The team won four consecutive F1 championships with Ger-many’s Sebastian Vettel, but was dethroned in 2014 by Mercedes driver Lewis Hamilton and finished in fourth place last year.

The worst performer was the Marussia F1 team as its revenue reversed by 57 per cent to £26.2 million in 2014 when its owner, Russian tycoon Andrei Cheglakov, stopped paying the bills. The team has only scored two points since joining F1 in 2010 and fin-ished ninth in the standings in 2014.

In October 2014, Marussia crashed into administration with total debts of £63.6 million and was rescued at the start of last year by Stephen Fitzpatrick, the boss of energy firm OVO. It was renamed Manor and Mr Fitzpatrick reportedly planned to invest £30 million of his own money in the team. It was badly needed. In the year ending December 31, 2014, Marussia’s net losses increased more than ten-fold to £52.8 million driven by reduced spon-sorship and an increase in costs from the switch to V6 engines.

Alexander Rossi of F1 team Manor, which saw losses increase more than ten-fold to £52.8 million in 2014

Ferrari and Sauber did not f ile publicly available accounts

Caterham

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Force India Manor (Marussia) McLaren Mercedes Red Bull Renault

(Lotus) Toro Rosso Williams

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THE BUSINESS OF F1 raconteur.net8 RACONTEUR20 / 03 / 2016

Wise words from a former F1 championThree-times Formula 1 champion Sir Jackie Stewart, who founded an F1 team which he sold to Ford in 1999 for a reported $100 million, shares his views on the sport in 2016

INTERVIEWJOE DIAMONDKATE HEWITT

There is an aura surrounding Sir Jackie Stewart. The waiters fuss around the 76-year-old Scot as he sits down for tea at his usual

table in London’s smart The Berkeley ho-tel. He seems at home among the ornate wooden panelling and fine china.

Sir Jackie, who was knighted in 2001 for ser-vices to motorsport, is one of Formula 1’s elder statesmen. Having gone from cockpit to pit wall and several ambassadorial roles within the F1 paddock, he is one of a few people well placed to comment on just about all aspects of the sport. And comment he does.

The beauty of interviewing Sir Jackie is that one short question will yield an expansive answer dripping with detail. One of his roles is as an ambassador for luxury watch brand Rolex and he doesn’t just recall the year he got his first timepiece, but where he bought it and even who recommended it to him.

He is like a grand raconteur regaling about racing in days gone by and he isn’t afraid to share his opinion on how times have changed.

One of the biggest alterations in the world of F1 since the famous tartan graced the grid has been the driver ladder. Back then, the likes of Rubens Barrichello and Johnny Herbert were picked on raw talent, as opposed to the mon-ey-laden, nursed-and-nurtured nature of some breaking into the big time in recent years.

“This whole idea of buying drives is a very unfortunate thing and it spirals very neg-ative structures within the sport,” he says. When you sit and listen to Sir Jackie, he has a very astute way of making even the most complicated issues seem very solvable.

“For one thing – and this sounds bad – but the cars currently seem to be too easy to drive. Almost anybody can go fast in a For-mula 1 car, if it’s a decent Formula 1 car,” says the former champion.

“It’s not the drivers, it’s the cars. When the car is good now – there’s Mercedes, then there’s Ferrari, then there’s Red Bull, then there’s Williams – anybody can get in those cars and almost immediately drive them. So therefore there’s something wrong that the engineering has come to a point where too many people can drive them.

“You’ve got to look at a time where there was Jackie Stewart coming along in a Formu-la 3 car and people thought, ‘Hello, he’s won 11 out of 13 races, he must be quite good, so therefore he’s in a Formula 2 race now. And then he won a touring car race and then a world sportscar race’. So people then began saying ‘We better hire him’.

“There is the arrival of both Max Verstap-pen and Carlos Sainz Jr – both boys are very nice by the way – but what’s happening when they can get in those cars and go that fast? It must be too easy. And that’s not me saying it out of jealousy. I’m not saying that it is easier now than it was back then for me.”

Sir Jackie campaigned furiously for years to improve the safety of the sport, but does it

need more danger once again, as suggested last year by Ferrari driver Kimi Räikkönen?

“People are taking liberties that we never used to take in our day. We could not run wide on a fast corner and expect to hold our posi-tions,” he says. “The worst example of that I think was Abu Dhabi 2010. All Fernando Alonso had to do to win the world champi-onship was to finish ahead of Vitaly Petrov’s Renault. He followed him for the entire race.

“Petrov went wide four times off the road – all four wheels – and never lost the lead to Alonso. He scrambled back on and Alonso still couldn’t get past him. That wasn’t through Alonso’s inability; it was because Petrov was still carrying the speed. That’s wrong.

“We don’t want someone hitting a tele-graph pole, or a farmhouse like I did, or a grass bank like Stirling [Moss] did, but you must have something else that stops a driver. We’ve got to have something that doesn’t burst the tyre or break the wheel, but means the grip is not as good.”

Half a century ago, a young Jackie made his first foray into F1 with Lotus as an injury replacement for fellow Scot Jim Clark. Lining up on the grid in Kyalami in 1965, no one could have predicted Stew-art would go on to become a three-times champion. He is in no doubt about who he most looked up to.

“Jimmy was the best racing driver I ever raced against without fear of contradiction,” says Sir Jackie. “Fantastic. So smooth, so clean, never went off the road.” Classy and composed, Clark was a good friend from whom he learnt several tricks and skills. “It was Batman and Robin, and there was no doubt who was Batman and who was Robin,” says Sir Jackie.

Clark, a shy farmer from Fife, won F1 championships in 1963 and 1965, but will be best remembered for the Italian Grand Prix in 1967 when he dropped a lap down, following a flat tyre change, before cata-pulting his way into the lead. He matched

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and not taking anything because we’re piling it back in, so that the value of the team was being added’. Finally I did the deal because they said, if we didn’t sell, they’d take their engines elsewhere.”

It goes without saying that the ever-in-creasing finances surrounding F1 have raised the pressure on teams since the Stew-art grand prix years; however, Sir Jackie offers one piece of advice to the current bunch on the grid.

He says: “When it came to talking to sponsors, the minimum relationship for me was five years. And I said we couldn’t win a grand prix for five years with a new team. But if you under-promise and over-deliver, you’ll never get the sack.” Some current outfits could do well to heed these words of wisdom.FIGURING SUCCESS

OF JACKIE STEWART

ANDROID APP ON

This whole idea of buying drives is a very

unfortunate thing and it spirals very negative

structures within the sport

his pole-position time in the process only to finish third after suffering from a fuel pump failure.

Stewart and Clark shared apartments and set the standard for the next generation to beat. Sadly, Clark was killed in a Formula 2 accident in Germany in 1968, but Sir Jackie classes him as the greatest F1 driver to have lived: “I always have looked up to him, I still do. He was the absolute leader.”

Stewart retired in 1973 and since the 1970s has become a leading light in the fight to improve safety, overseeing the implication of improved cockpit protection, rigorous crash tests and effective recovery proce-dures. Much of this had been done by the mid-90s when, with Ford’s backing, Stewart and his son Paul formed Stewart Grand Prix which won its first F1 race in 1999. The team became the Stewart family flagship.

Sir Jackie says: “Ford said they wanted to buy our team. At which point I’m thinking, ‘Hang on, we’re making £5 million a year

01

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0301 Sir Jackie Stewart at the Goodwood Festival of Speed in June 201502 Stewart racing in Italy in 1969, the year he won his first world championship with Matra03 Stewart (right) with Tyrrell teammate Francois Cevert on the podium after winning the Belgian Grand Prix in 1973

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