F1 Teams left behind. The past months have been tough on Formula 1’s reputation. It seemed every piece of news about the sport included some mention of a ‘crisis’. The reality is that the sport isn’t in a crisis, but it does face several challenges, and one in particular that requires immediate attention; the development of a sustainable model to help keep ten to twelve teams in business and thriving.
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Whilst a more equal share of the prize fund, or a cost cap, would improve the financial situation for many teams, the reality is that both decisions are out of the team’s hands, and will take time to be implemented. The team’s other main source of revenue – sponsorship – is declining at a time other major sports teams are seeing sponsorship investment soar to almost unrealistic levels.
It is the author’s belief that this rise in the share of sponsorship revenue is the result of other sports teams developing new innovative sponsorship propositions. Something that Formula 1 teams haven’t.
An innovative proposition offers a sponsor, assets that aren’t associated with brand or performance – in Formula 1 this would mean if you were to deduct the influence of brand differentiation and on-track performance from the sponsorship offer, how is what you’re offering different to anyone else? Do you have a captive digital audience of ‘x’ million people (and detailed data on those people to understand what they do and don’t like)? If so, that’s an attractive additional asset that can help differentiate the team from everyone else.
Three rights holders that have developed a differentiated sponsorship proposition are Manchester United, Manchester City and the NBA.
It should be said that in some cases, brand differentiation may be enough, Ferrari or Red Bull for example, but even in Red Bull’s case, they have developed a few extra strings to their bow e.g. numerous inner-city demonstration events in non-race markets per year.
Three rights holders that have developed a differentiated sponsorship proposition are Manchester United, Manchester City and the NBA:
Manchester United football club’s commercial performance, like their on-pitch performance, has often led the way in football. Fifteen years ago their sponsorship offering was strong – because they’d caught onto the idea of building a brand – but was small in size. Today Manchester United has one of the largest sponsorship portfolios of any sports team. They did this by creating a differentiated sponsorship proposition, something all the successful sports teams in the world have done in recent years.
Manchester United’s proposition is based on an understanding of what a large number of corporations want; data insights to help quantify what they are buying, and a level of partnership that suits their requirements. Central to the proposition is a strong understanding of their fans – Manchester United have invested in detailed consumer data for each global market.
They also created a new level of partnership providing a brand with the opportunity to use the ‘name, fame and imagery’ of Manchester United, and if applicable only in a small number of specific markets. This allows them to sell sponsorship to businesses that operate in the same sector but operate in different geographical areas – countries or regions – for example, they could have a banking partner in China, Turkey and the US all at the same time.
By creating this sponsorship proposition, the club generated nearly $100m in new sponsorship revenue inside the first 3 years. In the following years, as penetration of the proposition has grown, so too has the revenue.
Across town in Manchester, United’s rivals Man City developed City Football Group, an innovative way to extend the club’s influence across North America (New York City FC), and Asia Pacific (Yokohama Marinos and Melbourne FC) and provide greater in-market assets. In just a short period of time, this proposition attracted the interest of Nissan, SAP and MusclePharm who have all become sponsors across the Group.
The team’s other main source of revenue – sponsorship – is declining at a time other major sports teams are seeing sponsorship investment soar to almost unrealistic levels.
In the States, the National Basketball Association (NBA) quickly understood that by building a fan base in China, they would have a unique asset that would differentiate their sponsorship proposition, and generate far more in revenue.
The NBA sent players across the world to play exhibition matches, became very active on Chinese social media platforms, and established large city centre fan zones. They took the sport to the fans. Basketball is now one the most popular sports in China – it is claimed 300 million Chinese now play the game. The commercial result is that Chinese brands are competing – and often playing a premium – to sponsor the league, teams and players.
It’s crazy to think that largely domestic sports (NBA) and sports teams (Man City) have developed innovative sponsorship propositions, but no Formula 1 team – except maybe McLaren via their Applied Technologies approach – is proactively developing assets that together form a more competitive, and innovative sponsorship proposition. Perhaps it is because of the mindset – a domestic sports team knows it must try extremely hard to build more interesting and saleable assets outside their traditional market (geographical in this case) in order to grow. Maybe the fact Formula 1 has for so long been the world’s largest sport, with growing FOM revenue, has led Formula 1 to believe they didn’t need to innovate in this space.
Today the sponsorship marketplace is more mature and competitive than it has ever been. Some clever people are developing some very attractive sponsorship propositions for other sports, causing Formula 1 and many other established sports properties a severe headache. The good news is that if a domestic sports team can develop a hundred million dollars in new sponsorship, then Formula 1 teams should be able too!
Where many sports have developed a sponsorship proposition based around geographic relevance and strength (the NBA in China), and whilst opportunities exist in other global markets (e.g. South Africa, a large important market for many FMCG brands; or Thailand and the Philippines two fast-growing ‘next eleven’ markets), the one market that provides arguably the largest opportunity is millennials – an overused term, but an important segment of the market (16-32-year-olds).
If a team were looking to select a specific target market to build a sponsorship proposition around, it would do no wrong in selecting millennials. Currently, no Formula 1 team has been able to demonstrate its effectiveness in reaching and engaging millennials at a mass scale, and as such this provides a great opportunity for the team that can ‘own’ this market in the eyes of brands.
The argument that Formula 1’s traditional following is an older demographic with more disposable income is well accepted, but it is important to consider that every major packaged good, consumer electronics and lifestyle brand are placing all their marketing dollars in platforms that target this demographic.
If a great platform to engage millennials is what these brands are all after, logic says to develop the best platform to meet this need and you’ll experience greater success in the quest for more sponsorship dollars.
Achieving this objective, however, will take effort and investment. Formula 1 teams should conduct a great deal of research to fully understand the millennial consumer, their consumption habits and what they are more likely than not to consider.
Take media consumption as an example. Formula 1 has been a powerhouse in television; it was one of the first sports to develop a sports product that worked for television and successfully monetises it. It has also been particularly strong in the print newspaper; gaining significant column inches in not only the sports pages but also the business, technology and lifestyle pages.
However, the consumption of traditional media is in decline, especially amongst millennials. Time spent by the consumer is shifting from newspapers and linear television to digital and the Internet. Even when consumers are watching television, they’re often not fully engaged. According to WPP, only one-third of moving image media that 16-24-year-olds watch is on television. And when they are watching it, it’s nearly always accompanied by media multitasking.
The most important platform for teams and sponsors to develop around is mobile. Consider that smartphone ownership in developed western markets is near saturation. Meaning pretty much everyone you will meet will have a smartphone – and in all likelihood, they’ll be ‘checking in’ at any opportune moment, as mobile accounts for; 30% of all time spent online; 40% of all YouTube videos watched, and 50% of all Google queries.
It’s a common misperception that this trend is confined to developed markets. In reality, the rationale for targeting consumers on mobile in emerging economies is even stronger. In many Asian and Latin American markets, they’ve leapfrogged technology like personal computers and gone straight to mobile. There are cities in Asia that had little in the way of technology 10 years ago, but now have better 4G internet than London, New York or Paris.
This is a prime example that in developing a new sponsorship proposition, the rights holder will have to conduct deep-dive research and will definitely need to invest upfront to develop the appropriate proposition. Manchester United invested in consumer research to build unique, quantifiable value. They also had to invest heavily in building a sizable sales team in global markets. City Football Group had to acquire, develop or partner with other teams, before investing in developing the Group asset bank. The NBA had to invest in setting up those big events and persuading the teams and players to travel halfway across the world to play an exhibition match.
The key similarities in those examples – and many others not listed here – are that they researched consumers in detail, selected key target markets to focus on, invested in their future by creating the assets, and developed in just a short period of time saw a strong return on their investments.
We commonly talk about disruption in other business sectors – how Airbnb and Uber have changed the way travel and where we stay, Kindle the way we buy and read books, and so on and on. It’s safe to say that the sponsorship market is also being disrupted, but by a few select rights holders that are developing new sponsorship propositions and are taking a large proportion of the big-ticket sponsorship deals. The question is, will Formula 1 teams – and particularly those in more difficult financial situations – help themselves and innovate in sponsorship?
In a sport where a competitive advantage doesn’t last long, building a strong, sponsorship proposition may provide a long-term competitive advantage – and a competitive advantage that also lasts longer than the time it takes to copy a front wing, suspension layout or even a Mercedes engine!