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What Audi and Porsche stand to gain from joining F1

06 May 2022 - 11:10 By Hannah Elliott
In F1 you’ve got to win to stay popular — and feel like you’re getting your money’s worth from the $145m plus (roughly R2,323,458,250) budget required to field a team.
In F1 you’ve got to win to stay popular — and feel like you’re getting your money’s worth from the $145m plus (roughly R2,323,458,250) budget required to field a team.
Image: Clive Mason/Getty Images

The announcement that Porsche and Audi will lend their names to Formula One comes at a high point in popularity in the US for the world’s most glamorous racing series.

Miami’s first-ever F1 Grand Prix runs on May 8. Race-day tickets hit $1,342 (roughly R21,505) this week on the secondary market, more than prices for the NBA finals, Stanley Cup and World Series, according to ticket-seller TickPick. Luxe hotel, restaurant and entertainment packages are selling for as much as $110,000 (roughly R1,762,546). More than 240,000 fans are expected to attend the sold-out event with 82,500 surrounding the track in Hard Rock Stadium on Sunday.

Experts credit the popular Netflix documentary Formula One: Drive To Survive with producing a surge of American interest in the once-obscure sport founded in Europe in the 1950s.

“The F1 Grand Prix has always been a popular event, but it hasn’t become the story that this Miami Formula One race has been,” says Brett Goldberg, co-founder and co-CEO of TickPick. “A fair amount of it was the success of the Netflix documentary. That itself has brought huge awareness to the US.”

Race organisers in Miami have said they plan to increase capacity for coming seasons. A second new American race is scheduled for November 2023 in Las Vegas.

How They’ll Do It

But much remains unclear about what it means for Porsche and Audi as they buy their way into the prestige of a sport that reported annual revenue of $2.136bn (roughly R34,229,186,400) across its 22-race calendar in 2021. The series made $92m (roughly R1,474,290,800) in profits that year after having lost $386m during 2020. Race promotion — companies and promoters paying to be associated with F1’s grandeur — was the biggest revenue stream, accounting for 40% of total income. Qatar, for example, pays $55m (roughly R881,369,500) per year for its contract to host F1, which is the highest amount on the list of contract costs; Mexico pays $25m (roughly R400,623,500)

There are three ways Audi and Porsche could enter such a blue-blooded field. First, they could supply engines to other teams. This year, for example, Mercedes supplied engines to four of the 10 teams on the F1 grid; Porsche briefly supplied turbocharged engines to McLaren in the 1980s and to a team called Footwork in the early 1990s.

Second, they could buy an existing team and use that platform for their own engineering. Or, third, they could launch a bona fide factory team, like Ferrari, which would involve hundreds of millions of dollars in research, engineering and other investment. Not to mention years of time refining the new technology for a race. 

Spokespeople from both brands declined to answer questions about whether joining F1 means launching such a team or if they would go another route such as supplying engines and technology for others.

Bloomberg earlier reported that Porsche is considering providing power units to Red Bull. Porsche’s plans, while unannounced, are “quite concrete,” said parent-group Volkswagen's CEO Herbert Diess. Audi’s plans are less advanced, though progressing, Diess said. It may offer about $556.3m (roughly R8,914,674,122) for McLaren as a means to enter, according to some reports.

“Both premium brands see it as the right decision [to join F1] and are prioritising it”, Diess said during a town hall discussion in Wolfsburg, Germany, on May 1. He declined to specify the timing or exact nature of the commitment. 

A Moneymaking Opportunity 

What is clear is the potential to leverage newly minted American F1 fans into conquests for VW’s highly profitable premium car brands. Winning in Formula One bolsters brand image and awareness across multiple segments of consumers, Goldberg says, which translates into car sales. It is no coincidence that some of the coolest inventions now popular on modern sports cars — big rear wings, paddle-shifting and carbon-fibre elements to help increase efficiency — are directly descended from F1 cars. 

“Your [potential] Porsche enthusiast, your sports car enthusiast, they don’t always translate to Nascar, but they do translate to Formula One,” he says. “That’s a wealthy group of individuals.”  

In addition to potential car sales, Porsche and Audi teams can also make money off co-branding and sponsorships. The most successful racing teams, such as Ferrari, Mercedes and Red Bull, count multi-million dollar deals with sponsors and advertisers such as Oracle, Puma, Tag Heuer and Wal-Mart. In February, Red Bull Racing signed a single sponsorship deal worth $150m (roughly R2,403,735,000) with Singapore-based cryptocurrency platform Bybit. 

They can also win hundred of millions of dollars in prize money for each championship. Roughy 47.5% of total F1 profits makes up the prize money, which is then divided into two categories. Half goes to the F1 and its shareholders; half goes to the teams, which divvy it up based on final standings for the year.

“The sport in North America [is] under-viewed, under-monetised under-everything,” said Greg Maffei, the president and CEO of Liberty Media which owns F1. “I don’t think that gets solved in a week, but I think that’s an interesting long term opportunity.”

A Risky Bet on a Marketing Goldmine

There are some risks to joining F1, especially for Porsche, which built its brand image on the plucky race cars and rallies of the 1960s, ‘70s and ‘80s. For the power brokers at VW, the adage “win on Sunday, sell on Monday” still holds true. Cars that win races instil consumers with a favourable view of their brand, and makes them want to drive the street-legal cousin of the winning car.

'We are assuming that in 2026 or 2028, Formula One will be the biggest motorsport spectacle in the world — even more than today, bigger in China, bigger in the US,” Diess said. “And with that also the largest marketing platform for premium vehicles.”

But “win” is the operational world. For Porsche, which got mixed results in Formula E and only races occasionally in lesser-known series such as Le Mans, entering F1 but faring poorly would potentially hurt the image of VW group’s most profitable brand, which has built its company allure on the back of a highly successful (non-F1) racing car, the 911. As Porsche’s most profitable vehicle, the 911 comprises 11% of Porsche sales by volume but accounts for roughy 30% of the company's earnings. 

Aston Martin, for example, has suffered this season as its drivers continue to finish at the back of the pack. While the company also faces other headwinds such as a disappointing IPO and constant churning of top management since then, the fact that the British brand is now ranked nine out of 10 teams doesn’t help morale among loyal fans or win new ones for the brand. On May 4, Aston Martin Lagonda named former Ferrari NV boss Amedeo Felisa as top executive. Felisa immediately replaced Tobias Moers, who joined the company in 2020 from Mercedes-Benz’s high-performance AMG brand. Rumours have circulated for months that Aston Martin racing team owner Lawrence Stroll is looking to sell it. 

A Proven Record

Ferrari provides the gold standard case study for the power of F1. The world’s strongest brand in all categories for nearly a decade, according to The Annual Brand Ranking report that balances scorecard of metrics evaluating marketing investment, stakeholder equity and business performance. Ferrari makes just over 11,000 cars per year, but trades on a gargantuan footprint of loyalty, heritage and a winning tradition bolstered largely by its long-standing involvement in F1. Cumulatively, the Italian supercar maker and racing team are worth more than $27bn (roughly R432,643,950,000).

“The embodiment of luxury, Ferrari continues to be admired and desired around the world,” David Haigh, the CEO of Brand Finance, wrote. “It is no wonder that many consumers who might never own a Ferrari car want a bag or a watch emblazoned with the Prancing Horse.”

The success of Ferrari’s racing cars on the track in the 1950s and 1960s built the fame and reputation that fuelled the appetite for the brand’s first popular road-going cars; its million-dollar icons such as the F40 drew close parallels to the race cars of the 1980s. Its fans, known as Tifosi, are the most notorious force behind any F1 team. In 2017, one in three F1 fans described themselves as Ferrari supporters, according to a F1 fan survey in 2021. 

The caveat is that on the world’s most well-known racetrack, you’ve got to win to stay popular — and feel like you’re getting your money’s worth from the $145m plus (roughly R2,323,458,250) budget required to field a team. In the years since 2017, Ferrari fell off competitive race-pace and lacked the star power in a driver of Mercedes’ Lewis Hamilton. It’s no coincidence that last year just 18%, or one in about five racing fans still described themselves as supports of the brand. Sales of Ferrari street cars still rose, however. Close observers might observe a bump in popularity after this year; Ferrari is now running in first place in the constructors team standings. 

Selling Electric in 2026

There’s also the question of how entering an old race series will help move EVs, which Audi and Porsche have committed to selling extensively in the future. But the brands picked their timing carefully. A new rule change stipulates that in 2026 all F1 race cars will have new engines that are more electrified and run on synthetic fuel.

The adjustment levels the playing field for any brands that might want to enter the series, because everyone will be building engines to comply with the rule change. 

“You can't enter Formula One unless a technology window opens up, which means, to get in there, a rule change so that everyone starts again from the same place,' Diess said.

It was unclear whether ownership of the Croatian battery provider and automaker Rimac might also play a role in Porsche developing technology for itself or others in the series.  A spokesperson for Porsche also declined to say whether this meant Porsche would withdraw from Formula E altogether.

Diess, for his part, was more direct.

“It’s really only Formula One that counts. ,If you do motorsport you should do Formula One, as that's where the impact is greatest.”

More stories like this are available on bloomberg.com


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