Putting some fizz into F1 championship

Red Bull has moved up a gear to own, rather than sponsor, a Formula One team

Red Bull's marketing hype boasts that its energy drink gives you wings. Now you can have the engine and wheels as well. To outsiders, news that an Austria-based fizzy drink company has acquired the Jaguar Racing Formula One team, along with its 300 staff at Milton Keynes, is just another unfathomable episode in the wacky world of Formula One. To insiders, it may point the way for other sponsors.

Red Bull's marketing hype boasts that its energy drink gives you wings. Now you can have the engine and wheels as well. To outsiders, news that an Austria-based fizzy drink company has acquired the Jaguar Racing Formula One team, along with its 300 staff at Milton Keynes, is just another unfathomable episode in the wacky world of Formula One. To insiders, it may point the way for other sponsors.

Formula One is often called the world's richest sport. Rich, it may be. Sport it ain't. Formula One is a multi-billion-pound sponsorship vehicle; an adjunct to companies' marketing strategies. And few, if any, people working within Formula One would beg to differ. As Ron Dennis, McLaren's boss, says, the sport takes place for a couple of hours on Sunday afternoons. For the rest of the year, it's business.

But that business is in turmoil. The big car companies that have bought into Formula One in recent years have threatened to form a breakaway series. Television audiences are in decline in many countries because Ferrari's success has made the outcome of races predictable. And spending by teams on technological improvements is spiralling out of control.

Yet sponsors still queue up to buy a slice of the sport, and not just Formula One's traditional cash cow, the tobacco firms, but banks and telecoms and computer companies. In the 1980s and 1990s, as cigarette companies were squeezed out of mainstream advertising, these firms were prepared to dig deep to get their names on to 200mph billboards.

Dire warnings that a complete ban on tobacco advertising would hit the sport's finances appear wide of the mark. Despite the uncertainties around Formula One, and caution among marketing firms about general economic conditions, sponsorship experts say the prices being paid for space on a race car have remained stable or increased.

Why? Because Bernie Ecclestone had the vision to turn Formula One into a lasting commodity in which television viewers and fans would buy into the images and brand names of the racing teams. Many people have become super-rich as a result.

Nicky Samengo-Turner, a banker who has worked on several motorsport investment deals, says: "If you want pure competitive racing, then motorbikes are your game. The added value of Formula One is that it is showbusiness-meets-sport-meets-finance. It is of interest to the Hello! magazine following, to petrol-heads and to the City. Bernie and television brought it under one roof. What happens in Formula One matters to a very diverse audience."

Red Bull was already a big spending sponsor in Formula One, using extreme sports to promote Red Bull's energy-boosting claims. For Dietrich Mateschitz, the company's founder and chairman, it seemed a logical move to maximise Formula One's marketing potential by moving from sponsor to owner. Red Bull paid a token $1 for Jaguar Racing, but is taking on huge liabilities. It cost Ford, which owned Jaguar Racing, about $100m (£54m) a year to run the poorly performing team and it is doubtful that there was much pay-back for the Jaguar brand name. There is speculation that Mateschitz has committed £200m during the next three years to put Red Bull among the top tier of teams. Ferrari reputedly spends that much every year on its racing operation.

The price Red Bull is paying looks high. The cost of becoming the title sponsor of a mid-rank racing team is about £10m to £15m a year. But by moving from sponsorship to ownership, Red Bull will, in effect, be paying around £66m a year to put its name all over the car. In contrast, Vodafone's sponsorship of the leading team, Ferrari, costs the telecoms group about £40m a year.

For Nigel Currie, of sponsorship consultancy CSS Stellar, the key to the deal, is that the Red Bull name will be synonymous with the team. "The team will be called Red Bull, and so the brand becomes intrinsically linked to the team," Currie says. "Journalists, viewers and commentators will speak and write about the team as Red Bull. Vodafone is linked with Ferrari, but no one talks about the Ferrari-Vodafone team. In marketing speak, Vodafone gets "visual" but no "verbal" benefits. Red Bull will get both.

Another advantage for sponsors of being inextricably bound to the product is that changes in broadcasting technology will make events like Formula One more valuable to sponsors. At this month's annual conference in Lisbon of the European Sponsorship Association, all the talk was of the impact of personal video recorders, TiVo and Sky Plus. These "watch what you want, when you want" systems enable viewers to edit out adverts. Currie says: "The popularity of these systems will have huge implications for advertising and sponsorship. Viewers may be able to bypass adverts, but not sponsorship. Sponsorships like Red Bull's are at the heart of the action."

But none of this tells us whether Formula One is value for money. And marketeers are divided about how one can accurately measure the success of such a global phenomenon as Formula One. This is especially true given the proliferation of media outlets through digital and online platforms.

Audience research is an inexact science. Depending on which organisation is compiling the figures, each Formula One race broadcasted live attracts between 100 million and 300 million viewers. But add to this the television highlights programmes and news clips, and the audience numbers reach stratospheric levels.

Companies like Sports Marketing Surveys (SMS), a research firm, monitor hundreds of hours of television trying to gauge how many "hits" a brand has. SMS says its most recent Formula One figures show that in the first six months of this season more people watched the sport than in the same period in 2003. Viewing figures rose in Spain, Italy and Japan. And Bahrain's first Grand Prix race will have generated more interest in the region.

But for many sponsors it just does not matter whether Formula One has 400 million viewers per race or 100 million. Even the lower figure gives Formula One a global reach like no other sport, except the Olympics and football's World Cup. And these take place once every four years; not for nine months each year.

Matthew Patten, of marketing and financial services company SP Holdings, is no petrol-head, but he is in awe of the scale of Formula One's ability to place a brand name in living rooms worldwide. "It is an extraordinary volume of people," he says. "It is hard to find another activity through which you can market a brand to a global audience in such a simple way."

Countries even use Formula One as a branding tool. The reason Malaysia, China, Bahrain and their neighbours fight so hard to stage a Formula One race is because the sport is emblematic of their economic development; a sort of technological virility symbol.

So, although the cost-benefits of sponsoring Formula One cannot be measured precisely, people working in this field are convinced their "gut feel" tells them that the sport is a superb marketing vehicle. Which means Red Bull's purchase could turn out to be an inspired move. As Patten says: "The Red Bull deal will point the way forward [for sponsors] if it is commercially successful. Of course, if it's a failure, everyone will say, 'I told you so'."

Russell Hotten is the author of Formula One: The Business of Winning. Orion Books

Russellhotten@yahoo.co.uk