Fairytale Sponsorships

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The Paddock - Fairytale Sponsorships

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  • It hardly needs saying that there has been a downturn in sponsorship over the past year. Speaking to The Pad-dock in August Formula 1 boss Bernie Ecclestone put it bluntly when he said In every sport all I read about is what a bomb its been this year. Clearly the sponsorship acquisition strategies of any company which has managed to gain partners over the past 12 months should be scrutinised by F1's bosses, particu-larly if those sponsors include financial

    services firms and brands which F1 it-self has lost. Then imagine if this com-pany was operating in a sector F1 will be moving into over the next year.

    Now for the big shock: this isnt a hy-pothetical company although it is famed for its magic. The business in question is Disney and Lawrence Aldridge, its Se-nior Vice President of Corporate Allianc-es, will be speaking at Decembers Motor Sport Business Forum North America. It

    is reason enough to attend the US event rather than the show in Monaco which takes place at the same time.

    Disney isn't renowned for its sponsorship portfolio and there is good reason for this. The companys partners, ranging from Hewlett-Packard and Siemens to Nestl and Coca-Cola, get almost subliminal exposure across all of Disney's divisions. Some partners work with Disney to de-sign and brand theme park attractions

    Exposure doesn't come more bold than that which Siemens gets by sponsoring Disney's Spaceship Earth attraction

    Fairytale sponsorshipsAmong the headline speeches at next month's inaugural Motor Sport Business Forum North America is one which may seem unusual but is

    likely to be one of the most relevant and productive of the entire event

    By Christian sylt and Caroline reid

    interview

    96 October 2009

  • while others opt for product placement in shows on its ABC television network or even branding at premires of movies made by its Miramax studio.

    Although it may not be well known in the field, Disney has been involved with spon-sorship longer than F1 itself. In 1955 Walt Disney himself enlisted Coca-Cola to help finance the then-gigantic $17m construc-tion cost of his first Disneyland theme park in California. An innovative market-ing deal was struck where Coca-Cola was given rights to be the sole supplier of soft drinks within the park in return for its backing. It remains a partner to this day and the bonds Disney has built with blue chip businesses have blossomed.

    Nine years after Disneyland opened Dis-neys imagineers, the wizards who de-sign its theme park rides, built several landmark attractions for the 1964 New York Worlds Fair. The flagship was the Carousel of Progress, a show about tech-nological developments in the American family home. Nearly as impressive as the shows centrepiece models, whose move-ment was synchronised with speech, was the fact that US conglomerate General Electric had its name emblazoned on the outside of the attraction. Even more revo-lutionary for the time, mentions of GEs products were woven into the storyline. It set a precedent.

    When Disney opened its science-based theme park, Epcot, in Florida in 1982, it took corporate partnerships to a new lev-el. The park is split into pavilions dedi-cated to subjects such as space, energy and the seas, and almost every one had a sponsor. This helped ease the gigantic overheads of what was then the worlds largest construction project.

    Disney now has around 20 global part-ners with around the same number of companies sponsoring attractions locally at its park complexes in the US, France, Hong Kong and Tokyo. The strength of the portfolio is down to Aldridge but he is far from a typical fairy godmother.

    Firstly, Aldridge isnt American but a Brit who gained his BSc at Portsmouth Uni-versity followed by an MBA at the Uni-versity of Hull. His background isn't even in marketing but instead, he has spent the majority of his career in the energy indus-try rising to become the chief procurement officer for oil company Atlantic Richfield. When BP bought the business in 2000 Aldridge was head-hunted by Disney and moved into its strategic sourcing depart-ment. It was a few years before he moved into corporate alliances. As he explains, A couple of years ago Tom Staggs [Disney's Chief Financial Officer] wanted somebody without a traditional promotional market-ing background to take a fresh perspective on what corporate alliances was about.

    Aldridge's aim was to maximise the return for partners by ensuring that corporate al-liance opportunities permeate the entire company. He shook up Disney's partner-ship structure to achieve this. When I took the job 100 per cent of the partners were wedded in the park and there were other elements. What we have been doing is looking more broadly in terms of under-standing what the partner wants and how Disney's assets can be used, he says.

    Sports sponsorships tend to be in straight-forward packages. Each one of our deals is different, adds Aldridge. We craft our deals based on what the partner wants so if you look at what HP wants, it's going to be pretty different to what Visa or Coca-Cola may want. It depends on how much of Disney they want.

    Disney's sponsorships are comparable in value to the top deals in sports rang-ing from seven to eight figures per year. However, while sport is estimated to have contributed 69 per cent of the total $16.8bn sponsorship revenues in the US last year, deals with entertainment, tours and attraction companies comprised just 10 per cent of the market (see box). The other big difference between the two is that while the sports sponsorship sector has been in decline recently, the success Disney has been having with signing new

    partnerships is the stuff of fairytales.

    Everyone else may be losing sponsorship dollars but we are gaining, says Aldridge. In the past 12 months alone Disney has renewed its deal with Visa in Asia until 2014 and has signed new alliances with the AARP, a US association of 40m senior citizens, and Frances second largest retail bank, Crdit Mutuel.

    The Crdit Mutuel deal was a huge coup given the weak health of the financial ser-vices sector which led to the Royal Bank of Scotland (RBS) and ING announcing earlier this year that they would cease their F1 sponsorships at the end of their current contracts.

    Under the terms of the Disney deal Crdit Mutuel became the official banking part-ner of Disneyland Paris and is the only bank to have branding within the theme park. It is also the only bank to provide of-fers for Disneyland Paris including special deals on family resort packages. These are marketed to Crdit Mutuels 15.3m clients which gives the bank a competitive advan-tage when trying to attract youth savers in particular. In turn this gives wide expo-sure to the Disney brand and attracts more guests to its park.

    Disney's unique and uncluttered parks are key drivers behind the brands' decisions to sign with the company. They also hope that the magic of one of the world's most renowned and beloved brands will rub off on them and companies don't come much more squeaky-clean than Disney.

    With sports or celebrity sponsorships you have got issues, says Aldridge, explain-ing that You had the Tibetan issue with the Chinese Olympics. Mickey doesn't do that and we protect the Disney brand so you're not going to get those issues. This has proved to be a silver lining for Disney during the cloud of a recession. Disney is not synonymous with excessive spending and so signing an alliance with the com-pany isn't likely to be seen as frivolous even in a downturn.

    We get very positive feedback from customers and employees saying that they didnt know

    Siemens operates in all these areas

    www.thepaddockmagazine.com 97

  • We are seeing a number of partners pull-ing out of other sponsorships but staying with us, says Aldridge, and industry analysts expect that Disney's magic will propel it to become number one in the sponsorship sector.

    Ultimately they will have a global spon-sorship profile much larger than the Olym-pics, says Steve Madincea, Managing Director of Prism, the leading sponsorship agency owned by advertising giant WPP. He attributes this to Disneys family fo-cus, the strength of the Disney brand and its full range of offerings. Indeed, the

    option of picking and mixing parts of the company to sponsor is one of four core dif-ferences between a partnership with Dis-ney and one with sports rights-holders.

    For example, German technology firm Sie-mens has naming rights of Spaceship Earth, the flagship attraction in Epcot. A sign say-ing 'presented by Siemens' hangs outside the ride which takes visitors through model scenes explaining the history of communi-cations. At the end of the attraction there are high-tech educational games themed to some of Siemens' products. Epcot stood for Experimental Prototype Community

    of Tomorrow and that idea of the future and building and developing technologies fits nicely with Siemens, says Tom Haas, Chief Marketing Officer of Siemens Corp. But the theme park exposure is just the tip of the iceberg in the partnership.

    Siemens is a large conglomerate and their focus is medical devices and super cities of tomorrow. Telling that in a way that is entertaining is what our imagineers do, says Aldridge. Amongst the many areas of collaboration, Disney has written books for Siemens to help children with hearing difficulties get accustomed to its hearing aids. Audiologists tell us that they chose to go with the Siemens paediatric hear-ing aid because of this programme, says Haas, adding That one storybook has spawned another story which is talking about childhood allergies. We are even talking now about doing something on childhood obesity.

    Haas says that under the partnership the ABC Studio screen at Times Square is sponsored by Siemens so you will see the Siemens logo under the jumbotron. Very often when they are filming Good Morn-ing America or Nightline they will often zero in on that screen so it is exposure for Siemens. Under its Disney deal Siemens has even managed to get its medical prod-ucts placed in Grey's Anatomy, the ABC medical drama.

    Reflecting this diverse range of oppor-tunities Madincea says, Where Disney outshines most other sponsorship options is in their collaboration and flexibility. Haas adds that even the negotiation pro-cess itself was not rigid.

    We kept coming back to Disney saying, 'This is good but we may need something else.' They had certain assets that they want-ed to give us as part of the sponsorship and we would think about it some more and say 'we are not going to use this one but what do you have that might do this for us?' It is the idea of looking at it in terms of what is presented doesnt have to be accepted. It is flexibility. Indeed and it is very different to the limited number of opportunities for exposure offered in sports.

    Coincidentally, Siemens deal with Disney began in October 2005, around the time that it ceased its estimated $20m annual partnership with McLaren. Haas says that Disney approached Siemens

    Fairy godmother: Lawrence Aldridge is Disney'ssenior vice president of corporate alliances

    interview

    98 October 2009

  • 1. How long has Siemens been a partner of Disney?

    It goes back to June or July of 2004 when

    we had some initial discussions and then

    we signed our agreement with Disney in

    October 2005.

    2. Why did Siemens choose theme park sponsorship over other types of

    sponsorship?

    We were looking to nd a way to show-case our technology but also help Ameri-canise the brand and Disney would help

    do that of course.

    3. How does Siemens monitor the return on investment from the deal?

    We do an annual evaluation of what the

    brand exposure has been in terms of

    advertising equivalence. All of Disneys

    alliance partners get a certain allotment of

    tickets and they get the discounts on food

    and beverage. Then theres other assets in

    the relationship. One of them, which was in-cluded in this agreement, was that the ABC

    Studio sign at Times Square is sponsored

    by Siemens so it is exposure. We tally all

    those things up and we are pleased to say

    that we are at a break-even point.4. What are Siemens targets for the

    sponsorship?

    We are looking to get increased brand

    awareness and increased familiarity for

    Siemens. We have already seen that

    because we do an entrance and exit

    survey each year. We are seeing a lift

    in the awareness but, more importantly,

    familiarity with all that Siemens is capable

    of doing.

    5. Does Siemens provide anything to Disney other than nance e.g. Prod-ucts?

    We provide some water ltration systems for the Disney pools, the parks and hotels.

    The lighting in the parks is provided by

    Sylvania lighting, one of our companies.

    They buy ride controls from Siemens

    Energy and we do re safety and security systems. Likewise we have done some

    things with their Cruise Lines.

    6. What are the biggest challenges with being a theme park sponsor?

    The challenges are always coming up

    with new ideas and keeping it fresh.

    7. What are the biggest bene ts to being a theme park sponsor?

    The very positive feedback from custom-ers and employees that they didnt know

    what Siemens did. We also see there is

    a bene t in what it is doing to encourage that next generation of scientists to get

    into technical careers. It does a great job

    in brand awareness and helping to remind

    people how strong Siemens is here in the

    US and there is a business opportunity

    as well.

    8. What advice would you give to a prospective theme park sponsor?

    Do your homework and analysis. It has

    got to t your needs but at the same time youve got to be open to some ideas.

    Youve got to be creative at how you look

    at telling that story. You have to challenge

    your own marketing team to be more

    creative.

    9. How did Siemens come to hear about the opportunity of becoming a

    Disney partner?

    Disney approached us with the idea that

    it was looking for a technology partner. My

    understanding was that it had been deal-ing a lot with General Electric a lot over the

    years and when General Electric acquired

    Universal Studios as well as the theme

    parks at the time, Michael Eisner, who was

    chairman of Disney, had said that it was

    one thing when it had television stations,

    now it also competes with us in theme

    parks and it competes with us in lm. Its more of a competitor than anything and we

    need to separate that relationship so it was

    looking for a technology partner.

    www.thepaddockmagazine.com 99

    BRAD TAYLOR - Global Director of strategic

    partnership marketing,

    Coca-Cola north America

    1. How long has Coke been a partner of Disney?

    Ever since Disneyland opened back

    in 1955.

    2. Why did Coke choose theme park sponsorship over other types

    of sponsorship?

    Because theme parks are one of the

    key places consumers go to have fun...

    and they get really thirsty doing so.

    3. How does Coke monitor the return on investment from the deal?

    We measure the volume of beverages

    we sell and the quality of consumer

    impressions we get inside the parks.

    4. What are Cokes targets for the sponsorship?

    For our product sales to offset as

    much sponsorship costs as possible

    and unique opportunities to engage

    consumers with our brands.

    5. Does Coke provide anything to Disney other than nance e.g. Products?We provide unique beverage products

    and packages to better meet the needs

    of Disney's guests and to enhance the

    guest experience.

    6. What are the biggest chal-lenges with being a theme park

    sponsor?

    Identifying the right opportunities to

    sell all of our beverages in different

    theme park environments.

    7. What are the biggest bene ts to being a theme park sponsor?

    Being able to sell all of our beverages

    to theme park visitors and doing so

    in unique ways that help enhance the

    consumer experience.

    8. What advice would you give to a prospective theme park sponsor?

    If you don't have money to activate

    the sponsorship both in-park and in-market, then you probably won't get a

    reasonable return on your investment.

    9. How did Coke come to hear about the opportunity of becoming

    a Disney partner?

    We were the exclusive advertiser on

    Walt's rst TV show One Hour in Won-derland on Christmas Day in 1950.

    2008 North American sponsorship spending by property type

    9%

    10%

    69%

    5%4% 3%

    SportsEntertainment, tours and attractionsCausesArtsFestivals, fairs and annual events

    Associations and membership organisations

    Source: IEG Sponsorship Report

    TOM HAAS - Chief marketing of cer, Siemens corp

  • about becoming its technology partner after its previous sponsor General Electric (GE) acquired Universal Studios. Haas ex-plains that Michael Eisner, who was then the chairman of Disney said that it was one thing when GE only had television stations but now it also competes with us in theme parks and it competes with us in film. Its more of a competitor than anything and so we need to separate that relationship.

    Haas adds that Siemens contacted a mar-keting agency to compare the Disney op-portunity with others in terms of the brand exposure, advertising equivalence and as-sets you get, it might be tickets, it might be a hospitality suite at a stadium.

    And he explains that, In every case there

    is always some kind of marketing gap and then the question becomes what do you do to make up that gap? In other words, what can you do to leverage the relationship so that in effect you come out whole? I seem to recall that an NFL sponsorship might have a 50 per cent marketing leverage gap. The Olympics might have 100 per cent because you pay all the money for the sponsorship and then youve got to spend that much more to execute and implement. By this analysis we saw the Disney sponsorship in terms of an opportunity gap of about 17 per cent and that was not taking into ac-count any of the sales that we might realise through the relationship.

    The value for money is matched by the quality of exposure which is the second

    differentiator of a Disney deal.

    When people think of sponsorship they think of sport and that's limiting because for one it's getting very congested, says Aldridge. In the park you're connecting with the consumer at a time of heightened emotional engagement. It's a magical envi-ronment, an uncluttered environment and it offers product exclusivity, he adds.

    The number of eyeballs they attract is equivalent to the top sports events with Disney's parks having over 100m visitors annually. Its parks occupy the top eight positions in the rankings of the world's most visited theme parks and with 34,000 hotel rooms onsite at its parks, Disney is also able to get demographic data on its visitors that most rights-holders would dream of. It makes a tantalising package for sponsors.

    Over the last few years we have advised several companies moving from major sports programmes, says Xander Hei-jnen, Chief Operating Officer of consul-tancy firm CNC which has worked with all of the car manufacturers participating in F1. He adds In every case, the com-pany was willing to exchange the quantity of eyeballs for the quality of the commu-nication. A high share of voice in a small entity can be more valuable than a whisper in international football.

    But what makes visibility in Disney's parks particularly effective is the sublimi-nal way that the brands are incorporated. Innovation is Disney's hallmark and it is the third contrast between its sponsorships and those in sport.

    Testing stations offer free samples of new Coca-Cola flavours to guests who give feedback on the taste and with 3,000 brands globally the company is well-placed to make the most of this. Brad Tay-lor, Coca-Colas Global Director of Stra-tegic Partnership Marketing, says that one of the biggest benefits of being a theme park sponsor is being able to sell all of our beverages to theme park visitors and doing so in unique ways that help enhance the consumer experience.

    At the most exotic end of the spectrum HP, another former F1 sponsor, collabo-rated with Disney and NASA to create Mission Space, a ride in a giant centrifuge which simulates space travel. As with all

    Siemens sponsors this spectacular son-et-lumireshow in Florida

    interview

    100 October 2009

  • Disneys partners, HP doesn't sell products in the theme parks but the opportunity to bond with its target audience doesn't come much better.

    Disney guests perfectly fit HP-buyer pro-files. They generally have middle and up-per-level incomes and most are married with children, which allows HP to build early relationships. Disney even has Mis-sion Space-themed merchandise to take the message home.

    Aldridge won't state the level of return on investment (ROI) achieved on the partner-ships and he simply says The ROI depends on what they are trying to do. For example, measuring the level of return based on the number of times the partner's logo is viewed in the park will produce a different result to measuring return according to sales driven by the sponsorship.

    Disney also offers partners the opportuni-ty to get a tangible return that they would struggle to get with any other sponsorship and this is the final difference with a Dis-ney deal. Disney spends $12bn a year on goods and services and its partners are often at the front of the queue when the company comes to place orders. We've outsourced some of our print managed services to HP, says Aldridge but this is nothing compared to Disneys shopping list of products purchased from Siemens.

    We do some water filtration systems for the Disney pools, the parks and hotels, says Haas adding that, Sylvania light-ing is one of our companies which does the Disney parks lighting. Disney buys ride controls from Siemens energy and automation and we do fire safety and secu-rity systems. Likewise we have done some things with its cruise lines so there is a lot we provide and we are continuing to find new opportunities. In just over four years Siemens has got involved with every divi-sion of Disney, even working with it on lighting its theatre productions.

    Siemens next task is to develop radio chips to track Disney products and it is also bid-ding on water filtration, building security and energy efficiency products for Disneys new vacation club in Hawaii. Bulk orders like these serve to keep partners happy, particularly during a downturn.

    Not only does Disney have an arsenal of sponsorship assets second to none, it con-

    trols and manage these valuable assets better than others with similar offerings, says Madincea. The best proof that Disney and its partners are having a positive effect comes from the punters themselves.

    We do an entrance and exit survey each year and we are seeing a lift in the aware-ness of Siemens but, more importantly, fa-miliarity with all that Siemens is capable of doing, says Haas. He adds that the spon-sorship is paying for itself.

    We do an annual evaluation of what the brand exposure has been in terms of ad equivalence. All of Disneys alliance part-ners also get a certain allotment of tickets and they get the discounts on food and bev-erage. We then put a value on the assets and

    the saving we get. We tally all those things up... and we are pleased to say that we are at a break-even point, says Haas.

    Critics may also claim that the target audi-ence is too focussed on children but Dis-ney's studies show the benefit of this. We know from our research that 80 per cent of the household budget is controlled by wom-en and influenced by kids, says Aldridge, adding, I had no idea how to use text mes-saging until it was taught to me by my kids. You see that with the plasma screen TV too - quite often it's the kid nag factor.

    Disney has the kids' market pretty much sewn up but Aldridge also spotted a gap in the market for targeting sponsorships at fe-male executives after research showed

    Testing stations in Disney's Florida theme park offer guests new formulations of Coca-Cola

    www.thepaddockmagazine.com 101

  • that they are rapidly increasing in number. Most business-to-business entertainment is geared to guys... they need to start look-ing to complement that in a way to tackle women, he says.

    Disney's solution is hidden in the heart of each of its attractions where there is a cor-porate lounge exclusively for the partner's use. Top employees and clients are invited to the lounges which offer free refresh-ments and queue-cutting ride access 365 days a year. A lot of the business-to-busi-ness entertainment at sports events is very similar. If you are targeting something differential how about a presence at the parks, says Aldridge.

    The Siemens lounge inside Spaceship Earth commands sweeping views across the cen-tral plaza in Epcot. Its space age design was the brainchild of Siemens' skilled Director of Strategic Marketing Alliances Darren Sparks who also came up with the lounge's name: Base21. Base refers to the lounges use as a platform for exploring the parks whilst the '21' relates to Siemens produc-ing a range of technology needed in the 21st century. The lounge showcases this latter point perfectly since the technology inside it is all provided by Siemens.

    We are a complex company with complex technologies... much of what we do is be-hind the wall, under the ground and in the back room making things work. This was a way to bring it to the forefront and give peo-ple a better appreciation of how Siemens is making the world work, says Haas. Sur-prisingly the sponsorship is aimed at both internal and external communication.

    Siemens employees can log into an online system to book access to the lounge. When they arrive they are greeted by name since the online system stores it along with their geographic origin and even the Siemens department they work in.

    Sparks says that the lounge has hosted over 34,000 employee visits and 334 events since it opened in June 2007. Siemens chief executive Peter Lscher has even vis-

    ited. We bring customers to Disney and we have a lot of events there, says Haas, adding that In the evening every night Siemens sponsors the fireworks at Epcot. You do a customer event there, finish with dessert around the lagoon and watch the fireworks. When the Siemens name goes up in lights on the globe people are very impressed. Its an understatement.

    The Reflections of Earth son-et-lumire display at Epcot is one of the most impres-sive shows of its kind in the world. Its high-light is a globe wrapped in an innovative LED screen which displays stirring images in time to dramatic music and fireworks. The show is believed to cost $20,000 per

    night to stage giving a good indication of the high production values involved. At its finale the Siemens logo is projected by la-ser on to the 180 ft tall Spaceship Earth. It makes the ultimate statement to clients and employees alike.

    We get very positive feedback from cus-tomers and employees saying that they didnt know Siemens operates in all these areas, says Haas. It is common to see par-ents explaining to their children the sci-ence being showcased in the games after the Spaceship Earth ride so it clearly rubs off on the guests too. Haas has high hopes for this: We also see there is a benefit in what it is doing and can potentially do to encourage that next generation of scientists to get into technical careers.

    Time will tell how much of an impact Siemens sponsorship can have on the ca-reers of American youth but it isnt out of reach as the sky is the limit when it comes to a Disney sponsorship. You're really limited by your imagination in terms of what we can do and, that's really unique, says Aldridge.

    It remains to be seen whether F1 can make the most of the reciprocal sales benefits of-fered by a theme park since it lacks a car-toon, comic and kids merchandise. And with the sports teams already crammed full of sponsors a park such as the F1-X

    Theme Park planned but currently stagnant in Dubai could be cluttered with branding and so its organisers may need more than a sprinkling of pixie dust to attract the level of sponsorship enjoyed by Disney.

    Ultimately, the diversity of the options available could be the biggest challenge for Disney's partners. Every different element of the deal needs effective promotion and Taylor cautions that If you don't have mon-ey to activate the sponsorship both in-park and in-market, then you probably won't get a reasonable return on your investment.

    Haas adds that prospective Disney partners need to Do homework and analysis. It has

    got to fit your needs but at the same time youve got to be open to some ideas. Youve got to be creative at how you look at telling that story. You have to challenge your own marketing team to be more creative.

    Heijnen suggests that Disney's Very American image and its lack of certain val-ues such as competition, are the key points which may put off prospective sponsors. This may not always be an obstacle, though. Haas says that Siemens specifically chose to partner with Disney to help American-ise the brand and adds that We feel that it is helping us in the long run build our business. It is adding positive values to the Siemens brand, it is gaining sales for Sie-mens, in many different areas, not just with Disney. There is certainly a positive effect with being associated with such a strong and wholesome brand as Disney. Nevertheless, those expecting results with the wave of a magic wand may be disappointed.

    These kind of things take time and you have to have patience, says Haas. Heijnen adds that prospective sponsors need to Have a proper PR strategy to sell the partnership in a professional and effec-tive manner. Disney doesn't even leave this to chance as Aldridge says that it has an account team on hand to manage and advise partners. It is this kind of magic touch which has turned Disney's corporate alliances into fairytale marriages.

    Sports sponsorships tend to be in straightforward packages. Each one of our deals is different

    we craft our deals based on what the partner wants

    interview

    102 October 2009

  • R aces dont come much more blockbuster than this months inaugural Abu Dhabi Grand Prix. The bespoke-built Yas Island cir-cuit has unique touches such as a run-off area stretching under a grandstand and an adjoining hotel encased in a colour-changing shell. The complex also com-prises a 143-berth marina, a water park,

    an 18 hole championship golf course and Ferrari World, the worlds largest indoor theme park. It makes a state-ment in true Middle Eastern style and it comes at a price.

    Construction of the circuit alone is be-lieved to have come to $250m with the government bankrolling the bulk of this

    cost as well as the estimated $45m annu-al sanction fee. It seems hard to imagine how the government could justify this spending during an economic downturn but, according to new research by F1s industry monitor Formula Money, mak-ing a return on investment for a country hosting a Grand Prix is as good as a rac-ing certainty.

    F1 racing is equivalent to almost three percent of Bahrains GDP

    With often no share of F1's $265m take from trackside advertising or the $130m from corporate hospitality, many race promoters have to cover

    multi-million dollar hosting fees from ticket sales alone. They rarely make a profit, and some have gone bust. However, in contrast, the governments

    which choose to cover the costs of their home Grands Prix are coining it in

    The real Grand PrizeBy Christian sylt and Caroline reid

    104 October 2009

    feature

  • Abu Dhabi typifies the new world which F1 is racing into. The Grand Prix will be-gin at sunset and end under floodlights in order to be broadcast at peak time in Eu-rope which is still F1s biggest single tele-vision market. Moreover, the $45m host-ing fee is higher than the sports average of $28m and the government is prepared to cover this cost in order to market Abu Dhabi to F1s 600m TV viewers.

    F1 is saddled with $1.8bn of net debt following its leveraged buyout in 2006 by private equity firm CVC so the sport needs every extra dollar it can get. Sanc-tion fees bring in around a third of the $1.4bn revenues of the F1 Group but the teams prevent its chief executive Bernie Ecclestone from increasing the number of races. So, in order to raise revenues, Ec-clestone has taken the sport to countries which are prepared to pay more instead. In turn this has made it tougher for Euro-pean promoters to afford the fees when it comes to renewing their contracts.

    Since most European countries dont require a race to get global exposure, their governments are reluctant to foot F1s fees and in the past decade the sport has moved from being a principally Eu-ropean event to a true world champion-ship. In 1997, more than 70% of races were in Europe but this year it hosted less than 50%.

    The intangible exposure to hundreds of millions of TV viewers is one thing but the economic impact driven by the av-erage 86,412 spectators who visit each race is another. It means that not only do the races cover government costs but, according to Formula Moneys research, they generate an average return of 710% (see box). There aren't many kinds of print or television advertising that can do that in addition to offering exposure.Perhaps surprisingly, the Japanese GP gets the greatest return on investment (ROI) and gets some of the lowest gov-ernment funding at an estimated $3m. The $70m local economic impact gives it an estimated 2,333% return, just short

    of that in Monaco where the state puts in $4m more than Japan but gets $120m back from spending in the country.

    Even Singapores street circuit, the race which has the lowest ROI, still gener-ated a return of 208%. Its lower than average performance is largely due to the high cost of lighting the city streets for the night race. Nevertheless, its cen-tral location close to the shops, hotels and restaurants enabled it to generate the third highest local economic impact with $125m being spent in Singapore during the race weekend.

    Only four circuits have no state assis-tance but the importance of support is reflected in the fact that the 14 govern-ments which are involved invested overall a massive $299.5m in their home Grands Prix. Finding a replacement for this level of funding is increasingly tough and so it is more likely that future races will have to be government backed.

    The economic benefits the countries re-ceive don't just come from spending in restaurants and shops. A study in 2005 showed that the Australian GP created the equivalent of 3,650 full year employ-ment positions and generated 194,994 additional visitor nights.

    Indeed, the visitors don't just come for the race itself but afterwards too with race fans returning to the site of the on-track battles. This effect is magnified when the circuits are on city streets as local landmarks can become insepara-ble from the racing action. And whilst purpose-built racetracks take years to build, street circuits take just over a year to prepare. This gives their hosts quick access to the attractions of F1 and gives CVC a financial boost sooner. It also al-lows the cities to use existing facilities for the race with no fears of being left with a white elephant if they decide to quit when their contracts expire.

    And using the city itself as a backdrop to one of the worlds most popular sporting

    events is the ultimate advertisement. Sin-gapores race takes place in front of some of the citys most famous landmarks, in-cluding 11 top hotels such as Raffles, and attracted 80,000 spectators last year.Whilst Singapore showcases existing landmarks, South Korea, like Abu Dha-bi, is building features around its track which will join F1's calendar next year. The race will take place in a picturesque but underdeveloped region of the coun-try. F1 could change that.

    A $265m semi-permanent track is being built in South Korea's region of Jeollan-am-do and it will run along a harbour promenade utilising a pit complex that for most of the year will house shops, restaurants, cafes and exhibition fa-cilities. According to Jeong Yeong-jo, president of the Korean Auto Valley Operation, it will not only vitalise the provincial economy, but also positively affect the development of the countrys high-tech motor industry.

    Location is the secret to making the most of this. On average 40% of spectators at F1 races are not from the local area and the higher this figure, the greater the promotion and the bigger the spending on local hotels. The more populous the local area, the fewer the tickets that are likely to be sold to people foreign to it.

    So whilst a race in a densely-populated renowned city makes a great advertising flagship, one in an area with outlying cities stands a greater chance of having higher local visitor spend. Bahrain, with a popu-lation of just 700,000, is the best example of the latter. In 2008 the Grand Prix was a 43,000-spectator sell-out and brought $395m of local economic impact the highest amount made by any F1 race. Indeed, so significant is the money made by the race that it is equivalent to almost 3% of Bahrains gross domestic product.

    Bahrain's race is held at a purpose-built $150m circuit but, according to Mar-tin Whitaker, its chief executive,

    On average 40% of spectators at F1races are not from the local area and the higher this figure, the greater

    the promotion and the bigger the spending on local hotels

    www.thepaddockmagazine.com 105

  • the economic impact generated by the Grands Prix that have taken place to date have covered the construction costs many times over. The knock-on effect has been even bigger.

    The circuit is now seen as a world class venue for a diverse range of business and tourism related initiatives, says Whita-ker. Automobile product launches are a regular feature with just about every major automobile manufacturer using the circuit or its off-road course for media, dealer and customer related launches.

    Tourists are also flocking to Bahrain and not just for the Grand Prix itself. The popular Australian V8 Supercars Championship has held a round at the circuit in a rare excursion out of Austra-

    lia drawing in a completely new audi-ence measured in thousands who would not normally have considered travelling to the country, says Whitaker.

    Perhaps the best indication of the value of Grands Prix to governments is that they keep coming back. The Belgian GP

    at the Spa-Francorchamps circuit was missing from the 2006 calendar after its promoter went bust due to poor at-tendances and the costs of circuit reno-vations. However, it returned to F1s

    calendar after just one year with the government backing a $37m project to get the circuit up to scratch.

    The $25m in local economic impact made by the Belgian GP gives it a low ROI at just 357%. This is is largely due to its ru-ral setting with fewer hotels, shops and

    Government contributions to and returns on the 2008 Grands Prix

    Race Circuit 2008 government spending 2008 local economic impact Return on investment*

    Australian GP Melbourne $27m $125m 463% ($4.6m)

    Malaysian GP Sepang $33.5m $125m 373% ($3.7m)

    Bahrain GP Bahrain International $45m $395m 878% ($8.8m)

    Spanish GP Barcelona 0 $125m** 833% ($8.3m)

    Turkish GP Istanbul $34.75m $150m 432% ($4.3m)

    Monaco GP Monte Carlo $7m $120m 1,714% ($17.1m)

    Canadian GP Montreal $9m $70m 778% ($7.8m)

    French GP Magny-Cours $8m $100m 1,250% ($12.5m)

    British GP Silverstone 0 $60m** n/a

    German GP Hockenheim $5m $55m 1,100% ($11m)

    Hungarian GP Hungaroring $10m $65m 650% ($6.5m)

    European GP Valencia $8m $100m 1,250% ($12.5m)

    Belgian GP Spa-Francorchamps $7m $25m 357% ($3.6m)

    Italian GP Monza 0 $55m** n/a

    Singapore GP Singapore $60 $125m 208% ($2.1m)

    Japanese GP Fuji $3m $70m 2,333% ($23.3m)

    Chinese GP Shanghai International $42.25m $125m 296% ($3m)

    Brazilian GP Interlagos 0 $100m** n/a

    TOTAL $299.5m $1,990m

    Source: www.formulamoney.com

    * Figure in brackets denotes million dollars invested in the local area because of the race per million dollars invested in the race by the government.

    ** Not included in total for the purpose of calculating return on investment since no investment was made by the national government. Total including the local economic impact of Grands Prix where governments make no investment is $1,990m.

    Sports sponsorships tend to be in straightforward packages. Each one of our deals is different we craft

    our deals based on what the partner wants

    106 October 2009

    feature

  • restaurants nearby than the more modern circuits. The government owns the circuit and funds it which also diminishes its abil-ity to give a higher economic impact.

    However, the majority of the European race promoters depend purely on ticket sales with no assistance from the govern-ment to cover F1s fees. Local authorities tend not to give them money since the countries already have global exposure and their circuits are more likely to be in the countryside rather than tourism-friendly urban areas.

    It makes it tough to turn a profit. Even a race like the British Grand Prix, which has a lower than average hosting fee of $17m, still has total costs of around $35m after taking into consideration manag-ing, staging and marketing the event, plus maintaining the circuit. The success

    of Britains superstar driver Lewis Ham-ilton has driven the crowd at the race to one of the highest of any Grand Prix with 90,000 spectators attending last year. Nevertheless, ticket sales still only pull in $30m and with an additional $5m from corporate hospitality it only just breaks even. In all but a handful of cases, the vast majority of the money from corpo-rate hospitality and race advertising goes directly to F1 Group.

    It fuels a vicious circle since the more Eu-ropean governments need to put money in to host an F1 race, the less likely they are to do so. This in turn will send more races to emerging markets which have bigger budgets and need the promotion.

    There are even signs that cash rich na-tions are becoming more averse to F1s cash-guzzling ways. For example, in Sin-

    gapore the government itself only foots 60% of the $100m costs of the race, with leisure industry billionaire Ong Beng Seng covering the rest. Both benefit im-mensely from the local economic impact of the race in a way that traditional pro-moters cannot. Beng Seng owns several hotels on the Grand Prix route, while the the countrys trade and industry ministry levies a 30% tax on trackside hotels dur-ing the race.

    As Karl Josef Schmidt, managing director of Germanys Hockenheimring, predicted earlier this year, unless fees are lowered Formula One will disappear not just from Hockenheim but from Germany as a whole. Then it will only be run in Arab countries. It may be music to Abu Dhabis ears but F1s die-hard fans in Europe will be hoping that this ominous prediction doesnt come true.

    Bernie Ecclestone has had to take F1 to new markets with bigger budgets

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