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
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
By Christian sylt and Caroline reid
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
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
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
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
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
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
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
Fairy godmother: Lawrence Aldridge is Disney'ssenior vice
president of corporate alliances
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
2. Why did Siemens choose theme park sponsorship over other
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
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
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
5. Does Siemens provide anything to Disney other than nance e.g.
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
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
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
8. What advice would you give to a prospective theme park
Do your homework and analysis. It has
got to t your needs but at the same time youve got to be open to
Youve got to be creative at how you look
at telling that story. You have to challenge
your own marketing team to be more
9. How did Siemens come to hear about the opportunity of
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.
BRAD TAYLOR - Global Director of strategic
Coca-Cola north America
1. How long has Coke been a partner of Disney?
Ever since Disneyland opened back
2. Why did Coke choose theme park sponsorship over other
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
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
6. What are the biggest chal-lenges with being a theme park
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
Being able to sell all of our beverages
to theme park visitors and doing so
in unique ways that help enhance the
8. What advice would you give to a prospective theme park
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
a Disney partner?
We were the exclusive advertiser on
Walt's rst TV show One Hour in Won-derland on Christmas Day in
2008 North American sponsorship spending by property type
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
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
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
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
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
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
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
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
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
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
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
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
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
F1 racing is equivalent to almost three percent of Bahrains
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
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
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,
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
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
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
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
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
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
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,
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
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
* 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
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
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
Bernie Ecclestone has had to take F1 to new markets with bigger