How Formula One could race ahead without sponsors

Selling tech worldwide could fund teams, says former Jordan F1 marketing boss

‘Formula One is effectively reinventing itself through individual teams, whereby the racing on a Sunday is actually showcasing the technological ability that you can sell to companies Monday to Friday,’ says Mark Gallagher. Photograph: Max Earey

‘Formula One is effectively reinventing itself through individual teams, whereby the racing on a Sunday is actually showcasing the technological ability that you can sell to companies Monday to Friday,’ says Mark Gallagher. Photograph: Max Earey

 

Mark Gallagher is a name that won’t be familiar to many outside of motor racing, but he’s a hero to almost all of us.

That’s because he was – in large part – responsible for two of the greatest Formula One colour schemes of all time. Mark was the sponsorship and marketing manager for the Jordan Grand Prix team, which in 1991 wore the gorgeously distinctive blue-and-green of 7-Up. That Jordan 191 car was not only iconic in its looks, it was also fast. Fast enough for a debuting Michael Schumacher to put it seventh on the grid at Spa in Belgium, kickstarting the German driver’s amazing career.

Half a decade later, Gallagher enticed cigarette company Benson & Hedges to come on board with Jordan, creating another fantastic livery. The cars were now decked out in bright yellow and black, eventually with second World War nose art-esque stylised hornets on the nose (Buzzin’ Hornets logos would replace Benson & Hedges logos at events where tobacco sponsorship was a no-no).

With that in mind, it’s kind of ironic that Belfast-born Gallagher now thinks that F1 teams could maybe, potentially, eventually do away with sponsorship altogether and start funding themselves.

Gallagher went on to work with Jaguar Racing, Red Bull, Cosworth, Philip Morris and others, and now runs business consulting firm Performance Insights. Through that, he advises companies on their corporate strategies, and he’s also helped to manage the post-racing careers of such drivers as David Coulthard and Mika Häkkinen (and Jacques Villeneuve, but we won’t hold that against him).

Ahead of his speech to the Industrial Research and Development Group’s annual conference at the Lyrath estate in Kilkenny, Gallagher explains: “The business model that we operated on 20 years ago effectively broke. A business model based on sponsorship. So we now operate in a very different landscape today, one of scarcity. There isn’t the kind of sponsorship that there was back then, and there never will be. The sponsorship that there was, back in what people refer to as ‘the good old days’? That was all funded by big tobacco, so we’re not going to find another sector of industry that wants to advertise in F1 to that extent.

‘Technology transfer’

“So what I talk about in front of audiences now is technology transfer. We’ve had to move to a world where Formula One teams can sell technology, goods and services into industry or into the public, as a way of generating revenue. So Williams, as you know, is having a horrendous experience on-track in F1 at the moment, [but] is actually having a hugely successful time off-track with Williams Advanced Engineering.

“For me, if Jordan Grand Prix was alive today, this is what we would be doing. We wouldn’t be selling sponsorship or advertising to Benson & Hedges, we’d be selling technology solutions into aerospace, or automotive, or whatever.”

This is an idea that has huge potential, especially if it can be realised by the smaller teams whose budgets get swamped by big spending of the likes of Mercedes, Ferrari and Red Bull. Essentially, it’s a return to the 1950s days of Ferrari and Lotus, both of whom started making road cars so that they could fund their racing efforts.

Mark Gallagher, former sponsorship and marketing manager with Jordan F1: ‘The business model that we operated on 20 years ago effectively broke’
Mark Gallagher, former sponsorship and marketing manager with Jordan F1: ‘The business model that we operated on 20 years ago effectively broke’
Formula One teams have realised that the thing that you sell on the Monday might not actually be a car

It’s also an inversion of the reason car makers spend big money on creating racing teams and racing cars. Their idea is to win on Sunday to sell on Monday. Gallagher’s idea is to win on Sunday to sell on Monday so that you can then go and win again next Sunday. In a way, it’s rather like the way drivers used to haul across Europe and the US, entering whatever race came up next and using the starting money and (hopefully) prize money to fund travelling to the next event, fixing the car, getting a better car, and so on.

“What I do think is that if you look at Ferrari or Mercedes or Renault, they already use F1 to create or promote technology for consumers’ cars,” says Gallagher. “In Renault’s case it’s relatively remote from their road car programmes, in Ferrari and Mercedes’s cases it’s much closer, very close. So in terms of the big car companies involved in F1, their diversification has already happened – they’re using F1 to promote their technologies to the public, and train engineers.

“I think where it becomes interesting is when you look at the independent teams. If you go to Hinwil in Switzerland, and look at the Alfa Romeo team, what used to be Sauber, you discover that they’re actually selling technology solutions into a range of businesses and industries.

“Their wind tunnel is being rented out to all kinds of designers, automotive companies, marine companies. They don’t promote it particularly actively. I had a chat with them in Monaco this year, and said that I don’t think many people are aware that you can go to the Alfa F1 team and gain access to all this cool technology. They said, ‘yeah, it’s not something we’ve really shouted enough about.’

‘Reinventing itself’

“I do think that the industry has changed so fundamentally in the past 15 years that that story needs to be told: about how Formula One is effectively reinventing itself through individual teams, whereby the racing on a Sunday is actually showcasing the technological ability that you can sell to companies Monday to Friday.

“I think the thing which no one could really have forecast is that Formula One teams have realised that the thing that you sell on the Monday might not actually be a car. It might be a control system, a composite structure which you sell into an aerospace manufacturer,” says Gallagher.

“Williams, for instance, had a wonderful project with [UK supermarket chain] Sainsbury’s, and this is one of my favourite examples of win on Sunday, sell on Monday. Sainsbury’s has 1,400 superstores and smaller shops in the UK. And at the peak of the summer months, when all of the fridges and freezers are turned up full blast to keep food chilling in higher ambient temperatures, those 1,400 stores account for one full per cent of the UK’s entire electricity demand.

Mercedes driver Lewis Hamilton of Britain races during the Formula One US Grand Prix at the Circuit of the Americas in Austin, Texas, on Sunday. Photograph: Eric Gay/AP
Mercedes driver Lewis Hamilton of Britain races during the Formula One US Grand Prix at the Circuit of the Americas in Austin, Texas, on Sunday. Photograph: Eric Gay/AP
F1 used to be criticised for being a ‘gas-guzzling’ thing, but nowadays it’s all about efficiency gains

“So Sainsbury’s met with Williams and said: ‘We hear you’re investing in new technologies and battery solutions, and energy-saving, so is this something you could help us with? We really want to reduce our energy consumption.’ So Williams went in and looked at the problem, and whereas most people would have expected Williams to come up with some kind of trick electronic thermostat, or something like that, actually what they said was: ‘We can come up with an aerofoil, based on our knowledge of airflows, which can be retro-fitted to fridges and freezers, and which can keep the cold air inside, next to the food, and keep the warm air outside, next to the customers.’

“So they came up with this very clever aerofoil, and when Sainsbury’s deployed it they were seeing reductions in energy usage of as much as 18 per cent. The result of that, once Sainsbury’s had retro-fitted every one of its stores, was that the word went around the entire supermarket world, and so Williams has now taken orders from the likes of Aldi and Lidl and Walmart and Tesco’s.

“It’s a wonderful story because there’s so much wrapped up in it. You have Williams being experts in aerodynamic design– they were able to rapidly come up with an interesting solution, they were able to prototype it rapidly, and were able to deliver a measurable gain in terms of efficiency. F1 used to be criticised for being a ‘gas-guzzling’ thing, but nowadays it’s all about efficiency gains.

“I love stories like that, because it cuts to the chase of F1 teams using their expertise in technology, in aerospace design, in technology integration, in data connectivity, in composite structures, and suddenly you can start doing a lot of cool things for a lot of different industries.”

Data analysis

It’s not the only example. McLaren’s Applied Technologies arm has recently set up a hub in Singapore where it’s selling its expertise in data analysis to Singapore’s public transport company. That hub will, it is hoped, give McLaren a base in the vast East Asian technology market to make other big sales.

It’s a great idea, isn’t it? Get the F1 team to sell their expertise in all sorts of technological areas Monday to Friday, thereby generating the money to go racing at the weekends. We could even, potentially, see a return to sponsor-less racing cars, decked out in national colours, if one were to take the idea to an ultimate, slightly fanciful, conclusion. Hondas in red and white. Williams in dark green. Ferrari in blood red and nothing else.

The problem, as Gallagher explains, is that right now these offshoots are nowhere near generating enough money to feed the gaping maw of a Formula One team competing at the highest level. Mercedes reportedly spent north of €300 million winning the 2018 world titles, and the likes of Williams Advanced Engineering isn’t even close to making anything like that yet.

A Formula One racing car with the old Benson & Hedges livery
A Formula One racing car with the old Benson & Hedges livery
What’s happened within the sport in the past 20 years is that as we’ve moved away from the sponsorship model

“At the moment, the diversified engineering and technology businesses in F1 are not even close to replacing the tobacco revenue from the old days,” says Gallagher. “F1 teams involved in those diversified technologies need to start scaling those industries. I think Williams currently employs 300 people in Advanced Engineering – that’s not a big business. That’s a small to medium-sized engineering company. If Williams were ever to make F1 level of money from it, they need to make it a lot bigger, make it into a tier one supplier to a major industry.

“There are examples of people doing that, inventing something, and then five years later having a major factory producing 300,000 of whatever it is they invented. I think F1 teams are a little shy of scaling up in these areas – they actually prefer to stay in the prototype and R&D environment, and I think that’s a mistake. If it were up to me, in a parallel universe and I was running Williams, I’d be looking to do with Advanced Engineering what McLaren has done with its road car side of things. Turn it into something meaty and meaningful.

‘Shareholders’

“For McLaren, that’s taken a huge investment, a huge investment from its shareholders, mostly from Bahrain, but again that’s a structural issue. You need to have the shareholders in place who can make those kind of investments. So for F1 at the moment, that’s an issue – they’re not going to make enough money from their diversified interests, their engineering side of things, because what’s happened within the sport in the past 20 years is that as we’ve moved away from the sponsorship model, we’ve moved towards a model where you rely on central revenues from F1 itself.

“Which is why there’s been such a big shift towards pay-per-view TV, and a shift towards having more races around the world which can pay $30 million or $50 million to hold an F1 race. So what’s actually replaced big tobacco is F1 itself. That billion-dollar revenue stream from selling events, and another billion of TV revenue, that’s what feeds the F1 teams.

“So Mercedes’s budget of $300 million, somewhere around half that is in the door on day one, from TV money and prize money. So the F1 business model has taken on a life of its own, and sponsorship has been replaced by central revenue. So the diversified businesses are not funding the teams that created them. They’re profitable businesses in their own right, so I see huge growth potential in such things, there is a world of opportunity out there for those who play to their strengths, and those who sell that kind of agile, fast-to-market solutions, which a lot of big businesses struggle with. For me that’s the big gap in the market.”

Could F1 teams eventually find sufficient funds through diversifying into being, effectively, technology consultancies? It’s a nice idea, but there’s a long way between where the sport is now and that potential point. In the meantime, the sport must skirt the shoals of budget caps, “improving the show”, fragmenting TV audiences, and the rising importance of Formula E in the eyes of car makers.

Still, it’s a tempting prospect - improve supermarket fridges during the week, then go racing on Sunday.