05/10/2010
NEWS STORY
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Mat Coch writes:
The landscape of Formula One sponsorship and marketing has changed, according to Virgin Racing Marketing Director Jim Wright. Having revolutionised the way in which a Formula One car is developed, adopting a purely Computer Aided Design (CAD) based approach, Virgin Racing now believes a new financial approach to running a Formula One team is needed, specifically in respect to the expectation of potential investors.
After entering Formula One in 2009 with Brawn, Virgin left the championship winning outfit in favour of branding an entire team in its own identity. The £3.2 million investment in Brawn proved to be one of the most cost effective sponsorship deals on the grid, a fact not lost on Virgin's billionaire owner Richard Branson, who realised that to maintain the same level of exposure for the same investment was simply impossible.
Manor won the right to join the 2010 grid midway through 2009, looking to utilise the anticipated budget cap to allow the team to compete for a fraction of the money the existing teams had been spending. That regulation soon disappeared, a victim of the political wrangling by the Formula One Teams Association (FOTA) who, for the umpteenth time, threatened a breakaway series. The FIA backed down, scrapping the rule and forcing the three new teams, Lotus Racing, Hispania Racing Team (nee Campos) and Virgin Racing (having taken on naming rights for Manor), to compete against the financial clout of the existing teams without the relative protection a budget cap may have offered them.
Virgin's investment in the former Manor team is not quite what it appears. The team itself is reportedly owned by its designer Nick Wirth, team principal John Booth, chief executive Graeme Lowdon, Virgin representative Alex Tai, Virgin itself and Lloyds Bank, which lent the squad £6.4 million. Virgin has taken branding rights, which sees the team named Virgin Racing as opposed to a title sponsorship role which may have left the team as Virgin Manor Racing.
The Virgin brand is the result of Richard Branson's wheeling and dealing from the back of his car in London during the early 1970's. The business soon grew into a record store, then a record label (Virgin Records), before ultimately being sold (for £500million) to finance the Virgin Atlantic airline in the early 1980's. Since then the group has expanded into financial markets, telecommunications and retail outlets and has reached most major global markets.
By purchasing the branding rights Branson has given the Manor team an identity and a brand, in a pen stroke transforming the team from a no-name newcomer into a team which appears to have the financial clout and security a corporate giant like Virgin provides.
Explaining the team's marketing strategy in an exclusive interview with Pitpass, Virgin Racing Marketing Director Jim Wright emphasised that companies no longer buy space on racing cars to gain television air time. It's an old fashioned, out-dated approach, according to Wright, who believes there are more efficient ways to gain television air time. Sponsorship, he suggests, has moved on from a consumer driven ideology to that of business to business relationships, growing corporate partnerships and opportunities using investment in Formula One as the catalyst.
It's a notion Wright believes the Virgin Racing team can benefit from, building on the successful Virgin Group brand and gives its sponsorship partners leverage into other markets and, in some instances, access to a captive audience. Sponsored by FX Pro, a company specialising in foreign exchange the company benefits through Virgin Atlantic and Virgin Trains. "All the sponsors we've attracted are working with a number of Virgin Group companies," claims Wright.
"Look at FX Pro on the car. If you go on a Virgin Atlantic flight you'll see FX Pro advertising on the in-flight entertainment in the seat back magazine. If you go on Virgin Trains in the UK you'll see FX Pro through the business class travel magazine, you'll see them in the train stations, the Virgin train stations, in the lounge areas.
"I think the Virgin brand is attractive and appealing for a lot of companies, and there are certainly companies we speak to on a regular basis that would only be coming into Formula One because they want to be associated with, and working with, Virgin."
Virgin brands in particular are taking full advantage of the connection, the racing team is involved in a heavy promotional program at most rounds of the championships. From Virgin Blue in Australia to Virgin Money, Virgin Mobile, and when the Formula One circus hits Abu Dhabi at season end, Virgin Megastores, Virgin Radio and Virgin Mobile Qatar.
However, Pitpass business editor Chris Sylt believes that the team will need more financial fuel than this if it is to succeed. Business to business style investors tend not to spend the large sums a more traditional exposure hungry sponsor does, raising questions over the team's long term financial plan.
It's a key difference which separates the outfit from the likes of Red Bull and Toro Rosso. The two teams run without a title sponsor, relying on the parent brand to provide the branding of both the car and the team, however there is a core and fundamental difference in the teams' approaches.
Red Bull has only recently begun signing new sponsors. Chris Sylt revealed earlier in the year that while Red Bull could attract a naming rights sponsor, the company had chosen not to do so, and instead the bills are paid for by the Austrian drinks company.
Virgin Racing, on the other hand, do not rely on Virgin to finance the team. Actively seeking investors, including a title sponsor, the team is funded in a more traditional marketing sense.
The marketing strategy at Virgin Racing is therefore a bit of an anomaly. Labelled Virgin, which is a brand in its own right, the team is open and hopeful of attracting corporate sponsors interested in creating partnerships with Virgin Group companies while at the same time looking to entice traditional exposure driven investors. Given the fact that the team languishes at the wrong end of the timing screen it may just be the difference that separates Virgin Racing from Lotus and HRT, and allows the team to grow. It may, on the other hand, be the team's undoing, as without significant investment no racing team can thrive.
For his part both Branson and Virgin seem well protected. Their shareholding within the team is significant enough to provide the media coverage they desire, while insignificant enough to be of no real concern if the team fails. It's an ingenious strategy which seems to promote the Virgin brand in a fun and exciting manner, in keeping with the brand's existing image, while exposing itself to minimal risk.
The question is; will it work, and what happens if Branson gets bored?