Is the F1 business model changing?

June 23, 2010

Red Bull Energy Station: Moving the Paddock towards the Paddock Club

Autosport’s Dieter Rencken is one of a number of business savy journalists working in the world of F1. He has posted an interesting story on the Autosport website which looks at the implications of Sauber’s recently launched ‘Club One’. One of the biggest success stories of the business side of F1 is the Paddock Club, normally located in a prime rooftop location at the Grand Prix, the Paddock Club is the venue where several thousand VIPs gather over the race weekend, these include the Presidents and Vice-Presidents of global companies who are wined and dined and talk business, and of course catch the odd moment of the race. A three day ticket to the Paddock Club for the recent Canadian Grand would cost over $5000. The Paddock Club is run by Allsport Management SA whose founder Paddy McNally started off as an Autosport journalist before moving into driver management, sponsorship consulting and then working for Bernie Ecclestone improving the trackside signage at races. He has become a millionaire many times over from the growth in corporate hospitality in F1.

But the world is now changing, in Rencken’s article he quotes a sponsorship agent that the Paddock Club is 60% down on the previous years levels. It also seems that many teams are currently struggling to generate longer term sponsorship contracts of three or five years. They need such deals to underpin their finances and ensure they can continue to recruit and invest. It is also interesting that the Paddock itself has changed. I noticed the change between doing the interviews for our book in 2004 and 2008. For the first edition of our book we went to Imola in 2004, here the team motorhomes were primarily for team personnel to get a bite to eat and have a break, we enjoyed great hospitality at the Minardi motorhome, but it was a relatively basic experience. In 2008 we were in the paddock again, this time to do interviews for the second edition in Barcelona, there was a major shift in the team facilities approach which had been prompted by the arrival of the Red Bull Energy Station. The Red Bull facility in the paddock is fantastic, particularly for those, like us, who were not team members or sponsors, it is open to anyone in the paddock to go and sit, watch the TV coverage enjoy high quality snacks and canapés and the odd glass or two of whatever, in there you find journalists, racing dads (David Coulthard’s father was in there back in 2008), and a whole range of people enjoying the ambience and facilities. The interesting point is that this marked a shift where the teams were now starting to open up their facilities for sponsors and others, moving the Paddock toward the Paddock Club without the price tag.

So the obvious development of these trends of less money from sponsors for the teams and less desire to spend the kind of money that the Paddock Club demands has led Peter Sauber to launch Sauber Club One. Rencken describes Club One as ‘timeshare for sponsors’. It means you can become part of the F1 club without committing to huge sums over many years, a kind of ‘pay as you go’ sponsorship which Minardi used to operate so effectively (and necessarily) with different sponsors at different races. The point is that with Club One sponsors can access the facilities at the Sauber motorhome to build relationships and make deals with other members, but without their name necessarily plastered all over the car, which can often create issues for companies, particularly when downsizing. So perhaps we are starting to see the start of different clubs being managed by the teams, whether or not this means the end of the Paddock Club remains to be seen, but it certainly heralds some innovative new business models so that teams can survive in the long term.

3 Responses to “Is the F1 business model changing?”

  1. Mark Says:

    Great insight Mark. I believe Renault are also offering similar packages at the Renault Hospitality suite during a Grand Prix weekend. Perfect networking opportunities as you said but without the large price tag.

  2. Mark Says:

    Thanks for the comment Mark, the interesting question is whether the teams can generate sufficient long term revenues to make this viable. Presumably the costs of bringing in lots of short terms deals are going to be quite high. M.

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