Here Are 5 Reasons Why Companies Unload Millions To Sponsor Struggling F1 Teams

There’s a new name on the nose today. Picture: Getty Images

It is, in its own way, the sport of kings.

Mostly because only kings have the kind of disposable cash that it takes to keep a Formula One team in the race. A race that, unlike horse racing – the other sport of kings – returns comparatively no prizemoney that could be considered profit.

Well, $100 million for the top team. $101.5 million, to be precise, because that’s the total banked by the 2013 champion, Red Bull.

To get it, Red Bull’s two drivers, Sebastian Vettel and Mark Webber, had to win 13 times and place 11 times from 19.

British team Caterham, which kindly allowed us to browse their setup at Albert Park yesterday for the first official day of the Australia Grand Prix, collected no points at all in 2013. It was only due to a quirk in the way the funds were allocated based on performance over three years that they collected $35 million for finishing 11th in the Constructor’s Championship – $21 million more than Marussia, which finished, er, 10th.

It’s complicated, but if you want the details, Joe Saward gave an excellent rundown on how it works at joeblogsf1 at the end of last year’s season, along with this breakdown:

That won’t happen this year, as prizemoney is now allocated on the current year’s performance. According to the FIA, you finish 11th in 2014, you get nothing.

And Caterham’s operating budget for 2014? Roughly $115 million.

So basically, in the world of high-octane racing, you get out what you put in – if you win most of the time. Except to win most of the time, you have to put in a lot of cash, a lot more than a bottom-rung team like Caterham can pull.

Therefore, a good chunk of the money you rely on to survive comes from sponsors. And the amount of money a sponsor is willing to kick into your team is directly related to how much chance your team has of winning.

See where this is heading?

If you’re not an established team, it’s as hard, painful and expensive to get started as say, trying to break the stranglehold at the top end of the English Premier League.

Take Ferrari, admittedly as the most extreme example. Despite being financed by a company worth in excess of $7 billion, the team automatically skims (a rumoured) two and a half per cent off the FIA’s total annual takings regardless of where it finishes, because, well, because they’re Ferrari. It’s a “special deal” honouring the company for being so iconic to the sport.

Last year, that equated to around $15 million – almost half of what Caterham received for sweating it out over an entire season – without even running a race.

So if you’re the CEO of a fledgling telco with a market valuation most likely less than what a top F1 team spends in 12 months, why on Earth, in a business where exposure is everything, would you sink a large chunk of that revenue into a team that, frankly, will get little airtime during a race and certainly less on the podium?

The cool factor

We asked Truphone managing director Alex Blinko, who this morning announced it has extended its sponsorship of Caterham for another three years. (Disclaimer: We were at the Grand Prix yesterday as a guest of Truphone.) Blinko declined to reveal exactly how much it was pitching in, saying it was somewhere between “not insignificant” to the company’s operating costs, but “well short” of what some of the sponsors of the bigger names sign up for.

Here’s his top five reasons to get Truphone involved:

  • The “cool” factor of being linked to F1
  • The benefits of being associated with a likeminded, innovative, challenger brand
  • A great customer engagement vehicle that supports corporate values, proposition and objectives
  • A way to showcase (i.e. customer case study) your products/solutions in the real, fast paced world of F1 racing; and
  • Your customers/audience have an affinity or passion for F1 and this helps raise brand awareness and engagement

So, as you’d expect, a large part of a company’s investment in F1 is about brand awareness. On a public-facing level, here’s exactly what that means for Truphone:

That’s the layout of the new livery of the Caterham cars, to be rolled out in public for the first time later today.

A Caterham spokesman told us that the higher up the nose cone the sponsor’s name was positioned, the more value it was to the team. And such prominence is great for the sponsor… as long as the team is getting airtime.

Caterham’s Head of Communications, Tom Ward, said it’s not simply a matter of the team partnering up with whoever wants to throw the most cash into the cars.

In the case of Truphone, Caterham is benefiting from not having to wrangle with international roaming fees and all the associated technical hitches.

Tom Webb, Caterham Head of Communications.

Truphone is a mobile operator aiming to eliminate roaming fees by providing a single SIM card that contains multiple mobile numbers. They currently partner with carriers in eight countries to deliver phone and data services at local rates in those countries, without the need to switch SIMs.

For Webb and Caterham’s team of 75 who pack up and ship off to different countries every fortnight for the best part of the year, that saves a lot of hassle and a lot of money.

Time is money

Testing week in Bahrain last year cost Webb 1200 pounds in roaming fees. Using Truphone this year cut that to around 250. Times that by 19 countries and again by 75 staff members and you’ll see why Caterham’s bean-counters are so enthusiastic about the partnership.

But also consider this – at last year’s championship round in Texas, Caterham estimated the data flow shared between its staff immediately following the race equated to some 20GB.

Hi-res photos are taken of every angle of the car almost as soon as it pits. An entire race worth of aerodynamics data is collated. Every aspect of the car’s performance is recorded and it all gets sent immediately out to the team’s engineers and mechanics to pore over as they begin preparations for the next race.

Most of them are already on a plane within hours of the race finishing.

Now imagine trying to send 20GB of data to a team splitting up and flying out to several different countries, given your own experience of international roaming plans. Caterham simply doesn’t have that problem anymore.

Here’s what Webb had to say about that:

It’s very easy to see F1 as a kind of mobile branding platform, because you’re looking at a bunch of people wearing team kit the cars have logos all over them. Sponsorship in the brand awareness sense is very obviously one of the main areas of financing Formula One.

But the other area is B2B, so we have a team of peope who are constantly assessing areas in which we can either save ourselves money and or work more efficiently.

In that sense, Truphone was one of the companies that jumped out immediately, so that initial approach by us wasn’t just because they may be a potential sponsor, it was because they can help us work better, and that’s also true for as many of the other businesses we can do B2B to with.

So Truphone is not just a cash cow for Caterham; it’s an essential performance partner.

Because those few precious extra hours where the team aren’t waiting to navigate yet another roaming zone could mean the difference between another 11th place and some precious points in the next race.

And with points, comes cash and confidence, and with cash and confidence, comes airtime as Caterham challenges for podium places.

Eventually, ideally, that means the Truphone logo now so prominently placed on the nose of the Caterham F1 car gets under the noses of the series’ 450 million television viewers more and more often every year.

And eventually, Blinko and his team will look back at their investment in 2014 and marvel at the value of it – however much it was.

NOW WATCH: Executive Life videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.