Formula One

Fast and Furious

  • Why it matters

    Why it matters

    A fourth win could mean hundreds of millions in ad revenues for Mercedes, but might weaken the overall F1 brand.

  • Facts

    Facts

    • Formula One was recently acquired by U.S. media firm Liberty Media for around $8 billion.
    • Under new rules, cars will be bigger and 4 to 5 seconds a lap faster this year.
    • Mercedes spends some $400 million on the chassis and engine of its racing car.
  • Audio

    Audio

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Toto Wolff
Toto Wolff says he's banned old trophies from his office. Source: DPA

The Melbourne Grand Prix on Sunday wasn’t just the first Formula One race of the new season. It was also the beginning of a new era for the motorsport, one without Bernie Ecclestone, the eccentric British billionaire who made race car driving into what it is today. It is also the era of European domination under the American leadership of mass media company Liberty Media. But most importantly, it is the era of bigger, faster, and even more dangerous cars.

Amidst these changes, the Mercedes Formula One racing team is hoping to continue one of the sport’s most impressive series of victories. The German team won the last three world championships before the change in ownership, which also came with new rules for cars and drivers.

“We had three extraordinary years. That was completely atypical for Formula One,” Toto Wolff, executive director of the Mercedes racing team, told Handelsblatt.

“Mercedes won 51 races that mean nothing for 2017,” Mr. Wolff said of his team’s winning streak. The manager, who also owns a 30-percent stake in the Mercedes team, said he has banned the previous years’ trophies from his office.

Under Liberty Media’s new rules, tires, chassis, and rear and front wings are wider, making the cars even faster. And that has changed the dynamic between the teams – particularly between rivals Mercedes, Ferrari and Red Bull. Both in the test runs and this year’s first Grand Prix, Ferrari has come in first.

But Mr. Wolff said he and the Mercedes team welcome the changes. “To an extent, even we wanted to start over. After three years, your learning curve flattens,” he said.

“The Formula One rights holder increasingly made its money on pay TV, behind paywalls. That’s how we lost audiences in important markets like France, Spain and Italy. ”

Toto Wolff, CEO, Mercedes F1 racing

Still, being able to defend the title for a fourth time would help grow the Mercedes racing brand, currently estimated to be worth around $700 million (€644 million).

Formula One is big business, with an annual turnover of almost $2 billion. According to Mr. Wolff, Mercedes alone has a budget for chassis and engine of $400 million, most of which comes from sponsorship and TV revenues. Advertising proceeds total around $3 billion, Mr. Wolff said, giving the German team the best cost-benefit ratio worldwide.

But that has its own drawbacks for Mercedes, Mr. Wolff said: “People cheer for the underdog, and that’s not necessarily Mercedes.”

The manager also acknowledged that the potential for other teams to beat Mercedes this year will help the overall Formula One brand. “We’re in a bit of a pickle: we all wear the Mercedes cap and have to continue to ensure our success. At the same time, we know that surprises are good for the sport and have to be possible,” he said. “If it were clear from the get-go that Mercedes will win, that wouldn’t make the sport more attractive.”

Formula One’s new owner, Liberty Media, is working on expanding the brand and making the races more attractive for viewers. Shaking up the rules to make them more competitive again is part of that strategy.

Mr. Wolff thinks Liberty Media is on the right track. “The cars have to be so brutal that every viewer thinks: ‘I couldn’t drive that,’” he said. The new rules make the cars four to five seconds faster per lap, which also makes races more dangerous, he added.

For months, the F1 teams have been fine-tuning their cars. At Mercedes’ U.K.-based racing headquarters, some 800 employees have been fiddling with the new machines. Engineers, mechanics and technicians have worked around the clock, six days a week, to optimize the engine, tires and even the varnish. Applying the paint optimally can shave valuable split seconds off the final time.

“We even had to change the seats, because the drivers’ ribs were aching from the higher centrifugal forces” in the faster cars, Mr. Wolff said. “The drivers are gladiators.”

Which is fitting to Grand Prix’s aim of making the races more of a spectacle. “It’s about, for example, offering families great entertainment. That includes food markets and concerts,” Mr. Wolff said. No less than Taylor Swift sang on the race course the night before the 2016 Austin Grand Prix, which Mr. Wolff praised as a great success.

Liberty Media is currently fighting to win back some of the viewers the sport lost in recent years. Since 2008, the TV audience has shrunk by a third.

Mr. Wolff blames this on the pay TV strategy of Formula One under Bernie Ecclestone. “People today are online more. And the Formula One rights holder increasingly made its money on pay TV, behind paywalls,” he said. “That’s how we lost audiences in important markets like France, Spain and Italy.”

According to Mr. Wolff, the new American owner is now analyzing what technology and sales channels are best suited to each country. “That’s never been done before,” he added.

Under former majority shareholder CVC, a private equity firm, the brand strategy was more short-term, Mr. Wolff explains. “In that industry, they want maximum profits in the shortest possible time-frame,” he said. “It wasn’t about the best long-term Formula One strategy and a conscious choice of race courses.”

By contrast, Liberty Media “is monitoring sponsors, advertising markets, TV and digitalization,” he said. “The company has already demonstrated what’s possible online and with apps with popular U.S. sports.” Now it seems time to turn possibilities into reality.

 

Hans-Jürgen Jakobs is a senior editor at Handelsblatt and a former co-editor in chief of the paper, together with Sven Afhüppe. Kerstin Leitel is a correspondent for Handelsblatt in London. To contact the authors: jakobs@handelsblatt.comleitel@handelsblatt.com

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