the brand into a different direction. As for the car-production cap, I don’t think it will decrease the exclusivity because I don’t foresee the price changing. This is just to increase profits by increase production. 2000 more cars just means a few more millionaires can buy a Ferrari.
BW: Agree with Bridget, it’s only 10% stake going on sale and this is about Brand Equity. I don’t think the Ferrari brand would be greatly affected, particularly if they continue to perform as they are at the moment. I’ll reiterate that F1 is there to leverage manufacturers’ brands.
PC: It is a fantastic question for us Italians! I totally agree with what other people have said. As Paolo said, the move is actually to make up for the Fiat debt. I don’t think it will affect Scuderia Ferrari, nor will increasing production by 2000. What is more likely to after the team is the (awful!) choice of Arrivabene as Team Principal or Marchionne’s attempt to buy Correire della Serra (Italian sports newspaper). Personally, I think Montezemolo did a fantastic job at Ferrari and Italians would be happier if Montezemolo was still there.
PA: When I speak about luxury brands, the concept of luxury is also a ratio between the number of people who can buy the product and the number of products available. In recent years, the number of wealthy people who can access/buy Ferraris has been increasing dramatically. And so yes, Ferrari is growing the number of yearly manufactured cars, but also the population of people who can buy Ferrari is increasing so the ratio of products to potential customers is still sufficiently small. Another point is that luxury brands need to be hard to reach to a certain extent, but if they are too hard to reach then it backfires. So exclusivity does not always means that the harder it is to get something, the better it will be. A good
analogy of this is when we go to a high-end restaurant and they don’t let us in because it is full. So next time we book in advance, but if we never manage to get on the list and eat at the restaurant, then at a certain point we lose interest and never show up again. So in a sense, they are also trying to follow a trend in their potential market, in the fact that significantly more people can buy Ferrari, and they cannot say “no” to too many of them.
Q3: What does the future hold for new tracks such as Baku (European GP), Circuit of Wales (MotoGP) and Battersea Park (Formula E) in terms of their survival amidst public opposition?
BW: This is really interesting as all 3 models are completely different from a commercial perspective. Most modern circuits nowadays can’t be commercially or financially sustainable as pure racing circuits. They need to have other activities
around them e.g. sports, leisure, business parks. That’s why Silverstone has recently developed and now operates in the way it does – to become self-sustaining. F1 circuits like Yas Island in Abu Dhabi, the new Baku circuit, upgrades to Mexico, are all supported by government and the focus is to advertise the countries as tourist and business destinations. Bahrain is a good example of this, not many people had heard of Bahrain before F1 went there.
Now, when you arrive at the airport, there are signs for the Formula 1 circuit which is about 40 minute drive from the airport and most people have heard of Bahrain thanks to F1. Despite recent troubles, F1 has helped completely rebrand the island, which is why Government are now investing in F1; it is an advert for their countries a bit like the Olympics or World Cup. If you take F1 away, the track becomes a white elephant; infrastructure built there that has little or no use for the remainder of the year This is why street circuits are often used in F1 for new emerging motorsport countries; despite the high annual cost to build the track there is no concern about needing to sweat an ongoing asset.
If you look at other circuits e.g. Circuit of Wales, we are looking at a completely different model. Circuit of Wales is not completely reliant on Government funds, though I believe there is potential for Government contribution. This project on its own should be able to stack up and wash its own face financially because the developers are creating business units around the circuit, and have content and other events for 365 days a year so it drives local employment, local jobs and the wider economy as well as offsetting the initial investment in building the track facilities. Building and operating a venue like Circuit of Wales around a single event i.e. F1, just won’t work from a commercial perspective. Driven help investors and planners to build commercially sound sports destinations by bringing in partners and content so the client doesn’t end up with a white elephant.
The other circuit mentioned is Battersea Park for Formula E – what Alejandro Agag has achieved is admirable as it veers away from conventional model we’ve seen for so many years. As I said earlier, street circuits don’t generally make money; it takes a lot of investment to build a street circuit and shut down a city so it wouldn’t make sense as a business proposition for an investor. But what Agag has done is rather than having a nationwide event, Formula E works directly and strategically with targeted cities, using the electric sustainability angle linked in with the wider city strategy of sustainability (i.e. electric vehicles and charging infrastructure, smart cities etc) as a clever message. They have done well to survive Year 1 but I think what will be interesting is to look at how the series develops in Years 2 to 5 and how relevant and how quickly Formula E teams can keep up with the EV technology. If there becomes a disconnect between the Automotive industry and Formula E (i.e. Road EV technology advances quicker than in the electric series), then it changes the model. It’s an interesting space to watch but I’ll repeat that what Agag has done is very admirable and clever.
PA: With regards to people complaining about Grand Prix tracks, even people in Monza complain about that GP especially now that it is under threat of cancellation. Grand Prixs have to create some buzz around it; you can’t just monetise from the mere GP event. The key question is whether we have new grand prix at the expense of historical races. In my opinion, there must be a good balance of historical/iconic and new tracks. As long as the historic tracks don’t disappear or aren’t substituted in place of other venue but recently F1 has lost a bit of this regional balance. The main issue with F1 comes back to exclusivity. F1 has become so exclusive that people feel cut off from the sport so anything that brings the sport to fans, will generally help the sport become more popular. So FormulaE is going about it the right way, bringing the races to the people and engaging with fans, especially young fans – far from the world of motorheads!
PC: We’ve discussed this in a previous panel event - these venues have to be viable and economically sustainable. We have seen some changes recently to the sport: to smaller race tracks, smaller infrastructures, lower costs with probably more efficient financial structures and are now better placed to host major events. We all forget that most race tracks are covered by government support, one of them being Silverstone which is certainly not running a positive balance. Most of the big race tracks, except maybe Bahrain, Abu Dhabi which are promotional exercises from rich countries, are continually trying to cover their debt. You mentioned Circuit of Wales and the construction of new street tracks. It certainly avoids the cost of big infrastructure all year long and also attract the city crowd which otherwise would have not travelled away from the city to see a motor-racing event.
BW: I completely agree - most tracks pay a sanction fee to host Formula One Grand Prix, and many of them receive Government support to enable these events to happen. Silverstone are fortunate here in UK that we have a fantastic F1 following so it is well attended so luckily the British GP makes sense for the promoters and operators. But the industry shouldn’t be in a position that the only way circuits can host F1 is through Government funding. Circuits should be able to host F1 events and at least break even. At the moment, some venues have to get Government money to pay the sanction fee and then try hard to leverage off the back of F1 for the rest of the year to drive footfall for corporate entertainment, driver days etc. Silverstone is good at driving traffic off the back of the Grand Prix races by having Red-Letter days, Birthday events but not many circuits have the luxury of having such a highly populated and interested audience on its doorstep to make this work. So for most venues this creates a big issue financially and they have to rely on their governments to allow F1 to be hosted in each nation.
RET: I would like to see a good mixture of old and new tracks as someone else said before. On the Mexico Grand Prix, they haven’t finished the track yet but bigger problem is that the tickets are very expensive.
For my friends who enquired about tickets, it seems like it would be cheaper for Mexicans to travel to Monaco or Austin from Mexico than to go to their local race. Even going to Abu Dhabi GP could be pretty much the same cost in some price ranges. Also, there is some confusion about how many tickets are actually available. Tickets are supposedly sold out and then we hear a second or third batch becomes available soon afterwards.
BS: In terms of Baku, it is possible that Bernie is chasing a now outdated business model. He doesn't recognise the younger fans in Europe and I do agree that F1 needs to become less Euro-centric. He is actively pursuing all these foreign markets e.g. Azerbaijan and we know this is strategic in terms of the oil but I think that he is missing a big opportunity here to re-think his business strategy. Recessions are good times to rethink how you want to go forward. I haven't found much information in terms of getting a feel for the Motorsports following so it would seem that there aren’t many opportunities to monetize the track.
RZ: To me, the three tracks listed make different types of financial sense and carry different types of public opposition which is really interesting. To me, that is what the other tracks are trying to get done e.g. at the Circuit of Wales, but that couldn't possibly explain the choice of Baku. Battersea is a different thing all together; someone else said this before, people love complaining. What is interesting in the UK is how councils work and Planning Permissions etc which is something I'm learning. It is quite different from how things work in the US - they have an open meeting but then the decision has nothing to do with the public have to say necessarily.
CN: The ongoing thing with circuits is that they have to meet certain criteria; they have to be exciting for fans, they have to be sustainable asset, they have to get investment to get correct development. The tracks listed are all different, but the Formula E one is a great model because it just shuts down a City Centre for one day. To have London, Paris, Berlin and Moscow all involved in it, that is quite a feat. To me, Baku will probably end up being like Turkey or Valencia. Unless you get serious backing, like Ben has been was saying, to turn it into a money-making asset, you will just see money sunk into something and it disappears like Korea.
Abt FormulaE team Season 2 livery contains VW logo which they insist is a financial partner. Given the recent emissions scandal, what is advisable?
DR: The Abt-VW situation is a tough question to answer. They have already signed a contract so there's a VW logo on the car. I think it would be a good thing for teams in the future to look at some break-clauses in their contracts in terms of violations (such as the diesel scandal at VW and PR-fallout), but as for the Formula E team, I don't think it will have an impact.
BS: In VW's response to the scandal, they intimated that they would be phasing out diesel cars and doing more in electric cars, so this might actually be a good time for both parties that they have a logo on an electric racing car. It could help them re-direct their brand, going in a new direction with eco-cars to rebuild their customer base's faith in the company. They might need to run a bit of damage control with other sponsors in terms of sharing space on the car with other brands. I know it's like a different in NASCAR where the sponsors have a say in who else is on the car; they might need to smooth some ruffled feathers as far as the other sponsors are concerned.