#F1 Daily News and Comment: Sunday 7th December 2014

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Previously on The Judge 13:

#F1 Features: The fall of the empire, part one: The inevitable goes unseen

#TJ13 #F1 Courtroom Podcast: Well that solved entirely nothing…


F1 loves a conflict of interest

Stefano Domenicali has been lined up to replace Gerhard Berger as the new president of the FIA Single Seater Commission.

The appointment was announced at the FIA General Assembly at Doha in Qatar.

In his 3 years in office, Berger most notably reinstated the FIA Formula 3 European Championship and has been pushing the concept of FIA Formula 4.

One narrative is that FIA are running scared that their ‘own’ junior single seater programmes are disparate if barely existent, when compared to GP2 and GP3. However, there are those who believe Berger has not been entirely successful and it is time for him to move on.

Then of course there was the picture of Gerhard at the Abu Dhabi test sporting a Lotus branded shirt.

So, the FIA turn to Stefano to kick on the FIA ‘backed’ programme of junior single seater racing, whilst at the same time Domenicali is employed by the VW group.

This may indeed be a convenient arrangement, since Dominecali has been employed by the VW group and reportedly “conducting a feasibility study into a potential Formula One entry for Volkswagen”, according to the BBC.

Amongst the many with whom Ecclestone has crossed swords with, is the head of the VW supervisory board – Ferdinand Piech, who “have long had a difficult relationship”, according to the BBC’s Andrew Benson.

Despite being credited with saving VW from bankruptcy during the early 1990’s. whether Piech has sufficient clout to veto a VW F1 programme is not addressed by Benson.

However, as TJ13 has been reporting and commenting throughout the year, Ecclestone’s power and influence within the Formula One group of companies has been markedly on the wain, which opens the door for the second largest car manufacturer in the world to consider and entry into Formula One.

It is the marketers who may well be pricking VW’s interest in F1. Last year, Repucom reported that for the first time, a sponsor – Infiniti – had received $1bn worth of advertising credit from their involvement in F1.

Mercedes have apparently blitzed that number in one year, though of course they are both the engine manufacturer and team owners, together with being sponsors. The estimated net worth in advertising to Mercedes in 2014 after deducting all costs is believed to be in excess of $2bn.

For that reason alone, VW would surely be forced to enter F1 as a works team rather than an engine manufacturer alone.

Also, when the marketing reach of Mercedes from this years Formula One campaign is compared to the $30m advertising benefit Benson claims VW have received from their sports car and DTM touring car series – with an associated spend of around $400m – the math is simple.

VW were of course included in the working party that was formed to define the nature and scope of the new F1 V6 engines, though of course to date they have expressed no direct interest in developing a Power Unit for the top flight of single seater racing series.

What is of interest is which brand would a VW entry into Formula One utilise? The assumption is usually made that it would be Audi tasked with carrying the flag in competition against Mercedes and Ferrari.

Yet a brand can be negatively affected by being uncompetitive in Formula One as BMW, Toyota and Honda discovered in recent times. The VW owned Audi name is riding high due to their successes at Le Mans, so it is not necessarily the case that Audi is the obvious vehicle for VW to dip its toe into such a cut throat competition.

Initially an entry from VW could be named Lamborghini or Bughatti, or even Bentley – then should success be likely to accrue, a name change may then be a wiser approach.

Then there is the decision for VW to make, whether to build a Formula One team from scratch or acquire an existing platform to develop. And it is not beyond the realms of impossibility, that German manufacturer could acquire the Red Bull Racing team and use this as the basis to launch a campaign in Formula One.

Christian Horner made this bold claim recently. “If things are left as they are [engine regulations], Renault and another manufacturer could be pushed out. We need to do what is best for the sport above what is best for an individual manufacturer.”

This begs the question, who is the mystery engine manufacturer to whom Horner refers?

The obvious, but equally strange answer has to be Ferrari, given that Honda hasn’t yet started their F1 campaign and Mercedes are fairly happy with the status quo.

The thought of F1 with no Ferrari is impossible to believe. Yet prior to the ascension to the Ferrari throne of Sergio Marchionne, the notion that Luca de Montezemolo could be ousted from Maranello was highly improbable. Further, the Marchionne driven impending sale of Ferrari could yet deliver the almost unthinkable, which sees the famous brand go the way of Lamborghini and into German ownership.

It is not a leap of unimaginable proportions, that Domenical – a full time employee of VW – has been brought close and into the FIA family to facilitate the requirements for a VW entry into the sport of Formula One.

Whether this is a conflict of interest – or a smart political manoeuvre – is a subjective judgement call.

But in times of such great uncertainty for the FIA, with an EU Commission investigation imminent and once again threats of manufacturers leaving the sport of Formula One, it is prudent and somewhat comforting – that the sport’s ruling body may be looking to the future when faced with potential destructive threats from the past.

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23 responses to “#F1 Daily News and Comment: Sunday 7th December 2014

  1. I’ve long thought Red Bull (as a non-motoring commercial entity) owning a team doesn’t make a great deal of sense.

    As you point out, going from winning to losing devalues the brand. That’s unavoidable if you’re a manufacturer, but as a sponsor, you can just move on.

    There is a clear incentive for a car manufacturer to get involved in running a team. Red Bull would be better off buying F1 as a whole. The exercise could be self financing, and would provide them with unparalleled brand name benefit without the risk of losing thanks to the wrong engine partner.

    The rest of us would benefit, as there would be a very strong incentive for Red Bull to maintain the image of the sport rather than trying to extract every last penny out of it like the current owners.

    • Red Bull buys FOM from CVC, sells Red Bull Racing to VW with an offer of support from Red Bull Technologies. While Bernie is left wondering how he let it all slip through his fingers. Or Red Bull is biding it’s time in case the EU rules the current ownership/governance of the sport a cartel. Then it can make a move.

      I’ve always thought it would make more sense for Red Bull to own the commercial rights to the sport rather than a team. But then it all depends on what Mateschitz wants to do.

  2. There will be no VW in F1 as long as Ecclestone is in charge. I’ve worked for VW, Audi and Porsche several times over the last 16 years. Their corporate compliance regulations make Mercedes’ rules look like a deal with the Cosa Nostra. That’s the result of the VW brothel scandal a few years back, when they organized sex parties for trade union leaders to ‘influence’ them. Since then they’ve implemented compliance measures that make it impossible to steal a pencil without being shot at the factory gate. They would never enter a series with a career criminal in charge of it.

    • If VW were to buy out Red Bull, and RedBull simultaneously buy out CVC, Ecclestone could be made to disappear.

      From F1, that is.
      🙂

    • And I don’t suppose a company as media savvy as Red Bull appreciate being told their target market is septuagenarian watch buyers.

        • Indeed.

          This stat (from James Allen’s site) was slightly surprising:
          The UK leads the way with almost 20% of all social media activity around F1; Spain had 8% and Germany just 1.33%.

    • I can’t imagine the joys of a ‘sex party’ with other grey haired, beer bellied men. I’d rather be properly compensated with – say – 40 million. I just hide the money. What can go wrong?

  3. Interesting, I’ve long held the belief that the feeder series’ should have a genuine technical relevance to F1. Perhaps having Stefano oversseing this feasibilty study for VW and working as the President of the Single Seater commision can see the two unify. Obviously this would lead to the development of a V6T by VW who could then use their plethora of brand names to race within F3/F4 maybe even F2… and ultimately bring them into F1.

    The problem as you rightly say for Berger has been that GP2/3 has insterted itself in the ladder through the back door. Ie Bernie’s commercial deals. WSR is probably actually a better series but it doesn’t have the commercial clout, what needs to happen is the FIA putting their foot down and stopping none FIA championships (GP2/3) featuring on the same bill as F1.

    F2-F4 should be one make series’ like GP2/3 however having a disparity between powerunits could be seen as a good thing, not only will the engineering knowledge creep up the ladder but allow drivers to attain a better sense of the cars before they reach F1.

    The only problem with this scenario, now we have such complex PU’s and ERS is how restrictive in terms of BHP can you go? The way in which power is harnessed be it petro-chemical or electrical requires a certain level of give and take, take away some of the electrical energy and impacts on component longevity etc.

    I’m sure someone will come in now and say ‘hang on a minute, don’t these PU’s cost a fortune?’ Well that’s the other good thing, having other series run the PU’s would actually reduce the costs of the units, as the finances are built upon recovery of the initial R&D (the largest cost) and the actual cost of the units. Selling more units simply means reducing costs across the board something I’m sure Mercedes, Ferrari, Renault and Honda would all entertain.

    The problem with finances of F1 is it is built within its own bubble, this could be easily solved IF everyone got around a table and created something from the bottom up, not the top down. A genuine feeder series is part of the answer to the problem IMO.

    • You could actually have the feeder series use the same base ICE. Control the performance with changes in the turbos and injection systems.

      • Or let them use year old rebuilt PU’s. Would be even cheaper.

        Restrictive commercial deals are what got FIA into trouble in the first place, both with telly and circuits. Why am I not surprised they are again causing trouble.

  4. Does this open the possibility of VW buying Ferrari and then using them as their F1 entry, rather than Lamborghini or Maserati?

    • @dobzizzle intering thought, especially with the nod towards German ownership should Ferrari be sold off. Although if they bought Ferrari and failed would it not do twice the damage to both brands?

      • I would think the opposite. Ferrari has already failed pretty spectacularly. They are sold and continue to do more or less what they have done is no surprise. If they do better everyone is geniuses and if they do worse it’s because they were sold.

        Frankly, the splitting of Ferrari, should it be sold, would be a tremendous change to the heritage of the sport and it would remove much of the expectation to win from the marque.

        In other words, a VW owned Ferrari will never be the same Ferrari that Schmacher et al drove for, it will be a different, and lesser I would think, team.

        OR maybe that’s romanticised BS but figured I’d throw it out for discussion.

        • Good counter point, I didn’t look at it that way. One thing is for sure, Ferrari will be a very different beast at the end of this period of metamorphosis, what sort of best I is still unclear…..

  5. I understand the way they come up with the 2 billion worth of advertising but wonder about the actual results. Rolex, with their signs plastered all over the circuits, get a huge amount of exposure but do they actually sell more watches? If you eliminate the growth that emerging markets would have brought anyway, do they really show sales increase proportionate to exposure.

    For example, Mercedes market share in the EU, according to Statista.com, actually dropped half a percent between October 2013 and October 2014. So despite completely dominating F1 and having the benefit of 1.5 billion in free advertising (2 billion – 500 million expenditures) their sales were less. At $15,000 profit on each car (which I doubt there is) Mercedes have to sell about 35,000 more cars per year just to cover the operating cost of the team.

    As a sponsor Blackberry is a good example. Even with the association with Mercedes and the amount of exposure they have had because of it they are still struggling to survive.

    I would argue, from a marketing perspective, that there is actually no benefit to being involved with F1.

    • Would imagine you’d have to look at trailing numbers (i.e. next years) to determine if this years campaign had an impact.

      Also worth considering is perhaps they dropped less than other manufacturers in their segment so there’s that, too.

      • I agree it doesn’t tell the whole story. Makes you wonder about the “win on Sunday sell on Monday theory”.

        • Most of the high profile F1 avertising is long game stuff. Selling more on Monday is for the plebs.
          F1 advertising is a branding exercise – associating whichever brand with fast cars, high technology, the jet set, celebs, tag, rah, rah. The brands get slowly imprinted on our lizard brains as the products preferred by the rich and famous and so are desirable in that light – so says behavioural psychologists, at least. And so, when people exposed to said ads get into a position to purchase a things in the classes of products advertised they are perhaps more likely to go for one of the F1 brands. It’s a “desire” often built up over months or years of exposure. Not even a conscious desire necessarily.
          The funny thing is that the true rich and famous probably wouldn’t be seen dead in the F1 brands. Aspirational buyers / wannabes are the target market.

    • Revenues dished out by CVC to F1 teams makes cost participation significantly less, so long as you are winning races and constructor champion points.

  6. It would be interesting to see Domenicali back in charge of Ferrari, now parachuted in by VW.

    But they themselves have said they wish to create a team from scratch in Germany, perhaps replacing Toyota in that respect – that’s a hard route to take, so if they do so, it’ll have to be with a huge commitment and investment to take on Mercedes.

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