Features - Financial
FEBRUARY 1, 1998
Merchandising and Formula 1
BY JOE SAWARD
Formula 1 merchandising is fragmented, but there is no doubt that it is a boom industry. A couple of years ago the sport had almost no serious merchandising at all, while American sports were turning over billions of dollars a year selling memorabilia to the fans. In 1995, for example, an estimated $11.1 billion was spent on US sport merchandise. Those involved in the National Football League (NFL) made an estimated $2.9 billion and college sports sold an incredible $1.7 billion with teams such as Note Dame and Michigan State taking a big slice of the income. The National Basketball Association (NBA) turned over $2.6 billion even ice hockey turned over more than $937m.
So why is Grand Prix racing lagging behind?
It is the impressive figures from America which have led retailers to look for more sports into which to expand, knowing that the US market - which has trebled in size in five years - is just the tip of an international iceberg. Europe, Asia and Latin America are all beginning to follow the American lead.
Motor racing in the United States is already making big money. NASCAR stock car racing had licensed sales in 1990 of $45m but today that figure has risen to almost a $900m - and it is still rising.
Formula 1 racing, being one of only a few truly global sports, has enormous potential as a source of merchandising income. There may even come a time when teams can begin to fund their racing activities from merchandising alone...
Everyone involved in F1 owns the rights to market themselves be they racing teams, sponsors or drivers. Everyone owns the rights to merchandise their image: but few have the time to do it. The easiest way is to sell licences to others and let them do the job for you in exchange for a large cheque every year.
The licensees buy the goods, sell them on to the public and try to make a profit above what it costs for them to buy the licence. It is not a tightly-controlled business and margins can be tight. Companies come and go, shops open and close.
The bigger the operation the more tightly controlled and organized things tend to be - and the more money is made. Some of the F1 teams have realized that it is best to cut out the middlemen and so run their own operations. This guarantees that official merchandise is of decent quality.
Ferrari is among the biggest and most recognized brand names in the world, alongside Coca-Cola and McDonalds. The Prancing Horse logo has an appeal to all kinds of people, not simply racing fans. The image it gives is one of wealth and a little glamour. The Ferrari company opened its first shop at Maranello some years ago and today the brand is expanding rapidly. In June Ferrari opened a boutique called "Legende" in Paris. These aim for the top end of the market, producing high quality goods for high prices. There is, of course, other cheaper Ferrari merchandise aimed at the race fans and one can buy anything from teeshirts to Ferrari perfume; watches to Ferrari-labelled wine. There is even a Ferrari film directors chair if you wish to part with $150.99.
Ferrari is currently doing a good job on its merchandising but there are many other companies which could have the same kind of merchandising potential. The revived Bugatti car company - which went into liquidation a couple of years ago - is rumoured to have made more money from the sale of Bugatti merchandise than it did from selling cars. Porsche Design items are also a useful source of income to the German car maker.
The exploitation of a brand is a business which is best left to experts who can figure out which sectors of the market to aim for. Even a team like Minardi can make a lot of money from merchandising if it aims for people who like to support the underdog. It is simply a matter of finding the market.
The recent years have seen a new trend with merchandising empires trying to establish drivers as brands. This was done first by Ayrton Senna Licensing, a company established in 1990 by Senna and his business advisor Julian Jakobi.
Jakobi had been around F1 for many years, initially with Mark McCormack's International Management Group, working with Alain Prost and Ayrton Senna. Eventually he decided to set up his own business - FJ Associates - to work directly with Senna and he built up Ayrton Senna Licensing's activities around the world. After Senna's death in 1994 he also became involved in the running of the Senna Foundation.
Jakobi has long had ambitions of forming his own F1 team and there were strong indications at the end of 1994 that he was trying to convince the Senna Family to set up a Senna F1 team to promote the licensing operations and fund the Foundation. This never happened. In July 1995 Jakobi began working with Prost again, helping Alain with the planning for his F1 team and he is now also involved with Jacques Villeneuve and with the planned British American Tobacco Reynard F1 team.
It was decided that in order to build up the Senna brand image it would be best to concentrate on high-quality products. And so Ayrton Senna Licensing began selling the Senna trademark to luxury yacht makers, high-quality pen and watch manufacturers and high-technology companies selling bicycles and motorbikes. A Senna Ducati, for example, will cost you $19,700. Items are only added to the Senna collection of merchandise is they were considered to fit in with the image which the company wanted to promote.
Hitting the right market is vital and Jakobi's current operation with Villeneuve is aimed at a different audience to Senna. The Villeneuve image is young, slightly rebellious, cosmopolitan, fast and skilled and very familiar with high technology.
Senna's death turned the operation into a much bigger business than it had been. Ayrton became a legend: like James Dean and people wanted something by which to remember him. The Senna empire is reputed to have had worldwide sales of $90m last year, despite the fact that Senna has been dead for three years. Much of the money came not from the high-quality items but rather from the sale of hats and teeshirts related in some way to Senna. In France they even have a shop dedicated entirely to Senna merchandise. Called The Boutique du Petit Prince de la F1, it is situated in Illkirch-Graffenstaden, a suburb of Strasbourg, close to the German border, presumably it hopes to attract fans from Germany - where F1 is booming.
The big draw for the German fans, of course, is Michael Schumacher and his merchandising empire has a very different philosophy to that of Senna. Michael's manager Willi Weber has aimed The Michael Schumacher Collection at a totally different market, working on the principal that a large number of Michael's fans were from the German working classes.
Weber sells anything and everything and it is a case of blitz marketing rather than selective outlets. All over Germany there are display units of the Michael Schumacher Collection in supermarkets, shops and petrol stations.
You can buy all kinds of curious Schumacher merchandise and the demand is such that there is now even a Michael Schumacher magazine which sells for $3.60. This has a handful of articles about motor racing but is mainly a catalogue for Formula 1 merchandise. It is dominated by The Michael Schumacher Collection which now ranges from ear plugs and pencil sharpeners right up to motor scooters, which retail for $2400. It is amusing just to read through the list of available merchandise. One can understand why someone would buy the famous Michael Schumacher baseball cap ($20.90) and even Michael Schumacher limited edition sunglasses ($103.50) but who out there buys a Schumacher mobile phone ($525.00), a Michael Schumacher throwaway camera ($12.66) of a Michael Schumacher rubber ring for the beach? You can get flags, scarves, bathrobes, perfume, umbrellas, cushions, bicycle helmets, pens and pencil sets, notepads, wineglasses, ice buckets and even the Schumacher electric shaver ($170.45).
If you are a serious Schumacher fan with a lot of money you can buy a replica helmet for a bargain $2875.00. An original will cost you a great deal more. One recently sold at Sothebys for the absurd sum of $37,000. An original steering wheel used by Michael at Benetton retails at $5,500 - Michael presumably having bought the lot when he left the team - while a limited edition replica of a Benetton steering wheel can be yours for $312.35).
The prices of original bits of memorabilia have gone berserk in recent years, to such an extent that Britain now has a company called Grand Prix Top Gear, which specializes only in original memorabilia: carbon brakes discs, steering wheels, signed photographs and racing wheels which have been turned into coffee tables.
Racing overalls are very big business. Sets of overalls worn by Senna have been sold for as much as $37,000 and his helmets have gone for more than that. The overalls which Senna was wearing when he was killed are also believed to have been sold for a vast amount of money although no-one is willing to admit to such a thing and the sale was a private one.
Other memorabilia such as the fire-charred steering wheel from Nika Lauda's 1976 Ferrari at the Nurburgring have come up for auction. It was sold for the bargain price of $11500, less than a set of overalls once worn by the late Gilles Villeneuve.
The decorators of the All Star Cafe company turned up at one recent F1 memorabilia auction and spent $120,000 on racing clothing and parts of old F1 cars. These included a helmet worn by the late Graham Hill ($27,400) and the black Nomex racing suit worn by Senna when he was at Lotus ($25,250). One of Damon Hill's helmets, signed by the World Champion went for $24,100. The rear wing of Senna's JPS Lotus from the mid-1980s raised a remarkable $8,075.
For most people original F1 equipment is beyond their means and so it is down to buying promotional clothing of their favorite team and driver.
The available brand ranges are as weird as they are wonderful. In addition to the Michael Schumacher Collection you can, if you wish, buy Ralf Schumacher gear. This is much the same as Michael's stuff but is yellow rather than red. The Jacques Villeneuve range is not cheap. A replica Jacques helmet - from a limited edition of 50 - will cost you 3,999.00, a thousand pounds more than a Michael Schumacher helmet. A Villeneuve "helmet cap", which is claimed to be "the funkiest driver cap" retails at $24.99 - the going rate for any F1 driver cap these days - while a Villeneuve polo shirt will set you back $45.99.
Damon Hill's range goes from a College-style jacket at $268.99 to a key ring at $8.99. Jean Alesi markets his image with a cartoon wolf, while "Fast Eddie" Irvine gear is generally green and features clover leaves. Other drivers have not yet launched their own brand ranges. You will be hard-pressed to find anything with Heinz-Harald Frentzen written on it and Gerhard Berger never bothered with merchandising. This is a little strange as even Shinji Nakano and Pedro Diniz are able to sell things with their names written on them.
It is a similar story with the teams. You will be hard-pressed to find anything sold by McLaren, although in Germany there are some nasty reflective jackets and a few silver watches with red-tipped straps. Ferrari is the biggest seller but Williams is also very active in merchandising having its own range and also another belonging to "Rothmans Team".
In Japan a Rothmans Williams Renault cigarette lighter will cost you $100 and similar Swiss Army Knife will leave a $72-sized hole in your wallet. Williams F1 gear is different and includes such wonderful items as training shoes, a picnic set, an alarm clock, a bicycle, a carpet and even Williams padlocks and wall safes. If you are really mad you can buy a Williams motor scooter for $3700. Actually our research reveals that if you really want a Williams scooter they are cheaper in Japan where you can get one for $2965.
Arrows has a much more down-to-earth range with a of mugs, watches and key rings in addition to the obvious clothing. The only point of interest is an Arrows teddy bear (presumably styled on Tom Walkinshaw) which will cost you $14.99. Benetton's gear is pretty much what one would expect from a clothing company. Prost is just producing its range of goods but to date there is nothing exceptional on offer. Jordan, on the other hand, is beginning to use more of its striking Snake logo.
In Japan an involvement in F1 is not essential to sell gear to F1 fans. The Japanese F1 fans will buy anything from Shinji Nakano jackets to FIA bathrobes. AMG Mercedes has taken advantage of this and sells a lot of produce. Companies such as Castrol, Agip, Bridgestone, PIAA and Kenwood all have their own ranges of clothing. Moet et Chandon wins the prize for the biggest rip-off in Japan, selling a boxed magnum similar to those sprayed on the F1 podiums for a snip at $147. You could buy them in the shops for half the price. Even the Automobile Club of Monaco gets in on the F1 market in Japan, selling ashtrays for $72 and key rings for $80.
Probably the most brilliant example of merchandising without being involved in F1 is in Germany where Bitburger Beer, which sponsored Michael Schumacher a few years ago at Benetton, now markets a range of merchandise in Ferrari red - despite having nothing to do with the team.
The FIA-owned "Formula 1" brand remains remarkably under-exploited although the governing body does have some rather tasteless shirts advertising the F1 World Tour. Taste is not really an issue in F1 merchandising, as anyone who has ever seen the Schumacher red leather jacket ($253) will attest...
The prices, of course, rise every year and as there are usually changes to the sponsorship package and driver line-ups each year F1 teams are becoming a little like the fashion houses in Paris, with a new line every season.
The market remains a very piecemeal affair with all attempts at centrally-marketed merchandise having thus far failed to get off the ground. The FIA has tried to get everyone to link up so that all merchandise can be sold through recognized outlets. This has a number of advantages. It would stop the massive counterfeiting industry around F1. It would enable the teams to make more money as they could cut out the middle men and establish their own chain of shops in big cities all around the world. This has been achieved quite successfully in the United States by the NFL and other sporting bodies.
A network of shops would enable customers to walk in and buy which team's gear they wanted. All around the world one would see people wearing the clothing of their favorite racing teams. Street gangs in the USA might even one day use McLaren gear as their uniforms - as happened with the LA Raiders American Football team a few years ago.
Such shops would also enable teams to sell off all their old equipment: wings, nose boxes, helmets, driving suits and even cars.
That will take some organization and until it is achieved the vacuum will leave the way open for entrepreneurial middle-men.
To date a few of the teams and drivers have joined an FIA scheme with a Paris-based subsidiary of Disney but Ferrari and Stewart have deals with rival company Bertelsmann. Part of the negotiation surrounding the new Concorde Agreement has been centered on how best to handle merchandising so that everyone gains as much as possible. These negotiations are still continuing. F1 bosses hope that everything will be sorted out with the new Concorde Agreement which is due to run from 1998-2008. As soon as that is agreed and the problems with the European Commission can be sorted out, Formula One Holdings - the company which holds the promotional rights to F1 racing - is expected to be floated on the Stock Exchange and the new organization will begin to look at areas of expansion which F1 has chosen to ignore to date.
When that happens the noise of cash registers may well drown out the roar of the F1 engines...