In this edition of #SPO, I talk about how teams become successful (financially) and sustainable within their atmospheres, and talk about perhaps what certain teams today are doing wrong.
So this was suggested to me by a long time friend, and honestly it makes sense to cover it; given Williams’ woes in F1 and teams stateside like ESM and Risi Competizione in IMSA who folded and are regrouping their organisation, respectively.
Before I start, I will say that money does solve most problems. Not to say money solves all problems, because you can horrendously spend money in the wrong places (or simply not in the right places) and it just negatively impacts the team.
You know the saying; “What’s a good way to become a millionaire? Be a billionaire and run a race team.”
We’ve seen no shortages of teams with issues that are also in the spotlight. We’ve seen teams suffer performance or run a limited schedule when funds are not available. Most notably of late are Williams F1 and Risi Competizione. We’ve also seen teams abruptly close shop because of a lack of funds, like Extreme Speed Motorsports. Now, I obviously don’t know exactly what happened with ESM, apart from that was publicly known, but it’s not hard to connect the dots there.
So the question needs to be asked then: How can you be successful (financially) and be able to sustain it past a few years? Below are some key areas that you can look at to be able to achieve this.
Where you get your income:
The answer is actually fairly complicated. The simple, ignorant answer would be “just keep the sponsorship monies coming!” However, as you may or may not know, finding sponsorship money is hard, especially in North America. Look at McLaren for example, they haven’t had a title sponsor since 2014, and not for their lack of trying either, and this is a legendary team here.
The majority of funding these days come from pay drivers through the guise of sponsorship. A driver with backing from a particular company will bring their sponsorship money over, and when they leave, their sponsorship money goes with it. If you can find a steady stream of pay drivers (which shouldn’t be too difficult, varying on market) you should be ok for the long term. Adding TEAM sponsorship on top of that is a huge plus.
Another way is to not get money directly to fund the team, but get sponsorship through services or equipment to lessen the running costs for the team. For example, get a radio headset company to give you new head sets to use for the season and in exchange, you can slap their sticker on your car(s).
Another mode of funding for your team could come from a completely separate company outside of racing that you own. For example, Penske has his truck rental business, Red Bull Racing has their energy drink company, and Hendrick has his car dealerships. Using an extreme example; McLaren, Ferrari, Mercedes and Renault use a budget out of their company’s car sales to fund their F1 teams.
You could establish some sort of “farm team” to support your main team. Let’s say you run an LMP2 team; an effective way to fund your team is to have an LMP3 team. Generally, you have larger operating margins running slower cars as they cost less money to purchase/build and maintain. This way you can get and have drivers potentially come into your LMP2 team and already have the added bonus of knowing you and your team.
Lastly, a great way you can gather income should come from your own team merchandise. That could add a huge stream of income into the team, and have the added bonus of getting your brand and your sponsors further out into the world, which would likely come back as more money into your team down the road.
These are things you should strive to achieve. If you don’t have to worry about where money is coming from, then you can focus more on the racing side of things.
Publicity and exposure outside of the track:
This is something often overlooked. You want to be known as a good team, or a fun team and not a controversial team, or a team who doesn’t have all their ducks in a row. To have a team personality is critical in the early going. Being accessible and engaging to fans at the track and through social media will open up the door for potential sponsors and partnerships in the future as well as being able to better drive merchandise sales.
Working smarter, not harder:
Another hot tip is to run a turn key car where ever possible. In series where you can either develop your own car or purchase an existing car and run that, it’s always better to run the latter. They tend to be more reliable, cost less to run and also cost less to purchase rather than build your own comparable car. For example, if you were running in TC America’s TC class, it would make more sense to purchase a BMW M235iR than it would to develop your own car. The only exception to this rule would be if you planned on upgrading your car to a higher class the following year. It would cost less to do that, but you’d still run into higher maintenance costs.
Tips for getting started:
I think it goes without saying, that if you are starting a team from scratch, you need to know what you are going to be getting into right from the get go. You need to talk to some insiders with knowledge in racing and perhaps get some accountants that know the business as well. I can’t stress that enough. Unless you are really good with money, you should leave it to somebody who specialises in handling money.
Now when starting from scratch as well, you need to plan on where you want to head to eventually; the end game plan. If you want to be racing DPi’s, don’t just jump right into it. Start small, with LMP3’s or even below that, like Formula 4 Americas. I say that, because even if you get a budget together right away for a high level program, then say your big sponsor/investor pulls out. Let’s also assume they had been responsible for most of your incoming cash flow, that will basically put an end to your program (look at what happened to ESM).
This is incredibly important, because even if you had all the money in the world to support it, you learn and make efficiencies after operating as a team for a couple years. After you establish yourself, you can get a better idea of what is achievable for you. If you can’t get to your end game, then you make adjustments to try to get there.
Another important note is that you should always put money aside for a rainy day. Spending 100% of what you make in a year doesn’t make sense, and that is where you can get into trouble. If you can do that, you can at least give yourself a buffer to fall back on if your revenue drops unexpectedly.
Now comes the part of the post where I comment on some of the teams that have stuck out recently.
Williams F1 used to be race contenders not too long ago and championship contenders not long before that. It’s been 22 years since they won a championship and 6 years since they last won a race (and it was 8 years since their last win before that). They make a profit year in and year out (which is kind of amazing in it’s own right) through their engineering business. However they clearly haven’t had the pace translate from their profits into the F1 team. This leads you to believe that they are spending either not enough money or are spending money in the wrong places.
I can’t say definitively but I would think it’s the latter. Look at a team like Racing Point, that continually punches over their weight with the budget they give themselves. Williams should be in the same boat, but for some reason they haven’t quite figured that out.
One would think that with the money that Martini and the Stroll family put into the them over the last couple seasons, coupled with the fact they have a very coveted technical director in Paddy Lowe (although his head is likely on the chopping block right now). Despite this, they still haven’t been able to reverse their downward trend of performance. So to say money will solve their issues doesn’t seem to be the case with them, rather their problems could be solved by spending their money in smarter ways.
Elsewhere, we have Risi Competizione in the US that have had a hard go this past decade or so themselves. It’s been a long ways since running a championship contender with the F430 GT2 machinery of the mid-late 00’s. They have not run the full IMSA schedule in what seems an eternity despite being a fully fledged Ferrari team, same as AF Corse in Europe. It seems like for reasons beyond anybody’s understanding they just don’t have sponsorship for the team to carry them through a full year. I can’t speak to whether that’s intentional or whether or not they have been trying to get sponsorship. All we see on those cars the the series sponsors and Risi’s Houston Ferrari dealership. At least AF Corse have other sponsors to help fund them.
However what I find slightly perplexing is that they decided to become the official North American supplier of the Alfa Romeo Guilietta TCR machines, and are running full time in TC America. Now, if they don’t have enough money to run GTD or GTLM, then running in TCR certainly makes more sense. I wouldn’t call it a flagship program though.
If what they are doing is instead trying to use this to fund the GTLM/GTD teams then I think that makes more sense. Ferrari is more prestigious than Alfa Romeo currently in the US, and I would imagine selling Ferrari’s makes them more money. However time will only tell with them, and I hope they can get back to running in the GTLM class full time sometime soon.
Lastly we get to talking about ESM. The team was co-founded by Ed Brown, who was behind Tequila Patron, and Scott Sharp. Ed brought huge dollars into the team and they were quite successful as a team for many years. That all abruptly ended at the end of this past year when Ed retired and Tequila Patron pulled their sponsorship from the team. This is the problem with having a lot of eggs inside one basket. TP was plastered all over their LMP2 and LMP3 cars, and not many other sponsors were around. Scott tried to salvage the team by trying to source funding for 2019 but was not able to do so. Instead ESM closed shop and started selling their assets.
It was such a shame, since they established a very highly regarded team. Although they won many races, they didn’t enjoy championship successes. They were certainly one of the most followed teams in the paddock and looked like they could turn a page at any moment. Their presence will be missed at the track and in many fans’ hearts.
That’s it for another edition of #SPO. Thanks again for reading, and if you enjoyed it, please hit the buttons below!
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