What is the biggest problem in motorcycle racing today? Is it the predominant role electronics is playing, ruining the racing? Is it the ever more restrictive rules imposed, killing bike development and the spirit of Grand Prix racing? Is it the lack of competitive machinery, making it impossible for anyone but a factory rider to win a race? Or is it the dominance of the two top manufacturers, driving costs up and discouraging wider manufacturer participation?
You can point to all of those and more as being an issue, but they pale in comparison to the real problem the sport of motorcycle racing faces at the moment: Money. Specifically, the lack of it, and the inability of almost everyone involved in the sport to find ways of raising any. All of the ills of both MotoGP and World Superbikes can be traced back to this single failure.
The root of racing's problem is well-known. Once upon a time, when advertising tobacco products on TV and radio was banned, the cigarette companies needed some way of reaching potential customers. Spotting the loophole in the law, they immediately leaped on sports sponsorship as a means to promote their product. They went for sports which were glamorous, exciting, and had an edge of danger, exactly the image they want to project, and came up with motorsports.
Governments around the world saw the loophole they created, and started to close it down. After some clever negotiating by F1 supremo Bernie Ecclestone, motorsports were given an exemption until 2006, at which time all visible promotion of tobacco products in the sport's major markets was completely banned. The good times were over.
The retreat of the tobacco companies left motorcycle racing with not one, but two problems. The sponsorship money disappearing was bad, but even worse was the tobacco companies taking their marketing expertise with them. Teams were used to not having to deal with the marketing and sponsorship side of the business. Tobacco sponsors would offer the teams a complete package, complete with PR services, branding, marketing, customer relations, the works. The teams could get on with racing, their involvement in sponsorship consisting mainly of negotiating the amount involved. The tobacco sponsor would do the rest, organizing color schemes, hiring PR managers, writing press releases, hiring umbrella girls, running hospitality units. The tobacco companies took care of generating money, the teams focused on spending it.
When tobacco left, the teams were left floundering way out of their depth. They had never had to worry about raising money, and for the most part, had no idea where to start. Their first contacts with potential sponsors confronted with an even greater shock: the eagerness of tobacco companies to throw money at racing left the teams thinking that the sport was an attractive prospect for sponsors in general. In fact, the tobacco giants had only spent their money so freely because they had nowhere else to go. Time and time again, as team managers spoke to marketing managers in industries not subject to legal restrictions, they were surprised to find that just asking for money wasn't enough. They had to make the business case for sponsoring their team. This was a task they were woefully unprepared for.
The story they presented was less than convincing. Though MotoGP finds an audience all around the globe, it is most popular in Spain and Italy. Elsewhere it is less popular: it registers on the consciousness of the general public, but it is not a major sport. This is not Formula 1, or Champions League soccer, or tennis, or golf. Outside of its core markets, MotoGP does not get the exposure to justify huge investments from companies looking to reach large numbers of consumers. At first, the teams turned to Spain for their backing, and especially the companies which grew rich off the Spanish construction boom. When that bubble burst at the end of 2008, they were once again left out in the cold.
This is the real legacy of the tobacco sponsorship era. When they departed – all but Philip Morris, of which more later – they took their expertise in marketing, promotion, PR and sales with them. With a very few honorable exceptions, the teams have muddled along, relying on money from Dorna to be able to keep racing. Marketing and sponsorship is seen as something which comes after the fact, rather than the primary focus of any professional motorcycle racing team. Very few teams employ dedicated sponsorship and marketing managers, preferring instead to hand the responsibility to the team manager or another team member, to do alongside their main job. That leaves space for a pool of hangers on, who will chase sponsors to pair up with teams, taking a piece of the action for their efforts. The deals made are rarely either lucrative or effective for either side of the deal, the middle man not having the interests of either party in mind.
The absurdity of not hiring dedicated, specialist staff whose sole aim is to secure sponsorship and manage those relationships in the long term should be self-evident. A motorcycle racing team employ the best mechanics, data engineers, suspension technicians, crew chiefs and riders they can afford. Why they don't place the same demands on those charged with raising sponsorship is incomprehensible. Racing costs money, a lot of money, and raising it is not simple. It requires specialists, people who understand what sponsors need, what teams can offer, and how to build relationships which are beneficial to both. (I should know: despite MotoMatters.com being a well-read and highly respected racing website, my own lack of expertise in the field of marketing and advertising means the site struggles for income, rather than generating the kind of revenue it has the potential to.)
The real damage done by a lack of sponsorship expertise is most evident in the downward spiral of title sponsorship fees. Teams jump early to take some money, rather than wait, negotiate, and try to leverage more money from potential sponsors, adapting their proposals to the needs of the sponsors. This means that the cost of being a title sponsor has been driven down to a point which is less and less sustainable. Paddock insiders complain about all of the factories except Ducati, claiming that they are all underselling their sponsorship. What teams fail to understand is that by accepting low-ball sponsorship offers, they are driving down the value of sponsorship for everyone. Sponsors gossip among themselves, and will use information gained from their rivals to drive down the price of sponsorship even further. If the teams don't make a stand, turning down offers which are realistically too low to contribute to funding the team, then price pressure will continue on a downward trend. Talented and skilled sponsorship and marketing experts understand this, and can balance the needs of sponsors and the requirements of the teams.
So where is Dorna in this? Almost completely invisible, unfortunately. If the rights holders to MotoGP and World Superbikes have one single task, it is to promote the sport, and maximize the revenue generated from the two most important series in road racing. The show they put on is impeccable, well-organized, smooth-running and with an extraordinary safety record. They have managed to reduce costs, put on a great spectacle for the crowds, and enthuse a vast audience worldwide.
Capitalizing on the show is where Dorna fails most badly, however. Given the popularity of the sport and its potential around the world, the fact that they only manage to generate a little over €200 million a year is alarming. In comparison, Formula One has a turnover of €1.3 billion a year, and generates more in profit (€300 million) than Dorna does in turnover. Is F1 really six times more popular than MotoGP and World Superbikes combined? More importantly, is it really six times as lucrative?
I interviewed Carmelo Ezpeleta back in 2012, and touched on the subject of increasing revenues. Ezpeleta acknowledged this was a problem. "Increasing income is very difficult," he admitted. But instead of finding ways to fix this, his focus was on reducing costs. "It is exactly the same, if we talk about look at what is the problem in the south of Europe: they built a lot of houses that they don't sell. How you can sell a lot of houses? Reducing a lot the price." The global economy has recovered a lot since 2012, yet the focus of Dorna remains cutting costs, rather than trying to generate new income, and open up new channels of revenue.
Yet Dorna have made some attempts in this area. In 2007, they organized a special sponsorship conference, complete with workshops and top speakers. The feedback I have had from several attendees has been unanimous: nice try, but a complete waste of time. The results speak for themselves: sponsorship remains hard to find, and teams are still struggling with the process of finding new sponsors and persuading them to invest in motorcycle racing.
It should perhaps come as no surprise that little came of the sponsorship conference organized by Dorna. Dorna's revenue comes from three main streams: TV rights, event sanctioning fees, and sponsorship. The three sources of income are very roughly equal, meaning that Dorna earns around €60 million from sponsorship every year. That is less than the amount which some sponsors spend on a single team in F1. If revenues are to be increased in motorcycle racing then Dorna needs to first pick up its own game, and then start to lead the rest.
Yet Dorna has also managed to build some strong partnerships, which can help point the way to the future. BMW's involvement with MotoGP is an example of how to do it right: in addition to supplying safety cars and other vehicles to the series, BMW earn the right to set up a VIP unit, where they can invite their most important customers, distributors, and business partners. BMW pay Dorna for the visibility the series provides, but above all, BMW pay for the privilege of doing business in the paddock. The continuing partnership between the two is a sign of its success.
Here, it seems, is where the future lies. This is why Philip Morris still pours a very large amount of money – rumored to be upwards of €20 million a year, more than twice what any other title sponsor is said to pay – into Ducati, despite there being no visible branding by the tobacco giant. The only way of telling that the massive hospitality unit which they have in the paddock is affiliated with Philip Morris is because it is probably the only one with any ashtrays inside, and where you will find people smoking. On the outside and inside, it says Ducati. Nowhere does it say Philip Morris, though paddock veterans still refer to it as the 'Marlboro hospitality'.
What does Philip Morris buy if not consumer exposure? They buy a place to do business with their partners, to invite guests, to schmooze politicians. They invite celebrities to add a touch of glamor, to liven up the atmosphere and help grease the wheels of commerce. Excellent food, fine wines and good company, all surrounded by the excitement of motorcycle racing, with the added frisson of danger which accompanies the sport. This creates the ideal environment in which to do business, and Philip Morris is deadly serious about the business it does there.
Ducati are not alone in this. Both the LCR Honda team and the Marc VDS Racing team have a solid understanding of why sponsors invest in racing, and work to find ways to help their sponsors make money. LCR, in particular, are an example of how to do it right. They have a dedicated sponsorship manager who has proved his worth over and over again. LCR do not tell their sponsors what they have to offer, they ask their sponsors how they can work together to provide both parties with the benefits they seek. Marc VDS have been following in their footsteps, listening to sponsors and helping them do business, rather than taking their money in exchange for stickers on the bike.
This, above all, is the biggest misunderstanding in the paddock. The size of the sponsor's name on the bike is the least important issue in any deal. The bikes may look like mobile advertising hoardings – though not very good ones, as they have both a very limited surface area for putting on brands, and the bikes spend a lot of time leaned over, rendering sponsor stickers entirely invisible – but in almost every case, that isn't why a sponsor is putting money into a team.
Why do companies invest in sponsoring teams? Because they believe it will enhance their business in one way or another. The bike livery – another hangover from the tobacco era, when sponsorship was aimed solely at reaching end consumers – is just a small part of that equation. Offer a sponsor a place to invite his business partners, give him the tools to do business in the paddock, and sponsors see the return on their money. Above all, it is about creating an environment where companies can come and do business, make more money than they are putting in. That means giving the sponsor's guests the full Grand Prix experience – showing them round garages, watching practice and the races with them, explaining what is going on, pointing out the finer details to them, giving them a taste of racing, making them want to come back for more. One team told me they made €30,000 euros one weekend, just from helping a sponsor show around their distributors. The local salespeople who had come as guests left with more examples and information to help sell their product, causing the sponsor to increase their contract and the money they put into the team.
What neither Dorna nor most teams seem to understand is that MotoGP is a platform which can be leveraged to help make more money. Sponsors have an incentive to put money into a team, not just for the exposure they get, but for the contacts they make, with both the sponsors of their own team and with sponsors of other teams. There is much to be gained from the idea of a business club, a collective facility where all team sponsors can meet and mingle. The MotoGP weekend itself offers a lot of opportunities for sponsors, manufacturers. The US distributors get this best of all, seizing the gathering of a large group of bike fans to showcase their models. Ducati Island remains a huge crowd draw at the American rounds.
The idea of a platform can be built out even beyond the paddock. Currently, Dorna negotiates its own deals for the title sponsorship of a MotoGP event, but this misses out on local opportunities. The TT Circuit at Assen is desperate to work with Dutch beer giant Bavaria, whose marketing arm revolves around sponsoring and organizing massive events. If Bavaria were involved, they would bring money, not just to the race track and Dorna, but also to the massive party and vast list of events which happen in the town of Assen. They would invest more heavily in promoting the event nationally, which would bring in even more visitors, to both the region and the track. This means more ticket sales and more revenue for local businesses, and more tax raised locally. That, in turn, means circuits can pay a higher sanctioning fee, meaning more money for Dorna, and ultimately more money for teams.
What MotoGP teams really need is to start thinking seriously about how they make money. Concentrate on their sponsors, work with professional sponsorship executives, listen to what their sponsors want and treat them like business partners. Do that, and more money will start to flow into the sport. When more money starts coming in, then the focus in the technical regulations can shift away from cost-cutting and on to safety aspects and attracting more manufacturers and participants. With rising budgets, more teams can afford satellite bikes, and factories do not need to subsidize the bikes they provide so heavily. When it becomes possible for factories to cover their costs from sponsorship, they can spend less time persuading their boards of the marketing and R&D value of motorcycle racing. That means pushing for more freedom, not less, and looking at racing from an entirely different perspective. Racing can become an attractive proposition, not an expensive loss leader.
Of course, it's all very well for me to sit here and pontificate on what the teams in motorcycle racing are doing wrong. If it was that easy, the teams would be swimming in money, and I would be fretting over what color my second Bugatti Veyron should be (or more realistically, having the garage extended again to make room for a fourth Honda RC213V-S). But the point is that this is a multi-million dollar industry, which should be populated by professionals. The team managers, engineers, mechanics, riders are all right on top of the sporting and technical side, but they fail utterly when it comes to the business side. Until they realize that motorcycle racing is a business first and foremost, then entertainment, and then a sport, they will be doomed to struggle for cash. That means asking more and more money from riders for a seat, it means suppliers and staff going unpaid, it means dismal salaries for very long hours and hard work.
Motorcycle racing deserves better. But to get what it deserves, it has to understand that it is all about money.
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