Why Red Bull won’t quit F1

Speculation has been rife in recent weeks that four-time Constructors’ Champions Red Bull Racing will leave the sport in the wake of poor race results, primarily caused by their under-powered Renault engines.

The team’s media postulating and the overly public deterioration of its relationship with its engine provider has caused much derision from F1 fans worldwide, and today’s announcement that they will pull out of the sport if they cannot get a competitive engine has done nothing for their brand reputation.

However, it has also served to confirm that the team will not be quitting the sport. Here’s why.

Speculate to accumulate

The financial statements of Red Bull Technology – the parent company of the brand’s two race teams – showed that the company had invested around $1.2 billion in the five years up to April 2014, including the $75 million purchase of the Minardi team.

Its most significant investments came in 2013, on the back of three consecutive Constructors’ and Drivers’ Championship titles, when it spent a total of £196 million over the course of the season. R&D accounted for around £83 million alone, but despite such heavy investment the team still reported a net profit of £1 million for the year.

However, this figure does not take into account the sums spent on the Red Bull Junior Team driver development programme that has honed the talents of a wealth of drivers worldwide. In total, 14 drivers have graduated the programme and made an appearance on the F1 grid, with such illustrious names as Sebastian Vettel to Scott Speed and Max Verstappen.

Furthermore, Red Bull owner Dietrich Mateschitz personally advocated the €200 million upgrading of the Red Bull Ring circuit, which made its return to the F1 calendar in 2014.

To make such a substantial financial commitment to the sport only to pull out after a single season after its last title success would not make sound business sense, especially when considering the brand exposure the brand receives.

F1 as a marketing platform

While significant investments have been made in the team, a 2014 Forbes article calculated that the TV brand exposure generated through Red Bull’s participation in Formula 1 was worth in excess of $1.6 billion – easily off-setting the outlay.

In fact, for 2013 it is estimated that Red Bull Racing generated the equivalent of $283.2 million worth of advertising exposure through its on-track success. This is equivalent to 11.9% of the total gained by all teams.

Furthermore, at the height of the team’s success in 2012, Red Bull drinks sales rose to 5.2 billion cans sold worldwide, resulting in record revenue of $6.7 billion – a year-on-year increase of 15.9%.

This cannot simply be a coincidence, and further demonstrates the value that F1 activities provide.

A partnership with Audi?

Dr Helmut Marko, Red Bull’s motorsport adviser, today announced that Red Bull Racing would pull out of Formula 1 if either they cannot get a competitive engine or if Audi do not join forces with the team.

Herein lays the truth behind the team’s recent media positioning. By being so vocal about their frustrations with Renault, the team has placed pressure on the FIA and Formula 1 itself to resolve the issue of face losing one of its most successful squads. Their hope is that Renault will either provide significant on-track performance gains, or that the French manufacturer will bow to its wishes and break contract with the team.

This comes at a time when the VW group is undergoing a major power shift after the departure of Ferdinand Piëch, which immediately led to speculation of a move into the pinnacle of motorsport after great success in endurance racing.

Reputation and commitments

Like all F1 teams, Red Bull Racing has signed the current Concord Agreement – a legal document that commits them to race in the championship until at least 2020. Breaking with this agreement could result in legal action by Formula 1.

Ultimately, while it is likely that Red Bull will get its way, the highly public nature of this battle will have significantly tainted the brand. One only needs to search ‘Red Bull’ on Twitter to see the growing negative sentiment towards the brand and the team amongst F1 fans.

If the team remains in the sport and success returns, I am sure they will remain long after 2020. However, if this highly petulant stance continues and they withdraw their entry, it is likely that sales will suffer as fans and customers become disillusioned. Add into the mix the loss of 658 jobs and sympathy for the team will be all but dead.

Red Bull Racing is playing an inadvisable media game that is resulting in severe damage to the brand’s reputation but make no mistake, it is here to stay.

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