The Weekly Grapevine

Diamonds are forever

McLaren may have unexpectedly snared Fernando Alonso and persuaded Vodafone to decamp from Ferrari come 2007, but have the Italians caught the biggest fish about, one able to comfortably service the team's stratospheric long-term budgetary needs, and then some?

Although denied by a spokesperson for diamond trading house De Beers, mining industry sources suggest that Ferrari signed a long-term agreement, beginning next year, with the Kimberley, South Africa-based company, which is predominantly owned by the Oppenheimer family.

De Beers has reinvented itself following a (voluntary) 2001 delisting and a number of long-running skirmishes with various monopoly commissions, and the company has embarked upon an aggressive marketing strategy designed, in its own words, "to reinvigorate the industry and to grow demand for diamond jewelry in order to compete more successfully with luxury goods competition."

What better way of growing demand for iconic luxury than by association with another icon? Diamonds and motor racing; De Beers and Ferrari. In short, the deal makes enormous sense for both parties.

Should it come to pass, 'diamond' logos and slogans will replace Vodafone's 'voice bubbles' on the red cars, with confirmation thereof expected during the launch of Ferrari's 2006 car later this month - probably at Mugello on 30th of January.

2006-style De Beers not only wholesale rough stones to a host of contracted outlets for cutting and polishing - Steinmetz, which partnered McLaren at Monaco last year and remains listed as a McLaren sponsor on 2006 media releases, is one such customer - but the company formerly known as the Central Selling Organization (CSO) markets cut stones through a wholly-owned chain of showrooms operating in New York, Beverley Hills, Paris, Tokyo, Osaka and London. These require international marketing support of the best kind, and Ferrari and Formula One can deliver just that.

The aforementioned Monaco foray, which succeeded a similarly well-promoted Jaguar Racing-linked promotion in May 2004, no doubt persuaded De Beers of Formula One's value as a suitable pedestal for high-end products, even if gimmicks such as 'lost' stones (ask Christian Klien) and diamond-encrusted helmets (for Kimi Raikkonen and Juan-Pablo Montoya) were resorted to 'drive' home Steinmetz's marketing messages.

Significantly for Ferrari (and De Beers), Steinmetz's relationship with McLaren, who were nicotine-dependent until July last year, proved the image of diamonds was sufficiently robust to overcome negative connotations inherent in sharing a platform with a tobacco sponsor. The latter factor greatly narrowed Ferrari's prospect lists, with brands such as Coca-Cola, McDonalds and Virgin - all of whom have suitable liveries and in the past been linked to the record-setting team - steering well clear of motor racing's most famous name for precisely that reason.

Of even greater importance to the financially challenged Italian team is De Beers' financial clout. The company set itself a 2005 sales budget of $10bn via sales of 50m carats of rough stones, with all indications being that the target was comfortably exceeded. De Beers' stated marketing objective is to allocate 10% of sales to marketing support programmes, equating to some $1bn per annum at present turnover levels. Sources suggest the value of the De Beers/Ferrari partnership to be $50m per annum - less than 0.5% of 2007 forecasted sales.

The diamond company's sales managers are, frankly, faced with limited (or zero) options when it comes to matching Ferrari and Formula One's global marketing reach and cost-effectiveness, and in time they could be persuaded to increase the contribution to 10% of total marketing budget - which would place the company at the very top of Formula One's sponsorship tables while leaving a residual $900m to spend on other activities. You can bet Ferrari has double-checked the math.

And, where Vodafone's white-on-red 'bubble' found itself regularly swamped by Marlboro's ownership of Ferrari's red skin and constantly changing tobacco liveries, De Beers stands to benefit from increasingly stringent anti-tobacco legislation by being perceived in non-tobacco countries, particularly those which ban logo likeness, as being Ferrari's primary sponsor.

Finally, more observant fans may have noticed 'Energem' branding at A1 Grand Prix venues. Based in Toronto, Energem, until recently trading as Diamondworx, grew out of a South African mining company (Anglovaal) established and operating in opposition to the Oppenheimer family's umbrella organization, the Anglo-American Corporation.

Interestingly, listed amongst Energem's directors are: Brian Menell, (chairman); Tony Teixeira (ceo); Bruce Holmes (non-executive director), plus His Highness Sheikh Hasher Maktoum Juma Al Maktoum (also non-executive, and father of the founder of motor racing's 'World Cup'). Teixeira has, of course, recently become better known as A1 Grand Prix's CEO - in addition to continuing in his Energem role - whilst Menell, whose family founded Anglovaal, and Holmes both carry A1 Grand Prix main board responsibilities as executive director and special adviser respectively. Diamonds and motor racing...

Against this background De Beers/Ferrari neatly link a record-setting team operating at the highest level with the world's largest diamond sales operation while distinctly overshadowing any international motor racing aspirations Energem may yet have. Three birds with one glistening stone, it could be said.

Vodafone's McLaren title-and-branding sponsorship is said to initially run for five years from 2007, with extension clauses providing double that. At a rumoured $50m per season ($10m more than the value of Vodafone's present Ferrari sponsorship) the partnership could be worth upwards of half a billion dollars to the Woking-based team. Certainly not small change by Formula One standards, and a worthy replacement for West, which, after Yardley and Marlboro, was the team's third title sponsor since 1971. The problem, though, is that McLaren presently has no title sponsor and a new car with bare flanks and wings...

Which is where matters get a trifle interesting, for Vodafone is said to be anxious to leave tobacco-tainted Ferrari soonest, particularly given the mobile phone network's revised strategy of targeting under-16s. Visual links with the team in this regard are out of bounds, and likely to remain that way for another year, unless Vodafone manages to negotiate an exit. Which, of course, would suit McLaren just fine.

Similarly the Prancing Horse is champing at the rhetorical bit to get De Beers on board pretty damn quick, for, apart from the marketing kudos such a partnership would immediately bring to bear, the incremental $10m for this year would prove most welcome down in Maranello, where, forget not, times have been tight for more than a while now.

Who would be the loser in such a deal? For once in Formula One, nobody: De Beers has an immediate presence paid for by an existent budget; Ferrari's mainline sponsorship programmes are consolidated a year ahead of plan with the added advantage of a budget boost; Vodafone is clean of all tobacco links and free to fully exploit its Formula One association among all market sectors; and McLaren acquire a title sponsor a year ahead of time.

Seldom do multilateral deals in Formula One benefit all parties, but this scenario could prove to be the one exception. Now, where is that De Beers announcement?