The Weekly Grapevine

F1's new money

On Sunday, Lucky Strike and Mild Seven will exit Formula One, joining West, Benson and Hedges, Gauloises, Rothmans/Winfield - all of whom exited the sport over the last five years. Thus, next year Marlboro will be the only tobacco brand still involved in the sport, having a year ago extended its deal with Ferrari to 2012.

Lucky Strike and Mild Seven have a proud history in the sport: the former entered F1 way back in 1970 and enjoyed associations with world champions and Grand Prix winners; the Japanese brand won no less than four world championships with Benetton/Renault and could conceivably add a further two within the next five days.

Other sponsors will take their place. McLaren were able to poach Vodafone as title sponsor off Ferrari to replace West, whilst Williams found a whole raft of brands, including insurance company Allianz and the Royal Bank of Scotland, to step into the breach once Rothmans pulled out of Formula One.

To add to his team's commercial portfolio, McLaren boss Ron Dennis is expected to announce a secondary deal with Spanish bank Banesto when the team launch in mid-January.

Now, to replace Mild Seven as title sponsor, Renault F1 Team have announced a three-year deal, believed to be worth $350 million (USD) when all below-the-line and peripheral activities are factored in, with Benelux bank ING. What makes the deal particularly interesting is that the financial institution so obviously targeted, first, Formula One, then the team.

Alain Dassas, President Renault F1 Team; Cees Maas, Vice Chairman and CFO of ING Group; Flavio Briatore, Managing Director Renault F1 Team © LAT

ING first came to prominence in English-speaking circles for all the wrong reasons: after rogue trader Nick Leason bankrupted Barings Bank in 1994, ING threw the beleaguered financial securities and equities operation a lifeline, but has, of late, been rather low-key. Yes, it sponsors the New York Marathon and various Dutch, mainly airport-orientated, art and cultural projects, but, in the main, the bank's orange lion has been conspicuous by its absence in mainstream sport.

Formula One, though, is a natural 'fit': ING trades in Western and Central Europe, the Americas, and the Asia Pacific Rim; more precisely, the bank's 114,000 employees are active in 13 of the (presently) 18 Grand Prix-hosting countries, plus a raft of others, including Mexico and South Korea, which are targeted by F1 supremo Bernie Ecclestone as future growth points. And, in common with Formula One, ING is absent in Africa.

Banks and F1 are far from strange bed-fellows, particularly when manufacturer-backed teams are involved. Such associations bring with them various commercial synergies, for not only do the motor companies require enormous reserves to carry their insurances, and finance their inventories, in-progress and stock on rubber, but their dealers need access to fund their floor plans (the method by which they finance their unsold stock) and carry their new and used vehicle hire-purchase 'books'.

Add in leases, full-maintenance programmes and vehicle insurances, and those finance schemes ostensibly offered by motor manufacturers but underwritten by banks, and the funding requirements to turn metal to motor car, then move it, are astronomical.

None of this would have escaped ING's decision-takers, 11th on a global bank market valuation table, or, indeed, those at Renault, who recently announced plans to make onslaughts on the luxury and sporting vehicle sectors. Together with F1's predominantly middle- to upper-class demographics and the sport's geographic footprint and its 350 million viewer 'reach', the decision reached by ING was a simple no-brainer.

Citigroup Inc, largest on the table with a value 250% that of ING, was the first financial institution in F1 when it sponsored Roger Penske's eponymous team in 1974, initially under its travelers cheques brand, then as Citibank. In 1976, Citigroup switched to Max Mosley's March team, then, for 1977, to Tyrrell, sponsoring the evocative six-wheelers of Patrick Depailler and Ronnie Peterson.

Since Citigroup's lead, various banks have participated in F1. HSBC (third on the list) partnered Jackie Stewart's team, transferring to Jaguar Racing when Ford Motor Company acquired the canny Scot's outfit. At the time, HSBC was a major financial partner of Ford and only withdrew from the deal when it became apparent that the parent company was no longer committed to F1.

Credit Suisse is, on a reducing equity basis, a shareholder in BMW-Sauber as well as title sponsor for at least two more years. Would a famously parsimonious Swiss bank, even one with strong connections to America's First Boston bank (which it owns) and Winterthur Insurance, venture anywhere near F1 unless such links demonstrated clear commercial advantages?

MasterCard, too, dipped in and out and in and out of F1 - disastrously with Lola; semi-successfully with Jordan as secondary sponsor - before nailing its colours firmly to the FIFA World Cup mast in 2002. While RBS's deal with Williams does not stretch to naming rights, the bank is title sponsor of the highly-popular and visible RBS Williams Conference Centre, which incorporates the team's fascinating display of museum pieces.

Given that three banks owned, until very recently, a majority stake in the sport's commercial operating company (SLEC), and their holdings have been in the main acquired by venture capitalists (CVC Partners Ltd), it is perhaps only fitting that the team most likely to start the new season as reigning champions will sport bank livery at their first 2007 race, and that the man most likely to bear the hallowed No. 1 will likely carry the logo of his homeland's premier bank on his car's wings.

In fact, so bullish is Dennis about his company's financial stability that he recently declared: "We have never been more economically strong. We have the biggest portfolio of contracted sponsorship in the history of the company, and I believe that's in the history of the sport."

All of which begs the question: how many more global companies could potentially commit huge sums to F1, and how much more funding would be available to Ferrari if Marlboro withdrew from F1 too? Renault and McLaren's recent title sponsorship acquisition provides just part of the answer.