I meet Zak Brown, the McLaren Formula 1 team’s executive director, at McLaren Group’s lovely headquarters near Woking, south-west of London, designed by the ‘starchitect’ Sir Norman Foster.
Set by a man-made lake, the building is cool and minimalist,
all curving glass and subdued colours and set in acres of landscaped parkland.
It’s a blistering hot day, but it is, of course, air-conditioned and everyone’s
wearing a suit. The atmosphere is calm, efficient, unhurried. Someone greets me
by name as I enter the foyer, which doubles as a museum, a petrolhead’s
paradise, with McLaren F1 cars of the past, featuring the names of previous
star drivers – Senna, Prost, Lauda – scattered artfully around.
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It’s like the ultra-modern headquarters of a global
corporation – no accident, I’m sure. Just look at the list of the team’s
sponsors: Johnnie Walker, SAP, Santander, Hilton, NTT, Michael Kors… These are
the companies with which the team rubs shoulders and which it wants to continue
to entice and influence.
The only trouble is, the McLaren team, which has won 182
grand prix races and 20 world championships since its Formula 1 debut in 1963,
is on its uppers. Presently lying in bottom position in the constructors
championship, with two points, compared to the leader Mercedes’ 250, without a
grand prix victory since 2012 and without a title sponsor since 2013, the team
(and the company) has been through an unprecedented period of turmoil.
This culminated just a week ago with Ron Dennis, regarded as an icon of grand prix racing, finally stepping down as chairman of McLaren, having already been ousted as chief executive after 37 years in charge, and selling his stake in the renamed McLaren Group (which comprises the F1 business, a road car business and a technology business) for £275 million ($313 million). The group had combined revenues of £898 million in 2016 and employed more than 3,400 people.
Brown’s arrival in November last year from CSM Sport &
Entertainment, the UK-based sports agency chaired by Sebastian Coe, was part of
a major restructuring aimed at addressing the Formula 1 team’s problems. The
road car business is doing well, as the Formula 1 team struggles, but Brown
rejects a theory that F1 teams with road car divisions – Ferrari and Mercedes
are other examples – tend to be successful on either the road or the track at
any given time, but not both. “They’re two separate workforces,” he says. “I’m
not sure it’s even statistically accurate. It’s a coincidence.”
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By GlobalData
American, thick-set, with slicked-back hair, he’s an expert interviewee: brisk, succinct and with an arresting, apparently pre-prepared, nugget for me. Formula 1 should buy the ageing and ailing Silverstone, home of the historic British Grand Prix, he says.
The British Racing Drivers’ Club, owner of the circuit, said this week that it is “highly probable” that it will have to activate a break clause in 2019 enabling it to withdraw from its contract to host the race because of financial concerns. Silverstone’s hosting fees are contracted to rise by 5 per cent per year over the course of its 17-year contract, from £12 million in 2010 to £26 million by 2026.
“We have to have a British Grand Prix,” says Brown. “I think
Liberty [Formula 1’s new owner] should buy Silverstone. If it owned the circuit
it could take a different view on investment – kind of like the NFL owns the
Super Bowl, even though it moves around. Formula 1 could do a lot if it owned
the event. Silverstone has to run, it’s not a charity, it has to pay for itself
and if it just can’t afford it I think Formula 1 needs to explore as many ways
as possible to help make Formula 1 a good business for Silverstone. You could
have testing, a hall of fame, racing schools, fan engagement days…”
Brown doesn’t cite them but there are examples in USA of motor racing series owning the circuits they stage their races on: International Speedway Corporation, sister company of stock car racing’s Nascar, owns around a dozen circuits, including the Daytona International Speedway, while the IndyCar Series and Indianapolis Motor Speedway also share common owners.
This is a period of change not just for McLaren, of course,
but for Formula 1 as a whole, after Liberty Media, the US media giant owned by
billionaire John Malone, acquired the series in January from a consortium led
by previous owner CVC Capital Partners in a deal that valued the sport at $8
billion.
Brown, perhaps unsurprisingly as a new boy himself, is full
of enthusiasm for the new owners and their plans for the series. He says: “I’m
very happy with the new owners. They’re global sports media experts and
ultimately we deliver Formula 1 via different types of media. They also
understand sport and own sports teams [Liberty Media owns Major League
Baseball’s Atlanta Braves, among other sports investments].
What we now have are strategic owners investing in sport that understand sport and media. They’re very transparent in the way they come at things because they don’t have a history in the sport
“What we now have are strategic owners investing in sport
that understand sport and media. They’re very transparent in the way they come
at things because they don’t have a history in the sport; they’re agenda-free. We’re
seeing new governance and structural balance because it’s not everyone fighting
for themselves.”
Bernie Ecclestone, the legendary former Formula 1 promoter
and ringmaster, who ran the series almost single-handedly until finally being
forced to step down following the takeover, was criticised by some for being
uninterested in digital and social media developments and failing to exploit
the potential for race and series sponsors.
That criticism is “fair,” Brown says, although like almost
everyone in Formula 1 he’s quick to defend Ecclestone’s legacy, describing his
work as “Herculean,” and adding: “It was unbelievable, and we all have him to
thank. But the world changes”
Brown was himself touted at one point as a potential
replacement for Ecclestone before joining McLaren, but in the event the
86-year-old was effectively replaced by three executives: 21st Century Fox’s Chase
Carey, now the chief executive and chairman of Formula 1; Ross Brawn, previously
a successful team principal at Benetton, Ferrari and Brawn GP/Mercedes and now
Formula 1’s managing director for motor sports; and Sean Bratches, a former
senior executive at sports broadcaster ESPN and the new managing director of
Formula 1’s commercial operations. “The job Bernie did as an individual is too
big for anyone now,” Brown says.
Previously, the share of Formula 1 revenues that was
distributed to the teams under the Ecclestone regime was a bone of contention
between the two sides, but in recent years that share has risen to about 68 per
cent, which, Brown says, “seems to be fine. Would we rather have 75 per cent?
Sure. Would they [Formula 1’s management] rather it was 55 per cent? Sure. But
I’m more interested in the growth of the total pie. We need to double the size
of the pie, then the percentage matters less.”
Then he says something interesting. McLaren is one of six
teams which receives a bigger share of the revenues than the remaining four
because of their perceived history, heritage and value to the series. But, says
Brown, “I’m not happy with the revenue distribution [between the teams], even
though we are one of the beneficiaries: the entire eco-system of the sport
needs to be healthy. Too much goes to the top, to the detriment of the bottom.
I’m arguing to change that, to create a more equal playing field.
“Right now, if you look at the discrepancy it’s the largest of any major sport, top to bottom. Look at the NFL and it’s effectively equal. I’m not an advocate of making it equal [in Formula 1], because bigger teams like McLaren have delivered more, but it’s definitely a barrier [to the entry of new teams into the series]. When you are the biggest annual global sporting property in the world and some of the teams have gone bust or traded for a dollar – tell me the last time a [Uefa] Champions League team or an NFL team went bust. Steve Ballmer bought [the NBA’s] LA Clippers for $2 billion. No race team on the grid is worth anything near that. Something’s wrong and what’s wrong is the Formula 1 business from a pure investor standpoint is not good business. But that’s all changing.”
Having launched his own motor sport sponsorship marketing
business Just Marketing International, and then run it successfully for over 20
years, Brown sold it to CSM in 2013, becoming CSM’s chief executive in a
reshuffle of the management team in March 2015, until accepting the McLaren
job. His time at CSM, though short, exposed him to a range of other sports – so
did it give him the (relatively unusual) ability to put the normally closed
world of Formula 1 into the wider sports marketing context?
“One hundred per cent,” Brown replies, enthusiastically. “I
got more perspective at CSM. I was there long enough to get exposed to
effectively every other sport in a behind-the-scenes way. It helps to
understand where Formula 1 and McLaren are strong and weak, versus other sports
– because ultimately we’re competing with other sports.”
Motor sport has, of course, the reputation of being a money
pit, and Brown admits: “We spend more than we attract. Some people can afford
it, others can’t, but Formula 1 has not lived within its means; that’s the
biggest flaw with the business model. Anything is a money pit if you don’t
bring enough money in. Take the [English] Premier League for comparison. There
are individuals that want to win at all costs, and also some extremely wealthy
individuals. But with Formula 1 there’s no choice. With other sports it’s a
deliberate decision [to spend more money than they earn].”
Then, perhaps betraying one of the reasons that his tenure
of the top job at CSM lasted less than two years, he adds: “You could come into
the Premier League and put 11 players, or however many it is, on the pitch less
expensively.”
So what does he mean when he says that Formula 1’s broken
business model is changing? “We’re going to reduce costs through rule changes, and
increase the size of the pie so we can distribute the revenues more equitably,”
he says. “We’ll change the dynamics of Formula 1, which predominantly loses
money, to predominantly making money.”
Sounds good, but how? “Growth from all areas,” he says. “Building
a bigger fan base means more media rights [revenues], higher demand from cities
to hold races, more sponsorship and selling more merchandise. Liberty will
focus on the fan first, so sponsors will sponsor the sport to reach the fans. We’ll
have higher attendance figures and more people watching on different forms of
media.”
Bratches last month told the FIA Sport Conference in Geneva
that Formula 1 will seek a 30:70 ratio of free-to-air and pay-television
coverage of the sport in future rights deals, but added: “Free to air is
critically important to us. My vision as it relates to media rights is a hybrid
of free-to-air and pay. Our plan is to balance the two but have a prominent,
over the year, free-to-air voice.
“That is important from a fans, sponsors and relevance
standpoint. There is the cauldron full of cash on the pay side and on the other
side of the scale you have brand and reach.”
Brown agrees, but adds: “It will fluctuate by market. Are
you getting more or less [money] via sponsors or via pay-TV? If you reduce the
audience [by showing races exclusively on pay-TV], are you making the money you
think you’re making? It’s a market-by-market thing.
“But what needs to be done when looking at media is not just
free-to-air and pay, but other forms of media that complement it. You need to
talk to all fans in the different ways they like to consume. The reach needs to
increase. I’m less concerned about how, I just want the audience getting
bigger.
“Media can grow and certainly can grow a lot in non-TV.
There’s a whole world out there and other forms of media are just getting
started.” Of digital and social media, he admits: “How to monetise that has yet
to be totally figured out. [Ecclestone] and CVC took short-range economic
decisions. There are areas that are critical for the long-term health of the
sport.”
However, he argues that directly monetising social media is
“not the most important thing, it’s about building the fanbase. Eventually,
sponsors will come to you instead of someone else if you can show you have a
heavily engaged fanbase on social media. It’s about building scale and knowing
who your fans are. No one is killing it today, but it’s not about today.”
There are other untapped revenue sources for both the teams
and the series, such as merchandise, Brown adds: “Look at what Nascar, what
[American] football does. We just haven’t done it well.” There’s also what he
terms “brand extensions,” citing the possibility of Formula 1-branded go-kart
facilities or restaurants. And how about an entire top floor of a Hilton hotel
that is branded ‘The McLaren Suite at the Hilton’? Given that Hilton is one of
McLaren’s sponsors I imagine that this one is already in the works, although he
doesn’t say as much.
Finally, Brown believes that Formula 1 needs to extend its geographical reach and therefore welcomes this week’s announcement that it has teamed up with Lagardère Sports, the international sports management agency, to attract new commercial partners in the key market of China.
Formula 1 has had a strong presence in China since 2004 in
the shape of the Chinese Grand Prix held at the Shanghai International Circuit,
but following the news that this year’s Malaysian Grand Prix will be the last
for the foreseeable future after the country’s government relinquished the
hosting rights earlier than planned, Brown thinks there’s scope for at least
one more race in Asia, plus another in USA and one in South America, albeit he
says, “I don’t think Europe requires any more.”
How do you turn a Formula 1 race into a two-week event? There is scope for that, absolutely
In the Lagardère announcement, Bratches talked of “developing our brand through unique live entertainment experiences designed to get fans closer to the action,” and Brown welcomes plans to transform Formula 1 races into events that last well beyond the race weekend, saying: “When the Super Bowl comes to town, it’s not just a Sunday, there are parties and events to engage with the fans. How do you turn a Formula 1 race into a two-week event? There is scope for that, absolutely. Some tracks do it better than others. Singapore does a great job of the build-up to the grand prix.”
Reflecting on his time at CSM, Brown says: “I was there long
enough to know I really wanted to be back in motor racing full time. I do like
other sports: golf, tennis, MLB, I played all of those. So if I’m looking at
what gets me excited, the sports I like, most were the ones I played or was
best at. I’m more of a player-manager, and that’s why I like those sports. But
I always liked cars from a young age, the competition – I’m a competitive
person. But it’s the way race cars look and sound, that’s what I loved from
early on.”
Brown was born in Los Angeles in 1971 and first fell in love
with motor racing when he and his brother were taken by their father to sports
car, Nascar and drag races once or twice a year. He went to his first Formula 1
race aged 10 in 1981. He still has the programme – in fact, he still has the
programmes of all the races he went to as a child. “That’s how much I love the
sport,” he says.
As a teenager he went on the Wheel of Fortune TV show and won, he says, “some watches,” which he then traded in for his first-ever race car, a go-kart, and so his own racing career began, culminating with him moving to Europe to compete in Formula Ford and Formula 3 races in 1990. Meanwhile, he was also still competing in North America’s Toyota Atlantic Series, and he launched JMI after being asked to find sponsors for other racers.
So does he regret selling JMI? “No, I did it for 22 years,”
he says. “I loved it, it was my baby. It provided for my family and me for the rest
of my life, but I was ready for a new challenge. My background is excellent for
McLaren’s commercial needs right now. But it’s exciting also to be a part of a
leadership, and to get back to winning races. I’m a racer first, but I also
live for the thrill of the deal.”
McLaren’s long search for a new title sponsor doesn’t look
like ending any time soon. The previous deal with Vodafone ended in 2013, and
Brown warned when he came on board that the team was highly unlikely to find a
replacement for the 2017 season. The cause has not been helped by the team’s
struggles this season which have been widely attributed to an underpowered and
unreliable engine supplied by the team’s engine partner Honda.
Brown says that “the Honda era made it next to impossible to
sell a title partnership,” but that he is optimistic for next season. “It’s one
of my big roles,” he adds. “Starting in December, I’ve been working on it for
2018. It’s early but I like the companies and categories we’re talking to.
There’s a strong prospect list.”
Formula 1 plans to increase its own activities in the
sponsorship market to plug the gaps in race and series sponsorship that critics
of Ecclestone identified, but Brown insists that this will not impinge on the
sponsorship categories available for the teams, and that there will be nothing
to stop races and teams having competing brands as sponsors.
“It doesn’t restrict us in any way,” he says. “It will create
competition for us, and that’s good and bad. Good because there will be others out
talking about Formula 1 in the marketplace. Bad because they might be talking
to the same company.” However, even if Formula 1 does agree a deal with a
sponsor that had been targeted by a team, “some of the revenue will trickle back
to us,” he says. “They’re not locking off categories. It would be a problem if
they did, but they won’t.”
He won’t be too specific, but the title sponsorship categories
that McLaren is targeting, Brown says, are “ones that are very synergistic to
technology, and to the premium leadership brand of McLaren. Big global
entities. Anyone that is going on our car should be a company that is well-known
and makes sense to McLaren.”
How much does the team need? What is its annual budget? “It
costs a couple of hundred million pounds a year to go racing,” Brown says. “A
little less than half of that is Formula 1 prize money, and the balance is through
commercial income, nearly all of it sponsorship. We’re [McLaren] unique in that
there are three legs to the stool: motor racing, predominantly Formula 1, but
also Indy and GT; the applied technology business; and the automotive business.
Our commercial offering is broader and we offer more opportunities [to
sponsors] than anyone else on the grid. Some others do two of the three, some
are pure Formula 1 teams. That’s our USP.”
So where would Brown like McLaren to be in five years’ time, I ask? “In five years’ time, we could be winning world championships,” he says. “That’s my goal, that’s my remit. We’re not here to finish second.” Will that mean breaking with Honda and finding another engine supplier (Mercedes has been whispered)? “Not necessarily,” Brown replies, carefully. “It’s the biggest issue sitting here today and we certainly need to fix the engine situation. There’s clearly a lack of power and reliability. Formula 1 is the pinnacle of technology. We took a risk this year on a redesign of the engine to close the gap, and they’ve not got it right yet. But there’s not a single reason.”
As head of a racing team, Brown is clearly in an exposed and
vulnerable position. The success or failure of JMI was in his own hands, but in
a racing team much of what happens is beyond his control. Does he feel
comfortable with that position? “It’s what I’ve signed up for and enjoy,” he
says. “Comfortable is not a word I would use. My contribution is in the public
domain 20 times a year [at each Formula 1 race]. But I’m confident in the
people I’m working with; they’re great at what they do.”
Brown still competes in races in historic cars from his own
historic race car collection. That sounds dangerous, I say, picturing slow but
unsafe cars from the first half of the last century. In fact, the cars are from
the 1980s and 1990s and, if anything, are even faster than today’s Formula 1
cars which have been deliberately slowed for cost and safety reasons. “There
are probably safer things to do,” Brown says wryly.
So does he ever get frightened, I ask, to which I get a
classic racer’s answer: “Every once in a while I get frightened, but I never
think I should stop. If you think that, then you probably should stop.”
