The players were never higher for Red Bull Racing.
Following last year’s championship-winning campaign, Max Verstappen is today on the track for the inauguration of the Formula 1 season 2022 in Bahrain, where the young Dutchman and his team will be put to the test more than ever.
Also for the whole sport the pieces have been raised. In 2021, F1 had one of its strongest years to date – both from a financial and consumer adoption point of view – and sponsorship dollars immediately began to come in by 2022.
The numbers are only going to get more impressive:
- F1 raised $ 787 million in Q4 2021 revenue and $ 2.14 billion in total for the full year.
- US viewership has grown to 36 million viewers.
- Globally, the company said 445 million people watched at least one race in 2021, an increase of 3% year over year.
- The championship is close to a reported five-year, $ 150 million bumper sponsorship deal with U.S. software behemoth Salesforce.
As can be seen on Netflix’s megahit F1 documentary series “Drive to Survive”, the sport is filled with countless characters. The business behind many of the teams is equally compelling – and Red Bull is no exception. In February, the team formally changed its name to Oracle Red Bull Racing following a reported $ 500 million name rights deal with tech giant.
Across F1, Red Bull has expanded its reach into a number of other sporting properties, ranging from Bundesliga football and extreme sports to motorsports, sports, and ice hockey. But how did an energy drink company become such an iconic figure in sports?
Red Bull’s Marketing Engine
You may be surprised – just like I was – to find that Red Bull is essentially a company that does nothing. Its renowned energy drink has long been the main product in the company’s portfolio, but Red Bull has no hand in manufacturing it.
This dates back to the founding of the company, when the Austrian businessman Dietrich Maesteshictz was first impressed with a Thai energy drink, Kratig Daeng, the antidote to jet lag, which originated from Bangkok travelers.
After finding the secret formula for the energy drink, Maesteschitz teamed up with Kratig Daeng founder Chaleo Yoovidhya with one goal in mind – to grow the product in Europe.
Instead of manufacturing its core product – carbonated energy drinks that have not yet seen market traction – Red Bull outsourced the process, relying on partners like juice producer Rausch to create the product.
With that in mind, Red Bull and Mateschitz were left to invest capital in the only way they knew how: marketing.
Fast-forward for almost three decades, and the company has transformed into a global marketing behemoth with its hands square and what feels like different industries – namely sports.
- Soccer: RB Leipzig, NY Red Bulls, Red Bull Salzburg, Red Bull Ghana, and Red Bull Brazil
- Formula 1: Oracle Red Bull Racing and AlphaTauri Scuderia
- Sports: AND Dota 2 and Red Bulls
- Ice hockey: EHC Red Bull Munich
- Nascar: Red Bull team
- Clothing: AlphaTauri
- Travel agency: Destination Red Bull
- Media: Red Bull Media House
The story is similar throughout these ventures. Just like Red Bull’s drinks are made by Rausch, their travel agency is run by The Travel Birds, their clothing is made by Schoeller Switzerland, and the engines that power their F1 race cars are built by Honda.
So, what does Red Bull do?
The short answer is marketing. Even though Red Bull is a private company, there is a way to get back into their marketing spending.
It was reported that Red Bull’s revenue in 2020 reached $ 6.37 billion. By comparison, PepsiCo spent $ 1.74 billion on marketing in 2020, representing only 2.5% of the company’s $ 70.37 billion in revenue during the period.
But in many ways, what Red Bull does is bigger than marketing. The operation is more like a narrative construction machine whose main purpose is to buy the distribution and reduce the customer acquisition cost.
To sell its outsourced products – most notably the Red Bull beverage – the company relies on a variety of properties, where its large budgets and high-level creative assets are welcome.
A traditional company like PepsiCo uses its marketing budget to sponsor an event or to produce an advertisement. The investment manifests itself as spending on its income statement with hopes of a future return on advertising spending through lighting.
Instead of simply paying for sponsorship costs, Red Bull invests in the distribution it receives by buying sports teams, building media companies and organizing events.
F1’s Return on Investment for Red Bull
The acquisition of Jaguar’s Red Bull Racing in 2004 represents a $ 1 investment. That’s right – $ 1. But the agreement also stated that Red Bull would require $ 400 million to be invested over the next three years.
The investment in F1 was a bet that a Red Bull car would reach enough eyes to earn a strong return on investment. From the look of F1’s recent finances, it was a well-placed bet.
Then there’s the really innovative part: Red Bull has apparently turned an expense into a revenue stream. The company is able to pay other sponsors like Tag Heuer, Puma and Tezos for the distribution. The ultimate swing gear.
How to reduce customer acquisition costs? Take, for example, the famous Stratos project, in which an Austrian skydiver jumped 24 miles above the earth’s surface – the first time of a human being to break the sound barrier without the help of an engine.
The stunt cost Red Bull seven years of R&D and $ 50 million. The result? In the six months following the stunt, Red Bull increased its sales by 7%, resulting in $ 1.6 billion in sales in the United States alone. The original video offers the company still well-deserved media to this day.
In a sense, the same strategy is used with Red Bull Racing. So when you see their cars on the track this weekend, remember that they are more than just exceptional engineering features – they are integral teeth in the distribution engine Red Bull has built.
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