Dummy’s guide to team strategy or It’s all about expected cash flows

Is Formula 1 a team sport? The question might sound simple, but the answer is not. Technically, according to the regulatory framework of the FIA it is both team and individual sports. We have World Drivers’ Championship and World Constructors’ Championship. Despite high correlation of the performances in those two, sometimes – and rather often – a huge conflict of interests arises.

At the first glance good performance in WCC appears to be more important from the economic point of view. It gives the team a certain cash inflow in addition to the positive media coverage, which is beneficial for the team’s sponsors and therefore improves their chances to secure further less certain cash inflows. On the other hand, it would be wrong to underestimate an economic impact that a driver’s personality has on sponsorship deals.

Psychologically supporting a driver is a more straightforward thing than supporting a team: one can associate with a person rather simply, there are more plain emotions involved. And due to this reasons loyalty is easier to achieve at a personality basis, not a team basis. This loyalty of potential customers to a particular personality influences economic attractiveness of the sport for the sponsors to a very high extent. And a lucrative sponsorship deal can bring a lot more cash than the points in WCC. Numbers behind the deal between Ferrari and Santander are unimaginably high, and as far as I know, the deal is based on the fact that Fernando Alonso, a highly relevant personality not only for the Spanish market, is driving for the team. These cash inflows are less certain, though. Ultimately it’s about the expected value: the product of probabilities with amounts.

In terms of sponsorship deals F1 is pretty much a winner-takes-it-all market. What is the point for a company to sponsor smaller teams, who not always finish races and have very limited media exposure? Both probability and value of the contracts available for smaller team are rather low and therefore WCC points, which give certain cash flows are of a much higher value for those small teams.

Bigger teams who have more public interest directed to them enjoy the luxury of bigger and more probable sponsorship contracts, and for those teams the expected value of sponsorship despite the uncertainty is likely to be higher than the expected value of the prize money differentials.

With this in mind, there are pretty much three options a team might face.

The first one is to have two non-star-drivers, who have an equal treatment in a team, equal media exposure with slight adjustments to the target markets and who desperately fight for every single point in WCC. This is the option mid-pack and small teams are stuck with. They cannot afford to have a star-driver (sometimes they even can’t afford to have a decent driver), they cannot afford a quick car and end up in a vicious circle, where WCC determines the survival chance, but does not provide enough money to climb higher. I bet, we are rather unlikely to hear that Sutil was asked to let Di Resta pass in their battle for the 7th. The only plausible approach to team orders for such teams is: bring the cars home, both of them.

The luxurious option is to have two star-drivers. This option is only available for big teams, which usually have a rather high chances of winning races. So that the impact on the media coverage of two strong personalities within a team is combined with the general interest to the team and the drivers as probable championship contenders. But equal treatment comes at its cost, and McLaren in 2007 is a case in point. It is rather hard to evaluate what economic effect the whole situation had because of the Spygate controversy surrounding the team, but theoretically this approach aims to achieve high performance in both WCC and WDC and to maximize cash inflows from both sponsorship and prize money. The problem is that it is hard to achieve: the rivalry between Alonso and Hamilton cost McLaren a WDC, Spygate controversy – in which Alonso played his role – cost the team WCC. But McLaren keep trying: from 2010 they had the most incredible driver line-up. There were a couple of situations where preferential treatment of one driver to another was likely to yield serious benefits, but the team let Lewis and Jenson race, providing the fans with memorable fights.

I have an impression, that exactly this was what Red Bull were trying to do in Malaysia: they were trying to work towards WCC more than towards WDC for any of their drivers because the championship is still in early stages. This didn’t work because of the management. But now the team, surrounded in the controversy has all the media coverage in the world. The interesting part of it is that it is not even a negative coverage – it’s a topic for discussion, which provides people with different opinions with points to make. The RedBull PR strategy concerning the matter appears as a chaos: Vettel apologises  a week later he says he would do the same thing again. But maybe chaos is the strategy, maybe they try to handle it and remain everybody’s darling. We’ll see.

The third option is a clear #1 and #2 driver hierarchy, with the media attention and team support concentrated on one star-driver. One immediately thinks of Schumacher or Alonso in Ferrari or Räikkönen in Lotus. This approach puts the teams priorities to obtain sponsorship contracts above WCC. In this case a strong personality is required, someone who can attract media attention to an extent high enough to cover possible under-performance in WCC. Last year Ferrari didn’t care about the money they might lose if they didn’t finish second in WCC when they broke the seal on Massa’s gear box, all they cared about was Alonso’s championship hopes. It might sound illogical for a car manufacturer, but Ferrari’s brand is strong enough and they do not need to signal quality, which WCC would, they can afford concentration on emotional appeal, which is way easier to achieve with fans’ loyalty to a person. And this approach works for Ferrari. Having adopted this strategy long ago, the team is able to implement it in an effective way.

At the end of the day, team performance and individual performance is not necessarily a trade-off, but it requires strong management and suitable personalities to achieve both. Ultimately as a fan, even after bringing all these economic rationale into play I would prefer the second option, the McLaren one. Why? Because it is an attempt to achieve perfection, and this is exactly what for me F1 is about. Perfection.

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2 Comments

  1. Yes, for me approach McLaren is the most correct… In the Red bull also tried to act honorably, but that boy will not help the team, for him there is only he.

    Reply
    • I think RedBull lacks consistency in their decisions. They cannot make their strategic decisions work and it doesn’t matter if they employ team orders or not. They also do not apper to have any kind of team unity, which McLaren have. But I think its a good topoc for another full fledged post🙂

      Reply

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