- Formula E founder Alejandro Agag will become chairman of electric-racing series
- Former LA Rams and Manchester United executive Reigle to focus on audience engagement
- Plans to diversify business and decrease dependence on sponsorship as share of revenues
The appointment of former LA Rams executive Jamie Reigle as Formula E’s second chief executive this September marked the moment the electric car racing series attempted to transition from promising start-up to something much more substantial.
While Alejandro Agag, the man Reigle replaced in July, clearly possessed the entrepreneurial and political attributes needed to get the motorsport off the ground, some of its celebrated stakeholders felt a different set of skills was required for the next stage in its development.
“We were brainstorming with the shareholders, with Liberty Global and with Discovery, and we thought it was a good moment to take the company to the next level,” says Agag, who assumed the position of the Formula E chairman last December and who has remained chief executive while a successor was found.
The change of personnel should not be perceived as a slight on Agag’s achievements. Within the space of seven years, the Spanish dealmaker – whose range of business and political contacts once motivated El Pais to describe his phone SIM card as ‘priceless’ – has taken Formula E from nonexistence to the point it recently declared its first profit. He says the milestone was all the more satisfying given Formula E’s rocky beginnings.
“I remember at one point, we owed about €25m to suppliers, and we had €100,000 in the bank,” he tells SportBusiness. “The turning point really was when Liberty Global and Discovery invested in the company, because we were having a big problem of perceptions. The market was not convinced that we were going to survive, so big companies and manufacturers were hesitant to join.”
Scale
The same shareholders have now identified Reigle, who before working for the Rams spent 10 years at Manchester United, as the man to build on Agag’s foundations and the small profit – €1m ($1.1m) – the business will register when it submits its accounts for the 2018-19 season.
“I have a lot of experience in scaling sports businesses and scaling media properties, building teams and going after ambitious expectations,” says Reigle, in the pair’s first joint interview since his appointment.
The Canadian says that one of the reasons he accepted the job was because the business structure established by his predecessor is so sound.
“What’s really compelling is the fact we have an integrated business model, meaning we control the events, we control the TV rights, we control the digital rights, we control the sponsorship, we control the branding,” he tells SportBusiness. “If you were to say that to someone at the Premier League or the NFL or other sports properties… it’s very rare where you’re integrated in that way.”
Audience engagement has been a thread running through Reigle’s career. He was involved in the Rams’ relocation to Los Angeles, where he oversaw the drive to target a younger, predominantly Hispanic, fanbase. In ten years with Manchester United, he led the club’s global commercial operations and ran its Asia-Pacific operation in Hong Kong. He says his priority for Formula E will be to grow the audience and overcome criticisms that it has proved more attractive to sponsors than sports fans so far.
“I think [sponsors] buy the sustainability narrative of the racing, so the good news is we have the elements that sponsors want,” he says. “I think as we move forward, the challenge to be able to drive real value for them over time is to combine that narrative with media reach.”
Sponsorship
In many ways, Formula E has subverted the usual industry maxims that say sponsorship depends on fan interest and exposure. So strongly is the motorsport aligned to the future of automotive engineering – and so powerful is its corporate social responsibility message – that brands have been prepared to support it while it is still in its relative infancy.
A 25-per-cent year-on-year increase in sponsorship revenues, thanks to new deals with Bosch, Heineken, Moët & Chandon and Saudi Arabian Airlines, will help the series exceed €200m in revenues when it publishes its accounts next April.
“Probably half our incomes are from sponsorship and then the rest is divided between corporate hospitality, teams, a small share of TV revenue and local race promoters,” says Agag. He adds that the long-term goal is to diversify the business. “Even if it [sponsorship] is going to grow in absolute terms, it will have a smaller relative weight in the future. It will probably go down to 40 per cent or one-third of our business.”
Formula E’s disproportionate success in the sponsorship category cannot be completely ascribed to its compelling CSR and sustainability narrative. The series also benefits from centralised sales approach which allows it to offer selected pieces of inventory on each of the cars on the grid. For example, tyre supplier Michelin’s logo appears above the rear wheel of every car, while title sponsor ABB’s logo appears on the nose cones of each vehicle. Other pieces of inventory are left for teams to sell themselves.
The limitations on what the teams can sell hasn’t dissuaded automotive companies from getting involved in the series. Over the space of the last two years, many of Europe and Asia’s biggest major car manufacturers have entered teams, attracted by the relatively low costs and the opportunity to showcase their electric technology. Nissan and BMW were the latest to enter the series. Mercedes and Porsche will be involved in the 2019-20 season, which starts this November.
To provide a greater incentive for teams to participate, the series has remained faithful to a set of principles that were first developed when the FIA put out a tender for an electric series in 2011.
“What they lacked was the concept of how to make it happen,” remembers Agag. “Our idea was very simple: we will produce the cars, we will have enough capital to pay for all the cars and we will build the cars for the teams.
“I think the reason why we won the tender was because we came with a specific solution of how to execute the plan.”
This avoided a scenario in which teams developed electric cars that would be so different they wouldn’t be able to race other. In the winning solution, which continues to apply in the sport today, the chassis and the aerodynamic package is exactly the same for each of the cars, which are manufactured in France and transported by Formula E to different races around the world. The individual teams differentiate on the design of the batteries and power trains – the most relevant technologies to the development of future road-going cars.
Team costs
This model serves to make the racing more competitive – there were ten different winners in the 13 rounds of the 2018-19 season – and keep team costs low in comparison with other motorsports. SportBusiness understands the cost of running a Formula E team is about €20m per year, including the estimated €5m per year in entry costs.
“I think it’s embedded in the DNA of the championship to have a competitive field and to make it appealing for the teams and to be able to have a sustainable business model,” says Reigle.
“What’s appealing for the teams is, it’s still expensive, it’s motorsport, but it’s not going to cost hundreds of millions to put a team on the track and they’ve a reasonably good chance of winning if they build a proper team. So that flywheel gets spinning and I think that’s why Formula E have had great success bringing in all the OEMs and all the teams.”
The motorsport’s ability to attract so many of the OEMs, ancillary suppliers from the electric automotive sector, and even fossil fuel companies, has also, on occasions, been used as a stick to beat it. Chase Carey, chief executive and chairman of Formula One, is among those to criticise Formula E as being a “business-to-business proposition, as opposed to a sport.”
Agag says the arrival of brands like Moët & Chandon, Tag Heuer and Heineken proves Formula E is making the transition to more of a consumer-facing proposition. Reigle’s remit to build audiences is consistent with a strategy to attract more brands like these.
“One of the main objectives is to convert and go from a business-to-business platform to a business-to-consumer platform, without forgetting our business-to-business aspect,” says Agag. “A great positive asset of ours [is] to be a business-to-business platform and I think many people would like to be a business-to-business platform like we are.”
City centres
Formula E’s city centre racing model will be key to building consumer audiences as it brings the sporting action to the fan, and families in particular, removing the requirement to travel out-of-town to watch a race. It also happens to provide the most complications for the business and the sternest test of Agag’s political skills. Cases in point were the cancellation of a race in Hong Kong because of the demonstrations in the city and the protests that preceded this year’s Swiss ePrix in the city of Bern.
“It is the beauty of a championship but at the same time it is a huge challenge, because cities are living entities where things happen,” says Agag. “This just means that we need to be more flexible and we need to have a capacity of adaptation to circumstances.”
The Spaniard says he is sceptical about Formula One’s plans to take a street race to Miami because of his own struggles in taking an ePrix to the city.
“I think we had to fill out 137 planning applications,” he says “You have federal roads, drains, there was a train going through the circuit…Every restaurant will ask your for something because they say they will get a lot less customers.”
For these reasons, Formula E tends to prefer inner city circuits which are sufficiently removed from large concentrations of homes and businesses to decrease the levels of bureaucracy. The German ePrix at Berlin’s Tempelhof aerodrome and the British ePrix, which will make its debut at London’s Excel arena in 2020, sit in this sweet spot.
Agag, who was a Member of the European Parliament between 1999 and 2001, says he has been particularly outspoken about the dangers of Brexit because of its potential to disrupt Formula E’s logistical operations, which are run out of the UK. “If there is free movement of goods, we can move in and out with the cars without problems,” he says. “What was scaring me was tariffs to come into the UK.”
Change of roles
The change of leadership will free up Agag to focus on the sort of political and bureaucratic problems thrown up by the city-centre racing model and leave him to manage the sport’s relationships with long-term sponsors and the FIA. The Spaniard will also apply his entrepreneurial talents to the development of Extreme E, the new off-road racing series described as an electric version of the Dakar Rally.
This will leave Reigle to work on the day-to-day growth of the company and on building the engagement he has prioritised. But the Canadian insists no area of the business exists in isolation.
“We need to work on what I’ll call the sense that a Formula E event is a must-attend or a golden ticket within those cities,” he says. “People want to watch the core product, the race itself, but they also want to feel like they’re part of a broader community.
“If you get a sense that there’s 35,000-40,000 people in Mexico City, watching a race, and that is something other people care about and are really engaged in, there’s a bit of a positive feedback loop that you can get going there.”
