The Global Value Chain of Motorsports

♠ Posted by Emmanuel in ,, at 5/19/2008 12:49:00 AM

Anyone who hasn't been hiding in a cave for the past quarter century or so knows racing is big business. Formula One (road cars), World Rally Championship, Moto GP and other series are household names which attract international media coverage, big sponsorship bucks, tourists, and other manifestations of late modern capitalism. With F1 top teams like Ferrari and McLaren having annual budgets in the vicinity of $500 million each, it cannot be otherwise. That is, there is also a vast "global value chain" (GVN) behind motorsport. Unbeknownst to me for the longest time, the library here at the University of Birmingham had a copy of this book entitled "Motorsport Going Global." Certainly, it's worth a look if you are interested in the topic. There are some excerpts of the book posted online from which I've taken the illustration above of the sport's global value chain from and the description of the different participants below. The book even boasts a foreword from the powerful and influential if ever-so-kinky FIA President Max Mosley whose hijinks have hijacked the pages of tabloids here in Blighty for weeks on end.

A constructor is a firm that creates a motorsport vehicle of some sort. In this sense it is the “OEM” of the motorsport sector. This would be typified by the Formula One and World Rally Championship (WRC) constructors, such as Ferrari, Honda, Prodrive and Mitsubishi Ralliart. In the USA, examples of constructors would be Panoz in Champcar and Roush in NASCAR. In South America, Berta is a constructor of touring cars, while in Italy, both Tatuus and Dallara are well known single-seat constructors. In the UK, Lola typifies this group.

Constructor Suppliers
These represent the specialized suppliers to the constructors, which allow them to create the final vehicle (in automotive terms the Tier 1 and Tier 2 companies). They include suppliers of engines (Cosworth, Hendrick Motorsports); aerodynamic components (Fondmetal Technologies, B3 Technologies); gearboxes (Xtrac, SADEV); tires (Goodyear, Pirelli) and fuel and lubricants (Shell, BP and Castrol). Similarly, there are the specialist services, for example, the technical consultancy provided by organizations such as MIRA, Ricardo and ORECA.

An entrant is the organization that enters and is responsible for racing or rallying the vehicle. It includes individuals and racing teams. In some cases, the entrant is the same organization as the constructor, but this allows for the identification of this distinct area of activity with examples of firms that are purely entrants, including Manor Motorsport of the UK, DAMS of France and Andretti Green in the USA.

This category covers those organizations that manage and operate racing events, either as a series or individually. It includes racing clubs, such as the BRSCC in the UK; operations within manufacturers, such as Renault UK motorsport; and specialists such as Formula Palmer Audi. Commercial promoters include NASCAR in the USA or companies such as BMP or SRO, which may promote many series.

Event Suppliers
These include all the components necessary for an event to take place, including circuits (for example, Silverstone or Goodwood in the UK, Hockenheim in Germany and Daytona and Indianapolis in the USA) and specialist suppliers in, for example, construction, catering and related hospitality.

These include all media, specialist and general, concerned with dissemination of events, through radio, TV, Internet and press coverage more generally. In the UK Haymarket is a leading print media specialist, while in the USA Fox and NBC/Turner televise NASCAR. RTL in Germany is the leading TV distributor of F1 on TV, while RAI and TF1 perform the same role in Italy and France respectively.

This identifies the groups involved in consumption of the events, either as spectators, participants, viewers, listeners or readers of the various media. All of the above groups represent a simplified yet relevant supply chain, which extends from car components to the motorsport event itself. Additionally, there are a number of other groups that influence and provide input to all of the aforementioned organizations.

Supporting Service Industries
These firms provide critical services across the industry in specialized areas such as insurance (THB Clowes, UK), personnel management (IMG, USA, or CSS Stellar, UK), market research (MRA and Sports Marketing Surveys), freight, logistics, legal, marketing, finance, sponsorship recruitment and other areas, like racing schools (Henry Morogh Racing School, Italy; Richard Petty Driving Experience, USA).

Regulatory and sanctioning bodies such as the FIA, CIK, CSAI, ACCUS, SCCA, FIM or ACO are influential at all levels in the sport and thereby the industry. They define the “manufacturing” specification of the vehicles and also influence the nature of the delivery and format of events. Similarly, their safety regulations influence manufacturers, component suppliers and circuits.

Regulatory and Fiscal Environment for Business
In addition to the specific regulatory environment of motorsport, organizations operate within the broader regulatory environment that affects all businesses. An obvious example from Formula One would be the differing legal framework for tobacco sponsorship across different nations.