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Why Spyker makes sense for Mallya

September 05, 2007 07:34 IST

It would be easy to dismiss Vijay Mallya's purchase over the last week-end of Spyker, the struggling Formula 1 team, as a fit of personal whimsy by a businessman with a predilection for fast cars and the high life.

That may well be part of the explanation, but a closer look suggests that the deal makes good business sense as well, by providing him a springboard to global markets and access to one of the best business networks in the world.

The Formula 1 business model may never pass the scrutiny of a conventional competition commission but as a money-spinner it is brilliant. It thrives on the basic notion of a monopoly -- under the Concorde Agreement, Formula 1 has an upper limit of 12 teams -- and combines this with outstanding marketing.

Thus, with its cocktail of cutting-edge technology, big bucks, fast cars, exclusivity and glamour, Formula 1 racing routinely features among the five most-watched sports events worldwide -- and the global audience for the sport is growing at a racing pace.

For instance, according to ViewerTrack statistics, in 2006 the Brazilian Grand Prix figured on the list of ten most-watched sports events of the year. At 83 million, the figure represents a 39 per cent jump over global audiences for the previous year's Canadian Grand Prix, also a top-ten sporting event.

According to Formula 1's governing body, average viewership varies between 4 million and 10 million. This is smaller than the global viewership for European soccer tournaments, but as a focused, addressable market, Formula 1 provides a unique opportunity for any businessman with global ambitions.

Having bought old rival Manohar Chhabria's Shaw Wallace some years ago, Mr Mallya's UB Group is now India's largest liquor and beer company. The group's Kingfisher beer has more than half the national market and will soon raise its overseas profile. The Kingfisher brand has also been extended to Mr Mallya's airline company, with ambitions of launching international operations when Indian rules permit.

With the acquisition of Scottish distiller Whyte & Mackay, Mr Mallya has made it clear that he intends to make his liquor business global. In that sense, Formula 1 is a good launch pad. It gives a uniquely high-impact advertising forum by providing sustained brand visibility for the 90-odd minutes of a race.

Importantly, given the increasingly stringent limits in Europe on liquor and tobacco advertising -- two significant Formula 1 income-earners -- the sport is making inroads into Asia. China and Bahrain are recent entrants to the calendar, Singapore follows next year and, who knows, it may be India after that (it is no coincidence that Mr Mallya heads the local racing body).

These will provide Mr Mallya with an entrée into high-value Asian markets to grow his airline and liquor businesses. The Gulf and south-east Asian routes are among the most lucrative for Indian carriers, for example, and China and other Asian Tigers constitute the world's fastest-growing liquor markets.

The obvious question is why Mr Mallya has chosen to buy a poorly ranked team when he already has the Kingfisher logo on the Toyota team. The answer is that part-sponsorship, though prestigious, is no match for team ownership, in terms of both brand projection and access to a world of high finance and business that perhaps surpasses even the annual Davos meet of the World Economic Forum.

In short, Mr Mallya has been able to do what most businessmen dream of: combine a personal passion with a high-value business opportunity.

BS Bureau