In F1, car manufacturers gain more from high R&D and low advertising.

Resource allocation: investments in sport competitions, R&D and advertising

Competing firms invest varying and large amounts in sport contests and achieve varying levels of success, which may affect their innovation and branding returns. The allocation of resources to competitive sport is likely to be dependent on the firm’s investment in other areas, of which R&D and advertising seem most relevant, considering the innovating and branding returns of competing in sports contests. Yvonne explains: “This made us want to investigate to what extent sports gear manufacturers taking part in competitions gain positive outcomes for innovating, branding, or both, and if these outcomes are contingent on the gear manufacturer’s R&D and advertising spending.”

Yvonne: “We constructed a novel data set on car manufacturers’ participation, spending, and performance in the F1 World Championship. The sample comprised nine manufacturers that competed in F1 at some point during 2000-2015.”

To examine the effect of participation between contestants and non-contestants, we included seven car manufacturers that did not compete in F1 during our sample period. To examine the innovating effect, we supplemented F1 data with information about these manufacturers’ R&D spending and innovation performance, measured in terms of patent citations. To investigate the branding effect, we collected data on researched brands’ advertising spending and sales performance or in other words, the number of new vehicle registrations in France, Germany, Italy, Spain, and the UK.”

R&D spending and innovating return

According to Dr Yvonne van Everdingen, the research revealed that competing in F1 generates a significantly positive effect on innovation, but it benefits only those manufacturers that spend at least €3.8 billion annually on R&D (e.g., Daimler and Honda). This effect is not found for manufacturers such as Fiat or Renault that spend less than this amount on R&D. Thus, if manufacturers decide to invest in F1 to enhance their innovation performance, i.e., to enhance the number and impact of patents for new and unique technology they hold, then they must complement it with an R&D budget that matches the €3.8 billion spend of Daimler or Honda to fully exploit the innovation potential offered by competing in F1.

Advertising spending and branding returns

Additionally, the research showed that brands with low advertising budgets obtain greater branding returns in form of sales performance from competing in sports contests than those with high advertising budgets. While all brands in the sample obtain positive branding returns from participating and increasing their spending in F1, the branding returns of competing in F1 are greatest for brands that have the lowest comparable advertising spend (e.g., Ferrari, Jaguar, or Lotus). And, only brands that spend less than €10.6 million in monthly advertising benefit from improving their performance in F1.

Managerial implications

These findings are particularly relevant for managers and analysts in the automotive industry, including suppliers of parts and components, but also for other sports gear manufacturers for which competing is a relevant consideration (e.g., motorsports, cycling, tennis, and skiing). They can use this information to assess the potential economic outcomes of competing. What’s more, these findings may guide sports gear manufacturers as they consider the trade-offs between allocating budget for competing, R&D, and advertising.