The Formula 1 world has been asking for some time how Virgin Racing is going to survive in 2011. The team has had poor results in its first year in F1 and although there are some sponsors on the cars, the team lacks a fancy title sponsor. Sir Richard Branson is famous for NOT putting his own money into such projects, preferring to get recognition for the Virgin brand at no cost to himself. So how does it all work?
The team’s managing director Graham Lowdon is the best man to explain. He was the one who put the deal together and came up with the structure. The team is different to all its rivals in that it made the brave decision to use only computational fluid dynamics (CFD) and avoid the use of expensive wind tunnels. The aim was to control costs to such an extent that the team will be able to generate profits.
“We’ve got a business model where the amount of resources you can employ is strictly limited,” says Lowdon, “so it’s a very different model to all the other F1 teams. Virgin liked the idea and Sir Richard Branson agreed to get involved, so too did Lloyds Development Capital, the private equity arm of the Lloyds TSB Bank.”
This organization says that it sees the team as “an attractive investment opportunity that supports a highly respected UK team with proven, world-leading technical, commercial and racing expertise in one of the most popular international sports”.
Lowdon says that if you are going to be a new team in F1, you need to do something differently.
He explains: “Our view is that it is a brave person who comes into the sport and says: ‘I am going to create exactly the same model as the other teams. We are going to be better than them and build up a sponsorship base from nothing which will be stronger than they are and we are going to beat them on the track as well’. If we were doing that I would be concerned. Our approach is completely different. We have come in and we have said: ‘We have this technical structure, the cost base is such that it is difficult for the costs to spiral out of control. It is just a different way of looking at the problem.”
The team has worked to a budget since June 2009 and Lowdon says that it is “pretty much bang on in terms of spend each month”. There was some initial investment needed but the running costs are low.
“Modern businesses are structured very differently than in the old days,” he explains. “There are a lot more working partnerships, which create group structures where there are different elements of ownership. The holding company owns a number of operating divisions, one of which is the F1 team; another is the GP3 team, another is the marketing and events side of things. The F1 team owns all of the assets. We own the motorhome, the trucks, the 30-odd tons of equipment that we transport around to the races. It owns the cars and all the spares inventory. In this respect it is identical to all the other teams.”
Lowdon says that the structure is not unlike Red Bull, which operates separate manufacturing and racing operations. Both of these companies are owned by Red Bull, while in the case of Virgin the design element is provided by Wirth Research.
“All the intellectual property resides in the team,” Lowdon says. The manufacturing is done either by Wirth or by sub-contractors and the team is structured as the others. What we have effectively done is to cut out the commodity items which you can get manufactured anywhere. The asset base of a Formula 1 team is pretty low in any case, what with the depreciation. I don’t know what the going rate is for a second hand wind tunnel but there are not that many people who need them. The value in our model is that it has very controllable costs, which are very low in comparison to the other teams. With this business model there is a low threshold to get above before you are making profits. We have an aperture we are squeezing money through and it can only take a certain amount. We are developing the car as much as we can and we are no further away than any of the other new teams.”
The sponsorship deals cover the costs of the team and the team has taken a prudent approach and worked on the principle that it will get no prize money. Thus whatever it does get will be profit. There is no intention for the team to have its own production facilities or wind tunnel.
“If we were miles off the pace you would have to start thinking about it,” Lowdon says, “but we don’t see any need to deviate.”
The key question, therefore, is whether or not CFD can move the team forwards on the grid.
“I think that it is fair to say that the technological development is going only one way and the real question is whether we have started too early or too late,” Lowdon concludes. “If we started too early it means we will get left behind in the development race and perhaps struggle commercially.”
joeblogsf1 
What absolute BS Graham Lowdon is speaking! He is acting as if McLaren and Ferrari and the other teams dont have CFD. They do and can validate the CFD codes they are running in a wind tunnel, a HUGE advantage over Virgin who have no ground truth point except to go race the car, this limit is compounded by haveing no testing time in season. So the teams with tunnels are ALWAYS a step or two ahead of Virgin. The only way this logic stacks up to an advantage for Virgin is if they had CFD and the other teams do not OR they can be 100% certian all the time what CFD tells them is correct, which it does not. Likely thier codes are as accurate as the other teams, hence no advantage. If they can reach that point where the accuracy is higher then they would have a small advantage. BUT as history shows, design is also about inspiration. See Adrian Neweys track record for confirmation of that! Until Nick Wirth gets Newey or a clone of him, he will get his backside handed to him by the other teams all the time. Even McLaren had some bold inspiration with the F duct this year, but the other teams ate up that advantage in a few months and bettered it with thier own great design ideas. What did the Virgin team originate this year? Nothing! CFD does not pop out great design ideas, it mearly refines a concept!
So the buisness model here is to go racing and if you get some points then you make a small profit from Bernie money! But they will never get to the front. Not without some serious inspiration in the design department and that individual who brings it to Virgin (if they could find them first)will be snapped up by a team with a bigger budget! This is all wishful thinking!
“So the buisness model here is to go racing and if you get some points then you make a small profit from Bernie money! But they will never get to the front.”
Exactly. It’s like Apple’s business approach: you don’t need to sell more computers (or phones) than everyone else if you make a healthy profit on each one you sell.
And if you do it a little differently than everyone else, you’ll get a bit extra free publicity to boot.
Doesn’t look like getting to the front of the grid is even part of the business plan here.
Richard Branson can get his brand in front of a hundred million or so potential customers 19 times a year, hobnob with the rich and beautiful in pitlanes around the world, and make a few bucks in the bargain. Nice work if you can get it.
But it’s not racing.
Would it be fair to say this is the exact opposite approach to Minardi, with about the same results expected? Who’s the fool in that equation?
I reckont it just might turn out all right in the long run. Without the costs they are well placed. In time CFD will certainly be able to match a wind tunnel – my dad keeps telling me that when he started out as a young solicitor . . . ooooh fifty years ago, he didn’t even have calculator, and I bought him an iPad the other day.
Have to agree with most of what Adam Kelly has written. Key is Wirth and they’ve staked the team success to him, and he is a shareholder. So what if he’s wrong? Fire him? Let’s see if and when that happens.
With the way Virgin is set out would it be impossible to do a Lotus and use the gearbox and drivetrain from a McLaren for example?
What is the possibility of some big teams offering some 2009/2010 technology to the new teams for the 2011 season to at least make them less than 3-7 seconds slower than the rest of the field?
What amazes me is the fantastic job they must have done selling any sponsorship at all with that kind of attitude.
If I’ve understood correctly then what they’re doing is taking a certain amount from the sponsors, spending a bit less than that on bolting a car together and then trundling around at the back of the grid with no hope of winning a single point. And then trousering the difference.
I must admit, it’s a new and interesting business model…
Jon Wilson,
I think you miss the point. This year they matched Lotus. Next year they intend to move up the grid – as do Lotus.
I don’t have much faith in Virgin Racing. I think CFD alone is not enough but the whole operation structure sounds extremely pessimistic and perhaps even self limiting. Nothing’s going to thrive in that sort of environment. There’s no heart. I wouldn’t want to work for Virgin Racing.
Adam,
Good argument, well put.
Your on the money.
Joe,
Your opinion is clearly better informed than mine since you’re an insider and I’m just a fan. Also you’re a professional writer so maybe I don’t express myself as well as you :->
What I had in mind was as much if not more about ambition than it was about current performance. Of course Virgin and Lotus have been much of a muchness this year but I suppose what I’m getting at is this: my reading of Lowdon’s comments is that Virgin are happy to trundle round at the back next year as well as this, and that seems to be borne out by the absence of the kind of ambition shown by Lotus and their Red Bull deal.
Then again, perhaps you have the inside track on a similar step up yet to be announced by Virgin. (If so, do tell!)
Joe – you touched on a point I’ve been pondering. Everyone has gone on about how great Lotus have done – they definitely seem to be the golden boys of the new squads. In comparison everyone has always gone on about how VR are struggling. Yet this year the two teams have been very closely matched to me. In terms of pace and finishing result.
I admit Lotus do seem to have the most momentum for the future and potential. But it has the whiff of a self-fulfilling profecy [sic!] about it – everyone talks up Lotus and talks down VR and so those are the directions they’ll go. When in fact they are pretty damn close this year.
I hope both squads go on for a few years to see how they can settle down. I hope too for HRT – but a bit more pessimistic about that one!
I think your being a bit unfair, Virgins attitude is the same as any new team in history, they simply want to survive. This is how Williams Maclaren and all the other private teams started out. They don’t have a wealthy backer so have to be realistic about what is achievable. They clearly don’t lack ambition or they wouldn’t be in F1 at all.
The decision to run a CFD only design programme was a practical attempt to ensure the teams survival and has been proven as a concept by the pace of the car which is roughly the same as the Lotus and well in front of the Hispania.
Lowden’s comments just tell me that he is a realist rather than a dreamer, he isn’t saying that he is going to win the championship next year he is saying that the team will survive. The route to the top takes years and Virgin are at the beginning, who knows what will happen in the future, maybe wind tunnels will be banned or become obselete if that happens Virgin will be in a stronger position.
The people involved are proper racers with a lot of passion for F1 who have taken a big personal risk and are putting in a huge amount of work I for one wish them well.
All very well but hardly ground breaking stuff. The only truly unique thing about Virgin is the all-CFD car, and if we’re honest we have to agree that not only is it not very swift, it also had some major design faults in the first place. One assumes the system will be better for next season and the car more competitive.
The other thing to remember also is that while Virgin may believe they have an advantage in some of their structures and processes, if they are shown to have such advantages then we can be sure the opposition will imitate them. Ultimately, while budgets have come down, the resource restriction agreement exists and new technologies enhance efficiencies, F1 is still about having a massive amount of money and investing it effectively. Vodafone don’t sponsor McLaren because they have an innovative business model, they sponsor McLaren because of the promotional opportunities afforded by a relationship with a winning Formula One team.
I also am sceptical about a Team which makes a song and dance about making a profit. I remember back in the day if I had been B&H’s CEO, I’d have been a bit miffed about Jordan having a private jet when the cash that cost could have been invested in making the car 0.2 of a second faster. I know Virgin are keen to paint a commercial story but basically what he’s saying to his sponsors is “we don’t give you maximum value”.
Is there any news on what sort of gearbox and hydraulics Virgin are running next year? This is the bit that let them and Lotus down this year the most and i’d like to see them having to do without the reliability issues next year.
Lotus may well pull ahead with the amount of money they are throwing at people and equipment but i’d love to see what Virgin can do with CFD and the Wirth group on their restricted budget but hopefully without the reliability woes.
Out of the new teams I want Virgin to succeed the most, they are trying something different. From what I understand they have a different business model and are trying to use other system to create a car. So far this has worked and I wish them more luck than I do to the other teams.
I agree with Tim W. What Virgin is saying is that a new team is going to beat an established team at its own game. It has to take a different approach. The first objective is to stay in business. Being competitive and having a design genius is no use to you if you don’t have a team anymore.
Before the season started, there was a lot of speculation about whether using CFD only instead of CFD and a wind-tunnel would work and the evidence is that it has based on the fact that the car is competitive with the Lotus and HRT cars both of whom were designed with the aid of wind-tunnel testing and, in Lotus’ case, by people with more recent F1 experience. CFD gives another advantage as, with wind tunnel tests, you have to design and make the part before testing it while CFD skips the manufacturing lead time and any waiting time to get into a wind tunnel. With current rules preventing full-scale wind-tunnel testing, wind-tunnel results are less accurate than they otherwise could be.
I think it’s great that a team is taking a different, more pragmatic approach and doing well. Good luck to them.
Jon Wilson
I think Virgin has done a deal with Williams concerning transmission and hydraulics. Williams announced that they have a deal in place with an unnamed team, and Virgin seems to be the only option. Would that suffice as a similar step to Lotus’s Red Bull deal?
Teemu,
What about HRT?
Bang on Tim!
Whilst I take note that the opinions of most who have replied to this great post today (thanks Joe. This is EXACTLY the sort of story I like about your blog) take the opinion that being in F1 absolutelly has to have the objective of being the world champion, reality is that there can only be one each year, and that the likelyhood of that being a team started from scratch is nigh on impossible.
What I found interesting was that as Tim said, Lowden sounds to be fairly well grounded in this understanding. He knows that he’s not Ferrari, McLaren, nor does he feel that he needs to be.
What is more, he knows that he CAN NOT be a Lotus, or a HRT and expect to get any better results. The way I see it is that he’s taking a very very calculated alternate path to the other teams. Even though it may not be 100%, or even 90% for that matter, the cost savings will allow him to do it again next year, and the year after that and so on…
I don’t see a problem with a team existing to fight in the midfield, or even at the back for that matter. It’d be a bloody boring sport if the only teams that were allowed to race were the ones that had a realistic chance to win. Right now, we’d only have four cars on the grid.
I’d be very interested to see how the spending of VR stacked up against Sauber this year, or even Williams for that matter. Any insight joe?
I think that Virgin’s CFD approach is quite useful for the other teams (not just in F1). It’s a bit like the car that goes onto slicks on a drying track – everyone will watch carefully to see if they end up off the track or pick up the pace and catch up to the field.
Considering Virgin/Manor started an F1 program from scratch I think they’re doing pretty well in their first season.
The fact they’re the only team to bypass the traditional design process and given the testing ban makes it even more impressive.
I don’t think anyone can judge their business model or operational processes in the first year. Next couple of years will be interesting for sure. If they can improve and move up the grid to consistently challenge for points they might just have revolutionised the sport.
Even if it fails it’s changed peoples minds about how to run an F1 team.
So it’s the drivers or what? Virgin was great last year…same car more or less, no?
One thing troubled me with their car (and HRT and Lotus’) and that is that most of the top teams’ cars look fairly similar whereas the three newcomers have cars that look wildly different from the rest of the field.
I’m no engineer or F1 specialist but the top teams are so far ahead, why haven’t the three teams adopted similar wings and other similarities?
Well, I somehow suspect they won’t be there next year and that doing business with them might be a bit foolhardy… Do they even have a new car coming or would they bolt the new bits to a couple of tired old Dallaras?
“The Formula 1 world has been asking for some time how Virgin Racing is going to survive in 2011. The team has had poor results in its first year in F1 and although there are some sponsors on the cars”
Be it MotoGP, F1, or Powrboat, someone has to finish at the back!!
I take then that the team thought they were going to waltz in and stand on the podium every race.
George,
I guess it has something to do with the homologation of the chassis. They have to be crash tested before the season, and after that you’re pretty much stuck with what you have. Talking about the monoque. Wings, shark fin etc. can ofcourse be changed.
I kind a like the approach Virgin has taken. They haven’t made such a fuzz about themselves like Fernandes has done with Lotus. The business strategy of Virgin clearly shows that they are here to stay. No point being a one season wonder if you spend all your money. They are building a team from a scratch and are taking a cautious and sensible approach. They know that with the budget they have there is no way of challenging the teams at the front. However if they make steady progress towards the midfield and start scoring points, the sponsor will be more intrested and their budget will grow.
Taking an all-CFD approach is pretty much the only way to go with the budget they have. And I think they’ve shown this season that it can work. Next year will be interesting. Wirth has probably learned some tricks with this years car, and I’m really looking forward to see how much more competitive they can be. Transmission and hydraulics supplied by Williams would also be a clear step forward.