The Indian entrepreneur has set the sport of Formula One alight in 2007. Now he has got the taste for sports sponsorship as a vehicle for promoting his fast growing Fly Kingfisher airline

Message in a bottle

Vijay Mallya has been a sponsor of Formula One for the past 10 years but he claims no one noticed him before. Now with India on an economic roll, he is one of a new breed of global entrepreneurs where borders have no barriers. He sees Formula One as a way of continuing India’s growth story around the world and his newly-named Force India team along with an Indian Grand Prix will be the spearhead for his assault on global business. On the surface he may appear a colourful playboy, deep down he is a sober businessman who knows clearly what he wants and even more clearly how he is going to get it.

Vijay Mallya is a confident man. He is one of the new generation of global billionaires who conduct business in most continents of the world on a 24 hour basis. But he doesn’t run any of his businesses himself. He is more of a conductor, and according to the share prices of his companies, a very fine one.

His style is to be a hands-off executive chairman focusing on strategy and leaving his managers to operate day to day. His style works: Forbes magazine recently rated him the 664th richest person in the world at US$1.5 billion – but that is probably a considerable underestimate.

Mallya is a hard-working billionaire. He loves his life and makes the most of it. When he is travelling, which is much of the time, his life is non-stop meetings. He likes to pack a lot in. It is not uncommon for him to start his working day at nine o’clock and finish at three o’clock the following morning. A meeting is scheduled every hour, seven days a week, sometimes as many as 20 in a day. If he runs late everyone waits their turn. It is very much a ‘tycoon’ way of doing things. He agrees: “I work hard, for me it is 24/7. For me I don’t look at my watch, much to the disappointment of the people who work with me. I don’t recognise weekends as holidays. I just keep going. One of the reasons that I do what I do is because I love what I do, I find it challenging and rewarding.”

But if Mallya agrees to see you, he will see you. Any meeting with him is not disappointing and he has a way of making things work which is hard to define. As he says: “I believe above all in professional management and improving shareholder value. Once you accommodate that mindset then everything falls into place.”

He now has many business interests and a collection of diverse, publicly quoted companies in India. His main company is United Breweries Group, which is dominated by beverages, namely the Kingfisher and Whyte & Mackay brands. Then comes his fast-growing airline business also called Kingfisher.

It all started when he inherited a vast Indian conglomerate of companies when his father died in 1983. He was only 27. But he is not just his father’s son. Now 51, he has grown what he inherited many times over. But first he stepped back. He believed his father’s business was too complicated and set out to simplify it. Once he had focused it he then started growing it again.

For 20 years no one noticed, however, and it was only as India emerged as a strong economic force five years ago that people began to hear about him. By then he had gained the image of a playboy-style figure. He understands that and says: “I think it all started 25 years ago when my father passed away. I was 27 and I became the chairman of UB. I lived like a 27-year-old, with the likes that a 27-year-old would normally be expected to have. Whereas all my peers were 50 plus, obviously we were from different generations and maybe they were more conservative than I was, so it began from there.”

After he started his Kingfisher airline, he began to be compared with Richard Branson. He doesn’t promote that comparison but he also doesn’t mind it, as he says: “At the end of the day, I am who I am and the way the media promotes it is entirely their own prerogative. I have grown a thick skin and I really don’t care about how people perceive me and all I say is look at my share price.”

Mallya has all the trappings and accoutrements of a billionaire. He has some impressive personal residences and yachts and planes, including the Indian Empress, one of the grandest private yachts in the world. But they all have a purpose in his business life. It means he can combine business with pleasure and pleasure with business. “The amount I travel is more a necessity than a luxury,” he says. “For sure I have a large yacht and when I want to take some time off I take some time off, but I also use my yachts for my business entertainment and for my business promotion, these are very effective tools. You cannot just use a yacht as a personal tool. It can be a really useful promotional tool.” No one doubts that and Mallya’s Grand Prix parties in Monaco and Istanbul on his yacht were spectacular last year.

It was only in 2007 that Formula One began to hear about him, when he emerged as a new sponsor of the Toyota Formula One team. But Mallya has been around motorsport and Formula One for a very long time. He says it is only because India is such an emerging economic nation that people are now interested in him. He says: “I think that the India story has made international news has a lot to do with it. I think that India has finally woken up a gigantic economy which is growing at a very fast pace; Indian companies going global making international acquisitions, all of which was not anticipated in the past.”

In fact his Kingfisher beer brand began sponsoring the Benetton team as early as 1992 and he has been involved in the governing body of Indian motorsport for many years. His biographical references on the internet confirm him as a petrolhead and say his car collection numbers 250. He regularly used to drive a Formula One car in the late 1970s in his youth. He says: “I have always been involved in Formula One. I have always been involved in motorsport, 35 years of being the chairman of the FIA-affiliated member association.”

But last month he really arrived in Formula One when he presided over the purchase of the Spyker Formula One team for around US$120 million. For good measure he also made sure a deal was signed that will see an Indian Grand Prix take place in 2010. Both were landmark achievements for him personally and for India.

The deal for the Indian Grand Prix had been a long time coming, but it was relatively straightforward compared to the process of buying the team. That was a complicated debt and equity deal. It appears he has put in around US$60 million to buy the team and put in another US$25 million to underwrite next season’s operation. In fact he has only bought half the team, the other half is still owned by Jan Mol and his son Michiel. But he is very much in the driving seat as chairman and managing director.

Mallya has already made a huge difference to the way the team operates. Gone are the money problems that have haunted it for the past five seasons. He is very open and says the team has been told it has US$100 million as its budget for 2008. With US$50 million in the kitty already from sponsor, TV and driver deals, the commercial team has to find another US$50 million.

He is clearly going to be a very demanding owner commercially. As far as performance is concerned, he says he wants to move two places up the grid in 2008 and another two places in 2009. After that he makes no predictions or demands.

If the current management can achieve those objectives they will keep their jobs. If they can’t then it is anyone’s guess.

He regards the two key people at the team as principal, Colin Kolles, and technical head, Mike Gascoyne. They are the two who have to deliver Mallya’s performance and commercial vision. It was to ensure there were no barriers to that that he funded the team’s budget well in advance.

For the first time he reveals that the team is debt free. He says the mortgage that Alex Shnaider left is completely paid off. Mallya is clear: “This is probably the first time in many years that the team has a stable bank balance, so we are not scrounging for day-to-day cash. We have money in the bank, which allows me to increase the accountability for the management team, for the design team, engineering team, whoever it may be.” He adds for clarity so there is no doubt: “All the debts from the previous owners are all paid off, we paid them off.”

And that is the secret of Mallya’s management style – accountability and transparency. Unless he funds the team well in advance, he doesn’t believe he can hold the designer or the team principal accountable for their performance. He also has clear reasons for keeping the existing management team in place, as he explains: “One of the things that I am particularly proud of when we take over a new acquisition is that we have retained the management teams. I don’t subscribe to the idea that you should go in all guns blazing, fire everybody and say, ‘we are coming in’. We put in financial controls; we have actually recruited a financial director in the UK to be in control of the UK finances. So we know which areas we need to control, finance is one of those, and the rest of it, the team management, just carries on.”

He continues: “The technical director is only as good as his resources, it is only now that the team has fully commissioned its windtunnel in Brackley, and the one in Italy, so the team has two windtunnels. In the past Mike (Gascoyne) probably asked for other resources which were not financially available, now Mike knows that I have  given him all the technical resources he’d like to demand.”

He expects performance but he is not expecting miracles: “I understand this game enough to know that miracles cannot happen and technical development is a long slow process.”

Mallya is also aware that the world expects him to fail. After all, two experienced businessmen Alex Shnaider and Jan Mol have tried and failed in the past two seasons. They both failed on the track and off it. Shnaider shrewdly exited with a profit and Mol has also got out with his shirt, thanks to the generosity of Mallya who could have driven a lot harder bargain to take over the team if he had wanted.

Mallya says: “I am not going to comment on the previous owners; I will only say that I have very closely followed Formula One and Jordan F1.”

In fact, Mallya has also been praised for his generosity to the Mol family. When he arrived they were effectively a busted flush. Their deal to buy the team had been badly structured in the first place, they had run it badly and they faced the worst possible outcome that the old owner, with debts outstanding, could reclaim the team. But Mallya was not interested in going for the kill, as he says; “The Mol family is a very wealthy family. Jan Mol is invested in Spyker Cars in order to buy the team, when Spyker Cars got into trouble and they had to sell the team, Jan Mol wanted to retain the team, which is why he invested in the first place. So I was instrumental in the facility of this. Basically there were two things here. He had significant amounts of money invested and the second thing is that he recognised that I brought a lot of value to the team with the India story and also the expertise to run the team that he didn’t have. He stayed in under the terms of a very clear shareholders’ agreement. I have the majority on the board and also I am in charge of management because I have the position of chairman and managing director. So there is nothing wrong with partnerships and he is a good partner to date. He has come up with his percentage of the cash.”

Mallya doesn’t say so but clearly to maintain his 50 per cent ownership, the Mol family will have to invest a dollar for every dollar Mallya puts in. If the commercial team performs, the Mols will not have to find another cent. If it doesn’t they will be diluted out of sight. Mallya admits: “We have an agreement that allows a get-out route for either partner, with either a buyout or sell option. But there is absolutely nothing planned, I think Mol wants to stay in the long term and that is what he has told me and I have no reason to disbelieve him.”

Mallya firmly believes Formula One teams can be run to be successful and make a profit. And he does not believe the two are mutually exclusive either, as he says: “I don’t believe that Eddie Jordan dipped into his pocket every year to keep his team going. He ran a commercial operation that was successful for many years. Williams has made money successfully, so any suggestion that Formula One is an expensive hobby that does not make commercial sense I will strongly refute.”

Mallya believes, as many owners do, when they enter the sport, that the franchise, because it is effectively limited to 12, is a valuable one. That may be so but Jan Mol didn’t find it so and neither has David Richards. Mallya also believes like others before him, Shnaider with Russia and Mol with Holland, that nationalistic sponsors will follow a national team. In the latter two cases precisely nothing happened. Midland attracted no Russian sponsors and Spyker attracted only a few small Dutch sponsors. 

Mallya thinks he is different and that India is different. And that all that will make the difference. He appears not in the slightest bit perturbed that formidable businessmen such as Shnaider and Mol have tried and failed.

It is not arrogance, as Mallya has clearly thought long and hard about what has happened in the past and it is one area that he doesn’t want to discuss: “It is not something that is very productive for me to talk about, what happened in the past. At the end of the day I have been very closely involved with Formula One in the past. I have seen how Flavio Briatore ran Benetton when Michael Schumacher was there. I am not surprised that Flavio has been hugely successful.

“The uniqueness of my acquisition of Sypker and subsequent renaming of it to Force India Formula One I think says it all in itself.” In fact he says every move he makes globally is based on the fast emergence of India as an economic world power. He explains: “My acquisition of the scotch whisky business was predicated on the huge emerging opportunity called India and our group strengths on the emerging opportunity. The decision to buy the Formula One team also is predicated on the huge opportunity that India brings to the table.”

Mallya maintains that in economic terms it is an unique opportunity: “The acquisition of a Formula One team has aroused the interest of the whole nation. You probably saw it when you had famous Brazilian drivers, Senna who was idolised, and I would suspect that is the reason there is a continuing Grand Prix in Brazil.”

Mallya is already ahead of the ambitions of the previous two owners.  Whereas Shnaider, for all his talents and his chutzpah, didn’t have the moxy to push through a Russian Grand Prix or Mol the clout to bring back the Dutch Grand Prix, Mallya has already got his Indian Grand Prix.

For him having a team and a race go hand in hand is perfect synergy, as he explains: “In India we have a very young demographic, 400 million youngsters under 20 years of age, higher disposable incomes, higher aspiration levels people who clearly want an alternative to cricket. Cricket is almost like a religion; it extends across all social economic classes. The more discerning customer today, or the young consumer, is looking for something that is more differentiated, looking for sport that they can follow, excitement and glamour, all the aspirations that are built on in Formula One. Since I announced the acquisition of the Formula One team and the renaming of it as Force India, the television viewing has jumped significantly in India, and the ratings are currently higher than many of the soaps that are on TV.”

No one disputes the theory. In India his acquisition has been well received even amongst the more cynical commentators. In India’s leading business newspaper, the  Business Standard an editorial stated: “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. These will provide Mr Mallya with an entry 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.”

It is typical of the comments being made. Within his own country everyone sees the business logic. But outside India and to many in the Formula One community, he is just another wealthy patron entering the sport to have some fun – who will have his trousers taken down and then retire licking his wounds after a few years.

But that is not Mallya. It may cost him more money than he envisages, but he is the sort of man who has budgeted for that in advance. He will not be surprised by any surprises. But equally he is determined to get the message across that he will not tolerate them. He expects the commercial team at Spyker to deliver him a profit. He has thought it through and explains: “So how do you make two ends meet in a Formula One team? If you run it on a shoestring, then you will end up at the back of the grid and that is certainly not my idea, but you don’t necessarily have to go overboard because that doesn’t necessarily guarantee performance. You should look at the economics of a Formula One team and therefore the difference between success and failure is in two parts, the expenditure part and the income part. On the expenditure part I was referring to the budgets. If you try and run it on a shoestring you don’t get performance, so you need to have a balanced budget. That gives the design team, the engineers all those involved in designing and building the car the chance to do this.”

That is sound, logical business thinking of a kind not often heard in Formula One, And for a novice Mallya already has a pretty good grasp of the numbers, certainly better than either of his predecessors had: “Whatever that number may be, in this case for Force India it is US$100 million. When you look at generating US$100 million to make ends meet, you have therefore an income which everyone gets, then you have a net balance which has to be covered by sponsorship.”

Mallya says that the budget of US$100 million will be spent. Whether he gets it back depends on the performance of his team and to a certain extent his own efforts.

It is not only the commercial and engineering approach that has changed. Currently the team is conducting a search for a new number one driver. This is a salaried position for the first time in many years. Mallya says simply that rent-a-drivers are a thing of the past for Force India. He says he has too much at stake to take that route. He explains: “I will respect all the contracts that I inherited, but I made it very clear that the seats are available, there is no point having the technical team demanding performance if we don’t have the appropriate driver with the talent, because we would never get the performance.” He was lucky to inherit the Adrian Sutil contract that gives him a driver he would want to hire anyway together with a long contract to bring in sponsorship income and he appreciates that: “I said to Colin from day one, I would like to keep Sutil, not because he brings money to the table but because the fact that I saw him, and I think he did an outstanding job in Fuji on the wet and I think he has got a lot of talent. We have a contract with Sutil until 2010 and I intend to keep it.”

For the team itself, Mallya believes that sponsorship will come from Indian companies who want to ride on the back of the success of the team and says: “I have already been approached by several companies without having gone out and done any serious marketing. They want to advertise on the car because they know that Force India will generate a lot of interest and attract a lot of Indian eyes. You have a trillion-dollar economy in India that is growing at nine per cent a year. With the huge new consuming class, which is at 300 million and estimated to grow to 400 million by 2010, you are talking about a very compelling advertising proposition. All that obviously played a very important part in my decision to buy the team in the first place. I am pretty confident that team Force India will break even or make a little bit of money in the first year, 2008 itself, which will be a totally different environment to what the previous owners had and that is why I would say that our ownership of the team has to be viewed in the context of what we bring the table in terms of India.”

So Mallya is in no doubt that the income target of US$100 million will be beaten, delivering him a small profit in his first year.

Certainly it will not be the relatively easy ride for the team’s commercial staff as it has been in the previous two years. Both in 2006 and 2007 they fell well short of selling the car. By any standards it was a poor performance. But next year Mallya will be helping them all the way.

He expects his own Kingfisher airline will put in around US$4 million – roughly what it spent with Toyota last year. But he says the decision is not his, it is for the marketing director of the airline. His Whyte & Mackay subsidiary may well contribute a similar amount, but again he says that is a matter for the CEO of Whyte & Mackay and not for him. While he hopes the brands will be on the car, he emphasises there will be no pressure from him.

And he has made clear to everyone what the rules are, as he explains: “Let’s be very clear, it is a very profitable company in its own right, but it doesn’t mean that the management team sit back because they have a parent who pumps out a hell of a lot of cash. I know how to demand performance from my management teams. Let me assure you that the management team of Force India Formula One will be accountable. Absolutely and I would expect that the Kingfisher and White & Mackay marketing teams will demand what they demand from Force India Formula One without any delusion at all, because they are responsible for their budgets and their targets, and the value for money they would otherwise expect.”

He is adamant he will not influence his team: “Whyte & Mackay sponsored a boat show in London in December 2007. At the end of the day that was a decision made by the previous management team and is something that we continue, and obviously my management team is going to extract every last drop of benefit that we could possible attract from such a sponsorship. So if they come along and find that they want to advertise on the car they are under no compulsion to do so, it will be their decision, and if they do decide then they will, and I would expect them to be a demanding sponsor.”

He has already made the somewhat shrewd decision not to take the obvious route and name the team and car Kingfisher. He thinks that would have been the worst thing he could have done and cites the experience of Red Bull as a prime example. Whilst Dietrich Mateschitz is in Formula One for just one thing – to promote his own brand – Mallya is in it for a variety of reasons: to have some fun, make a profit and promote his companies. It explains his naming philosophy: “Red Bull is almost a captive deal, with the entire car being covered. That is one of the reasons why I didn’t put Kingfisher as the name of the team. The minute that I put one of my company names in the team, that I would probably call the team Kingfisher Formula One or Kingfisher India Formula One, it would be obstructive. The reason I did not do that was because I did not want to make the proposition less attractive to other advertisers who may have been overwhelmed by another brand.”

Having decided not to call the team Kingfisher, there was then a problem of what to call it.

Mallya says he looked at many names before settling on Force India: “We looked at many names Star India, Orange India, but Force India because it has the Formula One Style, it sits well, and ‘Force’ because that is what it is all about. We wanted India into the team, in order to be able to leverage the Indian opportunity and to create the emotional connect between India and the fans and viewer. So the emotional connect was the ‘India’ but we needed either a prefix of a suffix as well.”

Mallya says he has rationalised the complex process of distinguishing the role of owner and sponsor when potentially that entity is the same. Mallya insists he will put a different hat on to assess the performance of the sponsorship but he is clearly sold on that proposition and it was the driving force behind his decision to get involved: “I just put the team onto one side and put my Kingfisher hat on, clearly the number of eyeballs that Force India will bring in our whole market.”

Toyota is one of the losers in this scenario, but Mallya drove such a hard bargain that it was probably happy to let its sponsorship deal with Kingfisher go. Mallya admits the deal was a cheap one and says: “One of my brands is currently sponsoring Toyota, so it doesn’t make too much sense to continue sponsoring another team when we have our own team, so clearly I will transfer the sponsorship over to this car.”

He appears to indicate that Kingfisher’s sponsorship is limited to the US$4 million he spent last year, but he doesn’t deny that if US$100 million is spent and the income is only US$80 million he will have to pick up the shortfall. However he hates to discuss it as it is not an option he contemplates: “That is not the way I would look at it, because it will amount to sending people the message that I will make up any shortfalls. Kingfisher will spend what it wants to spend, and what it believes to be good money for Kingfisher, but there are employees of Force India Formula One, and other employees who will be charged with responsibility of marketing the team and getting sponsorship, and their own performance will be evaluated by the amount of sponsorship they bring in.”

It is clear that Mallya has been successful before because of his approach to brand building. He feels “the brand” is what business is really all about. When he last was in Formula One in the early 1990s he had no brand to speak of and no one noticed him. When he returned in 2007 he had a big brand and everyone noticed him.

The Kingfisher brand is now known the world over even though its products are largely still confined to the Indian sub-continent. The airline was the real catalyst for change. Naming it after the beer was a masterstroke.

Originally it was named to get over the strict alcohol advertising laws in India but it has grown to become a serious business in its own right.

But it was a lot cleverer than it sounds. Not many people understand that alcohol advertising was banned in India 35 years ago. Naming his airline after the beer was a way around this as airline advertising was allowed. Mallya says: “This is the perception – you think that it is a brand of beer, but I think it is just a brand. India has banned alcohol advertising for the last 35 years. Kingfisher was never advertised as a beer, it never could be so in order to build brand Kingfisher and give it an identity one looked at the young emerging demographic of India, one looked to position the brand on a platform that would not go out of style. The style is highly inspirational, the more you succeed the more possibilities you get and then you are looking for a better quality lifestyle so we chose various lifestyle elements to build the Kingfisher brand, so I put it into music, I put it into sport, I put it into fashion, so that was how the Kingfisher brand equity was built over the last three decades. So Kingfisher today stands for lifestyle, it doesn’t stand for beer, and before we launched the airline we did a full-blown market research with several over names added in and the consumer overwhelming voted in favour of Kingfisher.”

The airline, only three years old, has proved a huge success and won Mallya huge respect in his homeland. The comparisons with Britain’s Richard Branson started soon afterwards: “Nowhere in the world would you see 40 per cent of growth in the number of passenger traffic. It was one of the most undersold areas in the world. When I started in 2004 we had 14 million air passengers in India but things have a context; we have 1.2 billion population with only 14 million travelling by air every year, but Malaysia has a population of 40 million has 14 million air passengers. We have 14 million Indians travelling by train everyday and it’s a big country with road transport not at option, so it was obviously a no-brainier.”

Mallya’s pioneering has spawned imitators and he has created a vibrant new market and a host of competitors. He says ruefully: “Obviously many players jumped in, price wars took place, everyone was trying to push everyone else out of business, which was invariably the big black cloud, which is still going on, and the inevitable consolidation took place as it does in every industry. Today we are the largest airline in India, we operate 580 flights a day to 17 destinations and we will be going international in 2008.” It’s a strong success story in a very short space of time. It is clear that in 10 years’ time Kingfisher will be a major international airline and Mallya has already ordered a fleet of the world’s biggest plane, the Airbus A380 for that purpose.

He says: “The common thread between all these businesses is about building brands, about building huge brand equities, because it has its only benefits in terms of market leadership and sales, so I focus on that. The Formula One business is no different. If I build a successful Force India brand, sponsorship will automatically apply.”

And there lies a clue in what he plans. The team is Force India but he plans to leverage that brand in the future in ways he is not yet sure about. He will reverse the process of Benetton and Red Bull. That has been tried before but never on the scale that Mallya is planning. He explains: “I think Force India captures the essence of what emerging India is all about. India will be a global economic force and the best it yet to come. It is only now that this has really started, but it is on a roll, it will grow to be sustainable. I think all the critics have been silenced now, people now believe in it, it has started to manifest itself in many ways, including the huge amount of foreign investment from the stock market, in Indian industry and people who are setting up shops in India. So at the end of the day, there is a huge amount of confidence. So Force India, I feel, captures this, so why not a Force India beer. I think that my job is to create a brand and reinforce the brand, and there are multiple ways of doing that; the common stuff such as merchandising or whatever else is taken for granted, but there are more innovative ways that one can build the brand.”

One problem Mallya must face is the existing main sponsorship deal the team has with the Abu Dhabi government owned companies of Etihad, the national airline and Aldar Properties. Clearly this is a problem, being a clash of airlines and because of the remarkably low price the Abu Dhabi government negotiated when the team was desperate. The three-year deal is said to be worth less than US$10 million a year and is occupying the prime spaces on the car. Mallya cannot put his Fly Kingfisher logos on the car until that is resolved. He is currently just displaying the plain Kingfisher logo, which may offend strict advertising rules in India that prevent alcohol advertising. Mallya admits there is a problem: “The sponsorship agreement is not a lot of money, but the way the sponsorship agreement is written clearly specifies that if another sponsor comes along and offers us a higher sum of money, they will not necessary walk away, but for the same money they will have an alternative space on the car. If they decide to walk away completely, for reasons that I can not anticipate at this moment in time, that is a different matter. So if another sponsor comes up with more money, then they will either go higher or match it.”

Mallya hopes he can keep the US$10 million and reduce the space on the car to accommodate a big sponsor he hopes will come in with around US$30 million.

A year or two ago that sort of talk would have been wishful thinking. But make no mistake, a new broom has arrived at Eddie Jordan’s old team and this one thinks he has the secret of making it a success.