Red Bull Racing clinched the sport’s Constructor Title last month on the same weekend that Dietrich Mateschitz — the team’s co-founder and founder of Red Bull — passed away at the age of 78.
Mateschitz was a long time F1 fan.
Worth $25B at the time of his death, Mateschitz created the world’s top energy drink and also spent over $2B on Red Bull Racing team.
Why the massive sports investment? Because Red Bull isn’t a beverage company. Mateschitz created one of the great consumer marketing and media companies that happens to monetize through energy drinks.
Here is a Twitter thread I wrote on the topic:
Red Bull is everyone's favorite concoction of sugar, B-vitamins, taurine and caffeine.
Today, it sells ~10 billion cans a year and is the market leader in the $50B+ energy drink market.
Red Bull isn’t in the drinks business, though. The company makes nothing.
Production is outsourced to Rauch, an Austrian bottler. The drink blend is not proprietary (vs. Coke, which has a secret recipe).
Instead, Red Bull spends ALOT on marketing (~35% of sales) to differentiate the brand; way more than Coca-Cola (9%) and Pepsi (7%).
The Red Bull corporate structure was created by Dietrich Mateschitz and Chaleo Yoovidhya. Mateschitz was an Austrian marketing exec who often travelled to Thailand. There, he fell in love with an energy drink called Krating Daeng (created by Yoovidhya, a Thai pharmacist).
In 1982, Mateschitz proposed a deal to Yoovidhya. Each man put up $500k to create a new entity called Red Bull GmbH to sell the energy drink to the West (each owned 49%, with Yoovidhya's sons owning 2%). Mateschitz handled marketing and distribution while Yoovidhya made the drink.
For those that have never been to Asia, the Krating Daeng drink is absolutely wild. I used to drink it in Vietnam and the beverage legit tastes like cough medicine and somehow goes harder than Red Bull.
Anyways, when Red Bull officially launched in 1987, Mateschitz flexed the brand's now-famous marketing chops. He positioned it as an upscale beverage by making the can thinner and pricier than Coke.
The energy-inducing properties were a big hit in extreme sports and student party scenes (I consumed an embarrassing number of “Red Bull and vodkas” in University). One iconic stunt was to put “empty” Red Bull cans in and around nightclubs and bars to make the product look popular.
In 1989, Red Bull made its first F1 sponsorship with Ferrari driver Gerbard Berger. Mateschitz grew up an F1 fan, cheering for Jochen Rindt, a German race champion who competed with an Austrian license and died in a car crash in 1970.
In 1995, Mateschitz took it one step further by buying a majority stake in the Sauber F1 racing team. But in 2001, Mateschitz fell out with Sauber partners when they chose Kimi Raikkonen over a Red Bull-trained racer. He sold his stake and set out to own 100% of an F1 team.
An opportunity soon arose: in 2004, Mateschitz bought Jaguar F1 racing for $1. Why so cheap? He had to commit $400m to improve the team over the following 3 years. The team was renamed Red Bull Racing and, in 2005, it made Christian Horner the team head (where he remains today).
The team eventually found success with race car driver Sebastian Vettel. Discovered by Red Bull at age 12 (1999), he trained under Helmut Marko, Mateschitz's friend, former racer and legendary talent spotter. With Vettel at the wheel, Red Bull won 4 straight F1 titles (2010-2013).
Mercedes and Lewis Hamilton dominated F1 over the following 8 years. But anyone that has seen the Netflix F1 series will know that Belgian-Dutch driver Max Verstappen has brought Red Bull back to the top.
Verstappen has won two straight individual F1 titles. Meanwhile, Red Bull Racing won this year’s Constructor Title awarded to a team.
Is the F1 investment actually worth it for Red Bull, though? Why not just advertise on the cars, instead of owning a team?
Per Forbes, owning the team has created significant brand exposure. Through Red Bull Racing’s first 14 years, Mateschitz invested $2.3B. Over that span, Red Bull Racing is estimated to have created $300m+ a year in brand exposure ($5B+ total). That's a 2x return on investment and Red Bull owns the underlying asset (rather than ad money that is just a one-time thing). Even more than brand exposure, Red Bull Racing creates history, which ultimately reduces customer acquisition costs.
In fact, Red Bull "manufactures history" across many sports including:
6 soccer teams (RB Leipzig, NY Red Bulls, RB Salzburg, RB Ghana, RB Brasil)
2 F1 teams (RB Racing and Scuderia AlphaTauri)
Other (E-sports, hockey, sailing, skateboarding, NASCAR)
Another pillar of the energy drink empire is Red Bull Media (including Red Bull TV) that “houses more than 600 sports events, documentaries and factual entertainment as well as scripted series and feature films, and which is often held up as the quintessential content factory.”
Back to "manufactured history”. In 2012, Red Bull pulled off its most audacious stunt ever when it partnered with Austrian skydiver Felix Baumgartner to set the record for a high-altitude jump (an absurd 128k ft jump from space).
The planning took more than 7 years and cost $50m. How did it affect the business? Per Better Marketing, “in the six months following the event, US sales rose 7% to $1.6 billion, and full-year global sales rose by 13% to $5.2 billion.”
So, yeah, Red Bull is a (great) marketing and media firm.
FTX Update
Last week I wrote about FTX’s $32B implosion and the downfall of its founder Sam Bankman-Fried (SBF). If this topic is completely new to you…read the summary here.
The story has gotten crazier and here are 3 additional follow-ups:
The FTX bankruptcy filing is worse than Enron: This is according to FTX’s new restructuring CEO John Jay Ray III, who also happened to restructure Enron. Ray earned a reputation as a “pitbull” clawing back money for Enron creditors (side note: imagine being the Michael Jordan of restructuring — which is basically what Ray is — and you get called upon like once every 5 years to clean up some insane mess).
In a FTX Chapter 11 filing from Thursday, Ray was scathing about the FTX situation:
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.
From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
Here are some most damming findings, as collected by my friend Jon Wu:
No corporate governance (Many entities, for example, never had board meetings. The FTX Group did not maintain centralized control of its cash. They didn't even keep a running list of all their bank accounts!)
No functioning HR (The entire FTX Group didn't have any employee management whatsoever and was incapable of furnishing: 1) a list of employees; 2) the terms of their agreements; and 3) each employee's status)
No functioning money management (Employees were paid via online chat, and managers "approved disbursements by responding with personalized emojis.” Meanwhile, SBF took a $1B personal loan.)
High level of secrecy (SBF used Signal to hide all of his decisions and communications with employees. Also, he created a “back door” to move funds between FTX and FTX’s sister hedge fund Alameda Research without alerting his auditor)
Ray says in the bankruptcy filing that SBF no longer works with or speaks for FTX, which is totally fair…but as we’ll see in the next link, SBF can’t stop talking.
FTX founder Sam Bankman-Fried (SBF) exchanged Twitter DMs with a writer from Vox. The published messages are wild (the Vox vertical that published the Twitter DM exchange previously received funding from SBF; while the conflict of interest is noted, it’s fair to assume that SBF said some things knowing it would “leak”):
SBF says that FTX customer deposits were mismanaged due to “messy accounting”. Per SBF, customers sent money to FTX and sometimes it just went straight to Alameda Research; it’s either gross incompetence or straight-up fraud — either way, it’s illegal.
SBF says that one motivation for his virtue-signalling — like his association with effective altruism — is because “woke westerners” have to “say all the right shiboleths…so everyone likes us”
$1.5B: Over the summer, FTX bailed out crypto lenders (Voyager/BlockFi) that were hurt hard by a big crypto sell off. FTX did the bailout in part to save its own hedge fund — Alameda Research — which had exposure.
$1B: TerraLuna blew up after it’s algorithmic stablecoin failed. FTX had exposure.
$1B: Otheralgorithmic stablecoin crashes.
$2B: Funds spent as collateral support for two FTX-backed tokens (Serum, FTT)
$2B: A string of VC investments (a lot of overpaying at the top of the cycle)
$2B: Real estate, branding, other frivolous spending (eg. Larry David Super Bowl ad, naming the Miami Heat arena)
$4B: The market cap of FTX exchange token FTT declining.
$2B: Bad crypto bets.
Milky Egg also makes the case for SBF being less smart than his reputation implies (SBF ranks very poorly in the game League of Legends despite playing thousands of hours…which is apparently a cognitive red flag) and compromised by prescription drug abuse (one of the drugs that SBF was seen using is known for having a side effect of binge spending…which may explain the VC/real estate/marketing shopping sprees).
Furthermore, the Alameda Research reputation as “good traders” looks more like people that used leverage to ride a huge 2020-21 crypto bull market. One notable finding: Alameda publicly bragged that it made money front-running Dogecoin whenever Elon tweeted about it (aka this is not a sophisticated hedge fund trade). And when the bubble burst, it was over.
BONUS: FTX was hit by a "hack" as the empire was crumbling and $477m of customer deposits were taken. Turns out the hack was the government of Bahamas -- where FTX is based -- forcing the the exchange to take the funds so the government could seize it (and now there will be a battle over what jurisdiction those funds belong in the bankruptcy proceeding).
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Links and Memes
How many people do you need to run Twitter? On Thursday, Twitter employees were given a deadline to make a choice: 1) take part in a new “extremely hardcore” version of Twitter 2.0 that will require a lot of work but could transform the platform; or 2) take 3 months severance.
Elon already fired 50% of the 7,500-ish employees from when he took over. And it’s reported that another 1,200 of the remaining employees will take the severance package include employees in key infrastructure functions (so Twitter headcount is now at 2,500).
On leaks of the new layoffs, the Twitter platform lost its mind. People were sending dramatic farewell tweets and the mainstream media was losing its sh*t. The trending hashtags were lit — like #RIPTwitter, #GoodByeTwitter, #TwitterTakeover etc. — but the site functioned fine.
(Don’t worry, I posted some good memes below)
Meanwhile, well-known hacker George Hotz tweeted at Elon that he wanted to do a 3-month internship at Twitter. He then went on to say that Twitter “could be built and maintained by 20 good engineers”. The comment kicked off an interesting conversation with former Github CTO Jason Warner, who thinks Twitter needs 1300-1700 employees (primarily to deal with internal tools and data infrastructure).
My sense as a a technically illiterate person who read a few threads is that Twitter will keep functioning as usual, albeit with a higher probability of outages in the near-term. To fully stabilize the platform long-term and ship new products at a good clip, Elon will have to hire from a pool of 10s of thousands recently laid-off tech employees (who will be aligned with Elon and know what they are getting themselves into).
BUT he’ll do so after losing a lot of institutional knowledge, having to mend relationships with advertisers (a weak ad market is made worse by the fact that Twitter is a secondary ad platform vs. Google/Meta). And, importantly, Twitter needs to monitor content to make sure it doesn’t break a consent decree with the FTC (which could potentially slap the platform with a hefty fine).
How ever many employee there are now, they face a big test this weekend: the World Cup in Qatar (everyone will be watching the football tournament and Twitter will get flooded with videos and memes).
When will Star Wars end? Music historian Ted Gioia asks when the age of franchises (Star Wars, Marvel) might end. He uses an interesting analog: King Arthur — and dozens of related spin-offs — were popular for centuries. However, interest in the knightly stories started to wane in the 1600s with the rise of a new medium (epic novels, specifically Don Quixote).
Don Quixote — and Shakespeare’s comic knight Sir John Falstaff — succeeded because it flipped the old heroic portrayal of knights on its head: Quixote and Falstaff were both regular and somewhat goofy dudes that became “heroes” anyway. So, the appeal of Star Wars could “end” if storytelling moves to a new medium or the culture shifts to prefer a different take on traditional tales.
Let me give a shout out to the most heinous party drink ever created: Jager Bombs.
On Thursday night, when news was trickling out from Twitter HQ that a lot of employees where leaving…there was mass hysteria that Twitter would stop working.
Into the mix, my buddy Alex dropped an incredible absurd tweet (speaking to the hysteria, half the respondents thought it was real):
Remember FTX’s new restructuring CEO John Jay Ray III saying “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here”?
Another viral business story this week was Taylor Swift. The super-duper star started selling tickets for her new tour. But as fans queued up at Ticketmaster, two things happened: 1) the site went down; and 2) even though some fans registered for priority tickets, they didn’t get any even as scalpers scooped up hundreds of tickets and posted them on secondary markets in real time.
If you want to understand how upset — and secretly powerful — Swift fans are, here’s this tweet:
On a related note, Ticketmaster parent Live Nation lost $1B in market cap on news that the DOJ will investigate it after the Swift fiasco (at issue, Live Nation and Ticketmaster merged in 2010 and people think the deal should have been blocked because it created an events monopoly … while the investigation was planned pre-Swift, you should still never piss of Swift fans).
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Finally, Scott Seiss is probably favorite Twitter comedian. He went mega-viral by pretending to be an Ikea employee who didn’t DGAF about customers…and he’s back with a rant against people that say “When I was your age, I already owned a house” (Seiss starts his rebuttal with “yeah, cause it cost $6 and your down payment couldn’t buy a Frosty at Wendy’s today” lolololol)
One of my favourite brands truly a marketing stroke