Why billionaire Laurence Escalante is paying to ride with Ferrari in this year’s Formula One season
The founder of Virtual Gaming Worlds hopes the motor racing series helps his company gain more exposure in the growing North American market.
Laurence Escalante can’t wait to see his brand on the side of a Ferrari around Melbourne this weekend, but the Perth billionaire is looking forward even more to the grands prix in exotic locales like Miami and Las Vegas later this year.
Escalante’s Virtual Gaming Worlds, already the sixth largest Australian company by turnover with $3.1bn annual revenue, recently clinched a lucrative sponsorship deal with the famous Ferrari Formula One racing team.
Which is where the Grand Prix events in North America come in.
Escalante is a fast-car nut, which started when he was a teenager and played arcade games such as NASCAR and Need for Speed for hours.
But he insists while he enjoys the glamour of Formula One, the Ferrari sponsorship deal is all about business and pushing his fast-growing and highly profitable social gaming company into the US.
“This is about growing our brand, our customer base and creating and motivating an amazing team. F1 is the fastest growing sport in our core market of the US, and Ferrari is one of the world’s most powerful brands. Partnering with them allows us to transform our visibility and profile,” Escalante tells The Weekend Australian
“Ferrari is (also) a leading luxury brand, and F1 is a truly global sport. Largely thanks to Netflix’s Drive to Survive, F1 is the fastest growing sport in the US, and Ferrari is the most recognisable brand of all the teams.”
VGW’s customers play social casino virtual games such as its Chumba Casino suite of online poker machine, poker and blackjack table games, and Luckyland Slot.
The customers pay real money to buy virtual coins and VGW operates under a sweepstakes model that gives users the chance to win promotional sweepstakes that can be redeemed for cash. Virtually all its customers are in the US, and Escalante is keen to keep growing there.
“Leveraging this (Ferrari deal), we’ll look to grow our player base significantly: there are hundreds of millions who know Ferrari, and F1’s new US focus will bring our games to millions of new customers in the coming years.”
The multi-year deal will result in Escalante’s VGW having its brands placed on the famous Ferrari’s red racing cars, and on drivers Charles Leclerc and Carlos Sainz, and crew teamwear.
Escalante’s business has also recently launched VGW Play, which offers a range of free “casual” games globally and is the brand that features in much of the Ferrari sponsorship.
Given the slowing global economy, Ferrari team principal Fred Vasseur says it isn’t necessarily easy to attract sponsors at the moment. But Formula One’s wider popularity and Ferrari’s own sports car brand outside of the racing circuit helps.
“The popularity of the sport is at an all-time high right now, which makes it very attractive for sponsors” he says.
“Ferrari probably is the most attractive team out there, but having said that, it’s not that we’re just waiting for someone to be knocking at our door, we’re working hard to get the best possible results.
“I don’t think that the mantra ‘winning on Sunday, selling on Monday’ is 100 per cent accurate, but there is definitely a connection between creating a successful team and the popularity of the brand. All values such as performance, style, excellence and winning mentality need to be reflected in both motorsport and road cars in order to continue the success story.”
Ferrari’s rollercoaster ride through the 2022 season, when it started strongly only to tail off and see rival Red Bull win the championship, was featured heavily on Drive to Survive.
But star driver Charles Leclerc has fond memories of Melbourne given he won the 2022 Australian Grand Prix, even if he admits to being uncertain about the team’s start to the 2023 season.
“Arriving here a few days ago instantly reminded me of last year. I have fantastic memories of this win, especially as we had a very dominant car. But it was not just the race here in Melbourne, generally the start of the season last year was amazing,” Leclerc told The Weekend Australian.
“To be honest (this year) it’s a bit of the opposite compared to 2022. Clearly our performance is not as good as last year, but we’re working massively to try and come back to the front.”
Ferrari’s deal with VGW is a rare example of an Australian company undertaking a big sponsorship in the global Formula One series. The Foster’s beer brand was a global sponsor for 20 years until 2006 and more recently young Melbourne billionaire Ed Craven’s Stake.com cryptocurrency gambling firm Stake.com has become a naming sponsor of the Alfa Romeo team.
Escalante says he started negotiating with Ferrari last September, before clinching the contract just before the start of the 2023 season in early March.
The deal gets promoted across the Ferrari and VGW social media channels and Escalante says there will be social media appearances with celebrities and events with the F1 “show car” that is used at events across the US.
VGW will also have marketing and events leading up to the races in the US. The Miami Grand Prix is in May and then the circuit returns for the US Grand Prix in Austin, Texas in October and then Las Vegas in November.
Escalante, 41, has overseen a remarkable rise in profits and revenue for VGW in recent years, capped by a 2022 result that saw the business make a huge $454m net profit.
As is the case with many technology and gambling companies, financial results recently released for the six months ending December 31 show the pace of VGW’s profit has slowed as marketing spend increases to keep existing customers and attract new ones.
VGW’s revenue for the six months was up 43 per cent from the previous corresponding period to about $2.21bn, but profit before tax fell 19 per cent to $249m.
The company’s marketing spend increased almost $100m for the period, rising from $84m in the six months to December 31, 2021, to $174m, which the company says was “driven by a significant investment in user acquisition at attractive metrics”.
When asked about the increasing spending and falling profit, Escalante says “we are investing for the future” and “there is a short-term impact of ramping up marketing spend”.
“We play a long game and are experiencing solid growth, as our results show. [We are] Investing smartly in brand awareness and user acquisition, when our metrics are looking very healthy, will set the business up for continued growth.”
In a recent presentation to the Primary Markets share trading platform for shareholders in private companies, VGW said its revenue in January was up about 40 per cent compared to the same month in 2022, and February was up 44 per cent.
“Significant investment in customer acquisition and retention marketing over the last six months (is) expected to drive continued revenue and earnings growth (albeit with continued short-term impact on EBIT margins.”
VGW is also set to borrow $US150m from the US in the form of a 30-month debt facility in order to fund a share buyback program, which Escalante will take some part in.
“As a profitable company operating for more than a decade, sourcing the debt was a relatively standard process. Relative to our performance, it only adds a small amount of debt to our capital structure and provides additional balance sheet flexibility,” Escalante says when asked about the debt.
“We constantly consider capital management options, and determined that a buyback was a good option to provide liquidity opportunities and return capital in an efficient manner. It provides value accretion to shareholders who don’t participate.”