Over the past few months, I have been sharing how some popular companies are making money in ways which most people didn’t know about. These have included McDonald’s and Starbucks. These blogs have been very popular so I thought I would add one more to the collection. This blog goes through how Red Bull makes money (not just from selling drinks).
I note that I mentioned Red Bull in a blog over a year ago as part of a story that my eldest daughter wrote ‘Boba Becomes a Billionaire’. I thought I’d cover it again in more detail as, since the release of my book, Grandpa’s Fortune Fables, I’ve had quite a lot of new subscribers so many would have probably not seen that blog.
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Why share stories about how companies make money?
One of the key money lessons I want my daughters to learn is that you shouldn’t rely on one source of income. Having many different sources of income provides additional security and helps build your wealth. I think sharing real-world stories shows that companies do clever things to make sure they don’t rely on one source. Such as McDonald’s with real estate or Starbucks with their rewards cards.
How does Red Bull make money?
Red Bull makes most of its money from selling its energy drinks. Nothing surprising there. However, it realises that simply selling one product means it is at risk if people stop drinking their drinks. Especially as people become more focused on healthy living and therefore do not want as many drinks full of sugar.
One option would be for them to offer a range of different drinks like Coke-Cola does (they own many different drinks such as Fanta, and Minute Maid, plus over 200 others). Red Bull has tried to expand its product range but with very limited success.
They decided to go down a different route and stick to what they were good at. Marketing!
You have probably seen Red Bull marketing everywhere. From Formula 1 motor racing, football teams, motorcycling (both on and off-road) and extreme sports events. You might believe that Red Bull is paying millions to sponsor these different events to have their name displayed and therefore sell more cans of their energy drinks. In some cases that is true but in an increasing number of cases, they actually own the team or event that displays their name.
Before I talk about owning companies, let me just talk about how well they market their energy drinks.
The Sky-Dive From Space
You probably remember the event where Felix Baumgartner sky-dived from space. This is estimated to have cost Red Bull $50 million. That’s a lot of money. However, it is also estimated that the worldwide news coverage of the event gave them exposure worth over $6 BILLION! That’s a good return on a marketing budget. However, that’s not what I want to focus on as that money is still coming from selling energy drinks.
Let’s talk about how they make money from owning sports teams.
New York Red Bulls Football Team
We'll use New York Red Bull, the football team (or soccer team as they call it), as a prime example of their strategy. They didn’t just pay the owners of the team a marketing fee to display their name, they became the owners of the team. This is how they could name the team and stadium after their product.
I’m not sure if it was intentional but I believe that the fact the name of the team is the ‘Bulls’ means people will also start to associate the Chicago Bulls basketball team with Red Bull despite no direct connection. Especially as the Chicago Bulls play in red.
By owning the New York Red Bulls, they not only get to display their name all over the stadium and the team’s kit, but they also get all the revenue from ticket sales from the games. They also get money from the TV rights when their games are shown on TV. This is brilliant as usually a company would have to pay a TV company money to show their ads, whereas the TV company is paying Red Bull to display their name.
They also get to charge other companies to market their products in the stadium. I’ll talk about this a bit more later.
It also appears to be a great investment as Major League Soccer is growing in popularity. It is estimated that they paid around $30m to buy the team in 2006 and now it is estimated to be worth over $300m.
As they own many different football teams around the world (of various standards), it means they can cost-effectively transfer players. For example, let’s assume an up-and-coming South American player is playing for their Red Bull Bragantino team (in Brazil) whom they can transfer at a heavy discount to FC Red Bull Salzburg (one of the top teams in Austria). As the player gets older, the player can be transferred to the New York Red Bulls, saving millions in transfer fees.
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Red Bull And Extreme Sports
In addition to owning many traditional sports teams (football, formula 1, ice hockey, ), they focus a lot on extreme sports.
They run events for many different extreme sports such as cliff diving, air racing, downhill mountain biking, and box cart racing (although that is more fun than extreme).
Similar to the sports teams, they own these events rather than simply pay to have their name shown. This means they get money from ticket sales, TV rights and advertising for other companies.
The brand is so strong that people will probably expect to see the Red Bull logo displayed at all extreme sporting events. This strong association with these sports enhances their brand and allows them to capture a specific audience. This large audience allows Red Bull to make even more money via their media company.
Red Bull Media Company
Red Bull now has its own media company, Red Bull Media House. This company allows other companies to partner with them to display their brand or content at their events or on their TV channel. That’s right, they have their own TV channel. The channel is free, so there is no subscription money from that (as they want as many people to watch it so they can make money from advertising the energy drink and other companies).
As Red Bull has such a strong image in terms of sports (especially extreme sports), companies which have a similar target audience will pay a lot of money to Red Bull to get to their audience.
In 2018, this Company had revenue of $5 billion. This is not a small company and is providing additional money to Red Bull which isn’t coming from selling the energy drinks.
The businesses Are All Linked
Whilst the sales of the energy drink still account for a vast majority of the revenue Red Bull makes, over time this is expected to change as the sports ownership and media revenue continues to expand.
What I love is that the different sources of revenue are all linked but can also stand on their own. For example, they could own a football team as a stand-alone business but it also helps them sell their energy drinks and enhances their offering to the media company. Similarly, the media company could now stand alone, as it has a large audience, but it’s also driving business to the sports teams and energy drinks.
Summary
Red Bull is fully aware that relying solely on selling energy drinks is a potential risk. This is why they have expanded to find new ways to make money.
I want my girls to grow up thinking about different ways they can make money so that they aren’t just relying on income from a job. As mentioned at the start, having different forms of income provides excellent security and makes it easier to build wealth. Most people only have their salary as their only form of income. Most millionaires have around 7 different sources of income!
After I told her about Red Bull, my daughter wrote her own story, Boba Becomes a Billionaire (please check it out, she’d be over the moon to hear that more people have read her story).
Also, you can teach your kids about different sources of income by reading my blog ‘More than one way to make money’.
What are you going to learn next? If you enjoyed this blog, you’ll also enjoy my blogs about the different ways McDonald’s and Starbucks make money.
SUBSCRIBE: Tips and stories to help you teach your kids about money delivered to your email box for free each week. Subscribe to BlueTree today.
Thanks for reading!
Will
P.S. If you want to teach your kids about earning money in different ways, why not get them a copy of my book, Grandpa’s Fortune Fables? You can also buy the book using a wholesale discount here.
