Saturday February 14, 2009

Boosting the business of F1

Stories by EUGENE MAHALINGAM

Sepang International Circuit wants to make F1 more accessible for everyone.

IT IS glamorous and expensive. The world of Formula One (F1) racing revolves around fast cars, big money and cutting-edge technology that make it the third most watched sporting spectacle after the football World Cup and the Olympics.

Mokhzani Mahathir

Given its stature and prestige, the money the sport generates is huge – US$3.9bil a year according to Deloitte Sports Business Group. That comes through rights revenue (race sponsorship, corporate hospitality and broadcast fees), team revenues (including sponsorship and contributions from partners and owners) and circuit revenues (from ticket sales and sponsorships).

And it is no different in Malaysia, which has been hosting the event for over a decade, and has seen similar boosts from gate proceeds and tourism spin-offs.

With the high-end audience the F1 attracts, Malaysia has been projected as an international destination that offers high quality services and facilities, five-star hotels, fine dining, luxury pampering, high-tech telecommunications services, cosmopolitan city entertainment and shopping

As Malaysia gets set to host the 11th Petronas Malaysian Grand Prix in April, the environment has changed.

Yes, a crowd of over 100,000 spectators is still expected but the economic reality of today has maybe led to a few questions over just how much of an economic boost will the F1 race provide for Malaysia this year.

Let the people come

Sepang International Circuit Sdn Bhd (SIC) chief executive officer Razlan Razali says about 70% of those turning up for the races are Malaysian. About 25% of the foreign spectators are from the region.

Bernie Ecclestone

Last year’s F1 event in Sepang drew 126,690 spectators, including 92,484 domestic visitors, on race day. The 34,206 international visitors last year is a 1.5% drop compared with the 2007 figure.

Tourism Minister Datuk Seri Azalina Othman says a survey conducted in 2008 shows that 80.8% of the international visitors surveyed came to Malaysia solely for the F1 event.

“Based on the survey, the average per capita expenditure from international visitors was RM3,373.96 and their average length of stay was 5.4 nights,” she adds. The expenditure includes the tickets and all other expenses during the F1 events only.

Razlan has an optimistic outlook for this year. “Most of our spectators are Malaysians and I think they still have that spending power to buy tickets. We do expect a little bit of a slowdown but we don’t know by how much,” he tells StarBizWeek. SIC is the track operator and events management company for the Sepang Circuit. Razlan says the company will not be increasing ticket costs this year. The prices range from RM100 (hillstand) to RM1,950 (grandstand).

“We cannot increase any more because of the current financial climate. However, Malaysia is considered one of the cheapest destinations for F1 in the world,” he explains.

The benefits of F1 are not just confined to the track. Hosting a F1 race has contributed generously, both directly and indirectly, to the country’s tourism and hospitality sector.

In light of the current global slowdown, the Tourism Ministry has forecast a 2.4% drop in tourism to 20 million tourists in 2009.

“We are anticipating only a minimal drop in this year’s tourist arrivals and I’m confident we will still remain as a strong tourism destination choice,” says Azalina.

“I also doubt the Malaysian Grand Prix would be experiencing a major dip in attendance this year as the majority of foreign F1 fans coming for the race are hardcore fans.”

Azalina also notes that the current economic slump would force airfares to offer competitive rates, making it the best time for consumers to travel.

“In terms of F1 venue, Malaysia remains a value-for-money destination, especially to the Europeans, who make up a large majority of the international audience at Malaysia’s F1 event,” she says.

SIC has also tied up with Tourism Malaysia, Kuala Lumpur City Hall (DBKL) and the Federal Territory Ministry to promote F1 beyond the circuit. “The experience of F1 has to be different in each country, and it is up to the host country to make it different,’’ says SIC chairman Datuk Mokhzani Mahathir.

“The beneficiary of all the things we do is Kuala Lumpur. The city has to play a big role in attracting the people. That is the total business of motorsports.’’

One example is its F1 Gala dinner, an event that is attended by the F1 teams as well as Malaysia’s elite personalities.

Mokhzani says there would be over 10 city-based events scheduled this year during the F1 leg in Malaysia. Last year, there were eight.

“There are a lot of things that can be done to promote the country through F1. If you look at other countries that don’t have an established identity as Malaysia has, they use F1 to promote themselves by bringing in international corporate figures and celebrities,” he adds.

“These are people of prominence. When you bring them in, the media will follow. You don’t want F1 to be just be a local event. We don’t want it to be 99% attended by Malaysians because you need to fill hotel rooms, food and beverage outlets and shopping malls, to see the benefits of tourism dollars.”

Weighing the benefits

Malaysian Association of Hotels vice-president Ivo Nekvapil says most hotels in Kuala Lumpur register high occupancy rates during the F1 week.

“Generally the five-star hotels all do well, with occupancy of over 85% during the F1 week,” he says, adding that Pan Pacific KLIA does very well because of its proximity to the airport and the circuit.

Nekvapil says the bulk of the tourists during the F1 weekend were from Asia. With the current economic downturn, some slowdown in tourist arrivals may be likely.

“So far, the figures do not indicate this (a slowdown) but I would expect perhaps a 12% reduction compared to last year,” he says.

It costs SIC RM40mil to stage the F1 race, but that amount is not the biggest cost component for the hosting job. SIC chairman Datuk Mokhzani Mahathir says the promoters’ fees, which is much larger, is borne by the Government.

A local economist says there is the perception that the total costs of hosting F1 in Malaysia outweigh the benefits.

“There is anecdotal evidence that it probably costs more (to host) than what we get back. There was a lot of hype and interest in the early years which has since fizzled out, and there is a danger of it becoming a white elephant,” he adds.

“But hosting the event has put Malaysia on the world map and there are a lot of benefits which are not captured in dollars and cents.”

He says the current economic slowdown may hamper big ticket events like F1. “This kind of activities will take a back seat and won’t stimulate the economy much. People would not want to spend on something that costs a lot.”

The spotlight swings south

The Sepang track, which was cutting-edge and revolutionary when it hosted its first race, cost RM350mil to build, but has shown its age over the years.

Formula One Management and Formula One Administration president and chief executive officer Bernie Ecclestone criticised the track two years ago. “It’s starting to get a little shabby and looks a bit tired. There is rubbish all over the place and it’s not really a good sign for Malaysia,” he was quoted as saying.

He also likened the place to “an old house that needs a bit of redecorating”.

Says Mokhzani: “We need to take his comments with a pinch of salt. We followed his directions closely in how to run the circuit and it was a surprise to us for him to say that to the media.”

Nevertheless, Ecclestone’s comments had cut deep and the Finance Ministry has approved RM40mil to spruce up the track and its facilities.

Razlan admits that Malaysia has been basking in its former glory for far too long, adding that the inclusion of Singapore into the F1 race calendar was considered a wake-up call for the SIC.

The Singapore street circuit, staged in the Marina Bay area, has been praised by the international media and most of the F1 fraternity, and has been hailed as the ‘Monaco of the East.’

Ecclestone himself hailed the Singapore circuit as “the new jewel in the F1 sports crown.”

The Singapore race was the last big thing for F1 as the global economic slowdown has exacted a toll on the sport. Japan’s Super Aguri and Honda were the biggest casualties, having pulled out of F1 in April and December 2008 respectively. Sponsorship deals are also being reduced.

According to industry analyst Formula Money, Team Honda had the fourth highest budget in 2008 at US$398.1mil, while Super Aguri had the smallest budget at US$45.6mil. Furthermore, the withdrawal of Super Aguri and Honda reduces the 2009 starting grid to 18 cars from 22 previously.

Toyota had the highest budget of US$445.6mil, followed by McLaren-Mercedes (US$433.3mil) and Ferrari (US$414.9mil).

Formula One’s governing body, the International Automobile Federation (FIA), has proposed further cost-cutting measures that will allow teams to compete in 2010 on less than a quarter of the amount some were spending last season.

Asia loves F1

However, economic downturn or not, the desire to be associated with F1, the pinnacle of motorsports, just seems too good to resist, especially for emerging markets.

Abu Dhabi, the capital of the United Arab Emirates, will be making its debut as the final leg of this year’s 2009 F1 season, while South Korea and India have been slated for 2010.

When Singapore hosted the first ever F1 night race last season, it raised the bar for the standard of racing circuits around the world. Apart from Japan, Malaysia and Singapore, other Asian F1 races that are on the 2009 calendar include China (which held its first F1 race in 2004) and Bahrain (2004).

Mokhzani says Malaysia has done well in promoting F1 over the past decade. “I think we have done a good job and the F1 people know that we were one of the first to believe in F1 enough to promote it in this region and make it what it is.

“The next Asian countries to come on board were Bahrain and China, which was five years later. They (F1 management) should credit us for helping build the image of F1 long before anyone from Asia decided to be part of F1.”

Given the surge in the number of newer circuits, especially in Asia, it makes sense for SIC to have a fresher look. Mokhzani says plans are already in place for changes at the circuit.

“We’ve been given a budget to improve the circuit this year. You won’t see many changes by the time of the Malaysian F1 race. But by mid-year, there will be many changes.”

Not just for the elite

Apart from tidying the circuit and improving its facilities, SIC also wants to make F1 more accessible to the paying public and other fans.

“What we want to do is bridge the gap between the F1 fraternity and the mass market. For instance, for the last couple of years for MotoGP, we allocated an hour on one day for an autograph session with the riders,” says Mokhzani.

“This year we plan to negotiate with the relevant authorities to try and have autograph sessions for all F1 drivers at SIC for the public to get closer to them.”

While the race is the personification of money and glamour, Razlan noted that the sports provides a unique opportunity for sponsors, clients and high net worth individuals to rub shoulders and network.

“The sport provides high net worth entertainment for corporates who want to entertain their clients. The sport is so popular that everyone wants to be associated with it,’’ he says. “We plan to have special packages to attract more corporates and make it value for money to entertain their clients.’’

While the SIC will target mainly multinationals and GLC (government-linked companies) with its special corporate packages, he says the company also aims to make F1 accessible for virtually everybody.

“We want to offer corporate hospitality to all levels. We don’t want to position F1 as being only for the elite or the rich. We want to make it as affordable as possible without reducing the reputation and image of F1 per se,” he explains.

Lighting up Sepang

The inaugural F1 Petronas Malaysian Grand Prix was held in October 1999 and was witnessed by over 80,000 spectators together with an estimated 600 million television viewers worldwide. Malaysia became the first South East Asian country, and the second in Asia (after Japan in 1976) to host an F1 race.

On Malaysia being a pioneer in the region, Razlan says: “We are happy that we invested in all of these 10 years ago. To do so today would probably cost three times as much.”

“Now it’s simply too expensive to hop onto the F1 bandwagon and host an F1 race. You need to be able to host it for at least five years. There are countries that have pulled out because the cost is simply too high.”

This year’s race will see the race start at a later time, 5pm, to suit European viewers, instead of the normal 3pm flag-off. A compromise to having a night race, this allows the SIC to organise more promotional activities earlier in the day.

“We want to have more family-orientated activities. We want to have bouncing castles, face painting, mimes and people walking on stilts – a carnival-like experience. The novelty and excitement of F1 has declined over the years and we need to rejuvenate the attraction,” Razlan explains.

“I also feel that music works very well with motorsports. We plan to set up stages in Sepang so that when there are no track activities, there will be musicians and entertainers to perform for the crowd.”

The decision not to have a night race boils down to money and aesthetics. It would cost SIC an additional RM20mil to light up the track.

He says: “No plan for a night race; it’s just too expensive. Also, having a night race is only great for a street circuit, especially with the city skyline in the backdrop, which makes it very pretty to look at. It won’t be so exciting if you have it on a normal race track.”

Qatar hosted its first MotoGP (motorcycle racing) night race in 2008. The track, which is located in the dessert, did not look nearly as exciting as Singapore, Razlan argues.

“You cannot see the crowd and the backdrop is quite bland. The atmosphere is simply not the same as a street circuit. Some things you just have to let be. You shouldn’t turn day into night just for the fun of it.”

More News

Business Links

Latest Jobs from Star-Jobs

Latest from StarProperty