Malaysia will stop hosting Formula One race, but the (tourism) show must go on
TWO days ago, Malaysia’s Tourism and Culture Minister Datuk Seri Nazri Aziz confirmed that Malaysia will stop hosting the Formula One (F1) Grand Prix race after the current contract expires in 2018.
The Malaysia Grand Prix is a round of the Formula One World Championship, and is held annually at the Sepang International Circuit. The event has brought into Malaysia some of the most prominent names in the sport including Sebastian Vettel, Michael Schumacher, and Fernando Alonso.
For the best of under two decades, the F1 season has been a revenue generator as it doesn’t merely encompass the race; a series of activities, shopping sales, road shows, a charity gala dinner, and public concerts are also common prior to and after the race. Fans also get the opportunity to meet and greet star racers.
However, Nazri said the hosting of the race was costly and has not brought necessary returns to the country. The decision was concurred by Youth and Sports Minister Khairy Jamaluddin, who had expressed last month his support to temporarily halt the hosting of the sporting event.
Nazri said, “F1 attendance is dropping and there is less attraction now. We are spending RM300 million (US$67 million) a year [for the race].”
Meanwhile Khairy said via Twitter that Malaysia began hosting the races in 1999, and back then, it was the first country outside of Japan to do so. He added that at present time, there are many venues: “There is no first-mover advantage; it’s no longer a novelty.”
He added: “F1 ticket sales declining, TV viewership down. Foreign visitors down b/c (because) can choose Singapore, China, Middle East. Returns are not as big.”
According to Channel News Asia, Malaysian officials have said that Sepang, which can accommodate 120,000 fans, drew just 45,000 to last month’s grand prix, and added that race-day TV ratings were also poor.
State oil and gas firm Petronas are the title sponsors for the F1 race in Sepang, and the company has been hit hard in recent times by the tumble in oil prices.
A report in Forbes said that F1′s chief executive Bernie Ecclestone helped put cities like Kuala Lumpur and Abu Dhabi on the map. “They were once seen as obscure destinations and were rarely mentioned in the news, let alone considered exotic tourist destinations. F1 changed all that,” the report stated.
Furthermore, in a 2008 survey, then Tourism Minister Datuk Seri Azalina Othman said that about 80 percent of international visitors approached for the study said they came to Malaysia solely for the F1 race.
However, the lack of the “novelty factor”, an economic slowdown, and an aging circuit could be some of the reasons that have contributed to a decline in ticket sales.
About a decade ago, Ecclestone criticized the tracks by comparing it to “an old house that needs a bit of redecorating”. He added, “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.”
Ten years on, Malaysia must move on from being heavily dependent on the races as a significant tourism booster. This sentiment is most certainly shared by some of Malaysia’s local racers.
Muzzamel Mazidee, founder of TGTR, a collective of people passionate about cars and driving, posted a statement on Facebook to express his disappointment about how the race has deviated from the objectives it first sought to achieve all those years ago.
“Sad to see after numerous attempts to make the facility better, Formula 1 has been a bore to some fans, making people attending for the free tickets or for the sake of being at a race which they have little to none knowledge about the sport just because they want to be seen.
Hope this will create an opportunity for other international racing series to add Sepang [to] their racing calendar. If not, make the circuit more accessible for trackdays and elevate the grassroot racing scene in Malaysia so we can develop more talents in the future.”
Future of Singapore’s Formula One race uncertain as tourism industry diversifies
AFTER negotiating Singapore’s current Formula One deal, Bernie Ecclestone said in 2012 the hardest thing was explaining to the authorities that “we don’t race for free”.
Four years on, the F1 boss appears to be frustrated again as he tries to keep one of the most glamorous races on the calendar after the contract expires in 2017, at a time when the city-state is weighing whether the event makes economic sense anymore.
With its tourism industry increasingly diversified, a stronger country brand than when it first hosted the event in 2008 and other major sporting events in the bag, Singapore seems to have the upper hand in the talks with F1.
Moreover, Ecclestone and F1’s new owners, U.S. cable TV mogul John Malone’s Liberty Media, face a new risk: with Malaysia pulling out of a new deal, they could altogether lose their presence in southeast Asia, one of the world’s fastest-growing regions.
F1’s 86-year-old commercial supremo first told German magazine Auto Motor und Sport that Singapore does not want to host F1 anymore, then clarified he did not want to lose Singapore. His comments suggest talks getting tougher.
“I think Singapore has come in and negotiated hard and has realized they are in a position of strength to do so,” said James Walton, head of the Sports Business service line at Deloitte Singapore and southeast Asia.
“This is one of the top ranked grand prix … and one of the markets that the key sponsors of F1 are most interested in.”
Singapore’s government funds 60 percent of the S$150 million (US$105.13 million) it costs to host the race each year. Analysts say the city-state is weighing the costs, and benefits, of staging the event in the future.
Singapore GP, the event’s organizer, said it would not comment on “ongoing commercial negotiations”. A decision is expected before year-end, Ecclestone has said.
The Singapore race is one of the most popular, taking place at night on a street circuit with spectators entertained by music acts such as Beyonce and Justin Bieber, while TV watchers get a bird’s-eye view of the glitzy skyline.
As a top wealth management hub, the city-state is a natural draw for the region’s affluent people, a key target of Formula One sponsors such as Hugo Boss and Tag Heuer, a luxury LVMH brand.
But the significance of that is bigger for Ecclestone than for Singapore, which also hosts events such as the WTA women’s tennis Finals and the Rugby 7s series that bring over 100,000 visitors each.
While the F1 initially played an important role in boosting the tourism industry, Singapore has diversified its offering, now focusing on the emerging middle classes from China, India and Indonesia.
Tourism is actually a bright spot in a slowing economy. In the first eight months of this year, before this September’s F1 race, the number of visitors was up 10.3 percent from the same 2015 period, at 11.3 million. Tourism receipts grew 12 percent to S$11.6 billion ($8.1 billion) in the first half of 2016.
To be sure, Singapore has benefited from hosting F1. Since the 2008 debut race, the event has generated S$150 million (US$104.5 million) in tourism receipts every year on average, except for 2009 at the height of the global financial crisis.
But about 80 percent of the spending gets recycled into the economy, with local firms hired for circuit set-up, ticketing and security, the Singapore Tourism Board says.
“In these economic times, every order book is important and I believe this is not a small order book,” said Kurt Wee, President of the Association of Small & Medium Enterprises.
He added though that “everybody would understand that the event has to be sustainable”.
And that is where Singapore has another argument. Attendance, which topped 100,000 on all three days in the first year, has declined, with this year’s race averaging 73,000 spectators for each day, down from 87,000 in 2015.
With the global economy slowing, the numbers might fall further and a five-year commitment may not be so appealing, although this may be offset in the future by Malaysia pulling out as F1 fans in the region would have only one nearby option.
“If you think of the government as a business, I think they have to manage their funds prudently to get the most bang for their buck,” said ANZ economist Weiwen Ng.