F1: Keep or Throw?

Is F1 race really worth having?
by Terrence Voon of The Straits Times (original link here

THE floodlights are going into storage, the roads have re-opened, and the grass around Marina Bay, trodden by over 200,000 fans over three days, will be replanted.

The curtain has fallen on Singapore’s Formula One showpiece, which, for the fourth year running, has been a stunning visual and organisational coup for the nation. The only question is, how long will it be here for?

The answer depends on whether the dollars still make sense for Singapore.

With a global financial meltdown looming, any decision about the future of the SingTel Singapore Grand Prix will not be known until next year, when the Republic’s current deal with Formula One Management (FOM) expires. If Singapore does not extend its five-year contract, it still has to serve notice by staging two more races, until 2014.

Talk of a new contract surfaced after last year’s race, and the fact that the Republic still has not signed on the dotted line indicates that the Government is taking its time to make sure all the financial bases are covered.

However, its calculations are possibly more complex than those done by the F1 teams to measure the aerodynamic performance of their cars.

The numbers game

For starters, the Singapore Tourism Board (STB) puts the total cost of staging the race at $150 million, about 60 per cent of which is paid for by the Government. The rest of the bill is settled by hotelier Ong Beng Seng, whose company Singapore GP promotes and organises the race.

A large part of that $150 million goes to the Formula One Group, a financial behemoth led by president and chief executive Bernie Ecclestone that is set to rake in US$1.789 billion (S$2.335 billion) in revenue this year. That figure, according to industry researchers Formula Money, is expected to cross the US$3 billion mark by 2016.

So how much does Singapore pay for the privilege of hosting an F1 race under the lights?

The Straits Times understands that it is likely to be around US$44 million, making it the second-most expensive venue, behind Abu Dhabi in last year’s calendar.

To put the numbers into perspective, Monaco – the sport’s original street race – pays next to nothing in terms of licensing fees. European venues like Monza in Italy and Spa-Francorchamps in Belgium – where organisers do not enjoy government subsidies – pay nominal fees around the US$5 million mark. The average fee of hosting a race was US$28 million last year.

The price of entry is even higher now. It is understood that India, the new act in this year’s F1 travelling circus, has stumped up more cash than Singapore.

Indeed, while Europe is the sport’s ancestral home, Asia is where the new money is. Nine out of 20 races will be held in the Asia-Pacific next season – confirming F1’s strategic migration from its cash-strapped European base to emerging economies in this part of the world, where governments are willing to dig deep to bring in high-profile sports events.

The street price

One of the key concerns for Singapore is that there is a higher cost associated with staging a night race in the heart of the country’s financial district. Unlike purpose-built circuits like Germany’s Hockenheim or Sepang in Malaysia, which cost US$120 million to build, construction costs for a temporary street circuit recur year after year.

According to Formula Money, permanent venues pay about US$48 million in organisational costs each year, whereas street races have to pay around US$87.5million.

In Singapore’s case, concrete barriers, fences, lights, spectator stands and plush hospitality suites are erected from scratch starting every July.

No figures are available for these expenses, but the Italian-made lighting system – which adorns downtown Singapore in a necklace of lights – is said to have cost US$5 million initially. Apart from that, organisers can only lay claim to one permanent structure: the $40 million F1 Pit Building, located on pricey reclaimed land on the edge of Marina Bay.

The scale tips further against the Republic, when one considers the revenue flow for F1 races, which cuts out the local promoter from most of the action.

Revenue from trackside advertising, television broadcast rights and seats at the ultra-exclusive Paddock Club go back to the F1 Group, the sport’s rights holder. Only proceeds from ticket sales and hospitality suites go to Singapore GP, which pulls out all the stops each year in order to keep the turnstiles clicking.

The returns

Apart from the 2009 race, which took place amidst a worldwide financial crisis, the other three editions were sold out.

Each race weekend here typically draws about 250,000 people – no mean feat considering venues like Turkey and Malaysia have struggled, with the latter attracting just 97,000 fans last year.

But the real money-spinner is corporate hospitality, a category in which Singapore can boast ‘one of the most extensive and comprehensive offerings in the F1 calendar’, said Teo Hock Seng, chairman of Singapore GP.

Banks and multi-national firms have queued up to buy expensive trackside suites which offer a mix of air-conditioned dining facilities, private viewing balconies and open-air rooftop terraces. Over 10,000 corporate tickets were sold this year, with prices ranging from $3,800 to $8,000 per head.

In short, while it costs more to put together a race on clogged city streets, the higher revenue from corporate hospitality makes up for it.

‘Places that are not near capital cities, not near good transport infrastructure, don’t attract the corporate guests,’ said veteran F1 television commentator Steve Slater. ‘There are three venues in F1 that consistently deliver high quality and a high image – Monaco, Singapore and Abu Dhabi. They are the gilt-edged assets. In a recession, they are the last to fade.’

The resultant economic spin-offs for the Republic are nothing to sniff at.

The STB estimates that each race typically generates around $160 million in tourism revenue, and a similar windfall is expected this year. Even at the height of the economic downturn in 2009, the grand prix added $93 million to the country’s tourism pot.

These figures are bolstered by a state levy on trackside hotels, which pay the Government 30 per cent of their takings for each room they fill. Those away from the track pay 20 per cent.

The intangibles

The biggest F1 pay-off for the Republic is almost immeasurable. From 2008 to 2010, a total of 293 million viewers saw images of the city’s glittering skyline on television – a massively successful branding exercise for the country. Figures for this year are not available yet.

On the whole, last year’s F1 season drew 527 million viewers worldwide, a feat rivalled only by the football World Cup and the Olympics.

Media experts say the public relations value of the F1 race to Singapore, including the three hours of live TV air time, could be worth as much as US$300 million.

‘This must be the biggest advert that Singapore has ever had,’ said Nigel Geach, a director of Britain-based research firm IFM Sports Marketing Surveys. ‘Our research shows that the race is huge, but it’s not only about the economic impact and the tourism. It’s about people looking at Singapore as an economic hub, a centre of excellence, and a place that can stage fantastic events.’

There are other intangibles that the Government needs to consider. Apart from annual complaints about the inconvenience of road closures in the Marina Bay area, retailers are waving the red flag as shoppers desert the area during race week.

Their concerns are being taken into account by the STB, though there is also the thorny issue of whether the sport – with its pricey admission fees and jet-set image – has gained any traction amongst ordinary Singaporeans.

Said David Voth, the Singapore Sports Council’s senior director for sports marketing: ‘With any iconic event that Singapore hosts, there has to be a connection to the people. That’s the No. 1 criterion. Whether or not F1 connects to somebody who may be living in Simei, is going to be important for the government to look at very closely.’

Fringe F1 events and community motor sports programmes can help to bridge the gap, said Voth, and create an ‘eco-system that provides support for the sport as a whole’.

As the talks with F1’s decision-makers continue, most likely into next year, Singapore’s position at the negotiating table is clear: The night race is good for the country – but only if the price is right.

‘We want to make sure that we have a clear idea of what is the value proposition of F1 for Singapore,’ Second Minister for Trade and Industry and for Home Affairs S. Iswaran said last week. ‘I’m hoping we can find a mutually-beneficial agreement sooner rather than later.’

Background Story

WHAT SINGAPORE PAYS

  • Estimated annual fee paid to F1 Group: US$44 million (S$57 million)
  • Estimated recurring cost of organising a street race: US$87.5million

Total annual cost of staging the race (including rights fees paid to F1 Group): S$150 million

WHAT SINGAPORE GETS

  • Annual tourism revenue (including accommodation, food and beverage, shopping and race tickets): S$160million
  • Cumulative total of television viewers who watched the last three races: 293 million
  • Total number of unique spectators who attended the last three races: 286,000

Sources: Formula Money, Singapore Tourism Board

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