Formula One - Hanoi hosting the Vietnam Grand Prix is a great first corner for F1’s owners
The Communist-ruled republic of Vietnam and the free market, ultra-competitive World of Formula One are not the most likely of bedfellows. Yet F1 cars will take place to the streets of Hanoi in 2020.
F1’s owner, Liberty Media, has added the first of the new markets they seek to expand their fan base - and their margin. We ask how does Vietnam make the most of F1 and capture the prestige and worldwide audience to drive inward investment, national unity and tourism long after the chequered flag drops and it's Go! Go! Go!
Hanoi will be another of what used to be a rarity - a street race - in the 21 race calendar. Hosted on a 3.458-mile street circuit designed by Herman Tilke’s company, located 12km west of the city centre near the My Dinh National Stadium Hanoi will be hoping to join the other new destination cities on the F1 calendar.
However, if we look at almost any "old world" nation or city with an F1 Grand Prix, and they are likely to have recently struggled to find a sensible way to structure the financial side of hosting F1. Even Silverstone, where the UK motorsport’s cluster provides around £6bn of annual export sales, is based, struggled to secure government support when it looked like the British Grand Prix might fall off the calendar.
The angst surrounding this failure typically used to be focussed on everybody’s favourite bogeyman Bernie Ecclestone and is now directed at Formula One's management company Liberty Media and is articulated as a complaint about how much they charge to do business. The classic solution voiced by politicians is to pay Formula One less to host a Grand Prix or to cut the race altogether.
They are wrong. At the heart of most Grand Prix promoter’s difficulties are three things.
First, they don’t know or use the facts about the economic impact of F1 to mobilise government funding and the local business community
Second, they don’t optimise their hosting contract
Third, they don’t maximise the assets they get in that contract.
At Redstone, we spend a lot of time looking at sports business models, and the truth is that Formula One delivers an exceptional destination development tool. Hosts who do their homework, know why they are getting into F1 and have a solid plan backed by experienced people do very well – I wouldn’t go so far as to say that Formula One is undercharging, but there is a significant upside available to hosts who get their act together.
Two of Redstone's senior team worked on Singapore’s renewal of its F1 hosting contract, so we understand it well. With an annual hosting fee at the top end of the scale, Singapore is a relatively high paying Grand Prix, yet they are the model of how to create a modern Grand Prix that works for FO, teams, fans and the host nation. How have they done that? With typical Singaporean positivity and hard work. The Australian Grand Prix Corporation resisted pressure to accept a night race because of the additional cost lighting would bring. However, Singaporean race promoter and hotelier Ong Beng Seng was trying to make sure that their iconic night race remained a unique selling point, creating the party atmosphere that has put Singapore GP among the firm favourites of high-spending international tourists.
The additional costs of a night-time race are just one of the many disadvantages that Singapore has turned to their advantage. Temporary street circuits like Singapore are the most expensive way to host a GP. That's because you can’t spread your costs by running other events like at a fixed circuit, then there are setup and breakdown costs plus you pay the opportunity cost of visitors lost to the City because they don’t want to come when a Grand Prix is on. Running a street race in Singapore’s city centre adds friction costs like loss of retail sale and clogging up the city’s roads which slows workers getting to their jobs. A city centre street race also loses revenues when wealthy city centre residents go overseas to escape the commotion of the Grand Prix. Combine all this with one of the higher hosting fees to FOM, a small domestic F1 fan base, no real TV rights market and the relatively successful, if wet, Malaysian GP just next door and the Singapore Grand Prix should have been a massive flop.
Instead, they have created a top step podium finish.
The F1 weekend generates around $150m in tourism receipts for Singapore. Spectators and viewers worldwide see not only the race cars but Singapore’s amazing skyline, and that has value. I don’t like the commonly used metric of advertising equivalent value (AEV) for measuring the value of that exposure. For me a more useful question to ask is how much money is going to hit the ground in Singapore in the form of FDI, increased revenues for Singaporean owned businesses (Singtel roaming charges – Ouch!), or tourist spends as a result of that exposure. For Singapore that’s a significant sum - Over a ten year period, Singapore stands to gain $1 billion in net economic output from hosting F1 and an equal amount from increased tourism and foreign direct investment.
Given the brutal economic realities facing some of those “mature” F1 markets, it is easy to see why politicians find it difficult to stand behind a Grand Prix. But, the reality is that F1’s established markets are paying a lot less for their Grands Prix than newer races. They have all the fans, travel infrastructure, large sponsor bases, hospitality and TV markets they need to it a success.
If, like Singapore, Vietnam goes into F1 with their eyes fully open, are proactive, did their research, worked with FOM to optimise their contract, keep innovating their business model and aren't afraid to take well planned commercial risk they will be doing their taxpayers (Do communists pay tax?) a significant favour in hosting a Grand Prix.