Options aplenty for Malaysia in F1-less future

MALAYSIA - While negotiations continue between the Formula One (F1) Group and the Singapore government over a contract extension for the annual Singapore Grand Prix, Malaysia has already decided it no longer wants to host its F1 event.

Malaysia confirmed on Monday that it would not be renewing its contract when it expires in 2018 due to poor financial returns. In a Bernama report, Tourism and Culture Minister Mohamed Nazri Aziz said the government doesn't get a positive return on the RM300 million (US$67.93 million) it spends each year for the F1 race.

"We spend RM300 million per year but are not getting RM300 million back,” he said. “There are no returns on the F1 Grand Prix. The current contract is from 2016 to 2018. The F1 attendance has declined over the years, probably because there is less attraction.”

With a major sporting event that has been a staple on the country’s calendar since 1999 set to end, where does that leave the Malaysia sports scene and opportunities for brands?

Speaking to Campaign Asia-Pacific, Matthew Marsh, Asia SVP at Just Marketing International, a part of CSM Sport & Entertainment, said that as much as F1 is a sport, it is also a business.

“Much like FIFA for football, F1 offers a platform for host nations to promote themselves to the world and make a statement,” he said.

Marsh noted that two kinds of nations would host an F1 race: Countries that have a large domestic fan base, such as the UK, Germany and Japan, and countries that don’t have much local interest in the sport but want to position themselves on the world stage. Both Malaysia and Singapore fall into the latter category.

In addition, F1 was seen as the relatively inexpensive option, in contrast to hosting a FIFA World Cup, with the benefit of the event being an annual occurrence.

“Back in 1999 when it first launched, Malaysia used the Sepang F1 race as an annual reminder to the world that [the country] existed, and also used the title sponsorship by Petronas to raise global awareness,” said Marsh.

One could argue that the original objectives for hosting an F1 race have been achieved and now, after many years, a closer look at ROI is warranted, Marsh added.

“If the return has declined while the fees and cost of hosting has gone up, then not continuing would make sense,” Marsh added. “And it’s not necessarily a negative thing.”

He believes that with the loss of Malaysia as a host nation, the next likely Asian candidate would be South Korea, given its strong domestic automotive industry.

“It was attempted in the early 2000s but did not do well,” Marsh said. “However with new [Formula 1] owners Liberty Media coming in, there might be a longer-term approach taken with potential host nations which would see countries that had no intent or resources before being more open to the prospect.”

Stuart Ramalingam, VP of Dentsu Sports Asia (DSA) and head of DSA’s Malaysian office, agreed with Marsh, adding that the decision to stop hosting the Sepang F1 race was “a matter of when.”

“I would say that they made the decision one cycle too late in fact,” he said. “Given that the value of the race to Malaysia has decreased over time, and as host nation you’ve done as much as you can to promote the event, I think it’s a fantastic decision.”

Ramalingam pointed out that the loss of F1 would have minimal domestic impact, as local engagement was low anyway, with the bulk of deals struck on an international level.

With Malaysia dropping out of the F1 circuit, Singapore will be the biggest winner as the night race’s prominence in the Asean region increases, in addition to a bigger role in the international market.

Ramalingam expressed surprise that Singapore would consider not keeping the race, noting that it might be “a bit too early” for such a move, in comparison to Malaysia.

He noted that the F1 brand in Malaysia and the region has lost its relevance with the masses as the sport has moved away in recent years toward a more premium positioning.

That view is shared by Josh Black, CEO of GroupM Content. F1’s biggest challenge right now is that it has relevance issues with mass audiences, as the product just isn’t that visible beyond pay-TV services in Asia.

“And that’s a problem if you want to engage emerging consumers,” he said. “It’s aspirational and exclusive, and for many, that’s the whole appeal of the sport. But if you want to build a fan base beyond that, you need to get your TV product visible, and that’s frankly not happening. It’s also keeping money off the table from advertisers.”

Regional relevance and opportunities

Both Marsh and Ramalingam agreed that with the decision made on F1, it frees up resources and funding for Malaysia to look at other opportunities in motorsports.

The MotoGP series tops the list. The country currently hosts the Shell Malaysia Motorcycle Grand Prix, and tourism minister Nazri has told reporters that were the MotoGP to be scrapped, tourism numbers would be affected “badly”.

Marsh said that the number of travellers making the trek to Sepang for the race is high and continues to grow, with the bulk of the fans hailing from Indonesia. Shell recently extended its sponsorship commitment to the Motocycle Grand Prix to 2020.

“Motorbikes are popular in the region, and the sport continues to grow, not just in Malaysia but also in Asia, with races planned in Indonesia and potentially Thailand,” he added. “The Sepang race circuit is well established, with many teams using it as a home base for the region.”

Another growing motorsports segment is GT racing, with the GTAsia series growing in popularity.

“Supercars are very popular in Asia and have a growing fan base,” Marsh said. “Increasingly, it is these circuits that are of interest to regional brands, thanks to high relevance and resonance with consumers.”

GT racing also comes with the added perk of being less expensive for brands to get involved with, compared with F1, and more flexible in terms of the ways brands can activate around an event.

Additionally, Malaysia Youth and Sports Minister Khairy Jamaluddin has been quoted as saying the development of local talent in motorsports is more important than forking out huge amounts to organise the F1 Grand Prix.

Ramalingam is hopeful that the funds originally allocated for F1 will be reinvested back into the domestic motorsports scene to develop local race series and grassroots talent. This would give brands a platform that would better resonate with local or regional consumers, he said.

“That RM300 million spent on F1 was directed toward more of a ‘brand Malaysia’ direction, using it as a driver of tourism,” he said. “But given that the country is already host to a variety of international sporting events including golf and tennis, it could be argued that you don’t need to replace the F1 with another international event and instead should focus on domestic or regional ones.”

Ramalingam noted that brand engagement in sports across the board is growing rapidly, as mainstream media channels decline and digital remains fragmented, resulting in marketers looking at other avenues for investment.

“Rather than us going out to approach brands, now more come to us instead to explore opportunities in sports,” he added.

But Ramalingam also has some words for marketers out there keen to jump on the sports bandwagon. First, he said, remember that it is not about the quantity of fans but the quality.

“Some sports may not have the global footprint the way football does, but that doesn’t mean that its fans would not be relevant to your brands, sometimes more so,” he said.

Brands should also not see sports marketing as an immediate solution.

“It is just a door in to a fan base that would pay attention to what you have to say,” he said. “It is a long-term journey to communicate the right way with sports fans and find relevance between your brand, the sport and the people that love it.”