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Vietnam makes $475m bet to join Singapore on F1’s Southeast Asia lineup

Max Verstappen of the Netherlands driving the (33) Aston Martin Red Bull Racing RB15 on track during the F1 Grand Prix of Singapore at Marina Bay Street Circuit on September 22, 2019 in Singapore. (Mark Thompson/Getty Images)

  • Formula One’s owner and commercial rights-holder Liberty Media continues to believe in a strategy of adding “destination cities”
  • Vingroup has a 10-year race promoter deal with Liberty Media, which Formula Money estimates at $35m a year
  • Formula Money details how the typical costs of hosting grand prix break down

Southeast Asia has had its fair share of ‘shooting stars’ on the Formula One calendar. Malaysia had a race every year from 1999 to 2017. In the last decade both India (2011-2013) and South Korea (2010-13) have come and gone, while plans for a night race in Thailand’s capital Bangkok to go ahead in 2015 failed to bear fruit. Singapore, whose night race is now one of the highlights of the season, is the only country with a race in the region in 2019.

But F1 owner and commercial rights-holder Liberty Media continues to believe in a strategy of adding “destination cities” to the calendar, and Vietnam’s capital Hanoi has heeded the call. The city is in the midst of preparations for its inaugural race next April.

Will Hanoi become a long-term fixture on the F1 calendar? Or will it join the ranks of the shooting stars?

Vingroup’s ambitions

The race promoter in Hanoi is local conglomerate Vingroup. Once a real restate and retail conglomerate, it has grown to become Vietnam’s largest listed firm with a market capitalisation of more than $16bn (€14.5bn). Singapore state investor GIC is one of its backers. The company recently branched into producing smartphones and cars, has applied for a licence to launch an airline next year, and is also looking to enter the artificial intelligence sector, according to local media reports.

Vingroup has a 10-year race promoter deal with Liberty Media – which F1 industry monitor Formula Money estimates costs $35m a year – and has set up the Vietnam Grand Prix Corporation to run the operation.

Liberty has promised to work closely with the company to maximise economic returns from the race. Le Ngoc Chi, chief executive of the Vietnam Grand Prix Corporation, told the Straits Times newspaper last month that is targeting an attendance of 300,000 fans over the inaugural race weekend. This would match the Singapore Grand Prix’s highest attendance, at its inaugural race in 2008. The 2019 Singapore Grand Prix drew a three-day total of 268,000 fans.

The event’s main sponsor has just been announced as VinFast, Vietnam’s first home-grown car manufacturer, which was founded last year. Nguyen Viet Quang, chief executive of Vingroup, said when announcing the Hanoi Grand Prix: “Through the F1 racing event, we are going to proclaim the first Vietnamese car manufacturer, VinFast, to millions of [fans around] the world.”

Chi said: “Formula One is known as a high technology industry and Vinfast can tap on that. We want Vietnam to be able to seize the best business opportunities internationally available.”

Fans watch the action during the Formula One Grand Prix of Singapore at Marina Bay Street Circuit on September 16, 2018 in Singapore. (Charles Coates/Getty Images)

Hosting logistics

Vingroup, Hanoi and Vietnam hope to glean a large amount of intangible marketing, promotional and public relations value from hosting F1. But the race promoter will also be hoping to minimise losses and perhaps make a profit directly from the event itself.

Research by Formula Money indicates that the race will cost a total of $475m to stage over the five years of the first hosting contract.

Staffing is one of the big costs. To get the street race to the finish line, hundreds of workers will resurface Hanoi’s streets, relocate roadside objects and clear nearby ground to build grandstands and other temporary race structures. Barriers will be put up and the whole track enclosed in fencing. Once the dust has settled at the end of the race, it will all have to come down again in a matter of weeks.

This requires turbo-charged staff numbers, as shown by the example of the Automobile Club de Monaco (ACM), which organises the grand prix in the Mediterranean microstate. Every year, ACM recruits more than 600 marshals, 500 security personnel, 400 voluntary workers and 40 doctors to transform Monaco into F1’s most famous racetrack. According to the ACM, the race requires more than 3,000 workers in total. These include public sector workers from the police, fire and other emergency services, as well as civil engineers, town planners and street cleaners.

There is no such thing as hosting an F1 race on the cheap. Every circuits must meet strenuous safety standards known as Grade 1 homologation. There is even a special type of tarmac to withstand the forces generated by cars racing at more than 200 miles per hour.

The quickest way to get a grand prix off the ground is to use an existing track. But there isn’t a huge pool to draw from; only 15 tracks in the world not already hosting F1 races are up to the Grade 1 standard.

The bill for upgrading tracks to Grade 1 can come to more than $100m, so it is rarely cost-effective. It costs around three times that to build a track from scratch. Doing the latter gives the organiser complete creative flexibility, which can make a big difference when it comes to generating interest in the race. However, it requires hundreds of acres of land, so purpose-built venues are usually on the outskirts of cities.

By contrast, street tracks show off downtown landmarks in a dramatic way. This magnifies the economic and PR impact of a race – important considerations for a developing nation such as Vietnam.

Street races are cheaper to get off the ground than those on purpose-built tracks since they don’t require construction of a new venue. Permanent circuits take years to build whereas city streets can be transformed in little more than a year. This gives hosts quick access to the attractions of F1 and means that there are no fears of being left with a white elephant if they decide to quit when their contract expires.

But although street circuits are quicker and cheaper to get going than permanent tracks, their annual running costs are far greater. This is largely due to the cost of transforming public roads into racetracks.

Unveiling the costs

The costs of running F1 races are generally not revealed. Race promoter contracts are not typically made public. One which was – the agreement for a grand prix in Valencia, Spain, which was discontinued in 2013 – stated that the race promoter “shall not at any time following execution of this agreement announce, publish or disclose to a third party the existence of this agreement”. Sometimes details sneak into the public domain – for example, when government-funded races require promoters to make official filings containing financial details. All F1 races get some government funding except for the British Grand Prix, which covers its costs largely through ticket sales.

By analysing thousands of pages of company documents, and interviewing hundreds of race personnel over nearly 20 years, a picture of how much it typically costs to host a city street-based grand prix has been pieced together by Formula Money. The main operating costs are outlined below.

Alongside running costs, race promoters pay a fee to F1 for the hosting rights, although these are often covered by government. According to filings by Liberty Media, hosting fees generated $616.7m last year, an average of $29.4m per race.

European markets like Italy and Britain pay well below the average because they are considered heritage races that the series must keep in the calendar. Emerging markets generally pay much more. They pay to stage races for reasons of prestige and in order to showcase themselves in front of F1’s large television audience, which hit 490.2 million last year. Hosting a race has helped elevate the global standing of countries such as Abu Dhabi and Singapore. Vietnam has similar ambitions.

The race hosting fee for the Hanoi Grand Prix is thought to be $35m annually. Vingroup declined to comment on the figure when contacted by Formula Money.

Liberty Media’s filings reveal that race contracts “may allow for flat fees over the term, but more typically they include annual fee escalators over the life of the contract, which are typically based on annual movement in a selected consumer price index or fixed percentages of up to 5% per year.”

Formula Money says this suggests that, over the five-year duration of the Vietnam Grand Prix, hosting fees could total about $195m. Running costs over the five years, at an annual cost of $56m, will come to $280m. This brings the total five-year cost of the Vietnam Grand Prix, including the race fee and running costs, to $475m.

Revenue generation

When it comes to Vingroup’s opportunity to generate revenue from the race, ticket sales will be its main source of income, as they are for all grand prix promoters. Revenues from races’ other main streams – trackside advertising, media rights and corporate hospitality – flow centrally to Liberty Media. Ticket sales typically come to about $16m for races at permanent circuits. This covers the bulk of their annual running costs of about $20m.

Ticket sales for races on street circuits are lower, at around $12m, because they have less space for grandstands. Street races had an average attendance of 61,250 in 2017, compared to 84,510 for the permanent tracks.

Race promoters generate about $4.5m from hospitality sales run by the promoter, merchandise sales, and a 25-per-cent commission on food and drink sold onsite.

Formula Money says the figures suggest an income of around $16.5m for the Vietnam race promoter.

Indirect value

The figures suggest it will be tough for VinGroup to make direct profit on the race. But it’s clear that the company has other goals for the project, including creating a marketing platform for Vinfast and contributing to the broader uplifting of Vietnam’s economy and stature as a nation. In an interview with motorsport website Racefans.net, Chi said: “VinGroup are not doing this just for VG’s good, but for the good of our country, for the better lives of the Vietnamese people.

“We understand that Formula One is not just a race, it’s an entertainment and sporting event that also brings in a lot of different opportunities in terms of boosting tourism, in terms of boosting investment, in terms of boosting cooperation, and mutual cooperation activities.”

Chi said there was a strong desire in Vietnam to move international perception of the country past the war of 1955-75.

“We especially have that strong will to showcase [ourselves], because we hear this a lot: ‘Vietnam? I don’t know where it is; is it a war?’

“We want people to understand that’s behind us. Right now, we are a country that is on a fast track of development, and we are the new dragon of Asia. We have one of the highest gross domestic product growth rates in the last few years internationally, and it’s time to show how peaceful we are, our unique traditions, good food and friendly people.”

This mixture of practical and lofty goals, as well as Vingroup’s strong financial position, suggest the Hanoi Grand Prix is starting on a sound footing. Time will tell whether it’s a winning formula.

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