MAY 30, 2007

Funding the racing in Singapore

The new Formula 1 race in Singapore is an interesting business model for the sport with the government admitting that it is going to pay about 60% of the annual cost of $99m. The deal is for five years with a five-year extension planned. The interesting thing is that the promoter, Singapore GP Ltd, a company controlled by hotel tycoon Ong Beng Seng, is not allowed to make big profits from the race, at least not directly. Although no-one will talk about the deal, it has been confirmed by the race's executive director Michael Roche that there is a profit cap in place and if the organisation makes more than the limit the additional money will go to the government to reduce the payments it has to make in the later races.

The government accepts that the cost of hosting an F1 race far exceeds the revenue a race promoter can expect to get from ticket sales, merchandising and sponsorship, but is happy to invest because it believes that the race will generate around $100m in additional tourism revenues, and will have intangible benefits such as improving the image of Singapore and getting more people to visit when the racers are not in town.

The most interesting part of the funding will come from a special tax that the government will levy on hotel rooms. With 40,000 people expected to attend from abroad, the hotel prices are expected to be high and the government is pushing them even higher with its special tax, which it is hoped will bring in revenues of between $15m and $20m. This will be fine for the high rollers but may be a little much for race fans and so there will not doubt be a flourishing trade in cheaper accommodation, thus spreading the earnings around.

Ong will be making money not only from his hotels but also from shops and restaurants and he clearly believes that the race, and its effect on Singaporean tourism, will make him money. If his estimates are wrong, he is going to have to pay the bills. The details of the deal remain confidential but the Singaporeans seem to think that they will be able to sell the title sponsorship for the race to a local company. Title sponsorships are normally sold off by Allsport Management, now an offshoot of the Formula One group, but it may be that in this deal that has been taken by the locals.

We hear that there might even be two sponsors with one having the naming rights for the race and the other brought in to pay for lighting the circuit in the event of night race. We even hear that Philips is well on its way to doing that deal.

A night race will certainly be different but if Singapore is going to show off its finer points to the world's TV audiences there will need to be some serious floodlighting of buildings away from the race track itself.