F1 and Tourism — VietEcon

Just saw this article about the upcoming F1 race in Hanoi (upcoming in the sense that it is April 2020). It will be hosted by VinGroup, which is both surprising and not. This will be the first time that Hanoi hosts the F1. Notably, a bunch of the F1 sites in developing markets have fallen by the way-side over the years. Specifically:

The Malaysian Grand Prix was an F1 race 1999 to 2017 (and an prior race went back to 1962 in Singapore). The government decided to stop hosting it because: “The race costs £50 million just to win the rights and the government were unable to justify the ongoing spend. ‘I think we should stop hosting the F1. At least for a while,’ said Malaysia’s youth and sports minister Khairy Jamaluddin. ‘Cost too high, returns limited. When we first hosted the F1 it was a big deal. First in Asia outside Japan. Now so many venues. No first mover advantage. Not a novelty.’”
The Korean Grand Prix was held from 2010 until 2013. It looks like there was a dispute between the Korean organizers and F1 management. In 2012, the Koreans were already saying it was too expensive. “This year [2012], the local organizer expects a loss of more than $26 million.”
The Indian Grand Prix was another short one - 2011-2013. This time it was tax issues with the government - they wanted to characterize the race as entertainment and levy an entertainment tax. Also, “the organisers have already been struggling with rising costs and poor revenues.”

I am sure there have been more countries that hosted races and no longer do, but basically it looks like figuring out how to make a profit is a big issue. The F1 parent machine gets lots of money from all of the fees they charge. The organizers also have to pay to put on the race and to market the race. That doesn’t count the cost to build a track or fix up the street for a race. For example, Abu Dhabi built the Yas Racetrack for $1.3bn. Even a street race can cost $1bn for 10 years of hosting. Vietnam’s race is expected to cost $200 million, all funded by private companies.

There is a lot of revenue to justify these expenses: TV rights and ticket sales. These are a lot, but not always enough to cover the costs. And in a country where it is hard to charge very high ticket prices (like India and Malaysia) and TV rates are lower, it just can’t be justified.

And sponsorship revenue is falling, not helped by restrictions against tobacco companies sponsoring teams. That means that teams have moved on to tech (whose interest is…disappointing), fashion and beverages (Red Bull and Martini being the big ones).

But of course, the worldwide audience for these races is high: 490 million people in 2018, according to the F1 organization. Although that seems like a crazy and untrue number. Supposedly it fell 18% in the past 11 years, which, if I am doing my calculations right, would mean that almost 600 million people watched a F1 race on TV back in 2007. That’s more than 9% of the world’s population. For a race that is only held in 21 countries and hasn’t been consistently held in India or any of the Americas. Seems crazy to me, and very unlikely. But I guess they have internal numbers.

Why is Vietnam doing this? Vietnam is expecting a boost to tourism revenues from all the people visiting, and it wants to show the world that it is a real country that plays with the big boys like Japan, Europe, the US, etc. And Vietnam has been trying to host more of these worldwide events, just like the Trump-Kim summit earlier this year.

Unless they got a great deal with F1, VinGroup will surely money on this, but they can write it off as marketing. And the government will be happy with them.

I have my fingers crossed.