F1: A1 for wooing tourists, but do local businesses benefit?

This year, Singapore hosted the Formula 1 (F1) for the seventh year, with Singapore Airlines (SIA) taking over from SingTel as main sponsor for two years. But is this strategic tie-up - hosting the F1 in Singapore - optimal for the country as a whole?

This iconic tourist event, which came at a cost of $150 million for the first five years, was brought in to brand the nation as 'fun and bold', and give tourism a boost - a sector which accounts for four per cent of Singapore's economic output.

Some 40 per cent of the race-goers come from overseas, including those who travelled here to take part in conventions scheduled to coincide with the Singapore Grand Prix. Since 2008 when the night race was launched in Singapore, an estimated 250,000 tourists have visited Singapore each year during the race weekend, bringing in incremental tourist receipts of more than $100 million per year. This is more than the estimated $30 m it costs Singapore to host the event each year. Some experts expect costs to fall by 15 to 20 per cent, as organisers learn to run the event more efficiently and can re-use some of the structures for the race.

The Grand Prix can be a shot in the arm for tourism, especially in a year of aircraft mishaps and regional political unrest which has seen tourist arrivals here slipping 2.8 per cent year-on-year to 7.5 million in the first half of 2014.

Beyond the race weekend itself, does the F1 give tourism a boost? Do people who come to Singapore to attend the event return in the year? Do some among the hundreds of millions who watch it on television in their home countries, feel the lure of Singapore and holiday here?

In short, does it generate further revenue in the weeks and months after the event?

There isn’t a lot of data to answer this.

One Boston Consulting Group (BCG) study in 2012 found that some 10 per cent of the high net worth people who watch the broadcast of the night race said they were more likely to travel to Singapore.

Do they actually do so?

A more comprehensive study that includes this lagged effect, would provide a more complete picture of the returns we get from this event.

Studies can also be conducted to determine when the incremental revenue from F1 starts to dip and, can assist the Singapore Tourism Board in its planning to encourage tourists to further increase their stay and spending here.

Beyond financial returns, the F1 was brought in to add more buzz to Singapore's image. How much has this perception changed, given that impressions do not change overnight?

The BCG study found that 30 to 40 percent of the same high net worth people who watch the night race broadcast have an improved impression and awareness of Singapore.

Since one of the objectives of bringing in the Grand Prix is to reposition Singapore as a fun and bold city, annual tracking studies need to be conducted to assess whether indeed the perceptions of Singapore on these two dimensions have improved, not only immediately after the event, but also over time.

Ideally, perceptions of Singapore prior to the launch of the Grand Prix in 2008 would have served as the benchmark. Short of having those pre-Grand Prix numbers, we will have to rely on the incremental gains that the F1 adds to the fun and bold factor each year. It may well be that, over time, there will be a ceiling effect where the Grand Prix is no longer as effective as it was in enhancing Singapore's image. This may highlight a possible effect fatigue.

In another 2012 study, BCG found that 70 to 90 per cent of foreign business owners and top management of mid-sized companies had improved perceptions of Singapore because of the F1. Some five to 10 per cent of them expressed interest in investing and doing business here.

The Paddock Club and the various pre- and post-parties at the Grand Prix where the rich and famous hobnob would also see networking resulting in business deals signed.

While it is difficult to imagine that seeing an F1 race would prompt a business concern to be interested in investing in Singapore, studies should be conducted to isolate the F1 impact on business investments.

Besides the impact of the Grand Prix on tourism and image, we also need to consider the impact on local businesses. Are the economic gains experienced by hotels and Orchard Road retailers at the expense of businesses located at the heart of where the race is?

Businesses around the circuit suffer when road closures block access to their establishments. Sadly, some of these are small local businesses. Retailers at Suntec City mall reported experiencing at least a 20 per cent drop in business this year during the F1 week.

But if indeed the Grand Prix brings in more tourists even after the event is over, this will more than make up for the lost sales Again, studies can be commissioned to investigate whether this is the case.

As for SIA, industry experts have speculated that the SIA sponsorship is about $10 million a year. Watched by 90 million viewers worldwide, not counting the 250,000 at the paddocks, this works out to a cost of just 11 cents per viewer for SIA to have its logo within the viewer's line of sight.

How does this measure up to SIA's regular television commercials, not just in cost per viewership but also in the messaging conveyed?

SIA argues that the sponsorship move is bold, just as the Grand Prix drivers are. And SIA wants to reinvent itself as audacious, like the F1, to stay relevant. However, SIA's current corporate campaign focuses on its flight attendants going the extra mile to ensure that flights are comfortable, such as choosing the best leather for the seats or the movies for inflight entertainment.

One wonders how easy it is for viewers to grasp the connection between the aggressive revving of F1 engines and the gentle, beyond-the-call-of duty, service of SIA as conveyed in the commercials. SIA has to strike a delicate balance these two seemingly contrasting qualities. The airline clearly needs to have a tactical campaign for the F1 which is different to that of its corporate campaign.

Further, as Emirates is already a global F1 partner which has the privilege of displaying its branding in all 19 races, SIA has to work doubly hard to ensure that its sponsorship of one race is appreciable noticed and not confused with that of Emirates' 19-race sponsorship.

But definitely, it does make better sense that SIA is now the sponsor of the Singapore Grand Prix than SingTel as the national carrier flies in passengers for the event.

There is yet another community that has gained from the Singapore Grand Prix without having to splurge as much as SIA did. Several building owners have capitalized on the opportunity for free advertising by having their brand names emblazoned boldly on their buildings, with the TV cameras spanning across the skyline ever so frequently during the two-hour race. While the Esplanade and Marina Bay Sands have been featured prominently, so have One Fullerton and several other financial institutions in the nearby business district. For these firms, they enjoy free advertising - and multiple exposure - internationally, together with Singapore's skyline. The organisers have done an excellent job in retrofitting the iconic Theatres on the Bay, skyscrapers and heritage structures such as the Anderson Bridge with spectacular lighting effects.

All in, the Grand Prix tie-up does seem financially beneficial, though this can be fine-tuned for a more complete assessment. On the non-financial considerations such as repositioning Singapore as fun and bold, we need to take a hard look whether engaging in one marquee event by itself is sufficient to change this positioning and whether repositioning should also start with the people - and not just with the events we bring in.

stopinion@sph.com.sg

Ang Swee Hoon is associate professor of marketing at the National University of Singapore Business School