Why Formula One has failed to conquer emerging markets

Why Formula One has failed to conquer emerging markets
Feb 16, 2015, 8:03 AM

How ill-judged and costly forays into India and Korea show holding a grand prix is no guarantee to success in ‘new’ regions.

The South Korean Flag and the F1 flag
Korea International Circuit, Korean GP
South Korean Air Force Display
Guests at the Signature Monaco Party on the Indian Empress Boat
Buddh International Circuit sign
Bernie Ecclestone visits Buddh International Circuit
Romain Grosjean, Lotus F1 E21
Adrian Sutil, Sahara Force India VJM06
Jules Bianchi, Marussia F1 Team MR02
Paul di Resta, Sahara Force India VJM06 leads Fernando Alonso, Ferrari F138 out of the pits
Nico Hulkenberg, Sauber C32
Felipe Massa, Ferrari F138

Whatever your personal opinion on Formula One’s endless forays into pastures new, there are some markets where F1’s presence is logical, even if experience has shown us to be unpopular.

In recent years, the sport’s two biggest calendar failures bar none have been the losses of both India and Korea, irrespective of how popular either event may have been with F1’s travelling circus.

The right kind of markets

As home to around one in seven of the world’s population and with a growing middle class, India is exactly the sort of market where Formula One should have fought to maintain a foothold – there are pots of gold at the end of that particular rainbow, if the relationship could only be properly managed.

Korea is a similar story, in terms of target market. As the world’s fifth-largest automobile-producing nation, South Korea should have been a ripe market for new sponsors. In addition to the likes of Kia and Hyundai, tech firms like HTC and Samsung would have been logical fits as sponsors and technical partners. The potential audience – many of whom have access to sizeable disposable income and who should have been our target market – could be found miles from the race, a four-hour train ride away in Seoul.

Fallen off the calendar

Neither Korea or India lasted for long, both for reasons linked as much to local politics as they were to Formula One. Despite massive investment from the Jaypee Group in India and from state coffers in Korea, both races have fallen off the calendar, leaving only massive white elephants in the form of multi-million dollar purpose-built race facilities.

In Korea, Yeongam International Circuit is not being allowed to fade into obscurity, an expensive mistake to be brushed under the rug. Instead, the organising committee is arguing over compensation payments believed to be around $86 million due to Formula One Management (FOM), while local activists have filed complaints against the organisers with the local prosecutor, claiming breach of conduct for pursuing F1 in the first place.

“They have misplaced figures and forecasts to hold an event that didn’t fit the regional status,” activist Lee Sang-seok told the Korea Herald.

Hosting a race in South Jeolla province was always going to be an uphill battle, as the circuit wasn’t within easy reach of any major population centres. But the aftermath of the Korean Grand Prix is also a cautionary tale for prospective race hosts. While the event was still ongoing, the South Korean Board of Audit and Inspection ordered that the regional government discipline workers for miscalculating the cost of building and operating the circuit by hundreds of billions of won (the local currency) and four-year losses of $170 million.

The challenge of turning a profit

Putting on a major event of any kind involves an element of financial risk, but to put on a Formula One World Championship Event is in another league. In addition to the multi-million dollar hosting fee contracts with their in-built annual escalators are the costs that must be paid to provide a suitable facility. Purpose-built circuits and street circuits both have advantages and disadvantages, while many existing tracks not currently in use need to account for the cost of any safety-related upgrades needed for FIA homologation.

The financial risk is then further compounded by the total impossibility of turning a grand prix into a profit. With no rights to income from circuit signage or merchandising, all income – never mind profit! – comes via ticket sales.

No motorsport heritage

For a territory with no motorsport heritage, estimating likely ticket income over the course of a contract is a challenge. And even in the sport’s heartland, ‘if you build it, they will come’ is no longer the truism it once was – just ask the owners of the Hockenheimring and the Autodromo Nazionale Monza.

White elephants are bad enough, but when F1’s abandoned races become political hot potatoes in countries that were formerly – and should still be – our target markets, it hardly makes our sport a more appealing prospect as we continue to seek out new areas for growth and expansion.

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Series Formula 1
Author Kate Walker
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