Benefits trumps costs in Govt decision to fund Singapore GP

The Straits Times, May 26, 2007


THE buzz and business a Formula 1 race would bring to Singapore far outweighs the cost, which was why the Government decided to back entrepreneur Ong Beng Seng's bid to have the race here.

Aware of rumblings about the Government's role in what seemed like a private venture, Minister of State for Trade and Industry S Iswaran assured taxpayers yesterday that the spillover benefits to the economy would be ‘very large’, in terms of increased consumer or tourism spending.

In fact, the Government's estimate of $100 million in revenue a year was on the conservative side, as analysts such as Citigroup are predicting between $150 million and $200 million.

Addressing concerns that the public sector was funding what was essentially a private venture by Mr Ong, Minister of State (Trade and Industry) S. Iswaran said the economics were such that the cost of hosting a race far exceeded the revenue a private race promoter could expect from ticket sales and merchandising.

'Without the Singapore Tourism Board's support, an F1 race in Singapore would probably not happen,' said Mr Iswaran, who was speaking on the sidelines of the Great Singapore Shopping Challenge at Ngee Ann City's Civic Plaza on Saturday.

He stressed that despite the high cost, the spillover benefits to the economy would be very large, in terms of increased consumer or tourism spending.

'But the private promoters cannot take advantage of that,' he continued.

'So that's where STB's involvement comes in. If STB is able to support this at a level comparable to the benefits to tourism and the economy, then it's justifiable.'

He also said that in most of the other F1 host cities, their governments and related agencies actually underwrite the entire cost of the race.

Earlier this month, it was announced that Singapore would host its first F1 race next year, and that the Government would fund up to 60 per cent of the estimated $150 million cost through the STB.

What swung the deal for the Government was also the fact that it would bring the Republic closer to its aim of becoming a vibrant global city.


F1 organisers to profit from public money?

While there has also been talk that Mr Ong and his team might make a killing at the expense of taxpayers if the event proved to be a success, Mr Iswaran said there were mechanisms in the deal to prevent that.

'I just want to reassure Singaporeans in general that... if in fact the race is very successful, profits beyond a certain pre-agreed level will be ploughed back to reduce the Government's grant.'

Any amount above this cap, which is confidential under the terms of the deal between race promoter Singapore GP Pte Ltd and the Government, will go towards reducing the Government's future grants. But any losses incurred will be borne by the organisers.


Govt's expected returns conservative

The Government said previously it expects the race to generate incremental tourism receipts of $100 million a year, something which Mr Iswaran admits is a 'conservative' figure.

'But I see that many analysts have come out to say that the benefits are in excess of that, at least twice if not more.'

A Citigroup report released last Monday estimated tourism earnings from the three-day event to be between $150m and $200m, based on the record of other host countries.

Part of the Government's revenue will come from a special Cess on hotel-room revenues for about seven days around the race weekend. But why not restaurants, shopping centres and pubs, who will also benefit?

'Hotels will be disproportionate beneficiaries. Based on market studies, hotel rates go up two, three times.

'You don't expect a piece of steak to be three times the cost normally just because Formula One is in town!'

The increase in business for such industries, however, would be translated to higher Goods and Services Tax receipts and other taxes, he added.


F1's impact on a greener S'pore

Moving on to concerns that hosting one of the world's most polluting events seemed to be at odds with Singapore's newfound environmental consciousness, Mr Iswaran said these were legitimate but had to be taken in perspective.

'You can't have an F1 race without noise. In fact, it's part of the thrill for many fans. And it will be concentrated during the two hours of the race.

'For F1, if we don't hold it in Singapore, it will be held somewhere else in the world.

'The key point for us is better if it's held here, we can run it in a responsible way, and do our part to make sure the environmental concerns are addressed to the best of our ability.'