x Abu Dhabi, UAETuesday 16 January 2018

Abu Dhabi takes pole in race to build up global profile

For drivers such as Sebastien Vettel, today's Grand Prix is one of 20 stops on the climb to world supremacy. For Abu Dhabi, it is a stage on which to parade the city's ambitions and glories.

A view of the Yas Marina Circuit. The cost of running an F1 event on an annual basis is believed to run into hundreds of millions of dollars. Valdrin Xhemaj / EPA
A view of the Yas Marina Circuit. The cost of running an F1 event on an annual basis is believed to run into hundreds of millions of dollars. Valdrin Xhemaj / EPA

Sebastian Vettel goes into today's Abu Dhabi Formula One Grand Prix leading the pack in the driver's world championship.

But as the current leader with three races to go, it is the bigger prize that will be on the driver's mind - taking the chequered flag.

And so it can be said of the Abu Dhabi Government's ambitions to put the capital at the top of the leaderboard for global destinations.

The broad economic benefits, such as spending in hotels, retail stores, tourist attractions and restaurants, as well as the huge boost to Abu Dhabi's profile on a global stage, are almost incalculable.

They certainly go way beyond the bill footed by the Government through its ownership of Yas Marina Circuit, and by Flash Entertainment, the organisers of the concerts that accompany the sporting extravaganza.

"F1 is such big business and one of the most widely watched sports globally, therefore, the investment may not seem commercially viable for mere mortals like you and I," says Steve Haysom, the chief executive of Omnia, a branding agency based in Abu Dhabi and Dubai.

"However, as part of Abu Dhabi's 2030 vision, the F1 and other sporting events like the Abu Dhabi Golf Championship, Volvo Ocean Race and Mubadala Tennis championship are part and parcel of a cohesive sports-based strategy to raise the profile of the emirate on a global basis."

The cost of running the F1 event on an annual basis has never been disclosed but analysts believe the figure runs into the hundreds of millions of dollars.

In order to host the first of the season's 20 races, in Melbourne in March, the Australian government contributed A$56.7 million (Dh215.3m), according to the Herald Sun newspaper.

"I would think very few people could gauge an accurate figure," says Seth Holmes, the director of consulting at IMG Middle East, a sports marketing, management and events company.

"The principal sunk costs will have been the circuit construction and the eight-year Formula One Management (FOM) licence fee for hosting the race but so much more is invested to make this the truly exciting race experience it's become," says Mr Holmes.

Racetracks around the world pay a licence fee to FOM, the rights holder owned by CVC, a private equity firm.

After renegotiating its licence fee paid to FOM, reportedly for a lower figure, S Iswaran, Singapore's second minister for trade and industry, said in September that the country's Grand Prix, which is similar in grandeur to Abu Dhabi's, cost a total of 150m Singapore dollars (Dh449.8m) to host.

Yas Marina holds just over 41,000 spectators, with the majority paying more than US$500 (Dh1,836) a ticket. But these revenues are unlikely to dent the cost of the overall event each year.

Hospitality and trackside advertising revenues at F1 races are split between FOM and the local promoter but heavily in favour of the former, experts say.

Whatever the cost, Rod Kohler, the managing director for Public Relations at Revolution Sports + Entertainment, based in London, says staging the Abu Dhabi Grand Prix has undoubtedly been a success.

"You put yourself out there by such an extent that it says something about you as a city and a country," says Mr Kohler. "It essentially says you've arrived."

Mr Holmes says the effect on the economy should be examined in three different ways: direct; indirect; and induced effects.

"Direct refers to the immediate net change in economic activity in the sectors of the Abu Dhabi economy that service the race," he says. "In this case, the industries will be predominantly tourism related."

In Abu Dhabi, most of the hotels have reported a full house for the F1, with room rates being maintained at the same level as last year, which was an average Dh1,750, according STR Global, a hotel benchmarking firm based in London.

There are 14,700 rooms in the capital, so the F1 has given the hotel industry the opportunity to earn more than Dh75m over three nights, before anyone has spent in the restaurants and bars.

Tourist numbers are also up 15 per cent so far this year as Abu Dhabi's profile increases around the world.

"Indirect impact refers to the dependency on other industries to deliver goods and services to the direct impact companies," says Mr Holmes. "So in effect, there is a knock-on effect for suppliers.

"The induced impact refers to employees within the industries positively affecting the economy by putting their earnings back into domestically produced goods, generating greater expenditure in the Abu Dhabi and wider UAE economy."

Research commissioned by the Bahrain government in 2010 found its race generated about $600m for the economy, including $116.8m of income from visitor expenditure on accommodation, food and beverage outlets, retail markets and travel services.

Therefore, analysts say the impact in the economy looks worthwhile even before the increased profile around Abu Dhabi is considered.

"The value of the Abu Dhabi brand has significantly improved over the last four years, through a combination of efforts driven by [Abu Dhabi] as well as the supporting events and activities that position Abu Dhabi as a world-class city that spectacularly hosts the F1 Grand Prix," says Hermann Behrens, the chief executive of The Brand Union Middle East, a brand and creative design consultancy agency.

Etihad Airways last year signed up to extend its sponsorship of the Abu Dhabi F1 for four more years until 2015.

Peter Baumgartner, the chief commercial officer at Etihad, says the multimillion-dollar deal is made back 10 times over in the value created for the airline's brand.

"It's a significant return by any standards, by any way sponsorship is assessed," he says.

Mr Baumgartner says if the airline were to take out advertising space on TV or other media to reach 500 million people, the estimated number of fans watching F1, it would cost 10 times the amount paid to FOM.

"When you do investment like this as a destination, you want to leverage the opportunity of that platform and present Abu Dhabi to the world," he says. "[Stakeholders] in Abu Dhabi had to come together in a very organised, structured, close cooperating way."

So whoever takes the chequered flag this afternoon, it seems Abu Dhabi is already a winner.