KUALA LUMPUR, Sept 17 — Malaysia's debut on the Formula One world racing championship could give the country flattering exposure on the global stage, but it will come at a price and is not without significant risks.
Top outfits such as Ferrari and McLaren had estimated annual expenditures in 2006 of over US$400 million (RM1.4 billion), according to one F1 publication.
Top outfits such as Ferrari and McLaren had estimated annual expenditures in 2006 of over US$400 million (RM1.4 billion), according to one F1 publication.
Najib and Proton Holdings Bhd chairman Mohd Nadzmi Mohd Salleh (left) show
a model of the 1 Malaysia F1 team's car during a news conference in Putrajaya.
Others like Toro Rosso, formerly known as Minardi, was estimated to have spent US$75 million.
Toyota is estimated to be spending US$450 million a year but has yet to win a single race.
Honda, which pulled out of F1 last year due to the high cost it incurred, was also estimated to have spent US$380 million in 2006.
A £40 million (RM230 million) budget cap incentive, however, has been offered to teams next year in exchange for greater technical freedom.
The cap, however, does not cover driver salaries, engine costs, marketing and promotion.
Assuming the 1 Malaysia F1 Team targets to spend according to the budget cap, its annual expenditure, less salaries, engines and marketing, should be in the region of RM230 million.
Top-notch drivers and engines, however, do not come cheap.
Ferrari was estimated to have spent US$44 million in driver salaries in 2003 and US$175 million on engines.
On the other end of the scale, however, Minardi was estimated to have spent US$500,000 on salaries and US$15 million on engines during the same period.
But that does not take into account start-up costs.
The 1 Malaysia F1 Team was announced on Tuesday as a venture involving top businessman Datuk Tony Fernandes, the government and other Malaysian entities as an attempt to enhance the brand of the nation as well as that of national car company Proton and its legendary British unit Lotus.
The best possible scenario is that 1 Malaysia F1 achieves podium finishes and adds lustre to the country, Proton and the 1 Malaysia agenda and inspires a new generation of Malaysian F1 drivers, engineers and technicians.
The worst? 1 Malaysia F1 could possibly end up languishing near the bottom of the table and become the butt of jokes and an embarrassment to the country and a drain on its coffers.
No details have so far been forthcoming about the breakdown of investment in the project.
Prime Minister Datuk Seri Najib Razak had declined to discuss the subject at its unveiling but said that any government investment will be made via Proton, a company in which it has a 42.74 per cent stake via Khazanah.
But the market is already rife with speculation that several Malaysian businessmen are eyeing Khazanah's stake in Proton.
Sepang International Circuit (SIC) chief executive officer Ahmad Razlan Ahmad Razali has told national news agency Bernama that the cost to build the team headquarters at SIC could potentially run into the billions of ringgit, adding that the cost has not been finalised because the project is still in the preliminary phase.
Kamarudin Meranum, deputy chief executive of AirAsia and another partner in the 1 Malaysia F1 Team, told international news wire AFP that the team is currently looking for investors.
What's also uncertain is what the team will be known as and with so many disparate stakeholders — from airline magnates to car companies to the government — what will be the prime objective of the team.
Foreign media have focused on "Team Lotus F1" and Fernandes, whose flamboyancy has often captured their attention.
In Malaysia, however, the prime minister had called the team "1 Malaysia F1 Team" and said of the project: "It will be a national team under the 1 Malaysia banner which stands as unifying foundation for all Malaysians to come together in celebrating the cooperation between our multi-ethnic, multi-cultural and multi-religious society through sports."
One investment veteran sees the project as a form of "national service" but also wondered about Fernandes' involvement.
"He is a businessman. Why would he want to invest? What is the trade off?"
Calls and text messages to Fernandes were not returned as at the time of writing.
There have been tycoons before Fernandes who have tried their hand at owning a team and failed to shine.
Minardi, which Malaysian Alex Yoong had raced for, is an example of how bad it got even on a relatively shoestring budget.
The team competed from 1985 till 2005 with limited success and was eventually sold by its founder, businessman Giancarlo Minardi.
Its total 2003 expenditure was estimated to be about US$40 million.
Force India, partly owned by Indian businessman Vijay Mallya, is doing relatively well, but he had acquired an established team and the boss of Kingfisher Airlines is worth an estimated US$1.2 billion compared with Fernandes' estimated US$230 million.
Fernandes, however, has managed to prove his early critics wrong with the success of his company Air Asia.
Taken as a bid to boost national pride and brand the country, 1 Malaysia F1 team could work. But analysts point out that the nation already has the SIC which has succeeded in putting Malaysia on the map of F1 enthusiasts.
Any supposed benefit to Lotus or Proton is also debatable as many world-class car manufacturers such as VW, Audi and Mitsubishi do not own F1 teams.
OSK's head of research Chris Eng says that the Lotus brand is already strong while Proton itself is not known for high-performance cars and should therefore focus its resources on its bread-and-butter passenger vehicles.
He adds that Proton should consider Korea's Hyundai which does not own an F1 team but has managed to create a global presence through building better cars and offering enticing incentives to buyers such as long warranty periods.
"It's too early to say from an analyst’s point of view as we don't know the actual costs involved but from a qualitative angle, I don't think the country needs more F1 exposure as it already has the Sepang International Circuit. Proton can put its money to better use and make better products like the Exora MPV, which is doing well, rather than trying to enhance its high-performance image," says Eng.
"I would rather Proton enter the Paris-Cape Town race which has to use production-grade cars; at least it is more relevant to consumers. F1 cars are too big a gap from the production cars that consumers will buy."
The head of strategy and marketing at Ericsson Malaysia, Steven Tai, says that if Malaysia intends to brand itself via an F1 team, it must go all out, pointing out that the country will only benefit if it is associated with a winner.
"When Ericsson sponsored the winning team in the Volvo Ocean Race it backed it with sufficient resources for it to have a chance. A brand has to reflect its true nature and be associated with a winning proposition that is attainable. Same thing with the 1 Malaysia F1 Team; are they betting to win or just betting?"
One marketing professional, who declined to be identified, said the issue was quite subjective as it had the potential to boost national pride but cautioned that it could also have the opposite effect.
"Can you imagine if 1 Malaysia F1 keeps losing? The TV commentators will make a joke. Finishing last is one thing but what's worse is if the team fails to even qualify. It will be so embarrassing. If it is US$100 million to sponsor a top team, then it might be worth it. It can boost national pride but the costs must not be too extravagant. However, if your team ends up last all the time then it could backfire. People will associate you with a bum team and we will be associated with a team that loses.”
There has also been a fair amount of grumbling on the Internet over the expected costs to the public though some have defended the venture as well.
Najib's announcement on Tuesday, however, appeared to have also anticipated critics, saying: "Some quarters believe that we should stick to what we are doing now and not take on new opportunities. Yet, if we do not take chances, if we do not believe we are capable of accomplishing the impossible then we will remain a country of followers, not the country of innovators and doers we want to become."
With their reputation and money at stake, Malaysians will be crossing their fingers that the 1 Malaysia F1 bet pays off.
Toyota is estimated to be spending US$450 million a year but has yet to win a single race.
Honda, which pulled out of F1 last year due to the high cost it incurred, was also estimated to have spent US$380 million in 2006.
A £40 million (RM230 million) budget cap incentive, however, has been offered to teams next year in exchange for greater technical freedom.
The cap, however, does not cover driver salaries, engine costs, marketing and promotion.
Assuming the 1 Malaysia F1 Team targets to spend according to the budget cap, its annual expenditure, less salaries, engines and marketing, should be in the region of RM230 million.
Top-notch drivers and engines, however, do not come cheap.
Ferrari was estimated to have spent US$44 million in driver salaries in 2003 and US$175 million on engines.
On the other end of the scale, however, Minardi was estimated to have spent US$500,000 on salaries and US$15 million on engines during the same period.
But that does not take into account start-up costs.
The 1 Malaysia F1 Team was announced on Tuesday as a venture involving top businessman Datuk Tony Fernandes, the government and other Malaysian entities as an attempt to enhance the brand of the nation as well as that of national car company Proton and its legendary British unit Lotus.
The best possible scenario is that 1 Malaysia F1 achieves podium finishes and adds lustre to the country, Proton and the 1 Malaysia agenda and inspires a new generation of Malaysian F1 drivers, engineers and technicians.
The worst? 1 Malaysia F1 could possibly end up languishing near the bottom of the table and become the butt of jokes and an embarrassment to the country and a drain on its coffers.
No details have so far been forthcoming about the breakdown of investment in the project.
Prime Minister Datuk Seri Najib Razak had declined to discuss the subject at its unveiling but said that any government investment will be made via Proton, a company in which it has a 42.74 per cent stake via Khazanah.
But the market is already rife with speculation that several Malaysian businessmen are eyeing Khazanah's stake in Proton.
Sepang International Circuit (SIC) chief executive officer Ahmad Razlan Ahmad Razali has told national news agency Bernama that the cost to build the team headquarters at SIC could potentially run into the billions of ringgit, adding that the cost has not been finalised because the project is still in the preliminary phase.
Kamarudin Meranum, deputy chief executive of AirAsia and another partner in the 1 Malaysia F1 Team, told international news wire AFP that the team is currently looking for investors.
What's also uncertain is what the team will be known as and with so many disparate stakeholders — from airline magnates to car companies to the government — what will be the prime objective of the team.
Foreign media have focused on "Team Lotus F1" and Fernandes, whose flamboyancy has often captured their attention.
In Malaysia, however, the prime minister had called the team "1 Malaysia F1 Team" and said of the project: "It will be a national team under the 1 Malaysia banner which stands as unifying foundation for all Malaysians to come together in celebrating the cooperation between our multi-ethnic, multi-cultural and multi-religious society through sports."
One investment veteran sees the project as a form of "national service" but also wondered about Fernandes' involvement.
"He is a businessman. Why would he want to invest? What is the trade off?"
Calls and text messages to Fernandes were not returned as at the time of writing.
There have been tycoons before Fernandes who have tried their hand at owning a team and failed to shine.
Minardi, which Malaysian Alex Yoong had raced for, is an example of how bad it got even on a relatively shoestring budget.
The team competed from 1985 till 2005 with limited success and was eventually sold by its founder, businessman Giancarlo Minardi.
Its total 2003 expenditure was estimated to be about US$40 million.
Force India, partly owned by Indian businessman Vijay Mallya, is doing relatively well, but he had acquired an established team and the boss of Kingfisher Airlines is worth an estimated US$1.2 billion compared with Fernandes' estimated US$230 million.
Fernandes, however, has managed to prove his early critics wrong with the success of his company Air Asia.
Taken as a bid to boost national pride and brand the country, 1 Malaysia F1 team could work. But analysts point out that the nation already has the SIC which has succeeded in putting Malaysia on the map of F1 enthusiasts.
Any supposed benefit to Lotus or Proton is also debatable as many world-class car manufacturers such as VW, Audi and Mitsubishi do not own F1 teams.
OSK's head of research Chris Eng says that the Lotus brand is already strong while Proton itself is not known for high-performance cars and should therefore focus its resources on its bread-and-butter passenger vehicles.
He adds that Proton should consider Korea's Hyundai which does not own an F1 team but has managed to create a global presence through building better cars and offering enticing incentives to buyers such as long warranty periods.
"It's too early to say from an analyst’s point of view as we don't know the actual costs involved but from a qualitative angle, I don't think the country needs more F1 exposure as it already has the Sepang International Circuit. Proton can put its money to better use and make better products like the Exora MPV, which is doing well, rather than trying to enhance its high-performance image," says Eng.
"I would rather Proton enter the Paris-Cape Town race which has to use production-grade cars; at least it is more relevant to consumers. F1 cars are too big a gap from the production cars that consumers will buy."
The head of strategy and marketing at Ericsson Malaysia, Steven Tai, says that if Malaysia intends to brand itself via an F1 team, it must go all out, pointing out that the country will only benefit if it is associated with a winner.
"When Ericsson sponsored the winning team in the Volvo Ocean Race it backed it with sufficient resources for it to have a chance. A brand has to reflect its true nature and be associated with a winning proposition that is attainable. Same thing with the 1 Malaysia F1 Team; are they betting to win or just betting?"
One marketing professional, who declined to be identified, said the issue was quite subjective as it had the potential to boost national pride but cautioned that it could also have the opposite effect.
"Can you imagine if 1 Malaysia F1 keeps losing? The TV commentators will make a joke. Finishing last is one thing but what's worse is if the team fails to even qualify. It will be so embarrassing. If it is US$100 million to sponsor a top team, then it might be worth it. It can boost national pride but the costs must not be too extravagant. However, if your team ends up last all the time then it could backfire. People will associate you with a bum team and we will be associated with a team that loses.”
There has also been a fair amount of grumbling on the Internet over the expected costs to the public though some have defended the venture as well.
Najib's announcement on Tuesday, however, appeared to have also anticipated critics, saying: "Some quarters believe that we should stick to what we are doing now and not take on new opportunities. Yet, if we do not take chances, if we do not believe we are capable of accomplishing the impossible then we will remain a country of followers, not the country of innovators and doers we want to become."
With their reputation and money at stake, Malaysians will be crossing their fingers that the 1 Malaysia F1 bet pays off.
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