OCTOBER 18, 1999 VOL. 154 NO. 15

Asia's Winning Formula
As the cars and stars rev up for the first Malaysian Grand Prix, marketers are starting their engines
By JOHN WHITE

When all five red lights go off at the Sepang International Circuit in Kuala Lumpur this Sunday, they will signal more than just the start of the year's penultimate Grand Prix race. They will mark the beginning of a new era in Formula One, a pedal-to-the-metal effort to capture the world's biggest underdeveloped consumer market, Asia.

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Why Asia and why now, especially since Japan has hosted F1 races for the past 12 years? Because Asians are already hooked on auto racing, says Robin Kung, ESPN Star Sports' veteran motorsports commentator, and "because this is where the future is." Asians make up more than 60% of the 350 million viewers who watch each race. According to ESPN, in the past year there has been a 25% increase in the number of Asian viewers, excluding China.

Formula One is the glitziest, most expensive and technologically advanced of sports, and marketers have long wanted to associate their products with those qualities. Although Asian economies are still recovering from the region's financial crisis, Bernie Ecclestone, 69-year-old head of Formula One Management Ltd. and the man behind F1, is thinking long term--just as he did in 1985, when he took his juggernaut behind the Iron Curtain to Hungary. "I've always believed in Asia," he claims, "and I'm sure that soon we'll see a Japanese F1 team in the future."

Malaysia's first Grand Prix is a bold move to put the country on the world's sports-entertainment map alongside North and South America, Britain, continental Europe, Japan and Australia. This Sunday's event can trace its origins to 1996, when Malaysian Prime Minister Mahathir Mohamad visited Portugal to see his first F1 race. Mahathir was probably also curious about how the state-run oil company, Petronas, was spending the taxpayers' money. A year earlier, Petronas had decided it needed to buff its image as a major player in international commerce. And you don't get more international than F1, especially when you can sponsor the Swiss-based Sauber team. So Petronas bought a 40% stake in the team and formed Sauber Petronas Engineering AG to help develop the Ferrari engines used in Sauber's race cars. Petronas won't reveal what it paid for the stake, but observers estimate the company spends at least $10 million a year on the venture.

Mahathir met with Ecclestone after the race at the initiation of former racing driver and now team owner Jackie Stewart and discussed the possibility of bringing F1 to Malaysia. Apparently, Petronas' sponsorship of a European team had helped overcome a psychological hurdle to Malaysia's being considered a serious applicant to host the pinnacle of international motorsports. The track would be located near the flashy new international airport, KLIA Sepang. The German firm Tilke Engineering, which recently built Austria's A-1 Ring racecourse, was brought in as the principal consultant for Malaysia's new F1 track. Two years and $120 million later, the 5.5 km Sepang International Circuit was ready to host it's first race, the Proton International, in December 1998, followed by the Malaysian Motorcycle Grand Prix in March.

Asia and F1 share a common interest, and it's not just racing. Think of consumers, millions of them, and you can imagine why sponsors love to see their logos racing into Asia's living rooms. But moving those logo-bedecked cars around a track isn't cheap. Together, the world's dozen F1 teams spend an estimated $1 billion over a 16-race season. That money has to come from somewhere.

Gone are the days when leather-helmeted racing legends like Juan Manuel Fangio and Jim Clark battled for the checkered flag in cars painted in their national colors. That all changed in 1972, when Colin Chapman's Lotus team appeared in the dramatic black-and-gold livery of John Player Special cigarettes and Brazilian Emerson Fittipaldi won Lotus' fifth world championship. F1 has never looked back. God and Country have faded as motivational forces, replaced by Big Tobacco. Cigarette firms now provide nearly half of the $1 billion the teams spend. With tobacco advertising banned in many countries, team sponsorship provides a way for cigarette brands to get television exposure--except in countries where the logos have to be removed from the cars before races can be broadcast. But most Asian countries have few such stipulations. Says Hussin Ali, the Sepang circuit's general manager, describing the situation in Malaysia: "Cigarette companies are allowed to advertise, and our laws do not forbid such advertisements."

But that will change. Though Asians are famously prodigious smokers, health concerns in the region are on the rise and government regulation is likely to increase before too long. Fortunately for FI, Asians also like luxury items such as cars, mobile phones and computers, whose manufacturers are mindful of the vast audiences that racing can command. Next year the Williams team will lose a long-time sponsor, tobacco giant Rothmans, but gain a new one: BMW. The German car maker will even help the team secure other, non-tobacco sponsorships. Meanwhile, Ford, Honda and Toyota will continue to provide engines and support to F1 teams. And a track in the Chinese city of Zhuhai, which had Marlboro as its main sponsor for the 1996-97 season, is now supported by the Swedish telecommunications firm Ericsson.

The Zhuhai track has F1 officials and potential sponsors especially excited. "Everybody believes that China is the market," says ESPN Star Sports' Kung, "and if you want to get into the China market, you need to make yourself known." Although Zhuhai didn't get on this year's F1 schedule, the facility is undergoing an ambitious renovation, adding more seating, a bigger pit area, more rest rooms, a medical center and a control tower. The 4.3-km track will become faster and more challenging. "Zhuhai is not a Mickey Mouse track," says Kung. "It is a real racing track." And that could help China get added to the schedule before long, just as Sepang helped Malaysia. In that case, another circuit would have to be dropped. Industry insiders muse that Germany or Italy--with tighter tobacco regulations and fewer television viewers than China offers--will lose one of their two races. Jackie Stewart is more skeptical: "My perception is that [the Chinese] feel Grand Prix racing might need them," he says, "but I think that's not the case." Yet he does acknowledge the potential of Asia. "If Zhuhai comes about, Korea have been wanting a Grand Prix for years and they're having an F3 race there in November. India too, has expressed interest, since Ford built a new plant for manufacturing cars in Madras. Holding those events would make big statements about both countries."

Of course, none of this will matter to the 92,000 people who will gather in Sepang on Sunday, or the millions of Asians who will watch the race on TV. For the fans, F1 is about adrenaline, not advertising--and there will be lots of excitement in the air at Sepang. Unusually for F1, the field is still wide open at this stage of the championship and there's the added bonus of seeing Michael Schumacher, who has reversed his decision not to race for the rest of the season. Any one of four drivers--Mikka Hakkinen, Eddie Irvine, Heinz-Harald Frentzen and David Coulthard--could become champion, and the Malaysian race just might be the one that makes the difference. One of these stars will then be in the spotlight, as the winner's national anthem is played and the TV cameras, for a moment at least, focus on something besides the logos on his car.

With reporting by Rusdi Mustapha/Kuala Lumpur, Isabella Ng/Hong Kong and Kate Noble/London