Malaysia confirms F1 pull-out in 2018 on diminishing returns

Kuala Lumpur

MALAYSIA has confirmed this year's October F1 race in Sepang will be its last as it would no longer be hosting a leg next year owing to reducing returns from the event after 19 years.

"The Cabinet has agreed to end the contract to host F1 races from 2018 as it is evident that the returns are diminishing compared to the costs of hosting it," Prime Minister Najib Razak said in a statement posted on Facebook on Friday.

Although the termination of the Malaysian race had been mooted last year, Mr Najib's statement confirmed the local leg would be scrapped from the F1 calendar as well as the country's tourism programme.

Some saw the termination as inevitable given that the event had been secured under the tenure of Mr Najib's predecessor, Mahathir Mohamad. The rancour and bad blood between the two men have gotten worse as Dr Mahathir continues to work to remove his once-chosen successor from office owing to his alleged role in state-owned 1MDB's global financial scandal.

Moreover, Mokhzani Mahathir - one of Dr Mahathir's sons - had resigned as chairman of the Sepang International Circuit (SIC) in October after 13 years of service, ostensibly because he was wanted out.

The domestic F1 leg had begun to wane in popularity over the years especially with more races - 21 from 16 in 1999 - added to the calendar. Singapore, Japan and China joined Malaysia as host countries in Asia.

While Malaysia was a comparatively cheaper destination for international F1 afficionados, there were also drawbacks. For instance, the supporting events lacked the pull of other venues, owing in some cases to stricter rules on artistes that more conservative Muslims demanded.

Fallout from the aftermath of two aviation disasters in 2014 also made matters worse as tourists stayed away while Malaysians were too despondent in the wake of the tragedies. Ticket prices were also prohibitive for most local pockets. At the same time Malaysians - especially the dominant Malays - are bigger on motorcycle racing. Last year, while some 84,000 attended the three-day F1 event, 162,000 or nearly twice as many flocked to the two-wheel MotoGP Malaysia race.

Mr Najib said the annual sponsoring costs were high and stressed the decision to call it a day had been made after obtaining feedback from SIC about the event's impact on relevant parties. He said some funds would be channelled towards other motor sports such as MotoGP or Go-kart.

At the same time, title sponsor Petronas' earnings have been badly hit by the oil and gas slump. Even so the national oil company will continue its sponsorship of the F1 Mercedes team.

An analyst who did not want to be named said: "Annually, there is some positive effect from the F1 race although I wouldn't say the impact on tourism numbers is big. Perhaps for that month it will be felt."

Tourism is one of Malaysia's biggest revenue generators and it has been making it much easier for tourists to visit by allowing either visa-free travel or e-visa applications, particularly for important markets such as China, India and the Middle East.

To increase tourism revenue, a tourism tax bill was passed by lawmakers this week that requires tourists to pay a levy on room accommodation except for homestays and a few other categories.

The authorities estimate the tax collection could amount to some RM655 million (S$207 million) if the overall occupancy rate for the 11 million "room nights" in the country hits 60 per cent and RM873 million if it touches 80 per cent. Tourist arrivals grew 4 per cent in 2016 to 26.8 million with about RM82 billion in spending. Malaysia has set a target of 31.8 million arrivals this year, and tourism receipts of RM118 billion.