Australian Grand Prix cost government £56 million last year

21 comments on “Australian Grand Prix cost government £56 million last year”

1. 

   Robbie (@robbie)
   5th March 2018, 14:30

   So the next question becomes what is the economic impact of having the race in terms of benefitting hotels, and restaurants, employment etc etc.?…the local economy as they say.
   1. 

      Sonics (@sonicslv)
      5th March 2018, 15:05

      @Robbie That is actually the most important question to answer. Hosting F1, like hosting Olympics or World Cup is never supposed to turn a profit, although in F1 case is mostly not expected (in theory the race organizers can turn a profit, but since the deals are made during BE era with exorbitant fees, I really doubt it). That’s why hosting them usually backed up by the government because the profit can’t be shown with just a simple audit. Malaysia, I think successfully introduced themselves to global tourism with Sepang, while India and South Korea obviously a massive failure.
      1. 

         MazdaChris (@mazdachris)
         5th March 2018, 15:27

         @sonicslv Sure that’s it in a nutshell though isn’t it, and the problem at the heart of the F1 business model – the costs and the losses are passed down to the host. I mean, you put a sport in front of people who have barely heard of it, have no interest in it, and try to charge a ticket price that almost nobody there can afford, don’t act surprised when you make massive losses. But FOM don’t care – they get paid up front for the race by the organisers; FOM still makes money even if the race is run in front of empty grandstands. They don’t even run any promotion.

         Australians do have a culture of motorsports fandom though so there are at least plenty of people who are willing to go and watch – but stories like this underline the fact that they’re effectively paying for it twice. Once through ticket sales, and once through taxes. It’s a double whammy. I think there should always be significant public scrutiny when large amounts of public money pass to organisations which slice a big chunk off of that to reward their shareholders. Particularly when those companies and shareholders are not domestic.
         1. 

            Sonics (@sonicslv)
            5th March 2018, 15:52

            @mazdachris Just like Olympic and World Cup, the main goal when hosting these kind of event is not your local population. They charged the high ticket prices for the fans who already want to watch F1, and can easily afford taking a vacation and fly there to watch it live. That’s why tourism is the most expected benefit in major scale, and flourishing the local economy – if only for the duration of the event – in minor scale. WOC, FIFA, and FOM doesn’t really sell the event, they sell the number of people that will come and “try your country”. A good government should be prepared to convert those people to regular tourist (not just annual race attendants).

            In this case, I’d say it’s not FOM fault for being paid by tax money, but instead does the local government can get the most out of their investment. A scrutiny is obviously needed though, especially if there’s doubt in the benefits of using tax money. However this lead us back to the first question? How much it actually benefit the people? And that’s something that really hard to answer.
            1. 

               MazdaChris (@mazdachris)
               5th March 2018, 16:07

               @sonicslv That’s fine for state-sponsored races but ultimately it needs to be possible for races to be run at a profit, or at least break even. If you think about Silverstone, they’re making losses year on year despite selling out. 300,000 people attended the British GP last year, paying an average of what, £150? £200? Still that wasn’t enough to turn a profit. It’s short-termism from the Bernie years – make the hosts pay up front and then it’s up to them to promote the race and make their money back. Only the majority of opportunities to make money are also locked out by FOM. Banner and board advertising for instace – hundreds of Rolex, Pirelli, Fly Emirates, and other banners line the circuit. The host doesn’t see a ha’penny for any of that, and doesn’t have the opportunity to sell baner and board space of their own, removing one of the most lucrative revenue streams for the host.

               Low attendence is a problem in some places, for sure, but a GP that sells out should at least be a profitable venture, and the knock-on benefits of tourism shoul be but a bonus.
            2. 

               Sonics (@sonicslv)
               6th March 2018, 8:20

               @mazdachris I agree that hosting fee is too much, especially since all races we have now are negotiated by none other than BE. However I don’t really agree if the race promotor have to profit or break even from hosting F1. F1 has the unique value of being the pinnacle of motorsport, and just like there’s only 20ish drivers from all world population during a year, there’s only 20ish circuits have the privilege to hosting a race during a year. Which is why it’s still very acceptable for the government to be involved because ultimately it has the potential of huge benefit for the country. It’s not like if some private sector wants to bring Adelaide back alongside Albert Park, or Fuji, or Valencia etc, they only need to gather money and do so. Please note that I think only F1 can afford to do this, but for other series, yes the organizers should be able to profit from that.
            3. 

               MazdaChris (@mazdachris)
               6th March 2018, 8:51

               @sonicslv Trouble is, circuits don’t run on good will alone. I’m going to keep talking about Silverstone as an example but it applies really to all permanent race tracks – the track doesn’t pop into existence for the F1 alone. It’s a business, and in order for that business to survive, it has to make money. Most of the money that a track makes is from smaller events through the year, mostly trackdays and suchlike. But bircuits also have massive overheads. Consider the cost of resurfacing 3.7 miles of premium tarmac, replacing kerbs, painting runoff areas. When it comes to the F1, Silverstone sells out, year after year, with most grandstand tickets costing north of £300 each. An event which sells more than 300,000 tickets at several hundred pounds a time, yet still loses money, is running on a fundamentally broken business model. Silverstone is taking tens of millions in ticket sales, not to mention concessions, hopitality; press have long complained about the exorbitant internet charges at circuits, which again have gone up and up thanks to the sheer amount of money the tracks lose.

               Bottom line, and the reason the model is so broken – as it stands it’s almost impossible for a private entity to create a new F1 track from scratch and have it survive as a business. The only one I can think of in recent years is COTA, and that really only survives by virtue of the massive numbers following lots of different motorsports series in the US. You take that concept to a market where there’s little or no interest in F1 and it’ll fail every single time. The world is dotted with failed tilkedromes; just think of the collective billions that have been spent, often using public money, to bring these white elephants into existence. public money which might otherwise have been spent on schools, hospitals, and so on. And FOM has made millions from every single one of them. For FOM, there’s no risk, yet the organisers are often living on a knife edge. Silverstone is one of the most famous, well regarded racing circuits in the world, yet it’s constantly struggling to survive from a business perspective, despite having a gigantic sellout event every year. That’s wrong, that’s broken, and it’s unsustainable over any medium or long term.
            4. 

               Sonics (@sonicslv)
               6th March 2018, 10:08

               @mazdachris I do agree with you and I do want to see permanent circuits can survive. Which is why I limit my “okay to loss” only for hosting F1. What I failed to include in my previous reply is the “losses” on hosting F1 is where the government money comes in. Some of them should account for mitigate that losses. What I don’t necessarily agree with you is how circuit owners should not bankrupt from hosting F1. In my mind, F1 is like a giant billboard and some of the losses could be treated as marketing expenditure. I mean, how many people in the world more have heard about the unpopular F1 circuit like Yas Marina or really new one like COTA or one that haven’t host a grand prix for a while like Magny Corse compared to popular one but never host F1 like Sebring, Road America or even Laguna Seca with its famous corkscrew?
            5. 

               Sonics (@sonicslv)
               6th March 2018, 10:17

               @mazdachris Continuing above, the problem imo is many people don’t know where to draw the line. Silverstone probably much better if they stop hosting F1 since they already famous and host other series. But will the fans and maybe the owners want to do it? I know I don’t even though I’m the one who said all of this. At the end people will just find a scapegoat and blame F1 bleeding them dry. Again, I do agree the current hosting fee is too high but to make a deal you need two parties agreement. I wont blame FOM for getting as much as they can from the deal, its their job to get highest rate possible and the promotors job to get lowest rate possible and draw the line somewhere.
   2. 

      Dieter Rencken (@dieterrencken)
      5th March 2018, 16:26

      This is, of course, the hook upon which every promoter hangs his hat. All too often they bandy about absolutely laughable figures – I once looked at Economic Impact figures for a particular grand prix, and in order for the region to have benefitted to the degree suggested every single spectator, whether living local or foreign, would have needed to blow something like $12k during the weekend. Frankly, ridiculous.

      The other issue is locals would have spent their money locally on something else in any event, so the only spend that can be legitimately measured is by out-of-staters/foreigners. Out-of-staters also often have friends/family in the host city, so have negligible spend bar for tickets – which leaves the country in any event to cover hosting fees.

      In my experience, the out-of-state/foreign visitors amount to 20/10% respectively of a grand prix crowd. On Melbourne unique visitor number of 100k for race weekend that amounts to 30k. About the only income streams that benefits the economy are incremental taxes, usually rated at about 20%. At a loss of £56m, each of the 30k visitors would need to spend an incremental £2000 in taxes locally during race weekend, or a total spend of around 12k. Another factor to remember is that most hotels and car rental companies are owned by national chains, so only a small portion of that incremental income stays in the city / state.

      Usually about the only folk who are able to justify the costs of a grand prix are the promoters and the companies they pay to justify the event by way of fancy impact studies…
      1. 

         sethje (@seth-space)
         5th March 2018, 19:50

         Do not forget the PR value of a race. Baku put itself on the maps as a result of F1.
         That’s worth multi millions of Dollars spend over a lot of years to get the same podium.
         One of the results is an increased tourism interest in Baku.
      2. 

         BasCB (@bascb)
         6th March 2018, 8:04

         Nice insightfull comment there, thanks Dieter!

         I remember reading the Austin economic impact figures – as it was easily available when they discussed that deal to use tax revenue to fund the FOM payment – and also wondering about these things.

         I think the only real benefit is how it can be part of developing a region to become more active or PR value / prestige. One has to weigh that against the cost of staging it. I do think the Malaysian race helped the country to make a step forward, for example
      3. 

         Shimks (@shimks)
         7th March 2018, 14:47

         How on earth do these contracts ever get signed, then? It seems crazy!
2. 

   Egonovi
   5th March 2018, 16:29

   I can understand a hosting fee (see it as a vanity payment to have the circus visit your town/region).
   I can understand some Capital Works to build the stands and pit buildings, although it’s a bit steep at A$12m and they reuse the stuff every year.

   But who is collecting the A$30m of Financial Assets??? What’s that all about.
   And where did the ticket sale revenue go? That must be another $20-30m.
   1. 

      Tricky (@tricky)
      6th March 2018, 15:08

      Thanks to @davids (below) for posting the financial reports. The $30.6m financial assets is what is written as “Change in fair value of derivatives recognised through cash flow hedge reserve” – which hardly helps to understand.
      However that is listed as a separate write down, and removing it from the figures:

      Income
      Sales 32m
      Sponsors 6m
      Interest 1m
      Govt Funding 52m
      Govt Funding 11m
      Other 1m
      Total 104m

      Expenses
      Managment and staging 58m
      Rec. Engineering 27m
      Admin 6m
      Marketing 11m
      Total 101m

      Balance 3m

      So ignoring the asset write down, the event made a small profit (but only with some $63m of government funding).
      1. 

         DavidS (@davids)
         6th March 2018, 21:52

         The corporation keeps a large chunk of money in investments. This is because putting on the event puts on enormous strain on cash flow. A large majority of the costs arise from setting up the event, but revenue only really comes in close to and during the event (hence why they like to do early-bird specials on tickets). Suppliers need to be paid when their work is done, it is not acceptable to delay payment for several months just because you haven’t staged the event yet.

         So, the reserve allows them to pay their debts when they fall due.

         But, you’re right that it isn’t an expense and shouldn’t factor into the profit/loss calculation.

         The reality is somewhat different to the concept of how a business works in the mind of journalists, which is why you should always take news articles on the subject with a massive grain of salt, because they literally only look at the bottom line and see a huge red number.
3. 

   Gary
   5th March 2018, 19:16

   None of these dopey politicians spending taxpayer funds to host a Grand Prix are aware of the “broken window fallacy” in macroeconomics.
4. 

   Theoddkiwi (@theoddkiwi)
   5th March 2018, 19:31

   What these figures don’t really tell you is where the money is going. Alot of the spending is to the contractors, suppliers and construction workers who spend the month before a weeks after building up and dismantling the race infrastructure. This has a long term benefit to the community as it creates work for lots of people.
   The Grandstands and barriers etc don’t build themselves. Lots of the materials barriers, stands etc are reused every year.
   1. 

      BasCB (@bascb)
      6th March 2018, 8:05

      That is a good point too @theoddkiwi – it is a regular influx of money supporting local business in that way
5. 

   mrfill
   6th March 2018, 2:46

   £17.1m of ‘financial assets’.

   That’s an awfully large amount of money to dismiss in 2 words. As it represents nearly a third of the cost, a little elaboration is needed. Or is that something to be avoided….
6. 

   DavidS (@davids)
   6th March 2018, 7:09

   This story comes up every year.

   The annual report from the Australian Grand Prix Corporation is here:
   https://www.grandprix.com.au/sites/default/files/pdf/AGP17282_2017_AGPC_Annual_Report_ALL-5-FA-LR.pdf

   I think it should be required reading for anyone wanting to express an opinion about the cost of the event.

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