THE COSTS OF GRAND PRIX RACING

• How Melbourne and New York Went About Assessing the Costs of Holding a Grand Prix
• Melbourne
• New York
• The Albert Park Formula One Grand Prix will Lose Money: Other Grand Prix Motor Races Do
• The Queensland Indycar Grand Prix
• The Adelaide Formula One Grand Prix
• The Costs of the Formula One Grand Prix in Albert Park Have Blown Out
• The Costs and Benefits

How Melbourne and New York Went About Assessing the Costs of Holding a Grand Prix

Melbourne

The Freedom of Information case before the Administrative Appeals Tribunal in August 1994 revealed that:

• Melbourne Major Events Company (MMEC) had received clear instructions from Cabinet that the Grand Prix was to make a profit (The Age 28/7/94)
• The Treasury had accepted at face value a 21 page MMEC report on the economic implications of the race and had agreed to underwrite the MMEC proposal within 7 days and without extensive analysis (The Age 28/7/94, Aust Financial Review 28/7/94)
• Mr Stockdale agreed to underwrite the proposal without Cabinet approval (Herald Sun 28/7/94)

• Ms Judith Griggs, said that, when Mr Walker was making Melbourne's Grand Prix bid early in 1993, it was very difficult to obtain accurate information from Adelaide about the real costs of holding a Grand Prix. It was only later, once Melbourne had secured the Grand Prix, that Mr Walker discovered that the SA Government had squirreled away costs associated with hosting the event in a myriad of Government departments (The Age 20/5/94)

According to 'The Age' "Mr Walker has also told Mr Stockdale that if the Government charges his Grand Prix company any interest or debt financing on this capital bill, it will be unable to break even, let alone create a profit, on the staging of each annual Grand Prix event." (The Age 20/5/94)

On the day of the announcement of the Grand Prix, 17 December 1993 however, Premier Kennett said "Victorian taxpayers would not be asked to meet the cost of the event, with the State

Government only prepared to act as guarantor of loans required to establish the race." (Herald Sun, 18/12/93).

New York

When promoters put a proposal to hold a race in New York, the city officials spent two years evaluating and negotiating a financial package for the city taxpayers.

A E Ulman, a former promoter of Formula One and other motor racing in the USA, warned city officials in a letter to the New York Times 17/4/83) that:

"...participation in these Formula 1 Grand Prix championships is no longer supported by the passenger-car industry and is relegated to a few specialists. To keep them going, FISA, the international sporting authority, and FOCA, the association of Fl Grand Prix drivers and car manufacturers, have put a stranglehold on the promoters of Grand Prix race circuits to accept their extravagant appearance payments... My experience, as well as financial results of most recent Grand Prix Formula 1 races show a marginal profit and quite often a loss. Races are frequently supported by communities desirous only of publicity."

The evaluation report prepared by New York's Office of Economic Development found that other US cities had failed to collect any revenue from deals struck with promoters. The report noted that "Even after five Grand Prix races (in Long Beach, Calif.) and five races in Montreal, promoters' television revenues are zero..." (NY Daily News 15/5/83). The report also noted that "The city should negotiate... payment for city services (police, fire etc.)... Without explicit consideration of these costs, New York City could find its cost for the Grand Prix greater than the revenue... from the promoter."

New York finally demanded a guaranteed minimum of $US 11 million ($A24 million in 1995 dollars) over 10 years plus a percentage of gate and concessions. The New York Grand Prix did not go ahead.

VICTORIAN TAXPAYERS HAVE NO GUARANTEES OF ANY FUTURE REVENUES

The Albert Park Formula One Grand Prix will Lose Money: Other Grand Prix Motor Races Do

The Queensland Indycar Grand Prix

US promoters have moved to Indycar racing as being cheaper to promote than Formula One racing. Yet Queensland Indycar has cost the Queensland tax payer $90 million after the first five races, the l995 race lost $l0.7 million (The Age,15/6/95). The Queensland Government had also expected "to break even in the first year and it will make money after that" (Queensland Treasurer on ABC Television cited Australian Accountant, September 1995)

A recent study of the Indycar event published in the September issue of Australian Accountant concluded that:

• The event does not provide a net benefit to Australia
• Taxpayers were subsidising benefits accruing to a few sectors of the economy
• Taxpayers were unlikely to receive a market return on the public funds invested

The Adelaide Formula One Grand Prix

The Adelaide Formula One GP has made a profit ($41,000) only once in 10 years. Based on a capital investment of $26 million and a running cost of around $30 million, the State Government had to subsidise the race by $7 million in 1993 and 1994, and at least $22 million over the last four years.

Despite this, there is no evidence that the Grand Prix has put Adelaide on the map (see Save Albert Park Grand Prix Factsheet "Tourism and the Australian Grand Prix")

The Canberra based Industry Commission report of July 1996 estimated that over the 10 years, the long term impact of the Grand Prix on real per capita Gross State Resident Product had been negative.

The Costs of the Formula One Grand Prix in Albert Park Have Blown Out

1. It is widely assumed that Melbourne is paying a higher franchise fee to Ecclestone and FOCA than did Adelaide. This fee is anticipated to around $15 million annually.
2. Melbourne has already spent $60 million on capital works, over twice the total capital investment made by Adelaide over 10 years ($26 million).
3. Staging the Grand Prix in Albert Park in 1996 cost over $53 million (excluding depreciation costs), $20 million more than it cost in Adelaide in 1995 ($33 million)
4. The 1996 Australian Grand Prix lost over $6 million and the GP Corporation has already incurred an operating cost to the State Government of $12 million on top of the capital costs of $54 million.

In addition, there are the costs of policing the event, and the costs of transport and parking problems around Albert Park. Taxpayers and local rate payers are required to subsidise the elaborate planning of traffic management arrangements and public transport, while the community faces the social costs of disruption to local commerce and regular inner city tourism, traffic congestion and lack of access to homes and businesses. Disruption to tourism is estimated to have cost Victoria over $10 million.

The Costs and Benefits

The capital costs plus the huge staging costs make it highly unlikely that the event can ever break even. The 1996 Report of the Auditor-General drew attention to the "number of risks that could potentially have an adverse impact on the Corporation's financial projections..." such as poor weather and restrictions on tobacco advertising resulting in reduced promotional revenues.

The annual subsidies will not generate sufficient benefits to the Victorian economy. The 1996 Grand Prix, when the disruption of tourism is taken into account (avoidance costs), generated around $30 million from an operating cost of over $53 million.

Compare this with the Australian Tennis Open which in 1995 earned $50 million from an operating cost of $15 million, or the Melbourne International Festival of the Arts which generated over $14 million from only $7 million in staging costs.