CITIZENS' GUIDE TO THE AUSTRALIAN GRAND PRIX CORPORATION FINANCES

1. Annual Accounts of the Australian Grand Prix Corporation
2. What to Look for in the Accounts
3. How Comprehensive are the Accounts as a Source of the Full Costs of the Grand Prix?
3.1 Accounting Period
3.2 Allocation of All Costs

4. Conclusion

This is a guide to estimating the real costs of the event to Victorian taxpayers and rate payers of the Cities of Port Phillip and Stonnington. A similar guide to the analysis of costs and benefits to the Victorian economy is also available.

1. Annual Accounts of the Australian Grand Prix Corporation

The Corporation presents annual audited accounts to Parliament for the financial year. If the AGPC follows the example of the Adelaide Grand Prix Board these accounts should provide details of capital costs, depreciation costs, debt servicing, line items of income and expenditure. An example from the 1991 accounts is attached. The accounts will present only part of the full cost of staging the race (see below).

Any losses incurred by the Australian Grand Prix Corporation are underwritten by the State Treasury, i.e. the taxpayer.

2. What to Look for in the Accounts

The Albert Park track has required much larger capital works investment than did the Adelaide event. The Victorian Government budget has allocated $49.5 million to works and infrastructure so far.

The operating costs of the Corporation should include cost of financing capital works. Government financing ($49.5 million) should, as originally envisaged, be treated as a loan bearing an opportunity cost (interest). If the accounts are to accurately show the staging costs they should include provision for repayment and interest at a long term bond rate of 9%.

The accounts of the Adelaide Grand Prix Board provided in the first year for depreciation at a rate to write off all assets to a zero value over three years. This was judged necessary because of the limited duration of the contract and because of the limited alternative use of many of the assets (J Burns et al., The Adelaide Grand Prix, p. 193). Subsequently, the rate of depreciation was altered according to the guaranteed period of the race contract.

In its 1994-95 accounts the AGPC transferred over $11 million of assets to MP&W. The provision for depreciation of capital works in Albert Park will need to be examined carefully to ascertain whether the Corporation is avoiding depreciation charges or financing costs which should be allocated to the Grand Prix.

The accounts should include the licence fee payable to Bernie Ecclestone's FOCA.

3. How Comprehensive are the Accounts as a Source of the Full Costs of the Grand Prix?

3.1 Accounting Period

The accounts cover the financial year July-June and may exclude the administrative costs incurred in planning the race incurred before '30 June 1995 and other costs such as the restoration of the Park which may not be paid until after 30 June 96.

3.1 Allocation of All Costs

The accounts are not expected to include all costs incurred by the public sector. As noted by Thomson in Bums et al., The Adelaide Grand Prix,"The staging of an event of such magnitude has a major impact upon other authorities and government departments." (p. 196). Some costs may be allocated to other government bodies.

• In the course of track construction, compaction works led to damage to over 140 homes. The Government expended around $400,000 in compensation.
• The accounts of the Adelaide Grand Prix Board excluded the costs of policing which were paid for by the Department of Cabinet and Premier. Policing costs shown in accounts may cover policing inside the track only.
• A Freedom of Information request has confirmed that VicRoads contributed $2.94 mill to the reconstruction of the park roads for the purpose-built Formula One circuit.
• The construction works in the Park required work by gas and electricity authorities which may not have been charged to the AGPC.
• The lack of established parking facilities around Albert Park necessitated capital works by the Public Transport Corporation of $4.5 million to enlarge facilities which will remain underutilised for the rest of the year (extensions to the light rail stops at Wright Street and Middle Park and the cross- over at Middle Park).

Subsidised public transport was provided for race patrons. The accounts should specify which body or bodies paid for this, Transurban, AGPC or the PTC, and whether the PTC was fully compensated.

If Transurban subsidised public transport as part of its sponsorship, taxpayers need to be assured that the amount is not shown as part of the income from Sponsors and then not entered as an expenditure.

• Tourism Victoria is believed to have devoted a significant part of its marketing budget to the Grand Prix. The costs of the Special Events Unit within Tourism Victoria arising from the Grand Prix would need to be included in the accounts.
• The City of Port Phillip Council incurred costs of over $560,000. The COPP cost included additional signage, consultation and management costs necessitated by the choice of a densely populated inner-city area. The City received $178,744 in compensation from the Grand Prix Corporation.

  The City of Stonnington also incurred costs from parking and traffic management of at least $55,000 for which it has not been compensated.

• Under the AGP Act 1994, the licence fee for the use of the Park by the AGPC is set at a maximum of $100,000. This can be compared with the rental in the order of $40,000 charged for the one day FM-Sky Shows.

  This appears to represent inadequate compensation for the social costs of the loss of public access to the park and loss of amenities. Also, the construction works for the first race involved a serious disruption to the activities of certain commercial tenants which involved MP&W foregoing income, i.e. rent holidays which could be over $200,000. As well. during construction works, disruption to the public golf course cost green fees believed to total $160,000.

4. Conclusion

Transparency of fully allocated costs to government is a recognised problem. Bums and Mules drew attention to the indirect costs incurred by the City of Adelaide, State Transport Authority and State Treasury in 1985. In noting that "These indirect costs do not lend themselves to quantification but could be substantial", they observed that the indirect costs of government department and agencies involved in advice and planning may be understated. (Syme G. et al., The Planning and Evaluation of Major Events, p. 180).

Judith Griggs was quoted as saying that "it was 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).