Why the Grand Prix loses $50M each and every year

 
Mark Young Roar Guru

By Mark Young, 3 Mar 2011 Mark Young is a Roar Guru

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    The anti-Grand Prix rumbles are growing into a roar in Victoria as politicians both state and local start to openly question if the annual event is worth the $50 million it loses each time it is run. This staggeringly high figure is not a reflection of high costs or high low public interest.

    Rather is the result of one of the most spectacularly one sided deals to have ever been made.

    Way back in 1996 when Jeff Kennett poached the race from South Australia, the event cost the Victorian tax payers about $2 Million. This was money well spent when you consider the number of people who then spent two hours watching Michael Schumacher thunder past signs saying ‘VISIT MELBOURNE’.

    But in fifteen short years that cost has increased twenty-five fold to approximately $50 Million.

    That there has been an increase is not a surprise, as the cost of everything has increased over the last fifteen years. In this instance, it is the magnitude of the increase which indicates something is amiss, with a twenty-five time increase positively Zimbabwean in size!

    So firstly, what are the costs for the Victorian Government? They pay for the transformation each year of Albert Park into a spectacular (and very popular) racing facility with elaborate set up of grandstands, fences and spectator services.

    This is expensive enough but the bigger cost is the annual fee paid to the sport’s commercial rights holder Formula One Management (FOM) each year to host the race which is now close to $30 Million and rising at 10% per year.

    But of course, these two large annual costs can be made back in many way such as paying spectators, TV rights, corporate hospitality, entry fees and trackside signage. This would be true if the Victorian Government got to keep it.

    All the revenue from the huge advertising hoardings around the track goes to FOM. The TV rights for an event by millions around the world? All the revenue goes to FOM.

    Amazingly, all of the money paid by for Corporate Hospitality goes to FOM as well! But FOM doesn’t get the entry fees from the teams and drivers. Those funds go to the FIA which is the governing body of the sport. The only decent source of income for the Victorian Government is from the tickets paid for by the spectators.

    Bernie Ecclestone sometimes presents as being a little bit crazy, with ideas for shortcuts on the tracks and artificial rain to spice up the action but it is important to be aware that the man is a genius at making money. At a time when the world is recovering for a considerable economic slump, he got his sport to the point that countries around the world are falling over themselves to give him money.

    Abu Dhabi paid over $1 billion to build their circuit and then stumps up over $50 billion each year to keep Formula 1 coming back. But Bernie’s greatest slight of hand is getting them to build their own tracks and then pay handsomely for a race while he sticks his hand in their back pocket to grab most of the money they make during the event.

    Last year FOM made close to $250 million, ironically using much of it to pay back the loan for venture capital company CVC who bought the company from Ecclestone for $2.5 billion they now pay him to run the company, didn’t I tell you the guy was a genius?).

    Each Grand Prix is now used as a method to generate enough money to pay back a loan for a company which has somehow ended up owning the rights to the sport.

    The Australian Grand Prix is something we should be truly proud of. It is considered the benchmark for a well organised, smoothly run, action packed weekend of motor racing. The drivers and teams love the city, love the track and love coming to Australia. And for spectators, the quality of viewing and range of support races and entertainment is unsurpassed.

    None of this changes the appalling way the Victorian people are being ripped off. It would be a great disappointment to lose the race, but even more disappointing would be to give any more money to this scam.

    I urge any fan on ‘The Roar’ who hasn’t been to the Grand Prix to go quickly before the Government wakes up to themselves and stops this madness.