A Formula One Grand Prix is one of the world’s most powerful tourism adverts. As Britain’s Independent newspaper recently revealed, F1’s 21 races were seen by 390 million viewers on television last year making it one of the world’s most-watched annual sports series. That’s just the start.
Unlike soccer, athletics or basketball games, some F1 races weave through city streets where the surroundings are local landmarks rather than banks of bleachers. This doesn’t just showcase the destination, it makes it part of the action and there is a high-octane price to pay.
There is no rate card for a Grand Prix and the fees are kept a closely-guarded secret as the contracts for the 20 races which will take place this year are not public. Testimony to this, one of the few contracts which has broken cover - the agreement for a Grand Prix in Valencia, Spain which was discontinued in 2013 - states that the race “promoters shall not at any time following execution of this agreement announce, publish or disclose to a third party the existence of this agreement.”
The exact costs and returns are of course well known by the current and former race promoters and sometimes snippets sneak into the public domain. All but the British Grand Prix get government funding so some of the promoters have to lodge official filings which confirm key details of their finances.
Through analysing thousands of pages of company documents and interviewing hundreds of race personnel over nearly 15 years this author has pieced together a picture of how much it costs to host a Grand Prix and what it is really worth.
For full disclosure, although this data is based on a wide range of independent sources, it has been compiled by this author and there are few commercially-available comparisons. Even though there are no public yardsticks to compare it against, it comes with industry endorsement as the data has been available through this author’s research firm Formula Money for more than a decade and has been acquired by 40% of the current race promoters and multiple potential hosts.
The highlights will be presented below with analysis in a follow-up report on the impact the races can have. They aren’t always a success.
F1 is famous for races which have been on its calendar for decades. The British Grand Prix was the first race on the F1 championship when it launched in 1950 and it still takes place to this day. Indeed the race is even held on the same track – a former airfield known as Silverstone. The history of some races even pre-dates the creation of F1 itself with its flagship event in Monaco taking place on the world-famous street track which has remained largely unchanged since it held its first Grand Prix in 1929. However, other races haven’t lasted as long.
The Singapore Grand Prix, which became F1’s first night race when it launched in 2008, is reportedly deciding whether to renew its contract after it expires at the end of this year. Likewise, it is understood that the Malaysian Grand Prix, which joined the calendar in 1999, will not take place after its contract expires next year. A race in France will return in 2018 but hasn’t been on the calendar since 2008. The German Grand Prix too has had a troubled history in recent years and although it took place last year it isn’t going ahead in 2017.
Then come the races which got the red light permanently. The Indian Grand Prix lasted three years and when the brakes were put on it in 2013 it owed $51.4 million in unpaid hosting fees as Britain’s Daily Telegraph revealed in December. The fees have since been cleared but the race remains on hold. The same goes for the Grand Prix in South Korea which was widely disliked and only ran from 2010 to 2013. This too came down to money.
On the face of it, F1 races seem like they should be cheap to stage. After all, it appears that the only facilities required are seats for spectators and a stretch of asphalt for the cars to race on. In reality this couldn’t be further from the truth.
There is no such thing as hosting a Grand Prix on the cheap but the quickest way to pull it off is to run a street race. They tend to be located on public roads in cities or on the outskirts of town whilst permanent circuits are purpose-built venues designed specifically to host high level motor races.
Street races are cheaper to get off the ground than those on purpose-built tracks since they don’t require construction of a new venue. Permanent circuits take years to build but street circuits can take little more than a year to prepare. This gives their hosts quick access to the attractions of F1 and means that there are no fears of being left with a white elephant if they decide to quit when their contracts expire.
Crucially, street tracks magnify the economic impact as local landmarks can become inseparable from the on-track action and tourists can return to stay on the same streets where their heroes raced.
It explains why F1’s new owner, Liberty Media, which is listed on the Nasdaq with the ticker FWONK, is understood to be in negotiations about several street races in the United States. F1 currently only has one Grand Prix there and lags behind local rivals NASCAR and IndyCar.
F1’s sole race in the US takes place in Austin, Texas and has won widespread praise from fans and the industry alike. Indeed, as Forbes revealed, data from research firm Repucom shows that it was F1’s most-watched race in 2015 when the weekend was beset by severe storms. The data for 2016 has not yet been released but it is expected that the US Grand Prix got a significant boost due to better weather and a performance at the track from music superstar Taylor Swift which generated international exposure.
In light of this success it would seem to be logical for F1 to make the most of the race by throwing more marketing resources behind it rather than adding other events and trying to run before it can walk in the US. However, this doesn’t appear to be the direction it is going in as Liberty’s chief executive Greg Maffei said at a recent conference that “one race in Austin is probably not sufficient. You would like to see more. So we have a race in Montreal, a race in Mexico City, a race in Austin. You would love to see New York, LA, Miami, Las Vegas. One or two of those cities.”
Although street circuits are quicker and cheaper to get going than permanent tracks, their annual running costs are far greater. This is largely due to the cost of transforming public roads into a race track. Temporary structures, such as grandstands, need to be bought or hired and the roads need to be upgraded to meet F1’s strict safety standard, known as Grade 1 homologation, which is set by its governing body the Fédération Internationale de l’Automobile (FIA).
At a total cost of around $16 million, staffing is the biggest single expense for operators of street races with the budget for the marketing and organisation team alone coming to around $6.5 million. Next is rental of grandstands which costs around $14 million for structures with 80,000 seats. Securing a 3.2-mile street course with safety barriers and fencing costs in the region of $8 million which is also how much it costs to rent the pit buildings. Vehicle, office and utilities payments are around $6 million with a further $4.5 million of miscellaneous costs. Capping it all off is a payment of around $1 million for insurance.
In total, the annual operating cost of an F1 street race is in the region of $57.5 million. Then comes the hosting fee. According to Liberty’s filings, in 2015, the most recent year for which data is available, the hosting fees paid by the 19 races which took place generated a total of $599.1 million. It gives an average fee of $31.5 million per Grand Prix but there is a sting in its tail.
Liberty’s filings reveal that the race contracts “may allow for flat fees over the term, but more typically they include annual fee escalators over the life of the contract, which are typically based on annual movement in a selected consumer price index or fixed percentages of up to 5% per year.” Most new F1 race contracts are for a total of ten years so by the end of the agreement the annual fee comes to $48.9 million as shown in the table below.
It means that over the ten year race duration the hosting fees total an estimated $396.2 million with the costs of running the race coming to $575 million. It brings the overall expense close to a billion Dollars.
One way to avoid the high annual running costs is to host a race on a permanent facility. Whilst this doesn’t require re-purposing roads and building temporary facilities every year it does incur a huge upfront cost.
There are two possibilities. The first is using an existing circuit but this means that the promoter has to settle for whatever flaws it comes with. Unless it has been designed with F1 in mind, it could also require upgrading to ensure it meets Grade 1 homologation which alone can cost tens of millions of Dollars.
In contrast, designing a circuit from scratch gives the promoter complete creative flexibility which can make all the difference when it comes to attracting interest in the race.
Take for example Circuit of the Americas, which is home to the US Grand Prix. Several of its corners were modelled on the most exciting ones from other circuits and its site was deliberately chosen to give the track an elevation change of 133 feet.
Before construction could even begin, the 1,000-acre site needed to be prepared and this was far from straightforward. Several underground gas pipelines had to be relocated and then came the big challenge. Beneath the surface of the site was a layer of black clay soil which needed to be stabilised because it expands and contracts significantly depending on moisture levels. This had not been a problem previously because the site was scrub land. However it needed to be resolved in order to build a track on top.
German circuit architecture firm Tilke came to the rescue and recommended digging a foundation down to nine feet which is deeper than usual. Around 4 million cubic yards of earth were moved for the project which is roughly enough to fill up the Empire State Building three times.
As shown in the box below, building a typical track costs around $270 million and then comes the hosting fee as well as the annual running costs which, at around $18.5 million, are far lower than those for a street race.
It means that, over a typical ten-year period, building a Grand Prix circuit and hosting an F1 race there costs around $851.2 million. The more frills a track has, the higher the cost with one of the most expensive being the complex at Abu Dhabi which includes a marina and a high-tech hotel. It had a price tag estimated at around $500 million which is double the standard cost. So, in reality, the total cost of building a permanent circuit and hosting a Grand Prix on it is likely to hit around $1 billion just as it does for a street race.
Ironically, paying this is the easy part of the process. The race organisers then have to sell all the tickets, promote the event and ultimately showcase the host country to the world. Pulling that off is F1’s real Grand Prize.
