Mat Coch writes:

The Victorian State Government has given the Australian Grand Prix Corporation the green light to begin negotiating a deal to keep Formula One in Melbourne.

"I have asked the chairman of the Grand Prix Corporation, Mr Walker, to commence preliminary discussions with Mr Ecclestone over our future contract," Victorian Tourism Minister Louise Asher confirmed at a press conference today.

Asher warned Melbourne was not interested in the event at any cost, and that the final decision on whether a new contract was signed would be made by the government. "The driver of all government activity on this will be we will only sign a new contract if it represents good value for money," she said. "The government will not be signing up anything if it does not represent good value for money for tax payers."

The current contract, signed with the previous government in 2008, is set to run until 2015 and is underwritten by the Victorian State Government. It is understood hosting fees for the event cost around £17m in 2013, with a five per cent escalator built into the deal. That would see the 2015 event, the final under the current contract, cost in the region of £19m. By the time the event was run the cost of the event to tax payers could be double that figure.

Melbourne has hosted the Australian Grand Prix since 1996, though the event has been an ever present on the calendar since 1985. In recent years the event has faced increasingly vocal opposition as Victorian tax payers, who ultimately subsidise the race, question whether the event provides value for money.

In 2012 the state government subsidised the event to the tune of £36.3million according to a report released last September. According to Tourism Minister Louise Asher the 2011 event generated a direct economic impact worth somewhere between £20.5m and £25m, while additional media exposure could see that figure rise as high as £47.4m. It means the Australian Grand Prix saw an £11.1m return on its investment.

“This is a very, very expensive race and I personally am not happy with this level of subsidy,” Asher said last September. “The (previous) government signed off on a contract that is too expensive for the taxpayer in my opinion."

“We are strongly of a view that the Grand Prix has been good for Melbourne, good for Victoria,” said Victorian Premier Ted Baillieu at the time. “The Grand Prix is one of our key major events in Victoria and our major event strategy has served Melbourne and served Victoria very well.”

"At the start of the contract (in 1996) there was only one other event in Asia," Australian Grand Prix Corporation CEO Andrew Westacott explained today. "Now there's seven in Asia and we go into Asia in prime time, so with the 5pm time slot Melbourne is broadcast in to Asia on free-to-air at lunch time and in to the European markets at breakfast.

"Bangkok is looking for a street race in the future," he added. "If Melbourne wants to maintain a profile internationally it is competing against these cities, whether it be Singapore, Abu Dhabi or Bangkok and other Asian locations."

Negotiations will boil down to just what Ecclestone wants for the race weighed against what the Victorian Government thinks its tax payers are willing to spend. Spending too much will be political suicide for the government over what has been a hotly debated topic for a number of years.