25/09/2008
NEWS STORY
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On the eve of perhaps the biggest advertisement for a country on the F1 calendar after Monaco, new research has been released into the return governments get for pouring money into hosting Grands Prix.
The data, compiled by Renault F1 title sponsor ING in association with F1 industry monitor Formula Money, shows that the biggest winner from hosting a Grand Prix isn't Bernie Ecclestone, Max Mosley or the teams but the governments of the host nations. They benefit through investment into the economy from the (average) 90,000 spectators who visited each race last year giving the Grands Prix a staggering average return on investment for governments of 553%.
Perhaps surprisingly, the Japanese GP gets the greatest return on investment (ROI) and receives some of the lowest government funding at an estimated $4m (£2.1m). The $70m (£37.5m) local economic impact gives it an estimated 1,750% return, just short of that in Monaco where the state puts in $3m (£1.6m) more than Japan but gets $120m (£64.4m) back from spending in the country.
Even the Nurburgring, the circuit with the race which has the lowest ROI, still generated a return of 167%. It's lower than average performance is largely due to the government owning the circuit and fully funding it. A rural setting with fewer hotels, shops and restaurants nearby than the more modern circuits also diminishes its ability to give a higher economic impact. Not at the bottom, but off the scale are circuits, such as Monza and Silverstone, which cannot be said to have an ROI at all since governments make no annual investment in them even though they have funded some improvement to their facilities in the past.
This research shows that the UK government could do a lot worse than investing money in the Grand Prix since although the country is getting a healthy benefit from the race at the moment for no investment, this would dry up if the event leaves. Given the ever-changing nature of the Donington plans that doesn't seem impossible but government assistance could put paid to that risk.
Only four circuits have no assistance from governments and the need for their support is reflected in the fact that the 13 which are involved invested overall a massive $275m (£147.6m) in their home Grands Prix. Finding a replacement for this level of funding is increasingly tough and so it is more likely that future races will have to be government backed. With a total economic impact of $1.52bn (£816m) though, new countries may start queuing up.
According to Formula Money author and Pitpass' business reporter Chris Sylt, all figures used in the research were either sourced directly from the relevant governments and circuits, or were shown to them before publication. Several explained to Sylt in great detail how they benefit from hosting a race.
The economic benefits the countries receive don't just come from spending in restaurants and shops. A study in 2005 showed that the Australian GP created the equivalent of 3,650 full year employment positions and generated 194,994 additional visitor nights. This perhaps explains why hotel magnate Ong Beng Seng is covering 40% of the $100m (£53.6m) (costs of the Singapore GP with the government paying the remainder. And with wealthy Asian markets regularly emerging this structure is likely to become a model.
The upshot of this for the man in the pub is that it seems inevitable that more races will end up in Asia. A third of all races now are there whereas 10 years ago the Japanese GP was the only Asian event on the calendar.
Whilst European governments are often not prepared to fund F1's hosting fees for promotional purposes, for governments of emerging nations like Singapore it is worth it alone to put the country on the map in front of F1's 597m spectators. Not only that but now we know that it more than pays for itself. There aren't many advertisements that can do that.
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