There are reports today from the United States that Texas Comptroller Susan Combs has released more than $25 million from the state’s Major Event Trust Fund to help fund the Formula 1 Grand Prix in Austin. A further $4 million has been released by the City of Austin. The money has been paid to the Circuit Events Local Organizing Committee as reimbursement for bringing the race to Texas. The funding is based on the projections for the economic impact of the event on the state, which were made during the application process for the award. The Comptroller’s office will now conduct a study to see if the money coming into the state is about right. While these studied tend to be relatively imprecise, they generally prove that there has been a significant economic impact with all the visitors flying into and staying in Texas. Given that the prices of Austin’s hotel were all hiked dramatically and there was a big crowd, there is no doubt that the state gained significantly, not just in terms of direct economic impact, but also in raising the profile of Austin around the world. Critics of F1 never include the value of such advertising, because that is not part of their agenda, but it is very clear that the race put Austin on the map all over the world.
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joeblogsf1 
So what is the value of the advertising?
Austin and all its charm is now on display to a media audience that numbers in the hundreds of millions worldwide that probably had no idea it even existed before F1 came to town. Included in these numbers are tourists, captains of industry, advertisers, on and on. If the Gran Prix there continues to soar like it did in its debut, though difficult to assign a dollar figure to, the value of the event to Austin is potentially massive. It’s checkers, not chess.
£10
I went to Austin this year for the F1 race. Never been before and loved it. WIll be going back again February. This is a result of F1 that will not be calculated.
Actually it probably is. Perhaps an estimation, to a relatively poor degree of accuracy, but this is exactly the kind of thing that towns and cities put on big events for.
It’s almost certainly much easier to convince people who’ve visited once to come back.
Assuming all the averages, for the cost of hosting a race, a city or region only needs 0.2% of F1’s global audience to visit at some point over a 10 year period to more than double the return on investment.
“Critics of F1 never include the value of such advertising, because that is not part of their agenda, but it is very clear that the race put Austin on the map all over the world.”
I know we are on opposite ends of this but SOME of the critics of using public funding for vastly rich sports cannot be cast into that narrow view you continue to push.
I’m a HUGE F1 fan and have been since my first live race in the late 80’s (watched on tele for years prior to that even) and will give you the overall economic impact is good in most cases to the hosting city [not all]…. It’s not the point to me and lots of others (some of whom are against F1 and some are not). It’s a fundamental disagreement to the concept – regardless of the positive impact and the sport involved. I wish you would stop lumping all the against public funding into a bucket with (bad) agendas and anti-f1….. It’s just not the case.
A good natural disaster is also going to get the host city a run in the news 🙂 [yeah I know but how different is it when it’s all coverage :-)]
Rob, I stand up for programs like the METF because it is real simple to understand.
The money rebated back to the hosting city or in this case the local organizing committee doesn’t exist in some State budget, therefor it doesn’t come from my back pocket. The fund is funded by the sales taxes created by the event, by people coming here, like Joe, spending their money at our shops and bars and eating places, ETC. No teachers lost their jobs because of it, no police stations or fire staions were not built because of it. The money just doesn’t exist until the event happens.
The real benefit is the money coming in from out of state rebuilds the community. It hires more people at these shop, bars and restaurants. That money is then spent and taxed again and again in our community.
This is what the METF was created to do, and it works.
Steve, rebating sales taxes, does mean that collected tax revenue that would more efficiently pay for the state’s expenses instead is rebated, so in one way there is no incentive to reduce your average tax rates, instead, create a post event tax payer subsidy. It isn’t just events but can include other development, promises to “create jobs” in a range of industries including retail including the big box stores (which can include sales tax rebates such that the state more or less subsidizes some of the world’s largest companies, and picking them as continuing winners while by default turning smaller more local businesses into de facto losers.
Geo, I think I’m not explaining the METF very well. It was created several years ago to “bring” large sporting event to Texas and along with the event comes the people who spend their money here. The entire fund program has been used to bring the Superbowl, NCAA Final Four basketball, NHL Allstar Hockey game and now the Formula One race as well as many other “large” event. It isn’t about jobs, it’s about people from out of state spending money here which is then tax and re-used back into the Texas economy.
Thanks for the comment. because the money going to the developers comes from someone else. Choosing to take on a project shouldn’t be based on whether a tax credit or rebate will make or break you. If that’s the case, then is it really the best strategy?
Is Susan Combs any relation to ‘Red’?
No, while similar the last names are different – Susan Combs & Red McCombs.
Do you literally mean “F1 makes a profit” in Texas, or do you mean “Texas profits off F1”? I’m assuming that the first rule is that Bernie always makes a profit, and he wouldn’t do it if there was no profit. That said, we haven’t seen anything to suggest that the organizers made a profit (the special event money is seed money to recover the organizer’s sanctioning fee; it is not pure profit). Tavo Hellmund’s lawsuit estimated a $490 million impact from a single race.
Bernie’s job is to make a profit for F1 and for CVC. That’s exactly what he’s supposed to do. He doesn’t twist arms to make people host races, indeed it seems there’s a queue of prospective hosts. The organiser’s profit or loss is not an entry on Bernie’s balance sheet. It may be that some races would make more money for the organisers if the organisers were as capable as Bernie is.
I just wanted to know if Tavo lawsuit had been resolved, I take it hasn’t.
No, it has not been.
Odd, don’t you think that India won the best GP of the year when Austin was clearly the most likely candidate.
Who does the voting for best GP of the year?
My original point had nothing to do with Bernie and was intended to raise a question as to how to determine the profitability of an event, from the perspective of the organizers and not the promoter.
The Hellmund lawsuit was reported to be resolved in June, but Hellmund may have allegedly breached its terms according to another recent report.
Consider the source.
Thank You and I agree on the best race.
These things do seem designed to confuse and can be hard for us without rigorous economics backgrounds to grasp. The only study I’m more than passingly familiar with is the 2011 Ernst & Young study for the state of Victoria, relating to the Australian GP in Melbourne. This put the GSP benefit to the state (the government of which provided a subsidy of over $56m in 2012) of between $19m and $39m (depending on which base case scenario you compare to). On those figures it would seem to suggest that simply leaving bundles of cash on street corners would have been a better way of disbursing the funds. However, they also cite about $35m in additional “media value” (by which I assume they mean “free advertising”) and $355m in brand value (basically, how much you would have to spend to attain your current reputation if you were to start again from scratch. Directly translating this into real economic impacts seems almost impossible). While brand value is a nebulous concept the economists love but mortals find hard to justify, looking at the more solid numbers (the ones taxpayers will actually notice on a day-to-day basis) you see that the race either just about broke even, or made a return to the tune of 30-35%. Justifying the race on tourism dollars alone seems doomed to failure. I guess your attitude toward the subsidy then depends on how much you trust brand consultants (me, not so very much) and whether you think civic prestige is worth investing in. Some people want low taxes and nothing else matters to them, others think that pride in your community and improved standing worldwide is worth a few bucks a year.
John,
Among other things my company does these studies in F1, though we didn’t work on the Australian GP report we did work on Singapore and number of others.
Hosts have never asked us to evaluate a GP on the back of tourism spend alone; things like developing international trade, FDI, de-risking their tourism portfolio, attracting skilled foreign workers have always played a part. I agree with you to a point on brand, though Coke or Samsung will have brand value listed as an asset on your balance sheet somewhere. For a nation brand is about sense of self and projecting that to the World. F1 is a good way to show that you have a positive attitude to international trade and global tourism. That said unless the GP is a direct swap for an advertising campaign that would have happened regardless of the race we would value the impact of exposure in real terms – How many dollars hit the ground as a result of what you have done.
Tourism spend is a large fast growing market and Formula One is an exceptional tourism & destination development product. Globally, as an export category, tourism ranks fourth after fuels, chemicals and food. For many developing states and countries it is one of the main sources of foreign exchange income and the number one export category, creating employment, opportunities for development and according to some sources (admittedly the World Sports Tourism Authority) sports tourism accounts for 10% of the overall figure.
Fighting for a share of that is a real battle. In my own adopted home Italy which with 44m annual visitors spending a bit less than US$40bn sits at number 5 in the tourism league table. If Italy maintains that 5th place until 2020 tourism receipts are projected to rise by US$17.1bn to a total of US$55.9bn. For a country, capturing that growth means investment in infrastructure development, great execution and out marketing the competitive offers from destinations like Singapore and Abu Dhabi – and now Austin – who are using a Grand Prix as a tool to put themselves on the map.
Joe -Thanks for this article – I really think F1 needs to lean on its positive contribution to its host economies more.
To be clear, when I say that “the race” broke even or made a modest profit, I’m taking the viewpoint of the State of Victoria with respect to their subsidy.
p.p.s. You might like the very interesting article that the Sydney Morning Herald put out a while back looking at the intangible benefits of the Grand Prix for Melbourne. I particularly like the thought that F1 has in part inspired innovation in portable fencing!
http://www.smh.com.au/opinion/politics/gp-may-just-be-a-cog-in-a-bigger-wheel-20120305-1ue6q.html
Does any track make a significant profit !!??
Yes
If Bernie’s fee is $25m and I believe many are more than that, then if you have an average of 120,000 punters attend on 3 days, they need to pay $70 each on each of the three days. This is just to cover FOM’s fee; so since the average take is probably more than $100 per person per day there is a chance of covering some of the circuit costs. But I very much doubt any circuit makes a profit from F1. More likely the events during the rest of the year help subsidise the GP. How many times has Silverstone been re-financed, sold, leased, bonded etc? (One of the reasons I think the whole commercial structure needs drastic revising)
This is not the point. A well-structured race has the fees paid for by the local government. This means that the ticket revenues can be used to pay other costs and indeed make a profit (if possible). It also means that ticket prices can be kept as low as possible. The reason that the local government would do this is that a race generates massive economic impact in the region, creates jobs and so on. If they break even on the investment then the global advertising for their city is free, not to mention secondary income from visitors/businesses that come to the city because the race drew their attention to the place. This is very hard to quantify but it certainly does exist.
Yes Joe I understand your point very well, but I think it is limited to venues either in or adjacent to a city of the right size with the right amenities and spare money (you made the point yourself about Austin and Adelaide being the right size) and being the dominating event at the time.
Also it needs to be in countries which subscribe to the idea of the possible benefits in the tourist, hotel, catering and transport industries, (if not their own kudos) being sufficiently tangible to enable them to stump up money to support the circuit/event. I agree that Austin is ideal, however this positive attitude is not around in most cash strapped local governments in europe.
A lot depends on the size of the local government and its budget too, Texas compared with Northants is laughable, Towcester with Austin even more so. Thus several places in the USA and perhaps “the East” may be ideal, but I think european tracks are going to continue to struggle.
Not if they convince governments to pay. London just spent wildly absurd amounts on an Olympics. That money will never be recouped in income generated. London was already a major tourist destination so why did it happen? Because someone convinced someone to do it.
Again I agree absolutely, the olympics was a huge drain on our taxes (greatly resented by most of us) and of course the construction ran several times over the original budget.
The tourist volume in London during the event was down by 50% on normal and in some major/famous shopping streets by 70% although those that did spend actually spent approx 50% more than normal.
However if anyone ever convinces a UK government to pay the FOM fee for a GB GP I will spin in my grave. (Proverbial both because the shock will have killed me and because i am to be cremated) Other european governments are as unlikely to pay for GPs too, they have no money! France declined after the new man got in and Germany is hamstrung with a white elephant which has not made money for many years. Belgium is always on a knife edge.
So long live the USA and all points east, even if they are unreachable for most of us.
As a Brazilian, I always dreamed of travelling to New York. Thanks to F1, now I know that Austin is also a great place! For example, the SXSW festival seems to be great. Whenever I visit the United States, Austin is on my to-do list!
Firstly, it’s Red McCombs, not Combs, so no relation. Texas is a stage which is very pro-business. That’s a philosophy. The investment in F1 was a good one with both short and long term benefits. You can view this through any lens you choose but Texas got what it was paying for. We call that a fair deal and if it happens to be fun, then that’s a bonus.
Agree entirely
The city of Austin is reporting a 3 fold increase in hotel revenue alone over the prior year’s which held a football game on the same weekend in a venue that seats 103,000. Given that many of the visitors were first time visitor vs. a football game which is nearly 100% return visitors, the impact of the tourist $ will be enormous when it’s calculated.
So how will this work in 2013 with an important football game and the Grand Prix on the same weekend? Will there be one price for the football fans and another price for the F1 fans?
I am very happy that it went so well in Texas. But it also makes me think of what could have been in Korea…
Have there been any reports on the profitability of the race?
Chris – It is making a significant top line loss but as far as I know Korea hasn’t looked at the effect of the Grand Prix as a whole yet.
I’m sure that Joe would agree-there has been no significant benefit to the Korean economy, either local to the track, or the country as a whole.
$40+ million a year in the red on top of a $300 million construction cost is a pretty deep hole…
I don’t know who drives faster-the cars on the track or the teams leaving after the race is over!
An angle that seems to be left out of many of these (F1 success) discussions is that of culture. A broad term; let me expand. In the UK my aged (Scots) aunt is not a follower of F1 but if I mention going to a race she will ask about David Coulthard. The sport permeates the (UK) culture to the point that all are aware. That’s not true around the world.
In the US – say Texas – there is a different awareness. High School football is one religion. College football another. Then there’s the NFL. F1 is very much a startup in awareness and lasting presence..
It’s not, I think, just about dollars and cents (as we’ve read in many posts). It’s about the culture… or, if you will allow, “it’s about the passion”.
If you can get the community (not just the scalpers) fired up and enthusiastic then you have a success that can lead to a continued success. I was once one of the hundred thousand that went to Watkins Glen every year; because… you had to! It was *the* event of every October.
I’m satisfied that the various people (I suppose that also means Bernie and CVC) made money off the event. But I hope more that the cultural aspect – the joy of the event – becomes the driver of continued great success!
Well points!!
My wife & I traveled to Austin from Maine for the race. Two things that made an impression was that the locals do not want race in their city. The other point was how horrible that the track moved people around. A mile walk from the buses to the track. No help for those that couldn’t walk. The tram transportation was a joke. The worst event I’ve attended in 50 Years of attending races
You are the first person I have heard to have such a strong opinion. I got the opposite impression and I thought that the track did a decent job, for a first attempt. Things can improve and they probably will.
Joe, there were many people waited for tranport to the mile walk from the buses to the track. We tryied to help but several could not walk that far.. We Waited for over 2 hours to get a lift to the mile walk to the buses.. It never came. Maybe you should have slummed down to the the real fans. I watched several people strugging to walk the mile to the track. I’m sure some of them did not make the trip. I love F1, but I woke on Saturday telling my Wife, I don’t want to go to the track. I unerstand first time track, first time track, but maybe it should have been postpomed til 2013. Enought said. OOOO, we attened your presentation in Montreal. Great stuff
You are the first I’ve heard to complain about the race. Have you contacted the organizers? I’m sure that they will appreciate your input, unlike here….
Well, to my earlier reference – the early days at the Glen – there was *no* “moving people” around and you could easily end up walking far more than a mile. Not encouraging that; point being it wasn’t a deterrent. Looking back, all venues I’ve been to have some real deterrents to ingress, moving around and egress (Montreal). But we keep going!
Not sure which locals you talked to, Mr Beavis. I am from Texas, live in Houston. My brother is in Austin along with friends. My fiance’s sister lives in Austin. I go to Austin quite a bit and I never heard a single complaint from any locals when I went. I think most locals really enjoyed having the race. Plus, it’s not like a big event is that shocking to the city — they have regular concert series such as SXSW, Austin City Limits and University of Texas home games that attract upward of 100,000 people. This event is one of many and the locals were thrilled to have it. It’s more attention and money to the city, what’s to dislike?
I & my girlfriend travelled from Australia for the race and all the locals I spoke with were positive about the race. Even a taxi driver which had never heard of F1 before-hand regaled us with previous passengers who had been talking to him about the race.
As for the transportation at the track, while there were issues on the Friday with the trams, by Saturday there were buses taking people around the track and therefore improving the situation immensely. The food was a problem but that was partly due to not being ready on time.
A number of areas were improved as the weekend went on, others will be fixed for next year. It wasn’t perfect but it also wasn’t anywhere near the worst event I’ve attended in almost 30 years of attending races.
Well, I am from Austin and I know many others who were raised here and we are all over the moon about having F1. I think what you mean to say is “some locals do not want the race in their city”. Many people enjoy it, some people hate it… but the majority are impartial. I am basing that statement on actual polls.
There are a vocal few who REALLY do NOT want F1 here. They make their voices very loud but their opposition is very small. Not too concerned about it.
As far as your troubles getting around the track… it’s a large crowd. Honestly, I found the entire weekend was pretty well orchestrated. There were a few bottlenecks cause by gawkers trying to watch the practice sessions from the pedestrian bridge, a perfect example of people creating their own problems.
But obviously you had a very unfortunate experience. Just don’t make it sound like it is the overall feeling from the majority. It’s not.
Austin GP and Circuit of the America’s is going to end in a huge lawsuit….
Yes. And? Someone will win the lawsuit and what happens then? They give up holding races? No, it does not work like that.
It works like GP only happens when Bernie’s ever escalating fee gets paid. When it stops or the terms of his contract or the method it has paid by/for are successfully litigated upon GP goes to wherever pays next/more. It works like that Joe.
Yes I think I might know that.
OO, Joe if we need to debate this further.
mrbeavis@hughes.net
I’m alway avaiable
Well done austin for putting on a great venue, well done bernie for promoting a thriller in austin, this has to be one of the races of the year.
I’m struggling to think of any reason India was awarded GP of the year, it was basically exactly the same as 2011, did it win the first year?
Of no value to Texas whatsoever is the fact that I learned that Austin was the Capital of Texas, not Huston.
You and many others probably.