Bernie and America

I think that there will be three Formula 1 Grands Prix in the United States by 2016. The United States GP in Austin, the Grand Prix of America in New Jersey and the Long Beach Grand Prix in California. The only way to find out if I am right is to wait for three years, but I am confident that Bernie Ecclestone is not going to waste the opportunity to conquer the one place where Formula 1 should be big and is not. The signs have been there for a while. His goal is to create a solid package to market F1 in the Americas by adding races in America and Mexico to the existing events in Canada and Brazil. By doing that he has a package of races that can be sold to TV companies at much higher prices than is the case at the moment.

The United States remains the world’s largest consumer market with around 30 percent of global consumption. There are various estimates as to when other countries will catch up, with management consultancy McKinsey & Company reckoning that China will overtake Japan to become the second largest market in 2020, while the Boston Consulting Group says that this will happen in 2015, Euromonitor thinks it will happen this year. It is not that important who is right, because the key point is that even if China does overtake Japan, no-one is estimating that it will reach more than 22 percent of global consumption by 2020. Perhaps in terms of luxury cars and fancy handbags this will happen sooner but overall, the US remains ahead. In the longer term analysts reckon that India will outstrip both the US and China as it develops vast middle classes, but in the short- to mid-term it is fair to say that the US is still the place you want to be if you are selling consumer products. And that is a key part of what F1 does.

There is much negativity about the prospects of New Jersey and Long Beach. The problem with all these stories is that the people writing them do not seem to understand how the F1 business model works, no matter what claims they may make about being business experts. The suggestion that the Formula One group might buy the Grand Prix Association of Long Beach (GPALB) is patently ridiculous. This company has run the Grand Prix in Long Beach since the 1970s but at the moment it has no contract with IndyCar for 2014 and no contract with the City of Long Beach after 2015. The City has a non-binding option to extend to 2020 if it chooses to do so.

By all accounts, the Long Beach GP is not doing the business it used to do. Hotel rooms are not selling as much as they were and while the crowd is being boosted by giving away free tickets and putting on other support events, such as drifting, the race is not giving the city the same kind of returns as it used to do. It is a transient party audience rather than the high-spending race fans who used to be there each year.

And that is just on the ground. In terms of TV figures, the race is getting only tiny amount of coverage, compared to what could be achieved by Formula 1 and it is not just the numbers in this case, it is also about geographic reach. F1 will put the streets of Long Beach on TVs across the world.

There is little doubt that if the City was offered a Formula 1 race, at the right price, it would take it. If GPALB could raise the money needed to pay F1 race fees, it could switch back to Formula 1 and the City would almost certainly give it a new contract, but unless that happens, there is ample opportunity for a rival promotional company to step in and do a deal with the City.

You do not need to be a rocket scientist to understand that in modern America there is not going to be financial assistance from the authorities. There may be tax breaks, loans and money to aid construction, but spending money on promoters is something of a no-no. Thus all the Grands Prix that take place on US soil require private funding. In the case of Austin private investors built the racing facility and then won grants from the state to promote economic growth. On the streets of New Jersey and Long Beach it will be a case of the local council doing the necessary building work and then renting the streets to promoters. The sort of money required for this is justifiable given the benefits that a race will bring to a region.

The trick is to find someone who gains enough from a Formula 1 race to pay the race fees, which are impressively large. That could be people who are involved in the hotel business or in retail. It can also be based on the effect that F1 will have on real estate prices in the area. A race can multiply land values and make very large profits for those with sufficient property to rent or sell. This is the raison d’être of the race in New Jersey, and the reason I believe the race will happen. There are billions of dollars to be made by the real estate developers who are paying the bills. A very large parking garage, which doubles as an F1 pit building, has already been completed. It is there. There is still a lot to be done, but I am confident that it will happen in 2014 and I am absolutely sure that Bernie is 100 percent behind the project, even if he is making negative noises on occasion. He has never been someone who talks a lot about deals that are in the pipeline. In my experience Bernie always talks down the races that he is keen to see happen, in order to make sure that expectations are not raised unnecessarily and to keep the pressure on the promoters to make things happen. I believe that New Jersey has the potential to do for F1 what Singapore did with its night race back in 2008.

Long Beach is more of a challenge because there are no obvious large real estate developments that need to have their value increased. But, bear in mind, investors in the race promotion, do not need to have local interest at heart. There are some parties who would like to see F1 successful in the United States who might be willing to invest in a race to ensure that the sport has three successful US venues in the near future.

I would not listen to the naysayers, even if they think Bernie has told them exclusive things.

In any case, time will tell…