F1's biggest winners
A total of 15 of F1's 19 races are funded with government money. Last year governments invested an estimated $410.5m in the races and got a return of around 465% from the 1.5m spectators spending in the local area during the Grand Prix weekends. The governments also get promotion on a scale which isn't possible with any other annual sport as they use the races to advertise their countries to F1's 527m viewers and thereby drive tourism. The return governments get from F1 is almost unparalleled in the world of sport but so is their input.
Unlike most other major sports, F1 race promoters don't generally get to keep any of the revenue from trackside advertising or corporate hospitality which is sold during the Grand Prix. Neither do they get a share of the revenue from broadcasting the event. Money from these sources all flows to the sport's rights-holder the F1 Group.
The race promoters' sole source of income from a Grand Prix is ticket sales and this usually barely covers the hosting fee paid to the F1 Group. Most promoters would then be pushed into loss by the costs of running the race itself and obviously no one would be prepared to do it on this basis. This is where the governments step in.
The importance of government funding is highlighted in new research by F1's industry monitor Formula Money. Its data breaks down the income from and costs of hosting F1 races on permanent and street circuits. It is based on figures released by the race promoters as well as discussions with their managers.
Unsurprisingly, ticket sales bring in the lion's share of the revenue. On average, they comprise $22m of the $27m revenue for permanent circuits and $29.5m of the $32.5m brought in by races on city streets. With hugely popular races such as Singapore and Australia amongst them, street circuits get higher average attendance than races at permanent venues where Grands Prix in destinations such as Turkey and China have become famous for their empty grandstands. The higher attendance increases the street circuits' take from ticket sales but they lose out in other areas.
Many permanent circuits sell camping spaces with each slot going for around $65. Assuming 30,000 are sold per race, this brings in $2m. The remaining revenue sources are roughly equivalent for both street and permanent venues. They aren't all what you might expect though.
Venues get around 25% commission on food and drink sold at onsite stands. This brings in around $1m whilst selling premium parking slots makes around half that. Likewise, merchandise spaces go for as much as $25,000 with several sold at each race.
Even helicopter landing spots count towards circuits' revenues.
Less expected is that helicopter take-off and landing slots can bring in $1.5m. It is down to the huge number of high net worth personalities involved with and interested in F1. Indeed, the world record for the busiest airport on one day is Silverstone's heliport during the 1999 British Grand Prix when there were 4,200 aircraft movements. It now averages at around 1,500 per race with each slot charged at approximately $1,000.
Race costs differ widely between permanent circuits and street races with the latter being much more costly to organise. The biggest single cost is the fee paid to the F1 Group and this stands at around $30m for both street and permanent circuits. However, street circuits then have to pay approximately $8m to rent portable pit buildings, another $8m to buy safety fencing and barriers and $14m on renting grandstands. The high cost of renting seating areas for spectators has led promoters to look for innovative solutions such as racing through permanent sports stadiums as is being planned by the organisers of a South African Grand Prix in Cape Town.
The costs of renting grandstands, pits and fencing comes to a total of around $30m and accounts for the big difference in costs between street circuits and permanent venues. The other key costs are staff, marketing and vehicle hire which come to over $10m for both types of race. This gives permanent venues total annual costs estimated at $48m whereas street races have to pay around $87.5m. It leaves the permanent venues with an annual deficit of $21m with street races losing $55m. Singapore's government for example, is believed to be investing $60m in the race every year. Governments generally pick up these bills and there is good reason why they are prepared to pay more for street races.
With local landmarks in the background, viewers' attention is focussed on the destination just as much as it is on the race. It also allows loyal fans to return to the track months after the race has finished and stay at the site of famous on-track tussles. From an organisers' perspective, although the running costs are high, it takes less time to arrange since few permanent facilities need to be built. This gives their hosts quick access to the attractions of F1 and means that they have no fears of being left with a white elephant if they decide to quit when their contracts expire. In contrast, permanent circuits cost around $250m to build and are tough to re-purpose if required.
It is hard to say which governments make their money back over the race weekend alone. The reason for this is that each country has different rates of tax and it is through this that the governments make their returns. Tax in Hungary, where the last race before the summer break took place, is 25% and the economic impact of the race is estimated at a conservative $65m. This gives the government more than enough of a return to cover its $14.8m investment in the race. In contrast, Spain levies only 16% tax so the European Grand Prix would need to have an economic impact of $157.5m to cover the Valencia regional government's estimated $25.2m annual investment. However, it's economic impact is only believed to come to $75m so it would appear that the government makes a loss. But this is far from the end of the story.
The $75m economic impact last year was generated by the 83,443 spectators who visited the race. However, if just 0.2% of F1's 527m TV viewers last year alone decide to visit Valencia at some stage over the next decade as a result of watching the race then it would account for 105,400 visitors every year which would more than double the return on investment. It is tough to measure this effect, just as it is with any kind of advertising, but it is far from being unrealistic. There are few other types of promotion which could match that claim.