The first major for-profit sports extravaganza is still some weeks away, but it?s already making news for the wrong reasons. The Indian Grand Prix (IGP) of the Formula 1 circuit (F1) is set to make its debut in the last weekend of October, but the customs officials are adding a new twist to the tale. They have demanded the import duty and refused the global precedent that F1 is usually accustomed to. The global F1 practice has been to import the necessary items and store them in a bonding facility near the track. Once the event concludes, the necessary items are disassembled, packed and sent to the next Grand Prix host city/destination. While this confusion should eventually be resolved, the treatment meted out to what could be the biggest sports tourism event in South Asia takes the focus away from the positives that one can look forward to from the IGP itself, and highlights the legal and commercial restraints that plague the sports industry in India.

The F1 for all intents and purposes is a sport, and requires drivers? skill-sets that are beyond the ability of mere mortals for the most part. It is lucrative, competitive, risky, and has a global fan-following. The nature of the circuit is such that it can expand geographically and numerically. And, while it has often been caught in the web of being labelled ?entertainment?, the fact is that it is a spectator sport, and when labelling a sport as ?entertainment?, one should pay heed to the fact that every global sport serves as entertainment for its fans.

There is no doubt that the global track record for F1 has been extremely favourable for the host cities. In 2011 there are 19 cities worldwide that host their own Grand Prix, and the formula for success, especially in Asia, has been staggering. Sports tourism forms a large chunk of the host city?s revenues and the National Capital Region (NCR) is no exception. Purely from a necessity standpoint, over five thousand hotel rooms will be required for the teams, personnel, journalists and associated individuals. Factor in another five thousand or so event-specific tourists coming into the NCR for the race week, along with the heightened activities in and around the city geared towards the IGP, and one is looking at the first true mega-event of any sort in India. The F1, more than any other sport, re-defines the business of sports map for a city or state. The reasons for this are manifold. First and foremost, the infrastructure requirements depending on the nature of the race: road or track, and the paths leading up to it, bring the necessary support especially to virgin cities from a mega-event perspective. Abu Dhabi, Kuala Lumpur, Singapore, Yeongam (South Korea), and Shanghai, to name a few, have seen their entire sports landscapes metamorphose into sports destinations globally.

Additionally, a city becoming F1 capable and F1 compliant essentially means that it has the ability to host other such events?either racing or non-racing. This has the effect of attracting other global events, and the city becomes a destination point for sports- and entertainment-savvy visitors.

The IGP is already reporting record attendance, and most categories of the tickets are already sold out. Hotels and airlines are also reporting a spike in demand during the IGP and the weeks immediately preceding and succeeding it. The IGP, if it is allowed to operate as an autonomous event, should trigger an avalanche of sports events opportunities, but the event itself is not yet out of the woods. And this, more than anything, is what the business of sports domain is plagued by. There is a reason why sport in India has not traditionally been an industry in and of itself, and the numerous storylines highlight the legal and business restraints that the industry itself is faced with.

The IGP faces increased scrutiny from an exemption standpoint when it comes to the import duty being levied on the incoming shipments. Additionally, India has limited actuarial expertise in the business of sports, especially for contracts emanating in India. So, for a corporate entity looking to create an event property such as the IGP, or to sponsor such an event, there will likely be limited opportunities for the stakeholders to protect themselves by insuring against their loss. The effect this has is to make the entire investment proposition into infrastructure and sponsorship more risky. And, with limited capabilities for assessing this risk, most sponsors or investors, as the stakes get higher, will likely decide that their appetite for risk will be limited, especially if they cannot protect themselves to the fullest extent. This especially holds true for listed companies who owe a fiduciary responsibility to their shareholders.

Another example of legal limitations is the situation involving the Indian Hockey Federation (IHF) and the International Hockey Federation (FIH). IHF, the erstwhile national sports federation for hockey (NSF) has apparently made a formal request to RBI to continue to withhold up to $500,000 that is owed to the FIH for sanctioning and hosting the Hero Honda Hockey World Cup hosted in New Delhi in 2010. Reeling from allegations surrounding potential FEMA violations and regulation breaches, the FIH has still not received the funds allocated, and this unsavoury experience could well have led to the shock announcement of the men?s Champions Trophy being moved from India to New Zealand.

India has limited opportunities to avail of the business of sport?s windfall gains. Although the matters involving the IGP or the FIH are yet to be decided, the chances are that even if they are resolved?and in all likelihood they will be?the reputation of India as a sports destination nonetheless takes a beating. By over-regulating or imposing onerous restraints by citing legal breaches or regulation violations, these opportunities are sure to dwindle sooner rather than later, especially if it is conclusively proven that the IGP and FIH were treated unfairly. Events such as the IGP or the Champions Trophy add to the allure of a city, and spark collateral events and opportunities. For the sake of an alleged but unproven infraction, it would be unfortunate if we lost these golden opportunities?ones that we cannot insure against, yet at the same time cannot risk losing. Let?s hope our ?track record? and ?chequered? past doesn?t restrain the winning ?Formula?.

The authors are attorneys at J Sagar Associates. Views are personal