Modern international sport is big business. F1 is one of the biggest. It was only a matter of time before the world?s largest democracy, with an ever-growing middle class, was brought into its ambit. And, if the early signs are anything to go by, Delhi is expected to become one of F1?s signature destinations in the coming years. Meant for the upwardly mobile consumers, Race Day is a perfect networking opportunity for the rich and the famous. Sample some of the figures, and the scale of monies involved becomes evident. It takes a staggering $6,900,000 to build an F1 car, while it is estimated that major teams spend in the range of $125-225m per year per manufacturer on engines alone. It is no surprise then that in 2008 and 2009 Honda, BMW, and Toyota were all forced to withdraw from F1 racing on account of the global economic recession.
Although teams rarely disclose budget information, it is estimated that budgets range from $66-400m per team per year. According to last published estimates in March 2007, the total spend by all 11 teams (now 12 with Sahara Force India) in 2006 was estimated at $2.9bn. This was broken down as follows: Toyota $418.5m, Ferrari $406.5m, McLaren $402m, Honda $380.5m, BMW Sauber $355m, Renault $324m, Red Bull $252m, Williams $195.5m, Midland F1/Spyker-MF1 $120m, Toro Rosso $75m, and Super Aguri $57m. No surprise then that a cartel dominates the sport. Entering a new team is often non-viable because a new team in the F1 World Championship requires a $47m up-front payment to the F?d?ration Internationale de l?Automobile (FIA), which is subsequently repaid to the team in the course of the season. This results in mergers or offloading of stake by existing teams, the most recent example being the transformation of Force India to Sahara Force India with the Sahara India Pariwar acquiring a 42.5% stake in the team for a staggering $100m. This principle also explains BAR?s purchase of Tyrrell and Midland?s purchase of Jordan, which allowed these teams to sidestep the large deposit requirement and secure benefits that the teams already had, i.e. the multimillion dollar TV revenue.
With a global TV audience of approximately 600m people (2010 figure), it is no surprise that F1 is a broadcaster?s delight. While the broadcaster makes money from its coverage of the races, the teams get a slice of the TV revenue besides also making substantial monies from the sponsors? logos on the cars and the drivers.
What has worked against the expansion of F1 racing is the staggering cost of building a new racing circuit. Such costs often go up to hundreds of millions of dollars. These circuits are then expected to generate revenue all year round from leasing the track for private and other races such as MotoGP. While the cost of building the Shanghai circuit was over $300m, the Istanbul Park circuit cost $150m to build. Our very own Buddh international circuit has cost an approximate $215m. It is to recover such high expenses that ticket prices are kept at a premium. The paddock club ticket prices in Delhi are close to R2 lakh and the other tickets were initially priced at R35,000, R12,500, R6,500 and R2,500, respectively.
In what is a worrying sign for the organisers, ticket prices have recently been scaled down drastically to ensure that the 1,20,000 capacity circuit is full on Race Day, October 30. The R35,000 ticket is now available for R15,000 while the R6,500 rupee ticket is now being sold at R3,500.
Despite such apprehensions, F1 racing is expected to become more commercially viable in the future, with drivers making it as some of the biggest sporting celebrities in the world. They make huge amounts of money, natural, given the risks involved in driving cars at speeds close to 220mph. While Sebastian Vettel and Mark Webber make 3.5m euros from their retainerships alone, Lewis Hamilton makes even more?having stitched his deal at the height of the economic boom. Michael Schumacher, at the height of his powers with Ferrari, is estimated to have earned 25 million euros from retainership per year, a figure that now veers around 10 million euros.
Finally, the staging of an F1 race entails flying in 250 747 jet aircraft loads of cargo, plus creating over 70,000 direct and indirect jobs in the host city. With a high volume of tourism normal around race time, the staging city or country can justly expect to make substantial monies from a steep rise in international visitors. For the inaugural race, more than 50% of attendance in Delhi is estimated to be non-local, a figure that will only grow in the coming years?making Delhi a popular tourist hub during the event.
The best example of F1 riches is the cult status of its president and CEO, Bernie Ecclestone. When he was mugged in London in November 2010 and was left with a large black eye, the watchmaker Hublot ran an ad campaign with the following tagline: ?See what people will do for a Hublot.?
F1 is proof that you can make money even when the president or CEO is mugged and left unconscious!
The writer is a sports historian