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Is the Grand Prix really worth $60 million?

A new study claims the net cost of staging the Australian Grand Prix last year, even after taking account of wider economic benefits, was a whopping $60 million

Estimated costs and benefits of staging the Australian Grand Prix. Compares the analysis of the 2005 GP done by the Victorian Auditor General with estimates for 2011 and 2012 GPs prepared for Friends of Albert Park by consulting firm, Economists at Large (Source: Blowout! A cost benefit analysis of the AGP)

I’m suspicious of the bona fides of advocacy groups because they’re inherently political organisations. They usually behave, not surprisingly, very much like politicians.

So I approached the benefit-cost analysis released this week by the Friends of Albert Park in time for this weekend’s race with low expectations.

The organisation commissioned the interestingly named consulting firm, Economists at Large (EAL), to assess the event. EAL’s report, cleverly titled Blowout!, makes very interesting reading (you can get the full report here).

We’ve long-known the race held annually in Albert Park, Melbourne, demands a huge subsidy – $26.6 million in 2005, rising to $52.1 million in 2011 and $61.1 million in 2012. That’s real money from the State budget that’s no longer available for other purposes like funding schools.

Successive State governments claim the subsidy is worth it because it provides wider economic benefits, principally from expenditure by out-of-State visitors attending the race and downstream tourism attracted by the international exposure.

We’ve long known that claim is doubtful, too. A study undertaken by no less an authority than the Victorian Auditor General’s Office (VAGO) estimated the 2005 event lost $6.7 million even after accounting for wider economic benefits.

The claim made by EAL, however, is staggering. The firm says the real cost to the State of the event in 2012 – again after taking account of all financial and economic costs/benefits – was a massive $60.1 million.

That’s virtually the same as the cash loss ($61.1 million), indicating the wider economic benefits are all but cancelled out by the wider economic costs.

The figures EAL relies on to estimate the financial cost and revenue figures are straightforward because they’re taken from the Grand Prix Corporation’s annual reports.

However the way externalities are estimated is less straightforward. There’s considerable room for disagreement and reasonable assumptions have to be made.

This is where EAL have produced an impressive piece of work. The report has some sensible things to say, with implications for how we analyse the real costs of all events.

Confusing claims are often made about the economic effects of the grand prix using methods other than cost benefit analysis.  In particular, these claims relate to gross state product, visitor spending and media exposure.

Gross State Product (GSP)

GSP is a measure of economic activity rather than welfare.  It measures how much activity we undertake, rather than how much better off that activity makes us.  The grand prix may increase the overall amount of activity in Victoria, but its large costs mean it makes us worse off.

Visitor spending

The grand prix attracts visitors to Melbourne who spend money here in local businesses.  When visitors spend money however, they expect goods and services in return.  These goods and services use our resources and cost money to provide.  The benefit to Victoria is not the amount visitors spend, but the difference between what visitors pay and what it costs to provide those goods and services.  This benefit is included in our analysis as “Net benefits of increased visitation”.

Media exposure

Grand prix supporters often claim the main benefit of the race is the exposure the event brings to Victoria.  While measures of the degree of exposure through the media exist, this exposure only brings economic benefit if it attracts tourism and investment that would not otherwise occur.  There is little evidence to suggest a material increase in tourism or investment actually occurs.

The authors note the Auditor General was also sceptical about the value of media exposure. They also quote from a 2007 study by Giesecke and Madden on the Sydney Olympic Games:

For the three years immediately after the games, foreign willingness to pay for NSW tourism grew by an average 2.2 percentage points less than for Australia as a whole. Only by 2005/06 did the rate of growth in demand for NSW tourism match the Australian average. These results lend no support to the existence of an induced tourism effect.

EAL’s estimate of the net benefit from international and interstate visitors attending the 2012 event is $2.9 million and the value of media exposure is $0.26 million. Combined with $1.9 million for consumer surplus, the total of wider economic benefits to Victorians was only $5 million.

On the other hand, they value the loss of access to Albert Park for the eight week period during set-up and take-down at $2.7 million (using the same method as the Auditor General). Taken together with other negative externalities like noise and traffic congestion, they estimate the total economic cost of the 2012 race was $4.0 million.

Thus they conclude the $61.1 million cost to the State budget in 2012 was offset by net wider economic benefits of just $1.0 million.

Some Victorians doubtless get psychic value from their capital city being part of the international Grand Prix calendar (it’s one of 19 cities), but it comes at an extraordinary cost.

If EAL have done their sums right, there appears to be no rational case for funding the Grand Prix beyond the end of the current contract (which expires in 2015). To do so would be plain stupid.

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  • 1
    Peter Logan
    Posted March 14, 2013 at 9:15 am | Permalink

    Alan, Here are the facts on the grand prix: independent sources, with references
    Save Albert Park Inc Fact Sheet 2013

    Is the grand prix breaking the law? You be the judge

    Under Australian law it is illegal for a corporation to make misleading and deceptive claims, except, it appears, when the Victorian Government and the Australian Grand Prix Corporation believe their claims do not have to respect the rule of law.

    All the major claims about the grand prix have been discredited:

    The Victorian Auditor-General found the economic and tourism benefits do not exist.

    The Victorian Auditor-General’s peer reviewed cost-benefit analysis found the GP is a net loser for Victoria and determined there is no evidence of extra tourists coming to Melbourne because a grand prix is held here. An update to this study calculated the economic loss to Victoria now exceeds $60 million annually.

    Global TV audience figures are grossly exaggerated. Only 16 million watch the Australian grand prix

    Independent ratings agencies and The Economist indicate the global live audience for our race is only 16 million viewers. Warning: GP Chairman Ron Walker claims 350 million, 500 million and 600 million viewers. Occasionally he’ll even say the annual F1 telecast totals 54 billion[1]. All events are compared by their live viewing audience. The GP corporation has never acknowledged the real global audience is only around 16m.

    The GP corp claims hotel occupancy around three times the number of rooms in greater Melbourne

    The Herald Sun reported the GP chairman in March 2012: “…30,000 international visitors and an even greater number of interstate visitors will flock to the city for the Grand Prix, filling nearly 70,000 hotel rooms.” There are only 27,454 hotel rooms across greater Melbourne, occupied 76% plus for the entire December 2011 and March 2012 quarters but many rooms were empty on the 2012 grand prix weekend.

    The marketplace values the ‘branding value’ at only $100,000. The GP claims it is $217 million!

    The Herald Sun’s Terry McCrann reported the previous time the GP struggled to find a naming rights sponsor Qantas valued it at just $100,000 and came in as a sponsor of last resort. Apparently nobody wanted the 2013 global exposure, so Bernie Ecclestone had to lend his sponsor, Rolex. GP chairman Ron Walker claimed the global exposure is worth $217 million. This year the GP advertises “The Power to Amaze”. Indeed.

    The attendances are grossly exaggerated to give an impression of ‘popularity’ and to feed inflated figures into the economic reports.

    The audited ticket sales reveal fewer than 60,000 tickets were sold in 2011 and 2012. The venue holds 70,000 spectators at best but the GP claims it is “the largest single-day sporting event in Australia”. The deputy CEO of the GP admitted under oath at VCAT in 2007 “There was no way we could determine exactly how many people were actually in the venue.” He also admitted he can’t reveal the truth because it would hurt the corporation.

    The GP corporation promised “to make a cash surplus every year” but instead has consumed in excess of $446m of taxpayers’ money on losses and capital costs and many millions more in hidden state subsidies.

    Economic evidence

    · The Victorian Auditor-General’s peer reviewed cost-benefit analysis[2] found the GP is a net loser for Victoria and his office found there is no evidence of extra tourists coming to Melbourne because a grand prix is held here.

    · The Victorian Auditor-General (A-G) recommended an annual, follow up cost-benefit analysis (CBA) be done. The A-G said an economic impact study “cannot address the issue of whether a project is worth proceeding with; hence the need for a CBA approach.”

    · In 2011, the Victorian Government deliberately misled the Victorian public by commissioning an ‘economic impact’ study (from Ernst & Young), rather than the A-G’s recommended cost-benefit analysis. They know economic ‘impacts’ are not economic ‘benefits’. Natural disasters – and the GP – generate an ‘impact’ but these disasters – like the GP – cause a net loss to the state in both economic and financial terms.

    · A 2013 update of the Auditor-General’s cost-benefit analysis has been undertaken by the independent Economists at Large Pty Ltd[3]. They found the 2011 GP caused a net economic loss to Victoria of $51.7 million and the 2012 event was worse, with a $60.5 million loss.

    · The government’s most recent ‘economic impact’ study (the non – recommended model) has failed an independent peer review.[4] The report assumed Victorians would be three times more likely to travel to an interstate grand prix than those in the rest of Australia currently travel to Victoria. On top of this, a patronage figure that grossly exceeds the AGPC’s audited ticket sales figures was used as the key multiplier.

    · Tourism Victoria and the government claimed their recent impact study showed an “economic benefit”, which is deliberately misleading. The consultants themselves (Ernst & Young) were very clear about what they were paid to do, or not do, as follows: “[T]he scope of the Assessment is limited to an economic impact analysis, and as such, it is difficult to make judgements as to whether the event leaves Victoria “better (or worse) off” from a welfare perspective. … To understand whether the Grand Prix delivers net welfare improvements to Victoria, a full cost benefit analysis would need to be prepared…. A cost benefit analysis is outside the scope of the Assessment. (p55)”

    · Despite the Auditor-General’s findings of no extra tourists, the government has claimed ‘branding’ or ‘intangible’ benefits to Victoria but struggles to find independent evidence. Bizarrely, the industry publication, Formula Money, in its “Return on Investment” review[5], said the worldwide branding exposure of ‘MELBOURNE’ at the 2011 F1GP was valued at only $262,552. Now it apparently says it is worth $217m, in a report that the GP corporation and the government refuse to release. Who do you trust, the Auditor-General or a consultant trying to boost the F1 industry?[6]

    · For more than a decade, the corporate world has been reluctant to sponsor the grand prix. The lack of a naming rights sponsor once again in 2013 indicated the real global exposure or ‘branding’ of the grand prix is well south of $1m. The Herald Sun’s business writer, Terry McCrann told us the last time this so called massive global exposure was on sale Qantas “paid just $100,000 for naming rights[7].” This demonstrates the absurd claims of the government and its consultant are not believed in the marketplace.

    Tourism and business claims

    · On GP weekend there are plenty of spare hotel rooms on the booking site wotif.com, indicating the long claimed tourism bonanza is false. The GP suffers from the well known ‘go away/stay away effect’, where tourists stay away and locals go away because of the noise and disruption. The Victorian Auditor-General’s finding of no extra tourists has settled this argument.

    · The grand prix chairman’s claims on so called tourism benefits were reported in the Herald Sun in March 2012 as follows, “…30,000 international visitors and an even greater number of interstate visitors will flock to the city for the Grand Prix, filling nearly 70,000 hotel rooms[8].” This contradicts Tourism Victoria and the ABS[9] as they report a total 27,454 hotel rooms across greater Melbourne. Room occupancy rates were above 76% for the entire December 2011 and March 2012 quarters yet many rooms were empty on grand prix weekend.

    · Surveys in 1996, 1998, 2000 and 2005 by the government consultants[10] and by community volunteers showed that more local businesses either suffered a decrease in trade or experienced no change during the grand prix period than those that had extra business. After the first GP, the Herald Sun headline read “Grand Prix shop horror.”

    Attendance claims

    · In 2011 and 2012 adjudications by the Press Council of specific reports in The Age and the Herald Sun showed that GP attendance and other claims of the grand prix corporation are “strongly contested in detailed analyses from other sources” and the GP’s figures are of “doubtful accuracy.”

    · The Melbourne F1GP is the only major event that has not used a bar-code, turnstile or similar direct system to accurately record attendances. Attendance numbers for the GP were quoted as fact until the Victorian Ombudsman investigated and found attendance figures are estimated.

    · The grossly inflated attendance figures were ‘outed’ by respected sporting journalists Greg Baum of The Age[11] and Patrick Smith of The Australian[12]. If all areas are full, the maximum spectator number cannot exceed 70,000, yet the AGPC has incorrectly claimed this is “the largest single-day sporting event in Australia”.

    · With only 25,744 grandstand and 7,510 corporate seats, the maximum possible attendance cannot exceed 70,000 as the only other spectator areas are the five grassy mounds, together carrying 12,500 at most and the outfield, in between the infrastructure. The outfield needs to be packed four deep or more to achieve another 16,000 spectators, giving a not so grand total of 61,754. The grand prix telecast confirms those spectators along the fence are mostly spread at fewer than four deep. SAP allows a figure of 70,000 as some may come and go during the day and maybe others are just “chugging beer in the bowels of the circuit”, as Crikey.com so colourfully described it.

    · The GP corporation’s attendance and underlying patronage figures grossly exceed the audited income in their accounts. The evidence is the plummeting ticket sales revenue and sponsorship dollars. The AGPC’s 2011 audited accounts had a sales figure that, when divided by the number of grandstand and corporate seats and prices and the remainder general admission, reveals fewer than 60,000 ticket buying patrons, yet the AGPC claimed 111,000 (of those 60,000!) attended on race day and 298,000 over the four days – totally impossible, given the evidence. The event telecast also supports this. It was a similar story in 2012.

    · Up until 2011 the GP corporation claimed 80,000 corporates attendances but only had 9,220 seats in 2009, dropping to 7,700 in 2011. Many of the boxes are empty for the first two days of the grand prix, showing this to be another claim that fails the test of on the ground evidence. Audited ticket sales data and evidence in the economic reports indicate the corporate claim was out by almost 400%. This is an even greater exaggeration than the GP corporation’s attendance figures!

    · In 2007, the GP corp said it cannot use temporary turnstiles because they are cost prohibitive. In 2012 we asked for proof – its answer to the FOI was “no such documents exist.” We asked other major events. They use temporary turnstiles or barcode counters because, “They reduce the occurrence of fraud and are available at very little cost.” The only conclusion is the government is fraudulently avoiding scrutiny while spending hundreds of millions of taxpayer dollars on the grand prix.

    · In the Victorian Parliament (February 2013), the Liberal/National Party government voted to refuse a proper count of attendees at the 2013 grand prix, in denial of their election promise: “There will be no hidden agendas. There will be no spin. There will be no secrecy. Accountability and transparency will be the principles that underpin our government.”

    · The Grands Prix Act 1994 overrules many good and valid laws, ensuring secrecy and lack of accountability as the hallmarks of this publicly funded event in a public park.

    Financial losses

    · The real total of taxpayer funds committed to the grand prix is estimated at $864 million[13], when all government subsidies are included – that is, subsidies such as park rental from Parks Victoria, the interest incurred by State Treasury for the cash going into the GP, TAC and VicRoads sponsorship, City of Melbourne, etc and free tickets given away. The GP and the government choose to hide the subsidies.

    · In hindsight, the biggest lies of all occurred in promises made to Victorians in order to establish the race in Albert Park: “Victorian taxpayers would not be asked to meet the cost of the event, with the State Government only prepared to act as guarantor for loans required to establish the race.” A quote from The Hon Jeff Kennett, Premier of Victoria, Herald Sun, 18 December 1993. By 2012, just the operating losses and circuit costs exceed $446 million and are rising rapidly. Mr Kennett also said the park would be disrupted for a week but the infrastructure, trucks, forklifts and disruption are there for up to four months every year.

    · In the grand prix corporation’s 1996 annual report it committed “to make a cash surplus each financial year” but, as the previous paragraph shows, it has overshot that by $446 million, and that’s after all the government subsidies have been provided. With ever increasing losses, this dishonest corporation and its claims have never been investigated by the government. Why not?

    Why the lies?

    FOIs asking for claims to be substantiated have been denied because disclosure would be “contrary to public interest” and “be likely to expose the Corporation to disadvantage”. The secret and unaccountable GP corporation appears to make many misleading and deceptive claims, as noted in this fact sheet. The GP and its corporate supporters therefore appear to be in contravention of Federal trade practices law, specifically the Australian Competition and Consumer Act 2010, s.18. We have a legal opinion that confirms this.

    More than 26 million people fly into or out of Melbourne Airport every year. That’s about 505,000 a week[14]. Melbourne’s hotels enjoy a year round occupancy rate of greater than 70%, so do we really need to spend $60m a year to attract a few thousand grand prix fans while other tourists go away or stay away because a grand prix is in town?

    Why lie about Melbourne’s branding when our reputation as the most liveable city is well known and is underpinned by our magnificent parks and gardens. Can you imagine Albert Park without a car race and instead landscaped, loved and maintained in the same way as Central Park New York?

    Contact Save Albert Park: Peter Logan 0412697074 or Peter Goad (President) 96997932

    ——————————————————————————–

    [1] 2002 Annual Report of the Australian Grand Prix Corporation

    [2] Victorian Auditor-General’s Office: State Investment in Major Events, May 2007

    [3] http://www.ecolarge.com/. This report was commissioned by Save Albert Park Inc.

    [4] http://www.ecolarge.com/2011/11/review-grand-prix-economic-assessment/

    [5] http://www.formulamoney.com

    [6] http://www.crikey.com.au/2012/09/26/report-whacking-your-how-to-guide-on-demolishing-rubbish-reports/

    [7] Herald Sun, 24 January 2013. “Bernie got half a billion but all good things must end” Terry McCrann

    [8] Herald Sun 21 March, 2012: BUSINESSDAILY takes a closer look at the sectors crying out for Ted Baillieu’s attention.

    [9] http://www.tourism.vic.gov.au/facts-and-figures/facts-and-figures/tourist-accommodation/

    [10] Economic Impact study by the National Institute of Economic and Industry Research (NIEIR), 2005.

    [11] “Plucking figures from thin, choking air.” Greg Baum, The Age, 15 March 2008

    [12] “April fools as rev heads get caught in slow lane.” The Australian, April 01, 2006

    [13] http://www.save-albert-park.org.au/ Australian Formula 1 Grand Prix at Albert Park: the real cost to the taxpayers of Victoria.

    [14] http://www.melbourneairport.com.au/About-Melbourne-Airport/Corporate-Information/Facts-Figures/Performance-Statistics.html

  • 2
    Posted March 14, 2013 at 9:58 am | Permalink

    I wouldn’t have a problem with a small amount of subsidisation in terms of providing a venue, traffic redirection, etra policing etc. etc., as is the case with many large public events. Anything over and beyond that hardly seems justified. The advocacy groups might do better to make more of a point of what that $60M might have been spend on instead. But it’s this sort of thing that’s finally convinced me it really is silly to pay any more tax than I absolutely have to (despite being philosophically inclined to feel I probably should pay more given my income).

  • 3
    hk
    Posted March 14, 2013 at 1:39 pm | Permalink

    The statement “The fee to stage last year’s race was $US32.5 million – more than half the $56.7 million taxpayers paid to subsidize the event once other expenses such as building and dismantling the circuit were included. This year’s fee would be $US34 million”. was retrieved March 14, 2013 from http://news.ninemsn.com.au/national/2013/01/23/06/12/melbourne-f1-gp-costs-more-than-30m-report.
    Many taxpayers in Victoria would wonder whether the negative health and social impact by the GP, from noticeable noise level increases and reduction of health supporting recreational areas warrants such a substantial government subsidy for a four day event.

  • 4
    Alan Davies
    Posted March 14, 2013 at 5:22 pm | Permalink

    A lot of pushback on Reddit (85 comments). Amost all commenters disagree with the sentiments in the article.

    Those Reddit commenters who are doubtful about a mere $250,000 value for “media exposure” should note that the evaluation prepared by the Victorian Auditor General on the 2005 race gave this supposed benefit zero value. The problem is the supposed induced benefits like tourism aren’t happening, i.e. it’s “advertising” that isn’t increasing sales!

  • 5
    Burke John
    Posted March 14, 2013 at 5:52 pm | Permalink

    60 mill on a grand prix, heritage list a car park, throw a few billion into a Parramatta freeway…the money doesn’t matter, its Cars after-all.

  • 6
    Caroline Reid
    Posted March 15, 2013 at 6:22 am | Permalink

    Peter Logan (Comment #1), you seem to have confused some of our figures.

    The first figure you quote, US$262,552, refers to the advertising value equivalent of exposure achieved by ‘MELBOURNE’ branded trackside advertising hoardings during global TV broadcasts of the 2011 Australian Grand Prix itself.

    This is only a small part of the second figure. The A$217m refers to the total value of exposure for the city of Melbourne itself arising from the 2012 Australian Grand Prix. This includes not only exposure generated by trackside hoardings during the race, but also the far more significant exposure arising from mentions of Melbourne itself in race broadcasts, qualifying and practice sessions, news bulletins, magazine programmes, print publications and online media. All our releases about the data made it clear that trackside advertising exposure is only a small part of this.

    Neither of these two figures have anything to do with the cost of a race title sponsorship. According to our research, brands typically pay around US$6m to title sponsor F1 races with the exposure generated often reaching a value of more than US$20m from race broadcasts alone. This exposure is to a wide variety of people around the world. Some companies prefer to target advertising to specific countries and specific types of people, which is why F1 title sponsorships – or any other sports partnership – is not always an easy sell even if it’s guaranteed to be seen by millions of people around the world.

    I can assure you that all our research is independent and is not designed to ‘boost’ Formula One.

    Caroline Reid
    Publisher
    Formula Money

  • 7
    Peter Logan
    Posted March 15, 2013 at 12:02 pm | Permalink

    Truly amazing numbers Caroline! You are expecting us to believe we are not richer by $262,552 but $217,000,000. The only response is what anyone in business would say: show me the money. Where is the evidence – bank accounts, businesses, surveys of tourists arriving asking what motivated them to travel.

    The Victorian Auditor-General found no evidence. His office is independent of Parliament. The Westminster system and separation of powers help to keep us well informed in Australia.

    We can thank you in the UK for system of government but our government won’t even show us your report – like much of the GP, it is a state secret, apparently. As a former polician, I received good advice: never trust anyone who won’t reveal their name or their claims.
    Peter Logan
    Save Albert Park Inc

  • 8
    Robert Merkel
    Posted March 15, 2013 at 12:43 pm | Permalink

    The problem with events like F1 is that developing country governments have bid up the rights to host them for reasons that defy conventional economic analysis.

    Let them have their vanity events.

  • 9
    Smith John
    Posted March 15, 2013 at 1:30 pm | Permalink

    It’s worth emphasising that the admittedly debatable values of the external costs and benefits are all quite small compared with the operating loss.

    In other words, commercially it’s a dog, and the most optimistic colouring of the external benefits doesn’t significantly change that (the linked report has some best-middle-worst case estimates).

    Some of the commenters on Reddit not unreasonably said, ‘the government supports your art galleries – why not our car race?’

    Indeed. So I had a look. The Victorian government annual operating subsidy to the National Gallery of Victoria is about $40 million. Looks pretty good value for a place that offers entertainment 310 days a year, not four. Has anyone done a study of the interstate tourism effects of the NGV?

  • 10
    John_Proctor
    Posted March 15, 2013 at 1:33 pm | Permalink

    I’m no expert in any of this space so won’t be backing my case up with ‘facts’ like the poster from Save Albert Park but…

    the $250,000 for media exposure to me sounds particularly ridiculous.

    I would make a simple comparison to how much money is spent by Tourism Australia on ‘where the bloody hell are you’ (or whatever it is this year) and Tourism Victoria with the jigsaw pieces adds (amongst other such campaigns each year).

    The GP is an adjunct to the jigsaw add with the fee being the $60 million government subsidy… would cost millions of dollars, we get a 30 second add in the add break of every news bulletin across the F1 world (including Australia) and not just on race day but qualifying, pre race hype (particularly given its the first race of the year)

    That 30 second news clip (times 3-4 nights) is as good an add for Melborune as anything produced by a marketing company because it almost always includes the token helicopter shot of a sun drenched CBD/ Port Phillip Bay/Parklands scene that shows off the city.

    When I have travelled overseas you say ‘Australian’ and most people say ‘Sydney?’ Sydney doesn’t need a Grand Prix for international marketing purposes and wouldn’t get any value out of it… Melbourne on the other hand has built up its international brand awareness (at least through the conversations I had overseas) through the Australian Open and Grand Prix (with the occasional ‘I have a cousin there’ when in Italy, Greece, Serbia, Croatia, Turkey!).

    The GP (and Open in particular) have allowed Melbourne to enter peoples awareness as a place to visit. Without them we wouldn’t even enter the consciousness of visitors as most people still think ‘reef, outback, harbour’.

  • 11
    Caroline Reid
    Posted March 15, 2013 at 2:19 pm | Permalink

    Peter, no one is literally richer, whether by $262,552 or $217,000,000. The data refers to what it would have cost to achieve that level of exposure through advertising around the world.

    As is widely understood in business, the value of any form of advertising is intangible and investing in an F1 race is advertising for Melbourne. Look at any billboards around Melbourne, or any other city, advertising any product and it’s impossible to attribute any income directly to the advertising. It doesn’t mean they’re bad value and it doesn’t stop companies advertising.

  • 12
    Alan Davies
    Posted March 15, 2013 at 2:52 pm | Permalink

    John Proctor #10:

    $0.25 million is the mid-point of the “most likely” estimate for media exposure. The “worst case” estimate is $0 and the “best case” estimate is $6 million (the overall “worst case” scenario for 2012 is a loss of $67 million and overall “best case” scenario is a loss of $49 million).

    I think the key point the report is making is that whatever the equivalent value is in terms of media exposure of the brand, it’s not manifesting in real benefits like induced tourism i.e. it’s not generating sales. Firms don’t persist with marketing campaigns that don’t work.

    That might be because it’s not targetted. If you spent $60 million each year on ads (say) you could target different messages to different audiences. You could sell a different aspiration to different markets.

    I wonder how efficient it is to try and sell a concept as amorphous as “Melbourne” with essentially just cityscapes. There’s not much special there given there are 18 other cities doing much the same thing.

    Consider that even the best case estimate for media exposure is nevertheless still swamped by the financial losses.

  • 13
    Roderick Campbell
    Posted March 15, 2013 at 3:02 pm | Permalink

    Hi Caroline,

    Thanks for commenting. I’ve read some of your reports and certainly admire your efforts to quantify something that is difficult to value.

    I don’t agree that advertising value is entirely intangible. I’m sure many/most/all businesses with substantial advertising budgets closely monitor the performance of sales in response to changes in advertising, to estimate the tangible value they’re receiving. I understand this is different from what you measure.

    As an economist, I suppose the standard assumption would be that a business should invest in advertising until its marginal cost was equal to the marginal increase in net revenue attributed to the advertising, and some amount for the more intangible value of recognition. That was why I included figures from yours and Comperio’s reports in my analysis, even though there is little evidence to suggest any such benefits exist for Victoria in an economic sense. Do you think this is a reasonable approach?

    Can you comment on why Comperio’s values are different to yours?

    Rod Campbell
    (report author)
    Economists at Large
    http://www.ecolarge.com

  • 14
    Burke John
    Posted March 15, 2013 at 4:58 pm | Permalink

    I can say that of the many foreign uni students who stayed with me i Canberra an increasing percentage visited Melbourne untill eventually the vast majority.

    They were interested in live music, street art and perhaps the “hipness” of Melbourne. None of course watched TV or read magazines. Only one ever mentioned the GP, postponing a trip to Melbourne to avoid it.

    Perhaps “exposure” is not necessarily positive but can damage an image and lead to economic harm.

  • 15
    andrew
    Posted March 20, 2013 at 1:24 pm | Permalink

    I’m pro GP and wonder what the comparative costs of the Melbourne cup are. That race only exists to support gambling. We don’t get a public holiday for the GP.

  • 16
    Alan Davies
    Posted March 20, 2013 at 2:26 pm | Permalink

    andrew #15:

    Ha! The Melbourne Cup is an interesting case. It’s more like Monaco – it’s a unique event, it’s got a long history, and it’s come to be a part of what makes Melbourne “Melbourne”. There’s no annual set-up cost and no licence fee, although I wouldn’t be surprised if it’s had its share of government support over the years.

    Would Victorians happily pay $60 million per annum to support continuation of the Cup if they had to? I’d say there’d be a resounding yes to that. Would the social costs of gambling reduce if the Cup was discontinued? Definitely not, plenty of other opportunities to gamble, just ask Tom Waterhouse.

  • 17
    Alan Davies
    Posted August 28, 2013 at 1:42 pm | Permalink

    Vic Govt says net cost of staging the 2013 Grand Prix was $50.7 million.

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