Mar 21, 2017

Is this week’s Grand Prix worth the cost?

Victorian taxpayers will spend around $60 million subsidising this year's Grand Prix and a further $360 million to the end of the current contract. Time to share the cost

Alan Davies — Editor of The Urbanist

Alan Davies

Editor of The Urbanist

Annual subsidy from state budget for Australian Formula One Grand Prix (source data: AGPC annual report)

Thanks to Victorian taxpayers kicking in as much as South Australia’s entire annual tourism budget, Melburnians will once again get to host this years four-day Formula One Rolex Australian Grand Prix, starting on Thursday.

As the 2016 annual report of the Grand Prix Corporation reminds Victorians, they’re being asked to fund the Grand Prix because of the ostensible “economic benefits” it provides to the state:

Our mission is to provide Melbourne and Victoria with world-class international motorsport events that deliver increased promotional and economic benefits to the State of Victoria.

According to Premier Daniel Andrews, those economic benefits are worth about $40 million but, he adds, there’s also invaluable international exposure during the race broadcast.

Pull the other one! We know a couple of things about the Premier’s claim:

  • It cost $95.9 million to run last year’s event but revenue was only $34.9 million. The state government poured in $61.0 million to make ends meet.
  • When properly calculated, the economic benefits – including from media exposure during the race broadcast – only come to around $5 million. Once economic costs like disruption to Albert Park and noise are subtracted, the net economic benefit comes to a paltry $1 million (see Is the Grand Prix really worth $60 million?).

There’ll always be arguments around the calculation of economic benefits, but even on the most liberal estimation, they’re nowhere near the level claimed by Daniel Andrews, much less the $61 million subsidy paid from the state budget.

The subsidy is real money that isn’t available for other uses e.g. running schools and public transport. The state is locked into running the Grand Prix for a further six years, so it’s inevitable it’ll spend in the order of $360 million over 2018 – 2023 on subsidising the race.

The Chair of the Grand Prix Corporation, John Harnden, cites the standard economic claims in his report to shareholders, but gets closer to the true rationale when he goes on to say the benefits also include:

Strengthening Melbourne’s and Victoria’s liveability and civic pride, celebrating sporting achievement at the highest level, and providing aspiration and inspiration for Australian men, women and children.

Economic benefits have almost nothing to do with why successive governments have continued to fund the grand prix. They do it because it’s popular with voters, especially in recent years with Australian drivers Mark Webber and Daniel Ricciardo genuine contenders for race wins.

In part, it’s a gift from Victorian taxpayers to Australian Formula One fans so they can attend a home race; no different in principle, apart from the sheer scale of funding, to numerous government subsidies for other sectional interests e.g. the arts. It’s also in part expenditure on civic pride; as with the Olympic Games, we’re happy for governments to throw a lot of public money at projects we think enhance our national image.

But the $233 million subsidy provided by a single state government for the grand prix over the last four years looks profligate compared to the $340 million the Australian Sports Commission spent under its Winning Edge program on the 2016 Rio Olympics.

It’s difficult to argue against a subsidy for the Grand Prix but not other events that similarly can’t demonstrate significant economic benefits. What should be questioned though is selling the subsidy off the back of (illusory) economic benefits derived from suspect methodologies. However it’s defined, the value derived from spending so much on a single event – remembering this week’s race is one of twenty held in other world cities every year – also warrants review.

I think there’s a good argument that most of the “pride” benefit from the Australian Grand Prix accrues at the national level, not the state or city level. The federal government should be kicking in a substantial share of the subsidy; it shouldn’t all be carried by a single state government.

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5 thoughts on “Is this week’s Grand Prix worth the cost?

  1. Saugoof

    Just ask all those who crow about “the exposure given to Melbourne” where any of the other 20 races take place and see how many they can actually name. My brother in law who is an F1 fanatic but has never actually been to Australia, hadn’t even realised that I live in the same town as the Grand Prix takes place. Like most people who give a toss, he’s interested in the race, not where it takes place.

    My office is right next to the Grand Prix. Right now when I look out of the window I can actually see race cars going around the lake. While that’s still very noisy, it has to be said though that the noise levels from those cars is much lower than it used to be in previous years.

    I am not hugely interested in F1, but I don’t hate it either. I watch it occasionally on TV. I also use Albert Park a lot to go running and cycling. The week that the park is basically closed to me now and the noise I can live with. On one level I also find it somewhat exciting having this race right outside my window. But that excitement is definitely not worth $60 million.

  2. Richard

    Is it worth it?
    No, but I don’t get fat pay cheque from the awful smelly and noisy event!

  3. Jacob HSR

    Of course it is not worth it.

    That money should be used to buy the land upon which the Ford Factory existed. Schools should be built on that land next to Upfield station and land set aside for a possible uni.

    Swinburne Uni is close to the city and has no oval, no soccer pitch, no cricket nets.

    Setting aside that land does not mean a uni has to be built – but it simply gives us the option in the future to build a HSR station or a uni.

  4. Peter Logan

    Unfortunately the grand prix has the bi partisan support for ‘alternative facts’ in relation to so called economic benefit and many other unsubstantiated claims about this event. Daniel Andrews is just parroting the economic ‘impact’ report commissioned by the previous Liberal government. Impact reports always come up with a positive figure. The word ‘impact’ does not mean ‘benefit’. A natural disaster, like the GP can have an economic ‘impact’ but neither put us ahead as an economy.

    Victoria’s Auditor-General settled this in 2007. His peer reviewed cost benefit analysis of the 2005 event found it sent the Victorian economy backwards by $13.7m. Subsequent updates by economist Rod Campbell (now senior researcher at The Australian Institute) show the event now loses the economy around $60m annually.

    I’m a former councillor at the City of Port Phillip and found it causes a business downturn in our city, whereas the Gay Pride March, for example provides a huge boost for very little outlay. I now do research for Save Albert Park and am author of their fact sheet. I suggest you read this and check the independent sources that can easily disprove all the major claims of the boosters in the Liberal and Labor parties who deny the facts by just plain making things up.

    Here’s a new fact: In the March quarter last year the hotel room occupancy rates across greater Melbourne (ABS figures) were: January 78.9%, February 86.9% and March 83.1%. The month without a major event had the highest occupancy rate. Many factors apply but an acknowledged factor is the go away/stay away effect caused by major events. Politicians are always the last to let go of a failed policy, long after the public has moved on. This is the case with the GP.

    My study of the annual cashflow of the Australian Grand Prix Corporation shows a grand total of $764.757m has been given to the AGPC by Treasury. Many other hidden subsidies also hide off this balance sheet, for example the rent forgone by Parks Victoria and, two years ago, a separate hedge fund of $46m was set up by Treasury to cover the exchange rate drop as the contract with F1 is in US$. We’re over one billion dollars if all of these subsidies are added to the cash sunk directly into the event.
    Peter Logan
    Save Albert Park Inc researcher

    1. Richard

      Yes, it stinks to high heaven.
      Wonder if Jeff got depressed worrying about being found out too soon?

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