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Cost row plunges Australian GP future into doubt

25 January 2011

A row has erupted over the future of the Australian Grand Prix in Melbourne after the city's Lord Mayor Robert Doyle argued that the persistently loss-making event has now 'run its course' and Victoria state premier Ted Baillieu conceded that the race may disappear unless mounting costs can be substantially reined back in.

Mr. Doyle unleashed a stinging attack on the grand prix in the Sunday Herald Sun newspaper, warning that annual losses would soon hit the $70 million AUD mark and stating that the event no longer represents value for money for Victoria's state government. The total loss for the past three editions is in the region of £130 million AUD – $49.2 million AUD in 2010 alone, twice the figure of four years earlier – with attendances at a low of just 287,000 in 2009, casting the race's continued presence on the F1 schedule under the spotlight of late.

Mr. Doyle recognised that the pinnacle of international motorsport has brought with it 'glamour, excitement [and] controversy' since it deserted the streets of Adelaide for Melbourne's Albert Park in 1996. The grand prix, he says, has gone on to become 'one of the cornerstones of an events strategy for Victoria' – what he refers to as formerly 'the rust bucket state' – as well as making Melbourne, a city hitherto 'in the doldrums', 'the number one overnight destination in Australia'.

Now, though, he contends that for taxpayers' pockets, enough is enough and that patience with F1's escalating financial demands is wearing thin – and speaking just days after the City of Melbourne signed a lucrative sponsorship deal with the Australian Grand Prix, he contentiously advised that once the current agreement expires in 2015, the race should be canned.

“First, F1 supremo Bernie Ecclestone will pick up his bat and ball and go home,” mused Mr. Doyle of what he describes as four possibilities for the grand prix's future. “Despite best endeavours, the notoriously difficult, contentious and cranky Bernie will take the dollars of either an Asian or oil-rich Middle Eastern state. There will be no successful negotiation. End of story.

“Second, given Ecclestone's ever-more strident calls for a night grand prix, it will move to a purpose-built track either at Avalon or Noble Park, or possibly elsewhere – Sydney or Perth. The problem with Albert Park is that it is a 300-hectare park and a night race means lighting not only for the track, but also for enough of the park to provide patron safety – too expensive. But equally, the cost of a purpose-built track is potentially $300 million AUD and is probably untenable.

“But even if such a track were built, it would not have the same romance or cachet as Albert Park. The grand prix would become one of those events we sometimes see out of Asia – empty stands, but a worldwide TV audience of hundreds of millions. To me, that wouldn't really be an Australian Grand Prix, just a TV event.

“A third option is that the race remains at Albert Park. That would require an upgrade of the park, costing up to $8-9 million AUD. It would require Ecclestone to accept that the Australian Grand Prix will never be a night race, though with Ron Walker's extremely able negotiation, it has become a twilight race. In its present form, it satisfies both local and TV audiences for real time and reasonable time zone viewing. Sponsorship and advertising demand that.

“The big stumbling-block to this scenario is the cost to the Victorian taxpayer. In 1996, when the race was a combination of a four-day event and corporate sponsorship was far more generous than it is today, it still needed to be underwritten by about $1.7 million AUD. Last year, it was $50 million AUD.

“Fast forward to 2015, the year the franchise ends. Though the documented benefits for the city may include hundreds of millions of dollars of advertising value [and] tens of millions of dollars of local revenue, an event that will draw between 250,000 and 300,000 people over three days will come at a cost that will approach $70 million taxpayer dollars. It is the old argument – pay upfront, but get many times the value of the upfront payment in downstream economic benefits. For most events that formula is persuasive – but $70 million AUD?

“The fourth and final possibility must be faced. I know of no city that has voluntarily walked away from a grand prix, but could Melbourne be the first? The final possibility is that we decide that it has been 20 fantastic years, the benefits to the city and the state have been enormous, but the cycle has run its course. It would mean we would need to replace the grand prix, and major events don't come cheap. Nor, indeed, are there many out there that can be repeated year-after-year and drive the economic returns we get from the grand prix. We should start looking now.

“In the end, it will be a government decision and one of the tough ones that Ted Baillieu faces in his first term. Does he undo the legacy of Jeff Kennett, his mentor, in his very first term? My judgment would be, get ready, time's up.”

Whilst praising the positive impact the Australian Grand Prix has had upon both Melbourne and Victoria, Baillieu was similarly willing to offer no long-term guarantees, agreeing that the $50 million AUD expense of hosting the event in 2010 was too high and must be slashed if the race is to remain on the F1 calendar beyond 2015.

“We look forward to the grand prix performing financially better than it has and we will be looking to make sure that happens,” he mused in non-committal fashion. “I am confident we can reduce costs, and we look forward to that happening.”

However, Grand Prix Corporation chairman Walker – pivotal in luring F1 away from Adelaide in the first place – has defended the race, pointing to the nigh-on $180 million AUD in economic benefits for Victoria and the massive global publicity for Melbourne via extensive television exposure, confessing that he is mystified as to why Mr. Doyle seems hell bent on scrapping the event.

“It's a sad thing for the mayor of a major capital city to come out so publicly against a major event like the grand prix,” he told radio station 3AW, alluding to the mega-bucks currently being shelled out by the likes of Russia and India to attract Ecclestone's attention whilst at the same time acknowledging that jobs may have to go to keep spiralling costs under control.

“On the other side of the ledger, there's an economic benefit of around $160 million AUD. All of Mr. Doyle's hotels, all of his restaurants do a very good trade. Then, of course, there's the tax that's collected of about $18 million AUD a year. It's a huge profit for Melbourne. Its future is a matter for the government, but the Grand Prix Corporation board does its best to keep costs down every year.”


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