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Columns

More bang for your buck than Formula One
Joe Saward, Hindustan Times
July 24, 2012
First Published: 00:59 IST(24/7/2012)
Last Updated: 01:51 IST(24/7/2012)

Motor racing has always had the problem that it is an activity that requires a great deal of space. Originally it was easy: the races took place on open roads. That ended with the disastrous Paris-Madrid race in 1903. The next step was permanent speedways, a trend that was kicked off by the construction of Brooklands in 1907, which created a trend towards oval racing.

As more and more people began to get private cars, a new trend developed, with airfield circuits and then purpose-built road courses.  In the United States, the old oval speedway tradition remained strong, but in Europe it was all but dead after the war.

Today, the US boasts some of the World's largest sports stadia, notably Indianapolis Motor Speedway - which has an estimated 300,000 seats and room for 400,000 people. The big NASCAR tracks are smaller but still impressive.

With seat capacity of this order, the ticket prices can be kept low.

The biggest stadium in F1 is the Shanghai International Circuit which boasts 200,000 seats. In Europe, the Nurburging, which has 150,000 seats, and Hockenheim, which has 120,000, lead the way. And yet both of the German venues are struggling.http://www.hindustantimes.com/Images/Popup/2012/7/24_07_pg22a.jpg

A troubling trend
This year Hockenheim attracted only 59,000 people for the German Grand Prix. Germany is not doing as badly as other European countries in the economic world. It boasts no fewer than five of the current 24 Formula 1 drivers, two of them are world champions and two have won races this year. F1 racing has been very good this year. The circuit is no more remote than Silverstone; the traffic management is better than most tracks. The circuit is good.

So why is there a problem? The obvious answer is that ticket prices are too high, but one also needs to look at the overall fan experience and ask whether F1 is actually driving its customers away. With modern communications technology, they can now sit at home and watch the racing, without having to worry about endless queues and muddy car parks. These experiences should be a thing of the past.

The real problem
The root cause is the fact that the fees being demanded by the Formula One group are so high that ticket prices have had to go up. And the circuits are now running out of demand.

The Formula One model extracts all possible revenues from the circuits. They cannot cover their costs and struggle to maintain their fixed assets. These deteriorate. Fans do not enjoy the experience as much and their interest declines. Some circuits give up, some go out of business and Formula One is seen to be exploitative and greedy. No-one, except the investors in the Formula One group, is happy.

Why nascar works
NASCAR has a different philosophy, it keeps its race fees low and shares its broadcasting revenues with the tracks. At the moment it gives 65 percent of its TV revenues to the circuits, 25 percent to the teams and keeps 10 percent for itself.  The tracks are allowed to earn additional revenues through sales of tickets, sponsorships, concessions, and merchandise. They share their money with the teams, providing substantial prize funds. The teams also generate income from selling sponsorships, merchandise and so on.

It makes track ownership attractive and so the France Family, which control NASCAR, also controls a firm called the International Speedway Corporation (ISC).

This has acquired speedways all over the US but has been careful to avoid a monopoly situation. This structure means that it is in everyone's interest to expand.

The race promoters have a strong interest in creating successful events, in order to keep what they have and, in the long term, perhaps buy other facilities and build better businesses.

The NASCAR brand is thus associated with success and tracks want to buy into it.  Cut through to the heart of the matter and you can say that incentives are aligned and the result is stronger businesses all round.

This also means that the fans get better treatment. The tracks have more money to invest to improve the fan experience with shopping malls, entertainment facilities and better transportation options.

As F1 heads towards a time of change, it is a good idea to look at what others do and wonder if, perhaps, they are smarter.

The writer has covered every grand prix for the last 25 years.


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