As the announcement of a possible second race in the United States of America looms on the horizon of next week, it brings to mind the place of America in Formula One (F1). A decidedly global sport with roots firmly placed in the United Kingdom, F1 represents the most expensive, glamorous and high tech form of motor sport--although Le Mans series teams would argue with that notion and rightfully so.
F1 is an iconic series replete with technology, money and politics and you can arrange those backwards and probably be more correct in ranking order of importance. The Sport has long sought the shores of America if for any other reason than its consumer base and sponsor penetration into this market. Many of the current teams have sponsors who have very real, tangible market presence in America.
The US is not the Holy Grail for F1 but it is a market that could be financially important to the series--that is if they could ever claw back the interest America once had for this eclectic sport. That's the challenge and two groups are taking it head on.
Last years announcement that the United States Grand Prix would return to Austin Texas was met with a collective cheer from the American F1 fans. It was also met with derision by many which included motor sport journalists and many local citizens, as well as politicians, in Austin. Cool heads prevailed as the promotional group, led by Tavo Hellmund, prevailed in securing the Major Events Trust Fund that Texas created for such events. Hellmund will utilize approximately $250 million over ten years (the length of the F1 contract) from this Trust Fund which is tax-payer funded.
It has been long rumored that $25 million per year is the going rate for the right to hold an F1 race and there is usually an escalator over the length of the contract in the neighborhood of 10%. Formula One Management (FOM), headed by F1 boss Bernie Ecclestone, is at the helm of this empire and it is a steep price he has set for a series that leaves little revenue for local promoters. Most every possible revenue stream during a race weekend is claimed by FOM leaving ticket sales and a few other things for the promoter to cover costs and seek their fortune.
This thin ability to scrape off a small sliver of revenue from the event has lead many countries to seek government subsidies in order to host the race. Many of these nations are emerging and seeking legitimacy in the economic world and F1 seems ripe to offer that perception as it is only dwarfed in TV ratings by the Olympics and the World Cup of football (soccer).
As we consider government subsidies for purpose-built circuits in which to host a sanctioned F1 race and we know that Austin will spend a rumored $300 million on their track, it makes you wonder how the math will add up for New Jersey.
It is no big surprise that track economics have to work in any form of motor sport in order to make a purpose-built circuit survive. Austin is no different in that it has already secured other racing series in order to keep cash flowing and debt relieved. Moto GP and Australian V8 Supercars will also run at the new Circuit of the Americas (COTA) in Austin when it is finished.
So how, exactly, does a street circuit make money if ticket sales is one of the few revenue generators for the local promoters? The circuit is not permanent and other series are not racing there.
It is not impossible to work the math out and perhaps Ecclestone's desire to hold a race on the East Coast has seen a less-than-usual sanctioning fee but I would doubt that given the history of shrewd deals by the 80-year-old ring master of F1. So who pays for the temporary circuit? In New Jersey's case it is rumored there are a group of investors that are willing to gamble on a race in Weehawken New Jersey with New York as the backdrop. Time will tell on how much they stand to make or lose but Korea, the host of the F1 race a fortnight ago, is already seeking a re-negotiation as they are losing money in only their second year on the F1 calendar.
The big challenge will be how long New Jersey's contract is and what kind of things are in the contract as far as a revenue generator for promoters. It is a head-scratching proposition as many investors are not entirely clear on how much money can be made on a race. Some races proclaim big revenue due to hotels, food and entertainment brought forth by the race while others are sulking in their weed-infested cement cathedrals to speed located in a swamp far from the biomass in an Asian land.
Who wins? FOM does with their sanctioning fees, track hoardings, TV revenue and executive hospitality suites. Who loses? Possibly the promoters if the race is not successful. This inevitably leads to the big question--can F1 survive in America?
The answer is...no one knows. F1 have been heavy-handed in the past about its desire to be in America but at one point in time--when America was in love with the European sports car in the late 60's and early 70's--the US was host to a race at Watkins Glen in New York. It was like Woodstock for petrol heads and I've met no one who had a negative word to say about it.
Those days have past and many attempts at a F1 race have been tried including Detroit, Las Vegas, Dallas and others. Austin is the new circuit and could pull it off with tax payer subsidies and a full calendar of events but what about New Jersey? Time will and it will be very important as to who the investors are and how they approach the sport.
F1 can succeed in America but it is doing a very poor job of making that happen so far. There are key strategic initiatives that have to be done in the nucleus, build-up and on-event (as well as post-event) timing. We have not seen much of that from COTA so let us hope the New Jersey group will be different. In their case with a temporary circuit--they are going to have to think differently in order to see a profit. America's love affair with F1 died many years ago but she's still beautiful, still alluring and we still love her charm...we just have to rekindle the fire that we extinguished all those years ago as an unrequited love.
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