MOTORSPORT: GP a sea of red ink

Thursday motor sport reportNovember 1, 2007

As then Victorian premier Jeff Kennett and his unelected emissary Ron Walker revealed the coup, it was as though they had landed the crown jewels.

The theme that day was that the GP wasn't really going to cost Victoria -- that is, the state's taxpayers -- anything.

To pinch a term from parkland cricket, the government was just going to be a backstop, to act as a guarantor of some funding necessary to get the event off and running in Melbourne.

Well, the accounts have just surfaced for the 12th Formula 1 GP in the Victorian capital, and it lost almost $35 million.

That's on top of losses of approaching $90 million accumulated over the previous 11 years -- most of that in very recent years.

The GP's financial picture started to get ugly early this decade but became very ugly in 2006, when it turned in a loss of $21.275 million -- a 56 per cent jump on the $13.611 million of red ink in 2005.

The blame in '06 went mainly on some kind of major event fatigue, with the GP run that year immediately after Melbourne's Commonwealth Games and as the third round of the F1 world championship rather than its traditional season-opening "pole position".

This year, though, the loss has blown out a further 62.75 per cent on what the Australian Grand Prix Corporation's annual report says was "primarily due to a reduction in ticket sales revenue, sponsorship and commercial revenue".

The V8 Supercars didn't turn up at the GP this year.

That was well known in advance, and it was anticipated that factor would dent attendances.

Yet at the end of the GP the organisers still claimed more than 300,000 people had turned up over the four days.

In fact, they claimed there were even a few hundred more people than in '06, even without the V8s, and that 105,000 were at the Albert Park circuit on Sunday, March 18.

So how come the loss is now almost $35 million this year?

Although the AGPC annual report is, as always, short on some crucial detail (most notably the fee paid to F1 supremo Bernie Ecclestone in London for the right to run the race), it's clear that costs have escalated while revenue has dwindled.

What the AGPC calls "event management and staging" expenses were $41.386 million this year, compared with $33.009 million last year.

It spent $11.856 million on marketing, promotion and catering this year, against $9.787 million a year earlier.

Total annual expenditure to run the GP is now approaching $80 million -- it was $78.068 million this year, up almost $10 million on '06 and a long way from still less than $60 million in 2003.

Yet total revenue this year was $43.441 million, down from $47.585 in '06 and $52.633 million in 2005.

Despite noises in the lead-up to this year's race about the health of the event's sponsorship, it is now revealed that sponsorship and commercial revenue was $9.39 million -- $1.6 million less than in 2006 and lower even than the $9.74 million when the GP moved to Melbourne in 1996.

Despite the event's expenses generally having risen more than 10 per cent in the latest year, a bright spot is that engineering costs -- the bulk of which are the putting up and pulling down of the temporary grandstands -- have not.

Recurrent engineering costs this year were $23.75 million compared with '06's $24.127 million.

But the bottom line is that the Victorian government needed to tip in $34.627 million to square the ledger.

A far cry from the Kennett/Walker announcement of December 17, 1993, when -- with the government as backstop -- the GP was going to break even, at worst, and most likely be a profit-maker.

On some simple mathematics, to have broken even this year -- and this is without factoring in any extra costs (admittedly an unrealistic, even absurd, assumption) -- the GP organisers needed to have:

Each of those options would have generated another $34,627 million.

None of them are achievable.

In reality, any increase would be a combination of these options.

In short, the GP attendance needs to be several, indeed many, times larger than it is already claimed to be.

And, of course, generating higher ticket sales would come at a cost.

Generating sales in the order of the above would come at enormous -- and prohibitive -- cost.

So the numbers just aren't making sense, and you have to wonder what's ahead.

Indications are that Victoria's Labor government is no longer as committed to the GP under new premier John Brumby as it was with his predecessor Steve Bracks in charge.

It is quaint to hear the Victorian Opposition's spokesman David Davis say the latest GP results show the state government's failure to manage major events, when it was Davis' Liberal Party that "won" the GP -- and many other major events -- for Victoria.

Jeff Kennett, now long gone from politics but who was saying before this year's GP that the event was in need of a makeover, is still advocating that it be retained beyond the expiry of the existing contract with Ecclestone's Formula One Management in 2010.

AGPC chairman Walker's report says it is estimated that since the GP began in Melbourne in 1996 it has generated $1.5 billion in economic benefit for Victoria and Victorians.

That is an extrapolation of studies by the National Institute of Economic and Industry Research (NIEIR).

There are critics of NIEIR's methodology.

The problem, though, may not be so much in the way NIEIR does its work, but in the material it is given to work with.

For example, if it is fed inflated crowd numbers as a starting point -- as the critics suspect.

In any case, the numbers NIEIR generates are inevitably educated guesstimates, while the losses in the GP accounts are crystallised -- that is, real.

Victoria is now paying almost $35 million a year.

And that for an event that this year was watched by fewer Australian television viewers than the recent Gold Coast Indy, to which the Queensland government reportedly contributes about $12 million.  

Indy organisers also announced a higher attendance than the GP this year -- about 314,000 over four days.

As we pointed out here earlier this week, Indy's average audience on Channel 7 in the five mainland capital cities was 664,000 viewers, while the GP's average audience on Channel 10 in those cities in mid-March was 615,000.

The GP organisers can rightly claim to have a much bigger international audience than Indy.

Some very loose viewing figures have been touted for years, though.

Back in early March the numbers Walker was talking were 360 million viewers in 132 countries.

However, there have been indications in the past couple of years that the average global TV audience for a GP is somewhere between 50 million and 120 million people, and -- because Melbourne's race is run when most of Europe, F1's heartland, is asleep -- that the audience for the Australian GP is perhaps really about 95 million.

Those spruiking grander numbers will have difficulty providing substantiation.

Then there is the question about the race fee.

A note towards the back of the AGPC's annual report issues a reminder that the fee Victoria pays Bernie Ecclestone for its GP is confidential and that "unauthorised disclosure" could see the event lost to Melbourne and action for breach of contract and damages.

Yet a document emanating from Europe, titled Formula Money and written by seemingly authorative business journalists Christian Sylt and Caroline Reid, supposedly contains the fees paid by every race organiser in the F1 world championship.

We haven't paid the A$400 to buy Formula Money, and don't know what figure it puts on the Melbourne race fee, but we have read that it shows Malaysia paying the highest fee for its GP at US$38 million this year.

It is often mentioned in F1 circles around the world that Ecclestone's fees for races increase at a standard 10 per cent a year.

Such a rate of increase on what must surely be one of a GP's major expenses would not sit well against an event with declining revenues.

Before too many years there would be a major blowout.

Perhaps that is what we are seeing in Melbourne now.

The latest result, and sharply deteriorating trend of recent years, must be an embarrassment for the AGPC's A-list board.

Apart from Walker, who also chairs Fairfax Media (publisher of the Melbourne Age, the Sydney Morning Herald and the Financial Review), the AGPC board comprises:

In just the second paragraph of his chairman's report, Walker pays tribute to Peter Brock, the motor racing legend killed in a rally crash in WA in September 2006 and who had been an AGPC board member for eight years.

Yet nowhere in the 45 pages of the annual report is there a thank-you to Tim Bamford who worked for the AGPC for 10 years -- the last three as CEO.

There is mention that Bamford was the AGPC's "accountable officer" until April 27 this year.

And a table on executive pay indicates that Bamford pocketed between $450,000 and $460,000 in the almost 10 months of the AGPC's last financial year for which he was that "accountable officer".

That amount includes entitlements, including annual and long service leave, on departure, as well as a bonus of up to $20,000 for the latest year -- the year in which the GP lost $34.7 million, over 60 per cent more than the previous year.

Unfortunately for Bamford, the AGPC annual report records the losses in his three years at the helm as $69,513 million.

The report also discloses that bonuses paid this year to eight executives, including Bamford, totalled $101,763.

Add that to those paid over the previous three years and the grand total in executive bonuses in the past four years is around $650,000 -- as the losses on the event have grown from $12.559 million to $34.627 million, collectively $80,072 million.

These bonuses, and indeed the GP's overall financial picture, may well be seen by the public, even some ardent motor sport fans, as a savage pillaging of the public purse, because it is out of taxpayers' money that these costs are being met.

The AGPC's annual report may now be in the public domain, but those accountable for it -- at government, board and executive level -- perhaps still have a fair bit of explaining to do.

The author was the media manager of the Australian Grand Prix from mid-1997 until early 2005.

<<< Before the Bahrain round of the V8 Supercar Championship even gets underway tomorrow (Friday) night, the cars of four top drivers have been involved in a road crash.

The transporter carrying the Holden Racing Team Commodores of Mark Skaife and Todd Kelly and the Ford Performance Racing Falcons of Mark Winterbottom and Steven Richards jack-knifed when the driver had to brake heavily behind another vehicle on a the freeway to the track (see picture, courtesy of Ross Gibb/Holden Motorsport).

It's unlikely that any damage to the race cars will be irrepairable before racing starts, but time differences prevent any confirmation of that yet.

The race telecasts are late Friday and Saturday nights on Channel 7, with a three-hour replay Sunday afternoon.

An interesting new series starts there in Bahrain too, although doubt we will see much, if any, of it on 7.

It's Speedcar, for NASCAR-type cars that will run at Asian and Middle-Eastern F1 GPs in future, featuring drivers including Jean Alesi, Johnny Herbert and Narain Karthikeyan, the Indian who raced in F1 in 2005 and has hopes of a return now that there will be an Indian-owned team (the former Spyker) from next season.

<<< Politics is rife in V8 Supercars at the minute, with Auto Action magazine reporting this week that Touring Car Entrants Group (TEGA) boss Kelvin O'Reilly has been suspended. It seems O'Reilly may be paying a price for supporting former politician John Hewson in what was shaping as a bid to succeed V8 Supercars supremo Tony Cochrane at the end of the year. It's a tricky situation, with O'Reilly recently having extended his contract -- and probably wanting a handsome payout if he has to move on.

<<< A suggestion in this week's electronic edition of Motorsport News that Fernando Alonso, F1 world champion in 2005 and '06, could be in the sights of Red Bull Racing for next season. If it comes to anything, it would mean Australian Mark Webber or teammate David Coulthard having to find a new home. Perhaps with Renault? However, there are also suggestions that Toyota is making a big play for Webber. The Japanese giant, so disappointing in its six years in F1, has not confirmed any drivers for next year. German Timo Glock, a contemporary of Aussie Ryan Briscoe who has previously had a taste of GP racing, is favoured for one seat, while Italian Jarno Trulli is no certainty to keep the other.

<<< New Zealand may have an open-wheeler wonder boy. Brendon Hartley, just 17, has won the Formula Renault Euro Cup. In the 14-race series he notched four wins, four pole positions, two second placings, two third placings and claimed fastest lap three times. Next up for Hartley is a start at the world's main Formula 3 race -- the Macau GP on November 17-18 with leading British team Carlin Motorsport.

<<< Motor sport promoters are notoriously over-the-top with crowd figures.

The latest to come to our attention is the claim of 243,000 at last weekend's world rally championship round in Japan.

One of our globe-trotting contacts has been in touch with this message:

"I have covered the WRC for more years than I care to remember and I can assure you there was nowhere near a quarter of a million spectators there over three days.

"I would be surprised if more than 50,000 people watched the event over three days -- and to think they claim 64,000 people went to the start.

"This is simply not true.

"The road on which the start was held was 1km maximum with a 6-metre footpath, and that means they must have been standing 32 deep on both sides!"

<<< And, from the Adelaide Advertiser, this belated story:
Paul Colotti is suing for compensation 14 years after nearly being killed when a Formula 500 car ploughed into a crowd during a Grand Prix (promotional) event.

Colotti was seven years old when the car lost control during a demonstration event near the Noarlunga Colonnades Shopping Centre and slammed into spectators in October, 1993.

He suffered critical injuries and was one of 10 people admitted to hospital after the accident.

Colotti, 21, is suing the event's organisers and the driver of the car claiming the collision was caused by their negligence.

In documents filed with the South Australian District Court, he claims organisers failed to ensure effective and adequate safety barriers were erected to protect participants and spectators.

Colotti suffered a closed head injury, facial injuries and a broken right arm in the crash.

Court documents say he also has suffered depression and behavioural disturbance, reduced capacity to perform and complete primary, secondary and tertiary studies and a permanent reduction in earning capacity.

They also say he has suffered a reduced capacity to perform and enjoy social, recreational and sporting activities.

Colotti's lawyer, Marcia Waters, says he now lives interstate.

Colotti is suing the Corporation of the City of Noarlunga, the Australian Formula One Grand Prix Board (the old Adelaide GP office), Brooks Public Relations, AMP Shopping Centres, Racing Drivers Association of SA and the driver of the car, Ian O'Daniel.

His mother, Caroline Colotti, and his younger brother and sister also were injured.

The GP's then executive director, Dr Mal Hemmerling, said at the time the GP office would pay medical bills -- estimated at almost $20,000 -- and offer other assistance to families.

No defence to the claim has yet been filed. The case will return to court next month.

To comment on this article click here