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APRIL 29, 2004

Why Europe needs to think again about F1

People like to say that Bernie Ecclestone is greedy when it comes to collecting fees for Formula 1 from race organizers. In part this comes from those who have to pay and in part from the Formula 1 teams who do not feel they get a big enough share of the money raised. But are the fees really that outrageous?

The latest deals are costing around $45m a year with an incremental 10% increase each year taking the price up to $65m a year by the end of a five year deal. Many race organisers, particularly in Europe, say that it is impossible to sustain such fees but Ecclestone seems to have no trouble in finding new people who like the idea of hosting a race and are willing not only to pay the fees but also to spend around $100m to create the necessary racing circuits. In some places even more money must be invested to improve roads, hotels and other infrastructure.

Official Formula 1 viewing figures suggest that there are more than 300m people who watch every race. One can argue about the numbers but F1's system is much the same as that employed by other sporting federations. By comparison the summer Olympic Games, which happens once every four years, has an audience of 3.7bn people. The difference, of course, is that for every summer Olympics there are around 70 Grands Prix and it does not take a mathematical genius to work out that 70 multiplied by 300 gives a total viewership over a four year period of 21bn. So why should the Olympic Games be able to command such huge fee payments from its venues? The International Olympic Committee not only requires the cities involved to assume the full financial responsibility for the event but also takes a share of any profit that is made. There are highly complicated rules that stipulate how money generated by the Games can be spent and a list of requirements that is often frightening. The official figure put forward for the cost of this summer's Olympic Games in Athens is in the region of $3bn but this does not take into account the huge sums of money that have been invested by the Greek government and the European Union. The total could be as high as $25bn.

The point that must be made here is that logic and value for money are not the issue. The bidding for the summer Games has more to do with prestige and international one-upmanship. The cities involved benefit from improved roads, railways, airports and a revitalised image with which to attract billions of tourist and business dollars after the events have taken place. Formula 1 in this respect is the same. But the cost is minimal in comparison - which is why Ecclestone can so easily find new venues.

The bidding process for the Olympics Games did not really take off until the 1960s and by the Montreal Games in 1976 it was becoming clear that there was a serious cost associated with the event. The Canadians made a huge loss. In 1984 Los Angeles relied on private money and made a small profit although infrastructure costs were low because the city had most of what was needed. Seoul in 1988 not only made a profit of $288m but also opened up South Korea to the western world. It was a huge success. As a result by the time Barcelona held the Games in 1992 the costs had risen to around $7.5bn. The IOC had placed so much strain on corporate sponsors that after Barcelona it was decided that it was no longer feasible to hold the winter and summer Games in the same year and so the Winter Olympics were held in Lillehammer in 1994 and there emerged a new pattern of the Games alternating every two years. The bidding for the 1996 summer Games was so intense that there were widespread claims of bribery and corruption which led to new IOC rules and regulations. The Sydney Games in 2000 were billed as self-funding but infrastructure work cost the city as much as $2.3bn.

When one considers all of this, it is clear that Grand Prix racing is a very good deal for the countries which cannot afford to host the Olympic Games. Each race creates an economic boost of around $50m in a region where a Grand Prix is held and while race organizers struggle to make an actual profit, the regions certainly benefit in cash terms, in tax terms and in terms of international image. Formula 1 could do more for the sport by allowing a wider selection of press (such as travel writers) to attend events but F1's idea of dealing with the media is warped at best with the culture being to reduce rather than encourage publicity. FOM might gain a lot by subsidizing journalists with sensible hotels and better media facilities.

Bahrain has joined Formula 1 in order to try to keep up with nearby rival Dubai; Shanghai wants an event that will rival Beijing's 2008 Olympic Games. For countries like Libya, Korea, Mexico and Turkey Formula 1 makes a lot of sense.

European races, which struggle for any backing from the authorities argue that they cannot compete and yet are happy to bid for soccer tournaments, the America's Cup yachting and so on.

There may be a sound argument in that Ecclestone should share more of the money he raises in F1 with those taking part, but the argument that races are too expensive is basically flawed.