F1 for Joburg runs into a cash barrier
Cost for a grand prix in the city could be R1-billion
SEVERAL private sector players are bidding to get Johannesburg onto the Formula One racing schedule, but the yawning gap between positive spinoffs and spiralling costs will likely see the idea shelved once more — as it has been for two decades.
Saki Zamxaka, CEO of the Gauteng Growth and Development Agency, said the obvious benefits of exposure to an estimated half a billion Formula One TV viewers would be tourism and the image of Johannesburg as a hosting city.
“Studies indicated that 300 000 people could be expected to come for such a race. It could also potentially boost motor racing in the country. Major races in the city and at Kyalami or Zwartkops could attract sponsorships and there could be benefit for the automotive cluster in Pretoria.”
But Zamxaka emphasised the idea of commercial viability and sustainability when taxpayers’ money was in play.
“Our involvement would initially be in looking at how much money would be required to kick it off. We’ve been told that is around R15-million to R20million initially, out of R220-million raised by the organisers. The rest can be raised.
“We don’t want to be spending taxpayers’ money. Ideally we’d like to get the money back in a loan or equity arrangement and, if it’s profitable, for the province STREET RACER: South Africa’s Adrian Zaugg during the A1 race held through the streets of Durban to get revenue out of it.”
He said the organisers who had approached the city estimated a R1-billion race cost if the city committed.
But Johannesburg is not the first South African city to moot the idea, and Cape Town has also recently been approached.
A Formula One race was last held in South Africa at Kyalami in 1993.
Alan Winde, Western Cape MEC for economic opportunities, said three separate applications over the past few years had come to nothing because organisers required “a big cheque” from local government.
“The mayor [of Cape Town], Patricia de Lille, said she cannot justify putting hundreds of millions of rands from taxpayers into such an event when other social needs require investment. So come with a pitch and come with the money — that’s the city’s stance,” said Winde.
So far, business models for races that did not require state funding have not returned to the table.
The real crippler of ambitions is the Formula One operating company’s tendency to make off with broadcast revenue, advertising revenue and track hospitality revenue. It is extremely difficult for host cities to break even on ticket sales alone.
Winde said the most the City of Cape Town committed to, when it came to large events, was R750 000 for the city’s cycle tour, although even that was not cash — merely the cost of providing policing, medical and traffic services.
Australia’s Melbourne Formula One Grand Prix — which Winde cited as one of several financially ruinous examples that ranked alongside Singapore, India, Turkey and South Korea — has been losing money in progressively greater amounts since 2011.
Last year, Melbourne made a loss of R671-million in hosting that year’s race, which 297 000 visitors attended, according to the operating company’s annual report.
Since 2011, taxpayers in Victoria state have subsidised the Formula One event to the tune THE PITS: Ferrari driver Sebastian Vettel during practice session at the Australian Grand Prix in Melbourne. The race has cost Victoria state taxpayers R26.5-billion over five years RACE CARD: Saki Zamxaka of R26.5-billion. Melbourne has extended its Formula One race contract until 2023, citing global exposure as its reasoning.
According to Zamxaka, the proposals coming Johannesburg’s way have been for a street circuit rather than at an upgraded Kyalami circuit. He said the novelty of a street race and entrepreneurial flair were positives for the city.
But Heath Dickson, operations director of D3 Motorsport Development, the Australian consulting firm which designed the street circuit and infrastructure for the A1 street race held in Durban from 2005 to 2008, said hosting a street race in Johannesburg would be “a huge undertaking and not likely from my position”.
He added: “F1 would firstly require a promoter with previous experience with major events to manage and promote it, which CEO Bernie Ecclestone has already said in the press.
“On top of that, the infrastructure required for F1 is enormous, especially if it’s temporary. The costs would depend on the circuit design and position but probably somewhere in the R3.1-billion range, and around R1.3-billion every year after that.”
Dickson said more cities were now requesting street circuits.
“They understand the global exposure these events can give a city and a country, and the economic impact major events have on cities makes them very attractive.
“The F1 governing body, the FIA, doesn’t have a say on where F1 races, or the type of track. This is all decided by Ecclestone. F1 will always go where the money is.”
Zamxaka said Gauteng had the most people, GDP more than twice the size of Cape Town’s, an airport with more international flights and was shown by a 2012 study to be the province most likely to benefit from such an event.
“In 2008 the economic impact for Durban on the back of the A1 race was said to be R220-million, with 100 000 fans coming to watch. It does appear viable. As we get deeper into it we’ll look at the options. South Africans seem to like cars and racing and F1 is an established event around the world.”
F1 would require a promoter with experience to promote it South Africans like cars and racing and F1 is an established event