Economic Impact on Cities Hosting Formula 1 Races
Formula 1 (F1) is the most famous international race car driving competition in the world. The first race was held in Silverstone, England, in 1950, and has since escalated to be one of the most followed sports in the world (Gluck 2023). In the last few decades, Formula 1 was mostly popular in Europe and Asia. Yet, the sport has recently grown exponentially worldwide, even gaining popularity in the United States (Gluck 2023). Testament to this recent growth are the several media deals that have been signed. For example, ESPN recently arranged a three-year deal worth 225 million dollars with F1 (Gluck 2023). Importantly, F1 is a business that holds a market cap of 14.81 billion dollars and generates revenues with media rights, sponsorships, and ticket sales. Aside from its revenue streams, there is a substantial and incremental economic influence on the cities and regions that host races in recent times. As well as a positive economic impact, however, there are some complications that arise when cities host races. Since the roads are closed during the weekend of the race, the daily lives of the citizens are greatly affected. Transportation becomes more limited, the cost of living increases, and there can be an overwhelming amount of fans that flood these cities. Thus, it calls into consideration whether the increased media exposure and tourism caused by hosting a F1 race offset the tradeoffs of traffic, closed roads, and increased cost of living.
A reason towards F1’s popularity primarily contributed to the recent Netflix documentary series, “Drive to Survive.” By increasing global exposure, fans can appreciate inner activities within the organization, personal lives of driver and construction team members, and the thrilling highlights of races and championships (Gluck 2023). With recent exposure from the series, an exponential growth of revenues from F1 include media coverage, sponsorships, and ticket sales. The series continues to impact the viewership of F1 every year a new season comes out (Oehy 2024). It is important to underline that almost half of the Formula 1 organization’s expenses (3 billion in 2023) go to awarding the drivers and their teams.. In other words, these teams invest a lot of capital in order to do well in competition (McElwain n.d.). Although there are some constructor teams that have historically performed very well, like Ferrari and Mercedes, regulations, like setting budget caps, are set in place in order to incentivize competition (McElwain n.d.).
The increased global exposure and thrilling competition set the stage for significant economic impact on the host cities and countries (Luzich 2023). One of the immediate effects has to do with tourism: Thousands of fans come from across the world for the weekend (because each race has tests on Friday, qualifiers on Saturday, and the race itself on Sunday), and get to enjoy not only F1, but the city and country as well (Luzich 2023). Thus, there are increased hotel bookings, restaurant visits, and other tourist attractions. Furthermore, the brand exposure gained from hosting a race is huge, creating a very valuable marketing opportunity. Another extremely important economic impact is job creation and local business boost. Jobs may include hospitality, security, logistics and marketing, while business development examples are souvenir and merchandise stores as well as restaurants. These impacts have positive long term effects, ultimately boosting the city’s economy (Luzich 2023). An example of increased revenues is the benefit enjoyed by Las Vegas as a result of hosting their first Grand Prix in 2023. The expenses were about 500 million dollars, but the revenues are estimated to be more than double, about 1.2 billion dollars. Other important statistics include 450,000 tourists visiting Singapore between 2010 and 2018 for the Gran Prix, and the average fan in Mexico City spending 1730 dollars for the weekend of the race (Mehta 2024).
However, there are some complications that arise when hosting a F1 Grand Prix. Of course, more than 24 cities would like to host races to enjoy all the economic benefits and more, but there are only occasional new Grand Prix (like the 2023 race in Las Vegas). Many races, like Silverstone and Monte Carlo, are historic and will very rarely be replaced by a new location. Furthermore, there are a lot of expenses and organization difficulties that arise, so it is only feasible if the city is well equipped. This is especially true for races whose tracks are in the middle of the city (on actual city roads) like Monte Carlo and Singapore. If the cities are not well prepared, this could cause drastic consequences (in terms of traffic and overall functionality of the day to day lives of citizens). For example, growing up in Rome, I witnessed the introduction of the E-F1 (electric race) outside the city center. Of course, these races are on a much smaller scale, but the effects on traffic and public transportation are still very evident when trying to move around in other parts of the city during the weekend of the race. I can’t even begin to imagine what an F1 race would do to Rome’s traffic and public transport. It is important to note, however, that although the expenses are enormous, this could lead to improving the overall functionality and aesthetic of a city. For example, if Rome were to host a F1 race, a lot of spending would have to go to improving infrastructure, like transportation and cleaning services. These changes, however, would continue to benefit the city in the long term.
In conclusion, Formula 1’s global popularity has brought significant economic benefits to the cities that host its races. The influx of tourists, job creation, and increased brand exposure all contribute to boosting local economies. However, these benefits come with challenges, such as traffic disruptions, great expenses and higher costs, and the need for extensive infrastructure improvements. Despite these trade-offs, the long-term gains from improved city infrastructure and the prestige of hosting such a high-profile event can outweigh the downsides. Ultimately, the decision to host a Formula 1 race depends on a city's ability to balance economic growth with the impact on its citizens' daily lives.
References
Gluck, A. (2023, November). The economics of Formula 1. YU Observer. https://yuobserver.org/2023/11/the-economics-of-formula-1/
Luzich, M. 2023. Beyond the track: The economic impact of hosting a Formula 1 Grand Prix. Medium. https://michaelluzich.medium.com/beyond-the-track-the-economic-impact-of-hosting-a-formula-1-grand-prix-4663a3f2cfa4
McElwain, W. (n.d.). Do F1 teams make money? A breakdown of revenue and costs. Sports Boom. https://www.sportsboom.com/motor-sports/do-f1-teams-make-money-a-breakdown-of-revenue-and-costs/
Mehta, S. (2024, April 29). Is hosting an F1 race financially feasible? Michigan Journal of Economics. Retrieved from https://sites.lsa.umich.edu/mje/2024/04/29/is-hosting-an-f1-race-financially-feasible/
Oehy, A. (2024). Drive to Survive’s economic and popularity impact on F1. Medium. https://medium.com/the-ao/drive-to-survives-economic-and-popularity-impact-on-f1-814eab61 55f