It didnt take Kennett’s major Events chief, Ron Walker, long to get on the phone to Steve Bracks to try to counteract his deputy’s quickly forgotten solidarity with the residents who have seen their local park trashed. And now Labor seems to be on the Grand Prix bandwagon
When it came to intimidating journalists, Jeff Kennett felt comfortable at his beloved Albert Park Grand Prix. Last year was a vintage performance; when a newspaper reporter had the gall to question him about declining attendances, the then Premier grabbed, manhandled and slapped him during a media conference.

The episode was witnessed by a group of journalists, but the paper’s editor declined to so much as query the Premier about his behaviour. Such was the nature of self-censorship under the reign of Jeff.

But when local MP and new Deputy Premier, John Thwaites, symbolically cut the yellow ribbon from the gatepost in front of his home shortly after taking office last October, Victorians were entitled to believe the new era of accountability would extend to Jeff’s favourite Grand Prix circus.

It didn’t take Kennett’s Major Events chief, Ron Walker, long to get on the phone to Steve Bracks to try to counteract his deputy’s quickly forgotton solidarity with residents who have seen their local park trashed. And now Labor seems to be on the Grand Prix bandwagon.

Save Albert Park activists helped our campaign for Burwood – and Steve Bracks conceded when he ran into them on the campaign trail that they were “very pissed off” about his apparent backflip on saving Albert Park.

Not only did local Albert Park member Thwaites take the ribbons down, but Steve Bracks defended last year’s record $8 million loss by the Grand Prix, happily said he wanted to keep the GP beyond 2006 without doing an audit and mouthed the old Jeff Kennett line about the much-challenged $96 million in economic benefit as a defence for the losses.

With media outlets such as 3AW and the Herald Sun roped in editorially as sponsors of the Grand Prix, you rarely hear the arguments run by the tenacious team at Save Albert Park who produce a half hour program on community radio each Wednesday.

Today, Ross and Vivienne Ulman from SAP illustrate the compelling case for an independent audit of this money-losing event. They argue that Bracks still has a chance to show leadership on an issue that will not go away.

Melbourne’s Grand Prix: What the Media won’t tell you

As the financial performance of Melbourne’s Formula One Grand Prix slumps from bad to worse, Steve Bracks has every reason to be concerned about its impact on the State’s finances.

Instead, Victoria’s new premier had been barely elected before he strode into pit lane, helmet in hand, and jumped aboard the grand prix bandwagon.

After just four races taxpayers have footed a bill for nearly $100 million, and last year’s record deficit should reinforce doubts about the economic value of the event. On that figure alone, the grand prix contract should be a prime target of the new Audit Review Panel into major Kennett Government contracts.

Accumulated annual operating costs of $33 million is a conservative figure. Total operating costs would be closer to $44 million if the Australian Grand Prix Corporation (AGPC) had to carry the depreciation costs of the track and pit garages, account for capital asset charges on its capital costs, and pay a commercial rent for the use of Albert Park.

High Cost Venue Increases Risk To Public Purse

From the start, the decision to use a long, temporary track in a public park blew-out costs. Annual staging expenses of $47-50 million are 40% more than Adelaide’s, placing pressure on revenue generation. The event suffers from high ticket prices, heavy dependence on corporate entertainment support, and needs a heavy promotion budget to maintain demand.

A drop in sponsorships and corporate support in 1999, recorded by the Auditor-General, augurs badly. The Grand Prix is exposed, as the Auditor-General has consistently noted, to a host of risks which threaten its financial viability. Unlike most other events it faces the double disadvantage of having to pay hefty licence and franchise fees, without the compensating access to a share of the lucrative television rights.

While other countries are evidently keen to host Grand Prix races, their governments do not take on the same level of risks. Other aspirants for the event have built, or are building, permanent tracks which can spread the costs over multiple racing and other uses.

Claimed Economic Benefits Are Inflated

The Kennett Government marketing machine achieved largely uncritical acceptance of boosterist economic benefits, despite scepticism about the economic benefits of major events from conservative think-tanks in both South Australia and Victoria.

This sentiment was supported by the then Industry Commission whose modelling of the Adelaide Grand Prix showed at best very marginal benefits, and at worst a negative impact on the per capita State gross product.

Exploiting inflated estimates of gross economic benefits (the much used $95.6 million figure), notional tax revenues which are just modelling estimates based on the gross figure, and unproven promotion benefits, the Government somehow justified major public sector assistance.

In 1998, the Herald Sun revealed that the State Cabinet had considered not extending the Grand Prix contract beyond 2001 because of concerns about the financial exposure from “even a relatively minor weakening of the Australian dollar”. Confirming concerns about the financial risks, the report also suggests that the bean counters in the State Cabinet were less than persuaded by the inflated claims for the direct economic benefits of the race or its promotional effects.

There remain two serious problems with the estimated gross benefits – the claimed $95.6 million. First, as the Government’s consultants’ report noted, the financial outlays represented a diversion of spending from basic government services. But the Kennett Government, and now its successor, chose to ignore the smaller net figure in its media releases and in Parliament.

Second, barely half the estimate is derived from interstate and overseas visitors, generally considered the primary source of economic benefits from major events. The rest is made up of items for which there is insufficient evidence – spending by Victorians estimated to have been retained because the race was not in Adelaide, or items not normally counted as part of the economic impact, such as $10 million of savings expenditure by Victorian patrons.

According to Professor Donald Getz, a recent visitor to Australia and author of Event Management and Event Tourism, “inclusion of resident spending is considered invalid by most experts”.

An independent audit of the government’s economic impact report, by economist Francis Grey of Economists At Large, found that on the evidence available the gross economic benefits were probably closer to $44 million and net benefits around $24 million.

He estimates that once the full operating costs of the AGPC are factored in, the Grand Prix as a long term investment will yield over 10 years no more than $22 million additional wealth. Wealth is considered the more accurate measure of economic benefit because increased economic activity can actually be achieved at a loss if costs exceed revenues.

Francis Grey calculated that a similar investment in Commonwealth bonds, while duller and less vote-catching, would have earned Victoria $127 million for schools and hospitals.

The situation is probably more serious than this as Grey’s figures did not factor in the licence and franchise fees, widely understood to be around $20 million annually (depending on the health of the $A). These fees are equivalent to an import payment and, as the then Minister responsible for the grand prix, Louise Asher, conceded, have to be deducted from the gross benefits.

$400 Million Public Park Disrupted For Five Months A Year.

The event contract requires the use of Albert Park, Victoria’s ‘home of amateur sports’, which attracts four million visitors annually, and which was recently revalued by the Valuer General’s Office at between $137 million and $403m. Since 1994 $100 million has been spent implementing Parks Victoria’s master plan for the park. This includes $20 million spent by Parks Victoria, $65 million on the Melbourne Sports and Aquatic Centre, and around $10 million of private and public investment in golf facilities, a hockey complex, and upgrading of the South Melbourne Soccer Club ground.

Few Victorians, however, realise that the $100 million does not include the $34 million spent by the AGPC on pit garages, viewing mounds and a racetrack – all outside the original redevelopment plans. Nor that over 200 road accidents, causing two fatalities and 15 serious injuries, have occurred on the racetrack masquerading as a ‘park road’ since it was opened in May 1995.

Each year, users of Albert Park suffer 20 weeks of set-up and dismantling, closure of the public golf course for five weeks, and months of restoration works which keep several sports clubs off their leased home grounds until May or even June. In 1999, 15 of the 22 sports fields were unavailable for periods of seven to 21 weeks. Details are catalogued in Save Albert Park’s Parkwatch Post-Race Report on the 1999 Grand Prix.

For all this, the AGPC is required to compensate Parks Victoria to a maximum of only $100,000. But it is believed that Parks Victoria may receive no actual cash payment.

A Flawed Tourism Strategy

Melbourne has taken a big financial risk in not using a more cost effective venue because, unlike most other circuits, it’s is not within easy reach of a large pool of potential race patrons from neighbouring countries.

The European circuits are all within a few hours return flight from anywhere else in Europe. Montreal draws over 20% of spectators from outside Canada and 60% from outside Quebec Province. Compare this to Melbourne, where in 1996 fewer than 16% were non-residents.

The advantages of a handy target international market were demonstrated by the 1997 Bledisloe Cup which, far more cheaply, attracted over 8,000 New Zealand visitors.

Given the high staging expenses, the Grand Prix has not been a cost effective event to attract international visitors to Australia or Melbourne.

Numbers of international and interstate visitors to the first Melbourne Grand Prix were well below forecasts – and evidence indicates that 1996 was the peak year for visitors. The government-commissioned consultant’s assessment of the 500cc motorcycle Grand Prix predicted that the numbers of interstate visitors will decline as they start to switch in higher proportions to other events.

And for a big city like Melbourne with regular inbound tourism, gross visitor numbers may inflate the actual net additional numbers. Tourism experts warn about the costs of displacement where cities which have regular inbound tourism host events with a brief impact, particularly in a peak demand month when occupancy rates have been a relatively high 75%.

A 95% occupancy rate may translate into a net increase of only around 6000 visitors. Tourism Victoria, in it latest strategy plan, has acknowledged the potential effects of accommodation problems surrounding major events on inbound tourism.

Putting Melbourne on the Map?

The Government has made much of the promotion benefits in justifying the economic and social cost of staging the race in parkland. This strategy has the attraction that claims are as difficult to disprove as to prove.

Studies of major events warn that ‘promotional benefits’ are difficult to measure. The Victorian Government’s commissioned economic evaluation of the 1996 Grand Prix noted candidly: “There is still no firm data available from tourism research bodies on the impact of international exposure of Australian cities from major sporting events on induced tourism.”

If the Formula One series were an effective promoter of venues, as opposed to countries, one would expect more larger cities to be in the market for the event, and more circuits would be located near cities. Because the television rights are controlled by Formula One Holdings, we are told little about which countries receive the race, where and who the viewers are . The target television audience, reported to be predominantly male and Asian, is not necessarily the optimum for Melbourne’s tourist needs.

Time for an audit

The Formula One Grand Prix has the hallmarks of a poor investment compared with other established events which use cost-effective venues and own the television and other rights. The 1997 Bledisloe Cup, for instance, generated more tourist dollars for relatively low staging expenses. The blow-out of costs and the excessive expectations of visitor numbers should prove to be lesson in the need for thorough assessments by government before signing contracts with international promoters.

Clearly there are many questions to be asked about the value of the event.

The new Victorian Government has a responsibility to taxpayers to undertake an open and comprehensive assessment of the costs and value of the Grand Prix before any further decisions about the contract for this event are made.