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Ecclestone Checkmates The Indian GP

Indian Grand Prix (Courtesy: JPSI)
Posted: July 30, 2013 at 5:45 pm   /   by   /   comments (7)

(Views expressed are personal; lengthy read but I hope you find it interesting!)

Bernie Ecclestone cited two words (“very political”) as his reason to ‘axe’ the Indian Grand Prix from the calendar of the 2014 Formula1 season causing a furore amongst Indian Formula1 fans and media. I didn’t check, but I am guessing that the topic was probably trending on Twitter. After all, there are reportedly 25 million (by ESPN!) Formula1 fans in India and I am certain that a high percentage of those fans are active social media users.

Within 24hrs of him uttering the ‘two words’, he confirmed that the Indian Grand Prix would be ‘dropped’ from the 2014 calendar and ‘could’ be back in 2015. The reasons cited (this time) were scheduling related, which also meant in some way that India can’t pull off what Malaysia did in 2000. FOM wants to host the Indian GP in the first half of the season, preferably during the first few rounds when the circus tours Australia, Malaysia, China and Bahrain. This seemed like a ‘convenient’ reason to offer indicating that India (more so JPSI) wouldn’t be able to host two races in a span of 5 months! I don’t entirely agree with this view, except that if it is difficult to get Indian fans to purchase an F1 ticket once in 12 months, it would be far more difficult to get him to purchase twice in 5 months!

Indian Grand Prix (Courtesy: JPSI)

However, after tracking the developments (and editing this post nearly 5 times in 24hrs), I get a feeling that all is not hunky dory with the Indian Grand Prix organisers and FOM. And of course, Ecclestone has played a very smart move (almost a checkmate, I’d say) with JPSI. He’s indicated a ‘could’ add to the 2015 calendar (no guarantees yet!), giving JPSI an indication that they have another year to get their act together (read: with the government issues) failing which Formula1 could bid a goodbye to India. So the writing is pretty clear on the wall, get the government to act in favour, else ‘buckle your seatbelts Dorothy, ‘cause Kansas, is going bye-bye!’.

At the same time, Ecclestone has ensured that he’s kept everyone guessing about this possible inclusion, because the calendar for the 2015 Formula1 season would need to be submitted only in September 2014! And this also means that he has another year to convince teams and drivers to increase the number of races in a calendar year to more than 20! (Yippee!)

The other way of looking at this scenario is that Ecclestone too is worried about the 2014 General Elections (NaMo vs. RaGa) affecting viewership, followership and attendance of Formula1!! And if you are a Congress or BJP party worker, a sure shot way of attracting the 25 million strong F1 vote bank would be by publicly stating support for the Indian Grand Prix for the next ten years before the other party does!!

Why do I think things are not hunky dory? Read on. ‘Political’ reasons may be out of reach and understanding of the average Formula1 fan in India (this includes me too!), but a closer look at the numbers could reveal why there’s a re-think to bring the circus to India. And before you proceed to read, please do keep in mind that while my Formula1 blog treats Formula1 as a sport first and then as a business, I have reversed the logic for this post.

After much confusion and talks of postponement the Indian Grand Prix had a grand opening in 2011. I had written several posts about the arrival of Formula1 in India; ‘Sports Marketing Around The Indian Grand Prix’ and ‘Which Stand Is The Best At The Indian Grand Prix?’ are still well read posts on my blog. The Buddh International Circuit (BIC) reported a near sell-out as fans, sponsors (and their guests), babus and media flocked the race. However, the 2012 Indian Grand Prix was when things started to go awry. The organisers struggled to sell tickets and the reported race attendance figures were far higher than the actual. (I wish I could access data on purchased vs. free tickets too!)

While the 2013 Indian Grand Prix ticket sales are yet to start, one wouldn’t be surprised if it would meet with similar fate as the 2012 edition. OR is the announcement about the ‘axe’ a marketing ploy by FOM and JPSI to create urgency amongst fans and get them to purchase? It would be foolish to imagine so, strictly in my personal opinion. OR is this because JPSI has reportedly delayed their 2012 payment to FOM and Ecclestone wants to play his hand first by declaring India as a not-important market? Anyway, if one were to save the Indian Grand Prix from facing the axe, a long-term solution is needed. (No solutions in this post, just the problems!) And all this while, I was hoping that an Indian tyre supplier would replace Pirelli in 2014.

First, the pricing. The race hosting fees reported around $40 million per year always seemed extremely high for a nascent market (more like a first timer!) like India. To top it further, the number escalated annually by a further by 10%. The lesser known fact also is that when the JPSI (Jaypee Sports International) signed the contract with FOM, the dollar values were around 45-47 whereas now it has crossed the 60 mark! A further 15-18% increase in cost!

There are rumours that JPSI have requested Ecclestone to revise their race hosting fees and such a request isn’t uncommon and has been favoured in the past with other circuits as well. But with New Jersey, Russia and now Austria willing to pay to host the race next season, a businessman of Ecclestone’s acumen would certainly jump ship at the smell of new money! (Read: Formula1 Needs To Market Itself Better As It Enter New Territories) And of course, we rejoiced the return of Austria not knowing that it could be at the cost of India! (Read: A1 Ring Returns As Red Bull Ring)

In a typical market, this price escalation would trickle down to the consumers who would purchase the product. But in this case, F1 tickets were anyway too expensive for the Indian audience and an increase in price would’ve led to a further reduction in ticket sales. And ticket sales is one of the major revenue streams for JPSI to recover their expensive hosting fees! With this in mind and to boost ticket sales, the 2012 tickets were being sold at nearly 50% of their original value. Even after which the sale of tickets were nowhere near forecasted numbers, or numbers that would impress the balance sheet.

And importantly, Delhi is one of the major F1 markets in India, but not the only one. For Formula1 fans traveling to the BIC from across the country, the prohibitive cost of air travel coupled with lack of inexpensive accommodation near the circuit also turned a major deterrent. JPSI even offered free travel for ticket holders from the city to the circuit, but for many fans, the cost of watching the race in your own country was as (if not more) expensive as watching it in a ‘foreign’ country like Malaysia or Singapore! And given our mentality (I don’t see anything wrong with it), the foreign destination always seems more sensible to visit. Because if I am seeing it in India, the ‘Sir, ‘match’ ke liye ‘pass’ milega kya’ is the preferred option!

Second, lack of government support. There are umpteen stories of Customs duties and the difficulty to bring through car parts and upgrades. It is also known that the Government of India treats Formula1 as entertainment and not a sport, hence there is a heavy tax levied on the Indian GP (added cost to consumer!). While the government has reaped Tourism benefits from the Indian GP (there’s no official claim, but globally Govts. wouldn’t be backing F1 if tourism benefits weren’t proved) it has failed to support it back either with investments, tax breaks or even recognition as a sport. Moreover, F1 teams have been taxed on their revenues from the Indian GP and not the profit (I am still to confirm this), which doesn’t seem like normal business practice. The other GPs that have run without government support are the United States GP (at Indianapolis) and the British GP (run by the BRDC). And we know what fate the USA GP suffered!

Shah Rukh Khan, Vijay Mallya, Subrata Roy at the Indian GP

Third, the 25 million fans! The BIC can accommodate 100,000 fans each day of the Indian GP. While pricing has already been identified as a problem, I don’t think fans came out in support of the race. And I mean financially! I am sure the race was consumed well on TV, online and on social media, but how many fans actually spent their own money and visited the race? How many fans bought authentic team merchandise? The numbers for the latter are low enough to keep the merchandise distributors away this year. And to think of it, BIC was relying on only a small % of the 25 million fans to spend money and visit their facilities! (Do the math!!)

Fourth, Formula1 itself. In some way, the Govt. of India’s view isn’t wrong after all. FOM is a private company that operates Formula1 as a business to earn profits. This is similar to the international DJs who come to India, perform, earn ticket revenues, pay taxes and leave. So why single out F1 alone? And even more so, is F1 spoilt for choice given that the other emerging markets are willing to offer these favourable breaks which only help increase its profits? But since I want the Indian GP to be hosted for years to come, I wish that dialogue between the Govt. and FOM and related parties will resolve all disputes. And Ecclestone is known to be a master at managing governments, but on his terms!

On the same note, there is little that the organisers make back with this association and it is known that rarely do hosting venues make a profit! The share of revenues from title sponsorship (Airtel in this case) and the track advertising and hospitality isn’t even (can’t remember what the % is!), making it all the more difficult for the organisers to break even on their investments, let alone make a profit. And for the lesser known, TV revenues are only for the F1 teams and FOM, no share for the circuit owners / organisers.

I have read various reports and comments stating that the track wasn’t good enough and that the venue should’ve been Chennai or Coimbatore, which have traditionally been the hub for Indian Motorsport. But the irony is that in 2011 and 2012, the Indian Grand Prix was voted as the ‘Best Promoter’ amongst all the organisers. And I am not sure you agree, but the problems stated above would’ve existed even if the race was held in another city altogether. (Read: Can Mahendra Singh Dhoni Be The Ambassador For Indian Motorsport)

So what next for the BIC? Well, the investment by JPSI still stands through and the circuit will make alternate revenues via hosting the World Superbike, MotoGP (in the near future) and by renting out their track for track days to various automobile manufacturers (Yes, the silly stunt-y Tata Indigo ad was shot there!) and sports car clubs. To top that, the appreciation of land cost (even more so after the Yamuna Expressway) would add to JPSI’s investments and hopefully the sale of real estate in their ‘Jaypee Sports City’ too (data left unchecked). But will this help recover the near $400 million investment made by the Jaypee Group? They certainly need to keep hosting the Indian GP and hope that traction will pick up and so will their F1 related revenues.

Also, they’re in a spot with respect to the scheduling. Either host it in March / April or face exclusion from the calendar. While increasing summer heat in that period is something I guess the teams and drivers could get used to, but will the fans choose to step out in the afternoon sun? And Formula1 as a business could face serious lack of interest if it even remotely interferes with the IPL! (Read: What Formula1 Could Learn From the Indian Premier League)

Overall, I will be disappointed if the sport does leave our shores. While I know India as a country can’t be ignored in the overall scheme of things, I think I would label Formula1’s first attempt to establish itself in India could have done much better with government as well as fan support!

And now, after the lengthy read, here’s Rishi Kapoor and me in this week’s episode of the Inside Line F1 Podcast. I will keep things short, but we looked back at the 2013 Hungarian Grand Prix which was a fine balance between talent and tyres. So much so that we had difficulty in choosing our best driver! Although it was easy to choose the best overtaking move of the race! We talk about the August shutdown, what and why it is and how we will keep you entertained even while there is no action on track! (YouTube: http://youtu.be/LI3Feb1G3kU)

The Inside Line F1 Podcast is now available on various platforms and I would urge you to choose your platform to listen to the humour that we add to the otherwise serious and complex sport of Formula1.

If you are an Apple user, you can subscribe to the Inside Line F1 Podcast on the iTunes Podcast Store or via our RSS feed (for Android / Windows / Blackberry users).

The Inside Line Formula1 Podcast is produced by Rishi Kapoor and Kunal Shah. Follow us on Twitter and on our Soundcloud, MixCloud and YouTube channels.

  • the venue

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  • The Indian Grand Prix, if it was billed $40 m for its first year, got a good deal for a newcomer race (newcomers get worse deals than established locations). China was charged similar in 2004, and I’ve heard amounts of up to $50 m as “starting figures” for Abu Dhabi and Korea. Bernie effectively gave India a discount because he was desperate to get into the country at a time when there was relatively little demand for F1 in other countries.

    The Concorde Agreement or lack thereof is a significant factor here. With Concorde, there can only be 20 races in a single season. The reason is simple: the teams would require a second race crew to staff the races and the onset of “series fatigue” (the phenomenon where people stop watching parts of a series because watching all of them requires too much time commitment) outweighs the financial benefit of visiting more countries.

    However, the Agreement expired at the end of 2012 with nobody looking even close to coming up with a mutually satisfactory agreement. Bernie took this as a sign that Concorde would never be signed and that he could therefore act as he pleased. So he tried to sign as many tracks as he could, guaranteeing Russia its previously-mooted spot, trying to bail out the troubled New Jersey Grand Prix, and welcoming Austria back to the calendar. Doubtless there would have been more had the world not been in recession at the time.

    However, the FIA and FOM agreed this week on a plan that may eventually lead to a Concorde Agreement. This has put Bernie in a sticky situation. If Concorde goes back and he can’t get the teams to agree with him (very difficult, as nearly half of them can’t afford the plan he’d ideally use), then he has to somehow lose 3 races. New Jersey has probably quietly lost its support, and will now have to get onto the calendar on its own. South Korea will probably bow out due to lack of will to spend on F1 (or indeed the area where the track is situated). However, that still leaves one race that Bernie has to drop, and no obvious candidate.

    Enter the Indian tax situation. Noting that 6 teams (McLaren, Lotus, Sauber, Williams, Caterham, Marussia) rely on pay driver(s) to stay solvent as it is, and at least two others (Force India and Toro Rosso) are in some sort of financial stress, the “revelation” that India, like France, taxes multinationals on the proportion of earnings believed to have been generated in the country. In India’s case, this is because F1 is classed as an entertainment rather than a sport, something that’s become increasingly difficult to dispute since F1 signed the original deal. As an entertainment, F1 cannot gain exemption from the Indian tax regime. Perhaps if it had ever been an amateur sport in India, things would be different. But India’s first contact with the motorsport world was in a professional capacity, with at least some people involved (engineers, organisers) getting paid for the racing. (I refer here to the many attempts to develop “grass-roots” racing in India). Motorsport is simply too complex to have ever been in the hands of unwaged hobbyists alone, for they have always had to rely at least partially on paid experts to build and maintain the cars involved.

    F1 is not being singled out; it is being asked to pay taxes like the international DJs, as opposed to the professional sports teams that visit India, don’t pay tax and leave. India’s tax position is eminently logical… …but not expedient at this moment.

    The US Grand Prix at Indianapolis’ crime was not its taxation policy (it issued a standard $10,000 tax bill, as does Canada now, paid proportionately by Bernie and the teams). Its “crime” was that it had plenty of more profitable series wanting use of the circuit, and F1 was proving a millstone to its reputation (it never forgave F1 for a series of PR blunders committed there, ranging from Ferrari’s attempt at a staged finish in 2002 to consistent harsh penalties against local favourite Juan Pablo Montoya – not to mention the 2005 tyre debacle). So the Indianapolis track boss deliberately priced his track out of the market, and opened the doors to NASCAR to have a flagship race there. Everyone was happy except F1, which has regretted the incident ever since. The current US Grand Prix also has no state funding for the race, though the circuit did receive a $25 m grant for developing the facilities (even that was highly controversial and nearly derailed the race).

    The UK almost lost its F1 race in 2009, because Bernie prefers to deal with businesspeople he can easily outmanouver, rather than club members who tend to ask tough questions, debate the answers and then ask tougher questions before getting themselves a good deal. Only the disaster that was Donington Park’s attempt to upgrade itself to F1 status with no detectable source of money, combined with F1 teams’ demand that Britain have a race and a lack of interest from elsewhere, saved the day.

    Bernie used the fees as an excuse to get out of the contract, indicating that F1 can no longer afford to be present there. Since it was the only country to offer an “out”, it was the one that got dropped. Bernie could not risk waiting for another opportunity, because if he failed to find one in the 6 weeks before he is required to offer the FIA a provisional calendar, he would be sued by whichever track (or tracks, if I am wrong about Korea, or New Jersey gets its act together) was/were to be disappointed about missing a calendar slot. This is also why the news came out this week, rather than last week or next.

    It may, like Bahrain in 2012, get rewarded for this with compensatory races on better terms than previously – but only if Bernie gets the teams to accept 24 races, second race crews, and (for many of those teams) bankruptcy or increased financial marginalisation.

    It must be said that if JPSI had had a full stadium, it would have needed to charge $400 per ticket on average simply to cover the 2011 “Bernie fee”. This is simply not reasonable given the extra costs an Indian faces if they must travel out of state. India from its northernmost to southernmost tip is only a little shorter than the distance between the US Grand Prix and the proposed New Jersey Grand Prix. In the rather-more-consistently-prosperous USA, F1 is trying to get 2 races because people from the USA’s east coast can’t afford to go to the US Grand Prix (which is near the west coast). Unless a significant number of Indian F1 fans are richer than the average American fan (and some of the American fans are pretty wealthy by American standards), there was no way of pricing the race so that Indians could afford to get there and enjoy it without eventually making it too expensive for the organisers to justify. (Note that track advertising doesn’t go to the organisers, but to a sub-contractor of Bernie. The only monies JPSI can get are from tickets and race sponsorship). Perhaps holding the race in central India might have helped, but then there would be transport issues – the international airports for India tend to be on or near the coasts, Delhi apart.

    Team merchandise would not have helped the situation, for JPSI does not make money on the stands and neither does Bernie. The money goes to the teams, and whoever they’ve sub-contracted to sell merchandise at the Indian GP. The issue of whether India kept the Grand Prix was not in the fans’ hands, and with hindsight never was.

  • Siddharth Shyamsundar

    A few things
    1. Alonso would really be getting frustrated at Ferrari, and I think Ferrari know it. He had a competitive car back in 2007, and then when he moved to Ferrari in 2010, he has well, not had the car he used to have. I believe Ferrari and Mclaren havent really coped with the regulation changes since 2009, and that is what is causing them to loose out to Red Bull. Then again, RBR has Adrian Newey

    2. How much ever I love F1, I believe the Indian grand prix deserved the axe. While the ontrack action is great, the organisers have been pathetic with off track events like autograph sessions and all of that. Usually, every team has 30 minutes for an autograph session on Thursday, but this concept isn’t there in the Indian GP. Instead, as far as I saw last year, those with “contacts” got to meet with the drivers. So i believe that is pretty ridiculous.

    Anyways, great write up Kunal

  • That’s a lotta info!!
    Glad Pirelli found the much needed symmetry finally!
    Wow, I cannot believe you used your blog to woo Cong and BJP workers, this explains why you added that extra disclaimer this time around…..master stroke :-)
    But the problem would be that, the vast majority that shouts(supporting one of them) online never votes, that is the truth!

    Rightfully pointed out that, vast majority of Indians are happy sitting on the couch and watching the race……but it is also a great failure from Marketing/PR end, for not having made an impact in Indian Market before bringing the sport to the country.
    It is always the anticipation of what is new and shining makes the audience take a glimpse first and then do their research eventually.
    Even if Indian Motorsport Council had not spent too much on promotions based on conventional marketing, they should have atleast gone for some Guerrilla marketing(all this before bringing the GP to our shores, see it is not always about the die-hard existing fans.).
    Even Badminton was not a big deal until 3 years back in India, although it is one of the oldest Sports(Media never covered this sport either), but now it is making some noise, you know why!

    Also, that is a damn good point on the value of rupee against dollar being an issue. But I’m sure a part/percentage of the contract amount would have been hedged(I’m talking from the IT perspective!)…so the impact should not be too devastating for the involved parties.

    As pointed out by you, there could be umpteen reasons like exorbitant tax, bureaucracy, customs, viewership decline, high pricing of tickets & what not – But if we are not gonna host the GP in 2014, I think India would lose face before World media yet again. Well, Common Wealth games being the starter – made a deep impact and we drew flack from moreorless every county that participated, deservedly so! :)
    Probably F1 is the only sport hosted in India with not many negative feedback from World media and here we go, we bungled it!

    Hosting F1 race in April that too in Noida is a bummer….apart from making fans buy tickets one more time, the infamous ‘Heat Wave’ would engulf the entire circuit and there is gonna be too much dust, wind and god forbid, the tyres may even blast one after the other….. The timing would be a total disaster.
    I have stayed in Noida during summer time and trust me – even if FIA pay for the ticket and ask fans to attend, not many will! It is a very bad idea! This is why, they should have built the circuit in Bangalore 😉
    On a serious note, knowing Indian audience’s spending ways – the circuit should have been built in a neutral area(somewhere in the mid) which is better accessible to fans from every part of the country not just by air. So market research failed yet again or probably it was never done!!

    Btb very good write-up to explain the actual situation as is, pertaining to Indian F1. I read couple of other news sites and trust me, your post summed up every required bit of info and also gave some extra pointers that were not covered by those sites.
    The third guy from the left is Gulshan Grover…Did you leave him intentionally.. HaHa!!

  • ani

    I think the font used is worst for reading . The brown and black are so similar and sporadically used . Sorry guys good report bad tyography

    • Thanks Ani. Feedback accepted. Will get this changed in the new UI that I hope to deploy once I get a good person to guide me technically. Cheers!