Australian GP Financial Results: Not As Bad, but Some Disturbing Trends

The Australian Grand Prix Corporation released its 2008 Annual Financial statement, which drew many negative news headlines.  For example, the Guardian writes: “The Australian Formula One Grand Prix lost A$40 million in 2008.”  Statements like these are misleading, and after having looked through the AGPC report myself, I wanted to clear some things up. 

Technically speaking, the 2008 Australian Grand Prix LOST approximately A$3.3 million, and COST the Australian taxpayers A$40 million. This may seem like a minor differentiation, but in fact it is an extremely important point. All large-scale events require government funding. When looking through the income statement, the Australian Grand Prix Corporation lists government funding as a source of revenue. So to say that a source of revenue is a loss is not only misleading, it is entirely inaccurate from a financial analysis perspective.  If a solar panel company receives government subsidies every quarter, an investor considers that revenue, and would never say those funds were “a loss,” nor would any respectable newspaper write such a headline. 

Also it should be noted that in 2007 an Australian government sponsored audit was conducted to determine the economic benefit of the 2005 Australian Grand Prix.  The most conservative calculations determined that approximately A$62 million was generated, which would mean that the Australian economy got a net boost of approximately A$48 million (the government spent A$14 million for the 2005 GP).

Ok, now the disturbing trends. 

Sales Revenues (2004): $40,392
Sales Revenues (2008): $34,899
Down 13.6%

Total Revenues (2004): $51,105
Total Revenues (2008): $43,257
Down 15.6%

Government Spending (2004): $12,559
Government Spending (2008): $40,136
Up 219.6%

Also, the Australian Grand Prix did lose A$3.3 million.  Theoretically it works out to be that for every one dollar the AGPC earned, it incurred costs of $1.04. Again, this is a large-scale event, and you really have to take into account spending multiplier effects to accurately gauge the net results, but still, the numbers don’t lie.  With numbers like this, cities wishing to host a Grand Prix better have good politicians to convince their taxpayers to agree to a financially unprofitable event.