The main risk posed by the $500 million Las Vegas gamble to F1

The main risk posed by the $500 million Las Vegas gamble to F1

The new Formula 1 Grand Prix in Las Vegas this weekend is a half-billion dollar bet on racing in the sports and entertainment capital of the world. Formula 1 desperately needs it to work.

The race will take over Las Vegas, with cars racing down the famous Las Vegas Boulevard – known as The Strip.

Holding a grand prix beyond the legendary Vegas hotels and casinos, which have starred in countless films and TV shows, is expected to fuel Formula 1’s growth, especially in the United States.

But to do so, Formula 1 had to tear up its business model, put its hand in its pockets and invest heavily.

This race is not organized by an independent promoter who pays tens of millions for the privilege according to the usual model. Instead, Formula 1 is promoting racing, and will do so for at least 10 years.

The idea is simple. Las Vegas is a place that will attract huge interest not only in the United States, which is Formula 1’s priority growth market, but also globally.

The race will attract countless celebrities, VIP guests, and there will be some casual fans – or at least, those who can afford the high ticket prices that organizers justify due to the premium experiences on offer.

It will also provide extensive media coverage for Formula 1 around the world and is expected to have an economic benefit for Las Vegas of $1.3 billion.

But all this comes at a great cost. It is a cost that has crept in, partly because of the prevailing economic conditions, partly because Formula 1 is putting a huge effort into this race, and partly because of the additional security and traffic measures required. Furthermore, given the 10-year deal, the first year costs will inevitably be much higher than the ongoing costs.

At last count, Formula 1 said it had spent $280 million on building the pit area and building the circuit. This building will house permanent exhibitions, meaning Formula 1 will have a daily foothold in Las Vegas outside of the Grand Prix weekend.

The total cost of this event is expected to reach $0.5 billion. In fact, Liberty Media recently released figures indicating that spending through the end of September amounts to $435 million.

Whether the final total reaches or stays within half a billion, Formula 1 has placed a big bet on Las Vegas’ success.

A unique event

For this race to succeed, downtown Las Vegas had to be controlled. Formula 1 learned that lesson when the races held in the Caesars Palace car park in 1981 and 1982 failed four decades ago. No one in Las Vegas really cared, it didn’t bring much economic benefit and the drivers, teams and fans hated it.

It is often forgotten in the fog of the time that before this race began, some of the rhetoric surrounding it was similar to that of the Las Vegas Grand Prix today. This is a reminder that there are no sure things when you’re gambling, but there are a lot of things that are different about this new race.

While its placement in the middle of Las Vegas on public roads ensures that the 2023 event is everything the old Caesars Palace Grand Prix is ​​not, it does cause disruption. Disgruntled residents have complained about this, while it remains to be seen how the practical measures for opening and closing the circuit to traffic will work.

The compromise is that F1 has to accept the necessity of being on track late in the day. The race itself starts at 10pm on Saturday evening, making it the first Grand Prix to be held on any day other than a Sunday since the 1985 South African Grand Prix. It could even become the first Grand Prix to finish on a different day on which it started.

The entire weekend schedule is strange, with on-track running happening on Thursdays, Fridays and Saturdays and no support races.

Formula 1 has done everything it can to hold this race in terms of timing and logistics. She had to enlist the support of major hotels such as Bellagio, Caesars Palace and Wynn, in order to get this project up and running.

But it’s not just the cash, hopefully a marquee sporting event that also generates buzz on social media, but the potential for a paradigm shift in how Formula 1 promotes itself.

New racing model

If Las Vegas comes to fruition and F1 is showered with gold in the form of cash, publicity and Instagrammable racing experiences, it could have a seismic effect on F1 strategy.

In Bernie Ecclestone’s time, this would never have happened. This system was about convincing promoters – ideally with significant support from governments – to pay for races. It is a good model that Formula 1 largely follows today.

The limitation is that you are in the hands of third parties as to where you can race.

Liberty Media has identified Las Vegas as a prime location for a Formula 1 Grand Prix. Everyone in the Formula 1 paddock is confident it will succeed, albeit roughly also Confident with internal pressure to ensure that criticism is minimized – thanks to the level of interest in him He should a job. If that happens, this model of Formula 1 promotion racing will be validated.

Formula 1 is not considering doing all the promotions for the event in-house throughout the calendar as that would be a rash move. However, there is a possibility that it could add some additional races in key regions using this format as it attempts to grow the championship – and of course make it more profitable and boost the share price.

India, which Formula One had tried to dissolve once before a promoter pulled out, has been mentioned, and the appeal of racing in a country with a population of more than 1.4 billion is clear. Perhaps this promotional structure is also a way to fulfill Formula 1’s ambition of holding at least one race in Africa?

This is what makes Las Vegas such a high level of gambling. If it works, the money will flow and Formula 1 will get the proof of concept it needs. If it fails, it will be a blow both financially and to its growth plans.

How to measure it

It can be said that the true impact of this event on Formula 1 will only be understood in future Las Vegas races. But Formula One is confident that this is certain.

The true measure, of course, will be cold, hard cash. This race is likely to be unnerving for many Formula 1 fans, not only because of the sky-high ticket prices – the cheapest general admission ticket at the general auction was $500 for the three days – but also because it will be all about the celebrities, the glitz and the glamor, perhaps on a whim. Race calculation.

There have also been suggestions that the sharp decline in hotel room prices and tickets available near the event indicates that participation has not been as hoped.

But even organizers insist room rates have nothing to do with Formula 1 bookings and the plan was always to reserve some tickets for latecomers.

Ultimately, it is in everyone’s interest for the race to be successful as it will boost Formula One’s growth. This will be a good thing for everyone, even traditionalists who may find all the hype around Formula 1’s return in Vegas worrying.

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