Formula E: Less Could End Up Being More In New York; Or Not

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According to an old racing homily, “Cubic Bucks Equal Cubic Inches”, and when it comes to considering the costs of mounting a major motorsports event in New York the saying will still apply.  However, along with well-understood concerns associated with New York’s recurrent budget problems, to make things more difficult, most international motorsports contracts offer few, if any, revenue-share opportunities for the city to look forward to.

For example, using today’s typically accepted Formula One revenue model, the commercial owner, Formula One Holdings and its German underwriter CVC require a licensing fee payment prior to putting any round on the world calendar, and once those monies are paid, the group also takes all revenues derived by domestic and international TV broadcasting, along with any brand-related concession monies before, during, and after an event. This means that any event/city revenue generation would have to come from already-limited sources primarily driven by ticket sales, or create other secondary revenue streams that could be ginned up.

Even in the event, though, one might accept the up-front license model if the price was comparatively “reasonable,” but after all, how ‘reasonable’ is a $27 million up-front cost, plus an escalation clause of 10% in case a follow-on race is mounted? Now, enter Formula E who, on the other hand, asks for no event license fee per se, but instead only requires that a venue-holder provide prime real estate for each of its events.

Regardless of the Formula E cost break, however, the Big Apple will be on the hook in spades, since the city and its organizers will have to absorb the price of up-front circuit development, along with other significant infrastructure items such as securing, managing and paying for a downtown site, that local businesses will undoubtedly frown upon and/or desire to charge for. Then, on top of those issues, the cost of municipal and union-wrangling will have to be calculated, and finally ‘happy’ costs associated with active hospitality, marketing and promotion.

In the latter events, at least the city would be actually trying to attract money, as opposed to its previous money-out effort, but even that evolution would engender even more cost at the back-end. So, once the projected totalities of accounting were to be finally counted up, any suggestion of a chunk of the rock, could quickly become a spitting, flaming Krakatoa of new debt in no time.

On the upside, however, New York organizers see value in the potential of leveraging the premise of a new all-electric motorsports event, since any business play in mid-town would imply enormous commercial value. Additionally, this type of attraction could also set the city apart by establishing an urban green car sports brand that could lead to even more eco-driven commercial largess down the road.

Consequently, no one is trying to throw the baby out with the bath water, since according to Formula E’s CEO Alejandro Agag there’s room to move should the ball drop, “We are working with New York but we are kind of waiting to see what happens with Formula One,” he said, after recent news that its Formula One competitors had delivered past due licensing monies.

Regardless, however, Agag and Formula E still see enormous potential on the horizon, “In New York the hospitality revenues would be huge,” he suggested even though Formula E’s 2014 calendar is already complete, “(the calendar) will grow to 20 (events) by 2019.”

In the end of the day, however, investment from New York City itself is going to be the sticking point, and given all the issues it has to contend to on a daily basis, why would it go the extra mile just to hold one motorsports event; green or otherwise? So, it remains to be seen if either opportunity will pan out, but watching all the activity around these questions will be worth paying attention to anyway since, if anything else, New Yorker’s love a good fight; win or lose.