Bloomberg News

F-1 Brings $650 Million Race to Delhi Amid Struggles in Asia

October 28, 2011

(Adds stray dog on track in fifth paragraph)

Oct. 28 (Bloomberg) -- Formula One arrives in India this weekend with a $650 million bet that it will gain a foothold in the second-most populous nation even as races in China and Korea struggle to lure spectators to the world’s richest motorsport.

Organizers from Shanghai to Seoul have suffered financial losses in the last two years hosting races with half-empty venues, according to media reports. As India prepares to hold its debut F-1 race near New Delhi, only 70 percent of tickets have sold, event backer Jaypee Infratech Ltd. said last week.

“It will be tough for them not to follow China and Korea into losses,” according to Harish Samtani, a three-time Indian racing champion, who says that hosting an F-1 race is part of a project by Jaypee, a Noida, Uttar Pradesh-based construction company, to attract real estate investment into the area. “On its own, this is one of the world’s worst business models ever, a non-starter in India.”

This weekend’s racing is the climax of two decades of failed efforts to bring the sport to the subcontinent. The event is being funded without any government backing, unusual for a debut Grand Prix. Jaypee, controlled by billionaire founder Jaiprakash Gaur, spent $450 million to build a track and $200 million in royalties over five years. The company has priced tickets at an average $200 in a nation where the World Bank estimates 800 million people live on less than $2 a day.

During today’s practice racing was temporarily halted after a stray dog ran across the track. McLaren’s Lewis Hamilton set the fastest time during the session, followed by drivers’ champion Sebastian Vettel and his Red Bull teammate Mark Webber.

Chasing Cricket

Formula One is counting on growth in Asia and the Middle East after France was dropped from the schedule because it couldn’t meet the costs and Italy and Germany lost one of their two annual races. India’s expanding middle classes are ripe for new forms of entertainment such as F-1, according to the sport’s chief executive officer Bernie Ecclestone.

“India is one of the top five most important countries in the world today, so for us, it’s extremely important to be here,” Ecclestone told reporters in August. “I know we will never catch cricket in India, but I hope we will get close.” Ecclestone could not be reached for comment with three calls from Bloomberg News to his cell phone going unanswered.

This weekend’s organizers say the 12.5 million Indians who watched the Formula One championship on television in 2010 will be the foundation for the competition’s success. Yet watching drivers’ race $1 million cars remains a niche pastime in the nation of 1.2 billion people.

‘Flying Cars?’

“Is this the race with the flying cars?” said Sanjay Kumar Gupta, a 28-year-old taxi driver, who said he isn’t interested in the event. “When we think of sports, Indians don’t include cars.”

In India, where cricket is an obsession, other events have struggled to find an audience. About 135 million Indians watched their country defeat Sri Lanka in the cricket World Cup Final in April this year, more than ten times the amount who watched parts of the 2010 F-1 season, according to Television Audience Measurement of India.

In China, the F-1 audience has slumped after a surge in interest when the first race in Shanghai was held seven years ago. Ratings for the Chinese Grand Prix on the local CCTV network has fallen from 13 million for the inaugural race in 2004 to 1.5 million for this year’s event, according to Ma Guoli, the former managing director of the broadcaster’s sports channel who now works for Zug, Switzerland-based Infront Sports & Media.

‘Down and Down’

“The rating is going down and down,” Guoli said in an interview, citing competition with the National Basketball Association and the Champions League, European soccer’s top club event. CCTV declined to disclose audience data.

Calls to the office of the Chinese Grand Prix weren’t answered. Organizers are losing about $30 million annually after live audiences for the race slumped, according to the China Daily.

At the Korean Grand Prix, which made its debut in 2010, the promoters sold about two-thirds of tickets, according to the website of the local F-1 Organizing Committee. There are now doubts about the viability of future races, Korean Grand Prix promoter Won-Hwa Park told Autosport magazine last week. A person who answered the phone at F1 Korean Grand Prix Organizing Committee declined to comment or give his name.

The Malaysian Grand Prix is suffering financial losses after the race “lost its luster”, Razlan Razali, chief executive of the circuit told AFP in an interview this year. The crowd has dwindled to 97,000 over the racing weekend from 140,000 in 2006, he said.

Boosts Economy

Formula One can still be lucrative. Although Asia’s newest races are struggling, CVC Capital Partners Ltd., the private equity firm that controls F-1, gets more than $1.1 billion in annual revenue, according to a company filing in 2010.

The 82-year-old Monaco Grand Prix boosts the region’s economy by $120 million a year, according to Formula Money, a third-party annual report on the business of F-1. Singapore’s annual race, first held in 2008, brings in about $125 million in additional revenue, according to Formula Money. The races in Monaco, the U.K. and Germany usually sell out.

Jaypee’s Gaur said at a press conference last week that the race will showcase India’s ability to hold a global sporting event after last year’s Commonwealth Games were marred by late construction, filthy accommodations and corruption allegations.

“We decided that we will make the track so impressive that the shame of the Commonwealth Games will be forgotten and our pride will be restored in the world,” Gaur said. Jaypee spokesman Sameer Kumar didn’t answer three calls from Bloomberg News to his mobile phone.

Lady Gaga

Far from the glamour of Monaco’s seafront circuit or the city-center race staged in Singapore, the Indian Grand Prix is being held in the Delhi satellite town of Greater Noida in Uttar Pradesh, a state with poverty levels on par with sub-Saharan Africa, according to the World Bank.

The track, with two long straights and a series of sharp inclines and bends, includes seating for 110,000 spectators. Organizers hired pop-music acts Metallica and Lady Gaga to headline lavish after-show parties to attract Bollywood movie stars and wealthy Indians.

“There are too many people in India for F-1 not to be successful once,” Anurag Datta, 25, a lifelong F-1 fan and Standard Chartered Plc analyst said from Hyderabad. “I think motor racing is too complicated to catch fire like cricket.”

--With assistance from Alex Duff in Madrid and Rose Kim in Seoul. Editors: Christopher Elser, David Merritt.

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net

To contact the editor responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net


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