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The Indian Grand Prix

Friday, December 23rd, 2011
indian grand prix

The excitement was palpable when it was announced that India will host its first Formula 1 Grand Prix on October 30, 2011. For car racing aficionados this decision by the World Motor Sport Council was ‘manna from the skies’ as the addition of the Indian GP to the F1 calendar will make 2011 a 20-race season for the first time.

The Budh International Circuit built specially for the event is a 5.14-km long track located on the outskirts of Greater Noida, 35 km from New Delhi. It was constructed at a cost of $350 million by Noida-based Jaypee Sports International (JPSI) and was designed by German racetrack designer Hermann Tilke, the designer of the F1 circuits in Malaysia, Bahrain, China, Turkey, UAE and South Korea.

The average time per lap taken by a racing car has been timed at about 1 minute 24 seconds. The track involves straights, 16 quick corners and elevation changes. The stands have a spectator capacity of 100 to 120 thousand people, and the main grandstand with a fabulous curved roof located near turn 10 and 11 alone can seat 30,000 people.

The F1 cars can zoom ahead at a 210 kmph average speed. The cars can reach 320 kmph in the main straight before braking into turn 4, making the track one of the fastest globally. An added feature is that the track can also be used for MotoGP and Superbike races.

Former F1 driver Narain Karthikeyan said that the track at Noida will promote Indian motorsports like it did in Malaysia. “I am very happy and excited by the announcement. To have an Indian team on an Indian circuit will be a treat for home fans. This will also ensure participation of the automotive sector in motorsports,” Karthikeyan said.

Brands in the Race

The Indian F1 has driven marketing and brand building activities to a frenzy in order to leverage the three day event to the maximum. JK launched carting events and pre-race parties two months prior to the event. Title sponsor Airtel announced a reality show to choose the grid girls and a competition to lay hands on the coveted A-ticket for those playing Airtel’s online racing game.

Not far behind, brand Vodafone also initiated activity-based marketing by conducting a contest to choose two consumers and two global enterprise consumers who will spend the race weekend with the McLaren Mercedes team. They also offered to put the logo of small and medium enterprises on a McLaren Mercedes car which traveled across metros in India to do laps and roads shows to promote the event.

JPSI and Mercedes Benz will establish a Performance Driving Academy in 2012, along with several other activities on a prolonged basis. All brands have leveraged the presence of the two Indian drivers Narain Karthikeyan for Hispania Racing Team and Karun Chandok for Team Lotus to promote their brands.

About 50 percent of the event tickets were complimentary, given by companies to promote their brands. The branding exercise also involves selling of company merchandise during the event.

The Economics of the Race

The organization behind the great event is JPSK Sports, owned by Jaypee Group. The investment is a whopping US$400 million but it is projected that the group will make a loss of US$35 million every year on the track. Which begs the question: why would a company launch itself onto such a loss-making project? Bhanu Pande and Ravi Tej Sharma gave an interesting account of the scenario in a September Economic Times report.

The operating structure of F1 gives race circuits global recognition only but no money, as it is the other associated opportunities which are lucrative. F1 comes under the Formula One Management (FOM), in which private equity firm CVC Partners holds 70 percent and financial services firm JP Morgan holds 20 percent. However the actual reins are in the hands of minority shareholder Bernie Ecclestone.

Ecclestone negotiates with teams and circuits and generally controls the outcome. The all-powerful FOM benefits from all revenues made from the sale of TV and Internet rights, gaming rights, and event and track sponsorships. The revenue made by FOM is shared among the teams guided by a formula. The circuits do not get any money but have to pay FOM US$35-45 million a year as license fee. The contract lasts for 5 years at a time with Jaypee spending US$15-20 million in operational costs that cover track and event management, logistics, and transport, taking the total spent to US$50-65 million.

However the revenue grosser for the circuit is the ticket sales. A huge turnout at the stands is a foregone conclusion and no seat is expected to be empty during the races (the 2004 and 2010 maiden races in China and South Korea respectively did not draw enough audience spectators, owing to the high ticket prices). Razlan Razali, the CEO of Sepang International Circuit, which hosts the Malaysian F1 race, opined, “India, unlike China, has some motor sport history. If it is promoted well, the event will draw greater traffic than it can handle.”

Other ways to make money from the tracks are through MotoGP and Superbike series of motorbike races. The track can be rented for testing purposes for automobile and tire manufacturers. The site can also be used to host trade shows like the biennial Auto Expo, organized by the Indian Trade Promotional Council. The infrastructure surrounding the track can be used for conferences and concerts too.

Another business idea is to collect fees from individuals who wish to drive a F1 car, as is done in the Malaysian circuit. There is no dearth of ideas to leverage the track in various ways to realize profits according to Jaypee Group officials.

The Indian Grand Prix will be made special by the participation of racing stars like Michael Schumacher, Fernando Alonso, Jenson Button and others. The event is exiting not only for fans but it is welcome as an employment provider for staff like engineers, medics, pit crew, racing managers and marshals.

The logistics support required is humongous and needs huge investments in hotels, transport, security and international standard sporting facilities. The Indian Grand Prix will surely result in an uplift in physical infrastructure too. Further, the domestic automobile sector will get new avenues for growth.

According to Indian F1 driver Karun Chandhok, “With the Indian GP, more people in India will have access to not only F1 but motorsports in general. For me personally, it will be thrilling to be on the grid and hear the Indian national anthem before the start of the Grand Prix.”

This sums up the excitement in the hearts of racing fans in India.

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