The Relationship Between Hosting Formula One Race And The Economic Growth Of The Nation

Posted on: Last updated on: Author: Topic: ,

The Relationship Between Hosting Formula One Race And The Economic Growth Of The Nation

Ansh Arya

Wellington College, Wellington, New Zealand; ansharya2805@gmail.com

Abstract 

In this paper I investigate the underexplored relationship between hosting a Formula One (F1) race and sustainable economic growth in emerging markets and smaller nations. Like many forms of sports tourism, F1 attracts large crowds that travel specifically for the event and continue to spend on adventure tourism, hospitality, and local shops, providing an expansionary boost to the local economy. Additionally, the global visibility of F1 puts the host country in the spotlight, showcasing its attractions and natural beauty to millions of fans, which can entice further travel and act as a form of advertising.

I address how F1 races influence long-term economic growth in emerging markets and smaller host nations.

Keywords

Behavioral and Social Sciences; Other;Formula One (F1); Economic Growth; Sports Tourism; Emerging Markets; Sustainable Growth; Global Visibility

Introduction

Formula One, a travelling circus with 24 spectacular races every year that attracts millions of fans live and even more on the screens from home1. The series has hosted over 1,100 races over 74 seasons and has visited 77 circuits in 34 countries2 and has become the pinnacle of Motorsports, as well as an attraction for many fans all around the world, that even fly thousands of kilometres, to various countries, to be part of the spectacle of the circus that is Formula One. With the influx of these millions of fans every year, we see a large economic impact that Formula One has the potential of creating, from local tourism to small business, and hospitality, many streams of an economy's income may be bound to benefit3. In this article, we investigate the relationship between the addition of a Formula One race to a nation and the economic growth that may pursue out of this. Seeing the effects, primary and secondary, of this sports event on the nation's economic growth, and if this potential influx of tourism is a benefit or not. 

Sustainable economic growth is defined as enduring benefits such as improved infrastructure and increased global visibility. I hypothesise that F1 races contribute to such growth. This study includes regions like Southeast Asia, Eastern Europe, and Latin America to provide a broad perspective.

This research offers original insights into F1's economic impact, connects findings to broader economic theories, and acknowledges potential biases and limitations. It provides actionable recommendations for policymakers and event organisers. By integrating innovative methodologies and focusing on underexplored areas, the study and paper offers valuable contributions to the field of sports economics.

Existing literature covers the general economic benefits of sports tourism; however, this research uniquely contributes by exploring the long-term, sustainable economic effects of Formula One races. It specifically examines how these events influence local economies, not just through immediate tourism revenue but also through broader, enduring economic impacts.

This research is significant because it advances the understanding of sports tourism economics by highlighting the specific contributions of Formula One. It provides valuable insights for policymakers, stakeholders, and economic planners in emerging markets who seek to leverage major sporting events for sustainable economic growth and enhanced national visibility. Figure 1 shows the large crowds and popularity of Formula One at the Dutch Grand Prix (Figure 1)

Figure 1: Formula One’s growing popularity, and large crowds. (Source: Ayushi Jha, 2024)

Result and Discussion

Argument 1: Yes there is an impact of sports generally on the economy 

Today Sports and Tourism are among the world's most sought-after leisure experiences4. In fact, German tourists accounted for 32 million sport-oriented trips a year, or 55% of Germany's outbound travel 4.  As with any human activity, there is a range of potential positive and negative impacts associated with sports tourism, and an understanding of these is useful in informing the tourism planning and management function within both public and private sectors 5. Practical and academic interest in sport tourism has grown exponentially in recent years, largely due to the democratisation of sport and tourism 5. The assumption that events can have positive economic impacts has increased interest in hosting by many destinations worldwide6. Sports events have the potential to bring substantial short-term economic benefits to the hosting region by attracting visitor expenditure as well as long-term benefits by enhancing the region’s image as a sports tourism destination7. 

Sports and tourism are among the world’s most sought-after leisure experiences, with Formula One (F1) races offering a distinctive case study in this sector. Ritchie4 highlights that sports tourism significantly contributes to national economies, with sports-related trips making up a substantial portion of outbound travel, as seen in Germany. The commercialization and global appeal of sports events have driven increased interest in hosting such events, reflecting a broader trend in sports tourism6.

While research on general sports tourism indicates various positive and negative economic impacts8, Formula One provides a particularly compelling example due to its scale and international draw. F1 races attract hundreds of thousands of visitors and generate substantial local spending on hospitality, transportation, and retail 7.

This study will utilise dynamic econometric modelling to quantify the short-term and long-term economic impacts of hosting F1 races. By applying advanced econometric techniques, such as time-series analysis and impact assessments, the paper will provide a detailed analysis of the revenue streams associated with F1 events. Additionally, comparative case studies will be employed to contrast the economic impacts of F1 races with other major sports events. This approach will help isolate the unique contributions of F1 to local economies and assess its broader economic footprint.

For example, the economic impact of the Monaco Grand Prix will be compared with other major sports events, examining both immediate revenue boosts and longer-term benefits, such as enhanced global image and sustained tourism growth9. The comparative analysis will also address potential negative impacts, such as costs associated with hosting and infrastructure demands.

By integrating dynamic econometric modelling and comparative case studies, this paper aims to provide a nuanced and comprehensive analysis of how Formula One races uniquely influence local economies, highlighting both their immediate and enduring effects.

Argument 2: More specific to the impact of Formula 1 on national economies 

In this paper, I examined the economic impact of hosting a Formula One (F1) Grand Prix on national economies. F1 stands out as a significant case due to its broad commercial appeal and substantial international audience9. With its extensive global viewership and high financial turnover, F1 races have the potential to attract considerable tourism and stimulate various forms of economic activity in host regions, leading to positive outcomes for local economies10. For instance, the economic impact of hosting the Formula One U.S. Grand Prix in Austin, Texas, generated an estimated $300 million in tourism-related revenue in 2019 alone. However, these economic benefits are not guaranteed for all host nations. The high costs of hosting, which often include infrastructural investments and operational expenses, can outweigh the short-term gains, particularly in smaller or emerging economies11.

While the annual recurrence of F1 races allows for more efficient use of infrastructure, compared to other major sporting events like the Olympics or FIFA World Cup, which occur less frequently, this advantage primarily benefits larger or more financially stable host countries11. For smaller economies, the return on investment may take longer or be less certain, raising questions about the long-term sustainability of such economic gains. In some cases, investments in infrastructure for these events have led to under-utilised venues post-event, contributing to financial strain12.

Moreover, although the F1 industry serves as a microcosm of the global economy, offering new business opportunities in developing nations, the distribution of these benefits is not always equitable. Large corporations and well-established businesses often reap the rewards, while smaller local enterprises may face displacement due to rising costs or limited access to resources. Additionally, the environmental and social impacts, such as increased carbon emissions and community disruption, are important considerations that are often overlooked in purely economic assessments.

Argument 3: Some countries where Formula 1 added to sustainable growth and economic activity/papers published in the last 4-6 years 

Sustainable growth through hosting Formula One (F1) races manifests in various ways, particularly benefiting small and medium-sized enterprises (SMEs). Compared to other types of SMEs, such as those in the financial and educational sectors, tourism-oriented SMEs report higher growth in turnover, profits, and improved corporate and brand image due to the influx of international visitors for F1 events13. The Shanghai Grand Prix is a notable example, where hosting F1 fostered increased collaboration between local businesses and other sectors, contributing to broader economic growth. Additionally, there is considerable evidence supporting the importance of strengthening community involvement in Shanghai to ensure a lasting impact on local society and maximise long-term benefits8.

These economic benefits are not limited to Shanghai. Similar patterns have been observed in other countries where F1 circuits have been established, with reports of significant boosts to the local economy. For instance, the Circuit of the Americas in Austin, Texas, has consistently shown a clear and positive economic impact, with local businesses benefiting from the influx of tourists and international attention generated by the F1 events11.

Argument 4: How there is room in NZ to create a large sports economy?

Researchers have recognized that people have been travelling to compete in and watch sports for centuries14.In small destination countries like New Zealand, the sports tourism industry can significantly contribute to marketing and economic development4. Recent studies on the Super 12 Rugby Union in New Zealand and Australia highlight the competition's ability to attract both domestic and international visitors, resulting in substantial visitor expenditure4. When New Zealand hosted the America’s Cup, it attracted an additional 120,000 visitors to Auckland, along with over 2,000 media representatives from more than 40 countries, providing the nation with valuable international exposure estimated to be worth NZ$90 million. Economic assessments projected that the Cup could generate over NZ$2.2 billion for the local economy15.

New Room for Growth: With New Zealand's proven capacity to successfully host high-profile international events, there is considerable room to expand its sports economy, especially given the global rise in sports tourism. Recent trends show increasing demand for sports events that combine both competition and adventure tourism, areas in which New Zealand excels due to its natural landscapes. Hosting a wider variety of international sports events, including motorsports, adventure sports, or athletic competitions, could position New Zealand as a premier destination for global sports tourism. Furthermore, newer studies suggest that infrastructure investments in the sporting sector can lead to long-term economic growth, brand enhancement, and opportunities for small and medium-sized enterprises16.

In this paper we have taken a qualitative analytics view on the relationship between the addition of an Formula One race in a nation and the economic growth that may pursue. Through an investigation of previous research, analysis of papers and articles we gain further insight into this topic. 

Sports Tourism:

With evolving technology, the falling prices of airfares, and an ease on border restrictions. Sports tourism is becoming a hotspot for families and individuals alike, many people are considering international trips to watch their favourite tournament, each tournament becoming almost like a festival, where tens of thousands flock to be part of the excitement and the game. Even with live broadcasting online, the sports tourism industry is still booming. In fact, German tourists accounted for 32 million sport-oriented trips a year, or 55% of Germany's outbound travel. This shows the vast numbers of people from all across the globe choose to travel to these sports events. The sports tourism sector is expanding in many countries with large multinational corporations like McDonalds, even often collaborating with sports events promoting globally. 

Impacts on Nation's Economies:

Formula One has an immense commercial appeal as an event. With races typically attracting up to 480,000 spectators in just one weekend, a large number of these being international tourists that come into the country for one main purpose, the race, yet they inject into the nation's economy through various sources, from accommodation to hospitality, and local business to adventure tourism in the area. With so many avenues for inflow into the economy, and such a large influx of individuals and families travelling to that country, effects on the economy are bound to occur, economic growth is prevalent from these sporting events, and it’s no different for Formula One. Just a singular race can boost a nation’s economy through more avenues than just the race fees paid to the country. 

Where has F1 added Sustainable Economic Growth:

Formula One has raced in 77 countries over its time as a racing series, from New Zealand, to the USA. Even though the cost of hosting an F1 race can be massive, with millions of dollars often needing to be invested in road restoration, adding grandstands, and many more aspects. However, still over 20 countries each year choose to host a Formula One Grand Prix, showing the vast economic growth and injection into the economies these races create. Many countries like China, the USA, and the UAE have boasted about the large economic growth that comes from hosting a race in their respective countries, from the influx of tourists, to the large amounts spent in local businesses, are just some of the reasons F1 adds sustainable economic growth in these areas. 

How is there room in New Zealand for a Formula One Grand Prix:

New Zealand is a relatively small island nation in the Pacific Ocean, yet it still has potential to hugely benefit from hosting a Formula One race. With New Zealand's proven capacity to successfully host high-profile international events, there is considerable room to expand its sports economy, especially given the global rise in sports tourism. Recent trends show increasing demand for sports events that combine both competition and adventure tourism, areas in which New Zealand excels due to its natural landscapes. Hosting a wider variety of international sports events, including motorsports, adventure sports, or athletic competitions, could position New Zealand as a premier destination for global sports tourism. New Zealnds closest neighbour, Australia, hosts an annual F1 race. The overall economic impact for the 2023 Grand Prix has been calculated at an estimated $268 million, including $144 million in direct expenditure. That's more than the $100.6 million the state government invested, which suggests there has been an economic benefit17. Again backing up the potential economic growth from hosting. Additionally, New Zeland is a country that heavily relies on tourism to sustain its economy, tourism was New Zealand's largest export industry and delivered $40.9 billion to the country. Tourism made a significant positive impact on regional economies supporting employment by directly employing 8.4 percent (229,566 people) of the New Zealand workforce18. So an influx of tourists into the country that will purchase from local businesses, and boost the economy may be especially helpful on a small island nation that relies on this international tourism for economic growth and injection. 

Conclusion

I have investigated the relationship between hosting a Formula One (F1) race and the resultant economic growth in the host city. Concluding that F1 races generate significant economic benefits, primarily through increased tourist spending on local products, dining, and services. This boost positively impacts the hospitality, retail, and service sectors, contributing to a temporary surge in economic activity.

In the long term, the global exposure from hosting an F1 race enhances the city’s international profile, creating substantial brand value and attracting future investments. This elevated visibility can foster sustained economic growth, though it is crucial to address potential risks such as infrastructure costs and environmental impacts.

Additionally, hosting an F1 race can stimulate local pride and engagement, encouraging residents to invest in their community and participate more actively in the economy. To ensure the sustainability of these benefits, future research should focus on evaluating the long-term economic impact and identifying strategies to mitigate potential challenges. Specifically, studies should explore the enduring effects on local businesses, the environmental footprint of large-scale events, and how the economic benefits compare to those of other major sporting events.

Specifically in New Zealand the addition of an Formula One Grand Prix, can add an influx of tourists into the country that will purchase from local businesses, and boost the economy may be especially helpful on a small island nation that relies on this international tourism for economic growth and injection. Putting the vibrant landscapes and culture on display to tens of millions, of which a percentage may choose NZ as their next holiday destination or put it on their bucket list. 

By addressing these aspects, future research can provide a more comprehensive understanding of the broader implications of hosting major sports events and offer actionable insights for cities considering such undertakings. I hope that with this research, others are more willing to delve into the idea of economic expansion through sporting events, and how international travel will be a constantly growing market in our future

Acknowledgements

I would like to express my sincere gratitude to Maryam Khan and Mir Mehedi Faruk, for their invaluable guidance and support throughout the research process. Their mentorship and expertise were invaluable in helping me to shape the direction of our research and to bring our ideas to fruition. 

References

  1. Statista Research Department, Jul 19, 2024, Formula One (F1) average TV audience per Grand Prix 2014-2021.
  2. Rebecca Braybrook Dec 13, 2023, Which country has hosted the most F1 races? Tracks with the most grands prix
  3. Michael Luzich, Aug 22, 2023, Beyond the Track: The Economic Impact of Hosting a Formula 1 Grand Prix.
  4. Ritchie, Brent. "Sport tourism." Niche tourism: Contemporary issues, trends and cases 157 (2007).
  5. While research on general sports tourism indicates various positive and negative economic impacts (Routledge, 2013)
  6. Kwiatkowski Grzegorz, Oklevik Ove, Primary Economic Impact of Small-scale Sports Events, Cognizant Communication Corporation, 2017, page 269
  7. Petri Lintumäki, Hannes Winner, Sabrina Scheiber, Anna Mederle  and Martin Schnitzer, The Economic Impact of Participant Sports Events: A Case Study for the Winter World Masters Games 2020 in Tyrol, Austria
  8. Luke Lunhua Mao, Haiyan Huang June 2016, Social impact of Formula One Chinese Grand Prix: A comparison of local residents’ perceptions based on the intrinsic dimension.
  9. Paulo Mourao, The Economics of Motorsports May 2017
  10. Remenyik Bulcsú and Molnár Csilla (2017) The role of the Formula 1 Grand Prix in Hungary's tourism
  11. Rasmus K. Storm & Tor Georg Jakobsen & Christian Gjersing Nielsen, 2020. "The impact of Formula 1 on regional economies in Europe,"
  12. Sylvain Lefebvre , Romain Roult,2011, Formula One’s new urban economies
  13. Liang, Xiao (2022), The impact of the Formula One Chinese Grand Prix on the socioeconomic development of local small and medium-sized enterprises
  14. Lisa Delpy,1998, An overview of sport tourism: Building towards a dimensional framework
  15. Mark B. Orams, Anouska Brons,Potential Impacts of a Major Sport/Tourism Event: The America's Cup 2000, Auckland, New Zealand
  16. Liang, Xiao (2022), The impact of the Formula One Chinese Grand Prix on the socioeconomic development of local small and medium-sized enterprises
  17. Madi Chawsta, 23 Mar 2024. The Australian Grand Prix is expecting a record turnout — but how does it benefit Victoria? 
  18. Themes and opportunities to how visitors contribute to New Zealand, Tourism NewZealand

Authors

Ansh Arya is a Year 13 student at Wellington College and is concurrently pursuing a Business major at Victoria University with aims for the Ivy Leagues. As the Environmental Prefect, Ansh leads major sustainability projects and strategic events. His research aims to drive innovative solutions and promote sustainable development. 

List of references:

First Name and Last Name Institution City/State/Country    Email
Masnoon Salehin Department of Management, Faculty of Business Studies University of Dhaka, Pakistan masnoon@du.ac.bd
A K M Ashiqur Rahman College of Business University of Central Florida, USA ak550489@ucf.edu