Bad economics at the Las Vegas Grand Prix

What happens in Vegas should sometimes stay there.

Photo by Karo Kujanpaa on Unsplash

It was supposed to rival Monaco. Instead, it went bust. The Las Vegas Grand Prix sounds like a match made in (capitalist) heaven. The world’s luxury sport in America’s playground. For those not aware, the race worked out much better in theory than in practice. Things got off to a rough start. Just nine minutes into a practice run, a car was severely damaged by a loose manhole cover. That prompted organizers to spend hours pulling up every drain cap and filling them with sand. Fans were kicked out and didn’t get to see the practice race they paid for. That set the tone for the rest of the event. Why did things go so wrong?

As an outsider, I cannot discern the goals of Formula One (F1), the group that runs the racing circuit. On one hand, they seem to be betting big on America. Netflix’s “Drive to Survive” show about Formula One has finally brought F1 racing into the American mainstream. Trying to capitalize on this, F1 held three of the 22 Grand Prix this year in the United States (Miami, Austin, and Las Vegas). No other country had more than one. For Las Vegas, F1 signed a contract of up to 10 years and reportedly spent $500 million getting ready for just the first year of the event.

On the other hand, the event seemed to be tailor-made to stop the uninitiated from becoming fans. The main race started at 10 PM Las Vegas time. That means even Americans on the West Coast would have to stay up late to watch it. The half of Americans who live in the Eastern Time Zone and had to stay up till 1 AM just to watch the start of the race. This makes no sense. I think the idea was to race at a time when Europeans could watch it, but the race started at 6 AM in London and 7 AM in Berlin - not exactly prime time slots. Why not run the race at 11 AM local time that way Americans and Europeans can watch it?

Then there were the prices. Tickets were set to be the most expensive of any race on the calendar. F1 promised a sellout. But again, Formula One isn’t that popular in the United States. Charging $2,000 for the worst tickets is only going to get you die-hard fans and a few wealthy curiosity seekers. Then, of course, the event did not sell out. In a rather embarrassing climbdown, ticket prices were lowered up to 60 percent in the lead-up to the race. Even then, they didn’t sell out.

Every working person should spare some pity for the F1 public relations team. Every step of the way, it seemed like F1 was trying to be a bully. Businesses that overlook the racetrack were told that unless they paid huge sums of money, giant screens would be put up that would block the view. Organizers eventually reduced fees to $50,000, but this is not a way to get the local community on your side. Then there were the goons hired to yell at anyone who deigned to watch a few seconds of the race while using a public walkway that crossed the track. Let alone the weeks of closed roads and construction that forced local businesses to lay off staff and employees to lengthen their commutes.

Finally, the race didn’t even matter! The Dutch driver Max Verstappen won the world championship in October. I know that this is beyond the control of Formula One, but I assume it’s happened before. If you want to add a new marquee event to a sports league, maybe have it in the first half of the season before the winner has been determined.

So what is F1 trying to accomplish? It seems like growing the sport in America is the right call. Americans love sports and have lots of money. Tapping into the market would be a huge boon. Although way more people watch F1 in the US compared to 10 years ago, the vast majority still don’t. So there is a lot of room for growth. F1 needs to decide whether they would be better off building up an American audience or maintaining their existing one.

The long-suffering public relations team at least got one thing right - they know how to get favorable coverage after an event. There were a bunch of positive headlines after the race, including this one from the Associated Press: “F1 hits the jackpot in Las Vegas on its $500 million gamble after many stumbles on the Strip”. The New York Times also had this piece: “Grand Prix Goes Over the Top (Even for Las Vegas)”, with the downright unctuous sub-headline: “‘I’ve never seen Las Vegas like this,’ Ben Affleck said of a city so packed for a Formula 1 race that even celebrities were calling in favors.”

I want to know how many celebrities were there on their own accord and how many were paid. Also, the Associated Press story conveniently leaves out any hard numbers for how big this “jackpot” was. The organizers themselves claim the race generated $1.2 billion in economic impact, but I’d like to know how much the Grand Prix itself made. Is $1.2 billion a large amount for a major sporting event? It will be interesting to see how that compares to the next Super Bowl, which will also be held in Las Vegas.

In the defense of F1, there are always glitches on opening night. Things could go far better next year. Maybe in a decade hence, the Las Vegas Grand Prix will be one of the most watched sporting events by Americans. But not if East Coasters have to wake up at 1 AM to watch it.