Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited April 2009
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Contents
Executive summary ............................................................................................................. i 1: Introduction..................................................................................................................... 1 2: Study context .................................................................................................................. 5 3: Assessing the impact of the 2008 Formula 1 British Grand Prix at Silverstone .......... 9 4: Assessing the impact of the Formula 1 British Grand Prix moving to Donington Park in 2010 ............................................................................................................................... 20 5: Assessing the impact of the loss of the British Grand Prix........................................ 30 6: Study recommendations .............................................................................................. 38
Annex A: List of consultees ............................................................................................A-1
Contact:
Robert Willis
Tel:
Approved by:
Kathrin Peters
Date:
0207 307 7140
email:
[email protected]
07/04/09
Associate Director
www.sqw.co.uk
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Executive summary
Economic Impact Assessment of the FIA Formula 1 British Grand Prix 1.
SQW Consulting, along with Nick Henry (of GHK Consulting) and Chris Aylett (of the Motorsport Industry Association), were commissioned by Northamptonshire Enterprise Limited (NEL) in September 2008 to undertake an economic assessment of the FIA Formula 1 British Grand Prix. The origins of the project can be traced back to Friday 4 July 2008, the first day of the 2008 Silverstone British Grand Prix, when it was announced that a contract had been signed between Formula One Management (FOM) and Donington Park to host the event from 2010 for five years.
2.
The purpose of this project is to improve the understanding of the immediate economic impact of the Formula 1 event on the local area, Northamptonshire and the United Kingdom as well as the event’s wider association with the surrounding economy through supply chain and reputational benefits. It has been commissioned to help NEL, Northamptonshire County Council and partners to plan for the move of the British Grand Prix from Silverstone and shape policies to counteract any negative effects1.
Study approach 3.
In order to unpack the various levels of economic impact stimulated by the British Grand Prix, the study has considered three scenarios: •
Scenario 1: the impact of the 2008 British Grand Prix on the local area (or main impact zone), the county2 and the country
•
Scenario 2: the potential economic impact on Silverstone and Northamptonshire that the planned relocation of the British Grand Prix will have when the event moves to Donington Park from 2010
•
Scenario 3: the likely economic impact of the removal of the British Grand Prix from the UK completely with particular focus on the Northamptonshire and UK economies.
Scenario 1: the impact of the 2008 British Grand Prix upon the local area (or main impact zone), the county and the country 4.
In summary, the 2008 British Grand Prix generated:
1
This impact assessment does not consider any impact implications stemming from Moto GP’s move from Donington Park to Silverstone. 2 With the Silverstone site straddling two counties, the economic impact for Northamptonshire also includes the on-site impact incurred in Aylesbury Vale in Buckinghamshire. More details regarding this can be found in chapter 3 of the report. i
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
•
total expenditure of £54 million directly attributable to the event at the UK level, of which around £51million (94%) was spent within the 60 mile impact zone and £44.4 million (82%) was spent in Northamptonshire
•
employment of 1,358 FTE jobs in the UK, of which 497 were within the 60 mile impact zone and 319 in Northamptonshire
•
income3 of £20.4 million within the UK as a whole of which £7 million directly benefited the 60 mile impact zone of the study and £4.5 million directly benefited Northamptonshire.
5.
By comparison, the 2002 study suggested employment in the impact zone of 403 with expenditure of £34.6 million. This suggests that nominal expenditure has increased by 56% and employment by 23% (within the 60 mile radius impact zone) and 18% at the UK level.
6.
In the absence of the Grand Prix, almost all of the 2008 impacts within the 60 mile radius zone (including Northamptonshire) would be lost. Indeed, the measured impacts used in the assessment in 2002 (and remodelled here) were derived from people who visited Silverstone from outside the impact zone. As a result, if the British Grand Prix were to cease entirely, this expenditure would be lost to the area.
7.
The net impact on the UK economy if the British Grand Prix ceased to be staged in the UK would be to threaten up to 245 FTE jobs and a loss of £6.1 million of expenditure. This does not take any account of a range of indirect effects that the loss of the British Grand Prix could have on the wider motorsport industry (Scenario 3).
Scenario 2: the potential economic impact on Silverstone and Northamptonshire that the planned relocation of the British Grand Prix will have when the event moves to Donington Park from 2010 The extent to which the economic impacts of the British Grand Prix will be lost to Northamptonshire 8.
All of the on-site expenditure associated with the 2008 event (£40.6 million) will be lost to Northamptonshire when the event relocates to Donington Park. In addition, it is unlikely that Northamptonshire will retain a significant proportion of the 9,000 British Grand Prix visitors estimated to have stayed in hotels in the county in 2008. It is also estimated that all of the visitors staying in local campsites and rented residencies will be lost (since one of the primary reasons for staying in these forms of accommodation is that they offer ‘walking distance’ proximity to the event). Through familiarity, it can be expected that during 2010, and possibly 2011, a proportion of visitors may continue to stay in hotels in the county. However, in the medium term, without a deliberate and targeted marketing campaign, the level of off-site British Grand Prix visitor expenditure in Northamptonshire is likely to be negligible.
3
Income is derived from the wages, salaries, profits and rents resulting from expenditure ii
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
The extent to which the current business offer at Silverstone may be affected 9.
Businesses located at Silverstone that are either directly or indirectly involved in Formula 1 may well be affected by the move of the British Grand Prix to Donington Park. Those businesses not involved in Formula 1 could be affected if the move had a real – or even perceived - detrimental effect on the Silverstone Circuit Masterplan and the value of the ‘Silverstone brand’ which could result in businesses re-assessing their decision to locate at Silverstone. The extent to which the Silverstone Circuit Masterplan may be affected
10.
11.
Consultations with senior Silverstone managers and wider stakeholders highlighted that certain elements of the Masterplan might be affected by the event’s relocation as there appear to be some investors whose plans are influenced by the site hosting the British Grand Prix. In the worst case scenario, this could set in motion a vicious circle whereby a cancellation and/or delay in some investment decisions further delays and deters high value flagship investment. In this case, the effects could be: •
the creation of the more than 1,100 jobs associated with the Masterplan could be jeopardised and/or delayed
•
the value added potential for Northamptonshire and Buckinghamshire could be reduced, particularly as the earmarked sites might end up attracting lower value added business activities compared those which would have otherwise been attracted.
However, with the correct contingency measures, including a comprehensive marketing campaign, Silverstone, along with NEL and its partners, could take a series of proactive steps to mitigate against this negative scenario. The extent to which business investment decisions in Northamptonshire (both current and prospective) may be affected.
12.
Our consultations suggest that the relocation of British Grand Prix to Donington Park is already showing some signs of having a negative effect on business investment in the county. This reinforces the need for joined-up and proactive interventions between the East Midlands Development Agency (emda), NEL, Silverstone and other partners to ensure that Northamptonshire’s strong position, at the heart of the Motorsport Valley® cluster remains strong.
Scenario 3: the likely economic impact of the removal of the British Grand Prix from the UK completely (with particular focus on the Northamptonshire and UK economies) 13.
With respect to location decisions of the UK-based Formula 1 teams, there is little evidence that the loss of the British Grand Prix would directly lead to a reassessment of teams’ location in Northamptonshire or the UK. Of more significance is the effect that the loss of the British Grand Prix (or a decline in testing facilities) could, over a period of time, have on the wider Motorsport Valley® business cluster. This, in turn, could indirectly result in Formula 1 teams
iii
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
reassessing the attractiveness of their location in the UK vis-à-vis other leading motorsport industry countries. For this to happen, however, the UK Motorsport Valley® business community would need to experience a marked reduction in its ability to produce winning Formula 1 teams. 14.
Regardless of the threat of the loss of the British Grand Prix to the UK, the overriding challenge for the Motorsport Valley® business community is the globalisation of motorsport. In particular, as the sport penetrates the largely untapped, yet potentially colossal, markets of the so-called BRIC countries (Brazil, Russia, India and China), it will be vital that the UK does not lose out to the other leading motorsport countries (USA, Japan, Germany, Italy and France) or the large number of countries with emerging motorsport industry interests.
15.
The global development of the industry will depend on the redefined nature of the relationships and connections between the economic drivers of the industry - ‘production’, ‘participants’ and ‘consumers’. As fundamental shifts take place, the loss of the British Grand Prix will certainly not assist, and in some cases may hinder, the Motorsport Valley® business cluster’s ability to meet the ‘global motorsport’ challenge.
Recommendations 16.
17.
Our recommendations are presented in the form of a risk register which covers: •
the issue under consideration (e.g. the relocation of the British Grand Prix to Donington Park from 2010) and the nature of the risk
•
the likelihood of the issue occurring
•
the scale of impact that could occur
•
the owner of the risk (ie who is responsible for monitoring the risk and leading on contingency measures)
•
the mitigation and contingency measures required to minimise the likelihood of the risk occurring and/or scale of the risk.
The risk register is presented in Table 1. It should be considered as an evolving list that will require regular review and update on the nature of already identified risks and new emerging risks. Table 1: Risk Register Issue and risk
Probability of occurring (High/Medi um/Low)
Scale of impact (High/Medi um/Low)
Risk owner
Mitigation and contingency measures
High
Medium (for the county)
NEL & South Northamptonshire Tourism Information
Working with business representation groups (e.g. Brackley Means Business) and public sector organisations, marketing plans need to be put in place to:
The 2009 British Grand Prix Missing the opportunity to maximise the value of the 2009 British Grand Prix at Silverstone
iv
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Issue and risk
Probability of occurring (High/Medi um/Low)
Scale of impact (High/Medi um/Low)
Risk owner
Mitigation and contingency measures
•
Celebrate the event in the area’s main towns with the aim to maximise the number of people who come and spend in the area during the event
•
Ensure that visitors are aware that they are visiting Northamptonshire and encouraged to visit the area for a general holiday/recreation activity, and in particular, make use of the county’s existing attractions.
Relocation of the British Grand Prix to Donington Park in 2010 Current Silverstone businesses reassess their location
Medium
Medium (for Silverstone)
Silverstone
Working closely with NEL, Silverstone to develop a targeted marketing plan to ensure that businesses are reassured of the viability of its business model and the Masterplan. Silverstone to elaborate its long-term strategy to reduce dependence on the event and highlight the successes that have already been achieved.
Components of the Silverstone Circuit Masterplan investment being delayed
Medium
High (for Silverstone)
Silverstone (but also the two district councils and NEL)
As above, a targeted marketing plan to reassure investors that Silverstone remains a highly attractive investment location. Again, emphasis should be placed on the long-term strategy to become less dependent on the Grand Prix event, including plans to invest in track and spectator improvements for the new Moto GP event. Mention should also be made of the new events that Silverstone plans to attract. In addition, it will be vital that Silverstone maintains its motor racing track to a level consistent to receive an FIA Grade 1 licence and to continue providing testing facilities to Formula 1 teams to ensure they are still closely associated with the site and the message that Silverstone remains a world class venue is reinforced. NEL and partners to support Silverstone in the diversification and implementation of the Masterplan.
Silverstone is not fully prepared for the eventuality that Donington Park for whatever reason proves unable to host the British Grand Prix in 2010
High
High (for Silverstone)
Silverstone and NEL
Significant efforts to be placed on ensuring that Phase 1 of the Masterplan can proceed as soon as possible in order for the planned pit and paddock improvements to commence. Maintaining FIA track testing status will be vital as this will demonstrate that Silverstone is ‘ready to go’ if called upon to host the event. Draft business plans for hosting the event in 2010 to be developed.
v
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Issue and risk
Probability of occurring (High/Medi um/Low)
Scale of impact (High/Medi um/Low)
Risk owner
Mitigation and contingency measures
Silverstone is not prepared for the eventuality that Donington Park for whatever reason may not be able to host the British Grand Prix at all over its contractual period
Medium
High (for Silverstone and potentially the UK if the decision is made to remove the British Grand Prix)
Silverstone and NEL
As above, plus business cases will need to be prepared for FOM and Government setting out the Silverstone model for hosting the British Grand Prix, the timeline for achieving the specifications set out by FOM, and any subsidy required by Government.
Northamptonshire motorsport businesses reassess location
Medium
High (for Northampto nshire)
NEL
Building upon and broadening out the marketing undertaken by Silverstone to reassure businesses and potential investors in the Masterplan, work to be undertaken to promote the strengths and value of Motorsport Valley® in Northamptonshire. Consideration to be given to whether the 2009 British Grand Prix provides a useful and appropriate platform for this Motorsport Valley® message.
High
Medium (for the region)
To be confirmed
With an understandable degree of competition between Silverstone and Donington Park, there is a risk that opportunities to maximise the benefits of the relocation for the East Midlands are lost. A multi-agency group (including Silverstone, Donington Park, Rockingham, and Santa Pod) should be established in order to ensure that investment and motorsport tourism opportunities are maximised and that, as a region, it maximises the number of world class motorsport events.
British Grand Prix is removed from the Formula 1 calendar altogether
Medium
Medium (for the UK)
To be confirmed
Unless the future of the British Grand Prix becomes more secure over the first six months of 2009, a senior task and finishing group could be established that, building upon the evidence of this report and further impact assessment evidence, arrives at a decision on what/if measures should be taken to secure the British Grand Prix for the UK.
The loss of the British Grand Prix erodes the strength of the Motorsport Valley® business cluster
Medium
High (for the UK)
To be confirmed
As above, unless the future of the British Grand Prix becomes more secure over the first six months of 2009, a senior level pubic and private sector panel to be established to discuss and plan interventions that aim to ‘bullet proof’ the industry from any effects that may result from the loss of the British Grand Prix, including:
Failure to secure net benefits for the East Midlands
The loss of the British Grand Prix
•
Understanding how Motorsport Valley® can rise to the ‘global motorsport’ challenge
•
Understand how to encourage the emerging diversification of the sector into other areas of high
vi
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Issue and risk
Probability of occurring (High/Medi um/Low)
Scale of impact (High/Medi um/Low)
Risk owner
Mitigation and contingency measures
performance engineering: defence, marine and aerospace •
Understanding how to maximise the commercial value of energy efficiency expertise present in the industry.
Source: SQW Consulting
vii
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
1: Introduction
Economic Impact Assessment of the FIA Formula 1 British Grand Prix 1.1
SQW Consulting, along with Nick Henry (Principal Consultant of GHK Consulting) and Chris Aylett (Chief Executive of the Motorsport Industry Association), were commissioned by Northamptonshire Enterprise Limited (NEL) in September 2008 to undertake an economic assessment of the FIA Formula 1 British Grand Prix. The origins of the project can be traced back to Friday 4 July 2008, the first day of the 2008 Silverstone British Grand Prix, when it was announced that a contract had been signed between Formula One Management (FOM) and Donington Park to host the event from 2010 for five years.
1.2
The purpose of the project is to improve the understanding of the economic impact of the Formula 1 event as well as its wider association with local development plans and the surrounding economy. It has been commissioned to help NEL, Northamptonshire County Council and its partners to plan for the move of the British Grand Prix from Silverstone and shape policies to counteract any negative effects4.
Study approach 1.3
In order to unpack the various levels of economic impact stimulated by the British Grand Prix, the study has considered three scenarios: •
Scenario 1: the impact of the 2008 British Grand Prix upon the local area (or main impact zone), the county and the country
•
Scenario 2: the potential economic impact on Silverstone and Northamptonshire that the planned relocation of the British Grand Prix will have when the event moves to Donington Park from 2010
•
Scenario 3: the likely economic impact of the removal of the British Grand Prix from the UK completely with particular focus on the Northamptonshire and UK economies.
4
This impact assessment does not consider any impact implications stemming from the Moto GP’s move from Donington Park to Silverstone. 1
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Study process 1.4
Figure 1-1 provides an overview of the approach that has been adopted to develop the evidence required to assess the economic impact across these three scenarios. Figure 1-1: Study approach and process (where the dotted line indicates the study’s current position)
Steering group meeting Discussions with the expert panel Confidentiality agreement signed between NEL, Silverstone and SQW Detailed discussions with Silverstone
Planning and strategy review
Data assessment
Stakeholder consultations
Progress presentation Synthesis of findings with the expert panel Draft report to NEL and Silverstone Final Draft report & presentation to Steering Group Final report
Source: SQW Consulting
1.5
Key elements of the process are set out below: •
a Steering Group established by NEL provided strategic direction and comments on key study outputs. The Steering Group was composed of representatives from NEL, Silverstone, the East Midlands Development Agency (emda), the South East of England Development Agency (SEEDA and all relevant local authorities (Aylesbury Vale, South Northamptonshire, Buckinghamshire, Northamptonshire and Milton Keynes). The Steering Group met on 19 September 2008 to discuss and agree the approach to the study
•
an internal expert panel was established to ensure that the study was founded on a sound understanding of Formula 1, the British Grand Prix and the motorsport industry. As well as meeting formally on 24 October 2008 (to discuss the context and approach to the study) and 26 November 2008 (to synthesise the findings before writing the draft report), the panel provided ‘critical friend’ support throughout the study. The expert panel included:
Nick Henry (GHK), previously research advisor to the DTI Motorsport Competitiveness Panel, author of the 2003 DTI Study of the UK Motorsport
2
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
and Performance Engineering Cluster and joint author of ‘Motorsport Going Global’ (2007)
Chris Aylett (Chief Executive of the Motorsport Industry Association), coauthor of ‘Motorsport Going Global’ (2007) and contributor to the Economic Impact Study of the 2002 British Grand Prix
Bruce MacDonald (Associate Director at SQW), economic impact assessment expert and the author of the Economic Impact Study for the Cinzano British Motorcycle Grand Prix
•
as we embarked on the core research phase of the study, it became obvious that a confidentiality agreement between NEL, Silverstone and SQW needed to be in place for Silverstone to feel confident to provide access to commercially sensitive information. This agreement was signed in November 2008
•
in addition to structured consultations with the Silverstone management team, consultations were also undertaken with public and private stakeholders. The list of consultees was assembled on the basis of suggestions by members of the Steering Group and the expert panel. A full list of consultees is presented in Annex A
•
to inform our conclusions, we undertook a detailed review of relevant strategy, planning and research documents. Two documents have been essential:
the Economic Impact of the 2002 FIA Foster’s British Grand Prix, Final Report, July 2003, Motorsport Industry Association which provided much of the foundation for the development of Scenario 1
the Approved Adopted Development Brief for the Silverstone Circuit Masterplan
•
a progress presentation of the emerging findings to NEL and Silverstone on 20 November 2008, submission of a confidential draft to NEL and Silverstone on 24 December 2008, and the submission of a final draft to the Steering Group on 10 March 2009
•
a presentation of the findings of the final draft report to members of the Steering Group on 31 March 2009.
Structure of the report 1.6
The remainder of this report is structured as follows: •
chapter 2 provides a contextual overview of the study
•
chapter 3 assesses Scenario 1: the impact of the 2008 British Grand Prix on the local area (or main impact zone), the county and the country held at its current location at Silverstone
3
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
1.7
•
chapter 4 assesses Scenario 2: the potential economic impact that the planned relocation of the British Grand Prix will have when the event moves to Donington Park from 2010
•
chapter 5 assesses Scenario 3: the likely economic impact of the FIA removing the Formula 1 Grand Prix from the UK completely with particular focus on the Northamptonshire and UK economies
•
chapter 6 provides recommendations to mitigate negative impacts.
In undertaking this work, we have been greatly assisted by representatives from the wide range or organisations listed in Annex A and we are very grateful for their support. Particular thanks are due to Julie Furnival and Jez Goodman (NEL) and Richard Phillips, Ed Brookes, Spencer Canning, Alex Lacey, Katie Tyler and Emma Thomson (Silverstone).
4
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
2: Study context
Introduction 2.1
This chapter sets out the ‘contextual lens’ for considering the findings from the study under four headings: •
Silverstone and its relationship with the British Grand Prix
•
the Silverstone Circuit Masterplan
•
understanding the evolving economic context and viability of the Formula 1 business model
•
the regional perspective.
Silverstone and its relationship with the British Grand Prix 2.2
In 1950, Silverstone hosted the first ever Formula 1 race and has hosted the British Grand Prix every year since 1987. Positioned in the heart of the internationally renowned Motorsport Valley®5, the Silverstone Circuit straddles the counties of Northamptonshire and Buckinghamshire and the districts of South Northamptonshire and Aylesbury Vale. Three of the six UK-based Formula 1 racing teams are located within close proximity to the circuit, with Honda in Brackley, Red Bull in Milton Keynes and Force India based adjacent to the Silverstone site.
2.3
Silverstone is owned by the British Racing Drivers’ Club (BRDC) who took over the lease of Silverstone in 1952 and in 1971 purchased the site’s freehold from the Ministry of Defence. In 1996, the BRDC established its wholly-owned subsidiary company Silverstone Circuits Limited. In 2000, the BRDC lost the contract to host the British Grand Prix to Brands Hatch Circuits Ltd. However, with development plans at the Kent-based circuit breaching planning permission laws, Silverstone was sub-contracted to host the event from 2000 – 2004.
2.4
In 2005, the BRDC re-secured the contract to host the event from 2005 – 2009. While the contract secured the British Grand Prix for the next five years, there was an increasing awareness that the future of the British Grand Prix at Silverstone was not assured. Indeed, the expiry of the Concorde Agreement in 2007 led to the removal of protection for traditional races in Britain, France, Monaco and Italy which is believed to have been in place since 19816. With increasing competition from countries not previously associated with hosting the Grand Prix, it was becoming increasingly difficult for the BRDC to meet the spiralling annual fee demands of FOM to host the event as well as provide the guarantees on circuit and facility upgrades that FOM were, and still are, demanding of all Formula 1 circuits.
5
Motorsport Valley is a registered trademark of the Motorsport Industry Association The Concorde Agreement is a contract between the FIA, the Formula One teams and Formula One Administration which dictates the terms by which the teams compete in races 6
5
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
2.5
2.6
Understanding these challenges, the Silverstone management team, led by the Managing Director, have developed a new business model that aims both to ‘desensitise’ the company from Formula 1, whilst at the same time providing new sources of revenue that can be used to meet the FOM event fee and specification upgrades. This has involved a number of developments: •
Silverstone has become an all year round visitor attraction with a full racing calendar, driving experiences and visitor centre
•
the British Grand Prix is now marketed as a three day event, involving a wide range of non-racing activities (e.g. celebrity chef shows) to appeal to the family market
•
Silverstone has developed its Technology Park which attracts businesses involved in motorsports and high performance engineering
•
in April 2005, the Silverstone Innovation Centre opened, offering businesses with start-up, research and incubator space.
While these developments are vitally important for the continuing financial viability of Silverstone, the management team recognise that a step change is required in Silverstone’s business model if it is to secure the infrastructure that FOM are demanding of race circuits, as well as provide a world class motorsport business location and visitor attraction. This is hoped to be achieved through the Silverstone Circuit Masterplan.
The Silverstone Circuit Masterplan 2.7
The Silverstone Circuit Masterplan has the potential to generate 3,000 new employment opportunities through commercial, education and leisure related development across 230 acres (around a third of the 760 acre Silverstone estate). The Approved Development Brief for Silverstone Circuits Limited7 sets out the objectives of the Masterplan: •
to improve track-related facilities to modern Grand Prix standards and promote Silverstone as the home of British motorsport and racing
•
to enhance and strengthen Silverstone Circuit as a centre of automotive and high technology excellence for the UK
•
to create opportunities for the development of employment and sustainable economic growth by attracting businesses, education and active outdoor tourism of the highest quality
•
to provide an attractive venue for leisure activities enabling development that is sustainable both in terms of its construction and operation
•
to create a development that integrates well into its local environment and which provides an attractive countryside setting for high value and scale enterprises to locate and develop, including cultural and physical landscapes
7
Approved Development Brief, Silverstone Circuits Limited Masterplan, February 2009 6
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
2.8
•
to develop sustainable transport and innovative access proposals
•
to shape a development which will be complementary to - and not in conflict with the growth plans for Towcester.
With the Development Brief for the Silverstone Circuit Masterplan going out to public consultation in November 2007, the original plan was to have the Brief adopted in January 2008 in good time for negotiations between FOM and the BRDC regarding the 2010 British Grand Prix. However, while Aylesbury Vale Council adopted the Brief, South Northamptonshire Council raised concerns surrounding the residential components of the development. As a result, the Development Brief was revised to exclude the residential components and was finally adopted by both councils in December 2008.
Understanding the evolving economic context and the viability of the Formula 1 business model 2.9
The recent announcement that the Honda racing team might be withdrawing from Formula 1 brings two interrelated developments for the future of Formula 1 into sharp focus: the global economic downturn and the viability of Formula 1 operating in its current format.
2.10
While there are numerous forecasts of the ‘depth’ and ‘length’ of the global economic downturn, it is likely that, to some degree and at some point in time, every sector in the UK will be affected. However, while most sectors in the UK beyond financial services, construction and, more recently, retail have not yet felt the full impact of the downturn, the UK motorsport industry provided a strong indication of how it may be affected by the downturn with the news of Honda’s withdrawal. There are two important issues:
2.11
•
the global slump in car sales is making it increasingly difficult for teams and their engine manufacturers to justify the estimated £300 million+ per annum that it costs to maintain a competitive Formula 1 team. This issue is likely to be exacerbated once/if large scale redundancies in commercial car manufacturing begin to make news headlines
•
sponsorship from the financial and insurance sectors, which filled the void left by the ban of tobacco advertising in Europe, provided evidence of the ‘global brand power’ of Formula 1. While this brand is as strong as ever, particularly in the UK with the success of 2008 Formula 1 World Champion Lewis Hamilton, it is difficult to see, within the current economic climate, how this level of sponsorship from these two important contributory sectors can be maintained.
With this backdrop in mind, the FIA and Formula 1 teams met on 10 December 2008 in Monaco to discuss the future of the sport. Discussions were held on measures to be introduced to reduce the cost of operating a Formula 1 team, whilst at the same time ensuring that any new measures would not overly jeopardise the competitiveness and cutting edge technology involved in the sport. The outcome of these ongoing discussions will become clearer in 2009 but in any case the operating format of Formula 1 is likely to change.
7
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
2.12
Whilst we have not been commissioned to assess the impact of the economic downturn or the viability of Formula 1, this current economic environment raises two important questions, which are of relevance to this study over and above the challenges presented in the scenarios outlined above. These questions are: •
how will the economic downturn affect development plans at Silverstone? This question is dealt with under Scenario 2
•
how will the economic downturn, and fundamental changes in the regulations of Formula 1, affect Motorsport Valley® businesses’ ability to respond to the challenges which they face? This question is dealt with under Scenario 3.
The regional perspective 2.13
With respect to Scenarios 2 and 3, we recognise that as well as the spatial areas of assessment undertaken as part of this study, understanding the regional dimension of the impact is of critical importance.
2.14
With both Silverstone (partially) and Donington Park (wholly) operating from within the East Midlands, an important set of questions concerns the overall net benefit or cost of the move of the event for the East Midlands and the extent to which benefits can be maximised and costs be minimised. To address this regional dimension would require extensive discussions with Donington Park, which we have not undertaken as part of this study.
8
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
3: Assessing the impact of the 2008 Formula 1 British Grand Prix at Silverstone Introduction 3.1
3.2
3.3
The report undertaken by the Motorsport Industry Association provided a comprehensive economic impact assessment of the FIA 2002 Formula 1 Grand Prix8. The 2002 assessment involved a survey of 1,100 visitors over the course of the three day event, as well as the completion of surveys from a sample of the Formula 1 teams and other teams competing in supporting racing events. The estimated economic impact of the 2002 British Grand Prix consisted of: •
total expenditure of £34.7 million directly attributable to the event
•
employment of 1,148 FTE jobs in the UK, of which 403 were within the geographic region of the study (defined then as a 50 mile radius around Silverstone)
•
income9 of £17.2 million within the UK as a whole, of which £5.6 million directly benefited the geographic region of the study.
Taking the 2002 report as the starting point, the focus of this current project in 2008 has been on using existing information to update the findings of the previous study including: •
consultations with Silverstone management
•
information from an impact model developed by Silverstone, which in particular provided updated figures on the revenue generated by the event
•
a new visitor survey10 conducted throughout 2007 assessing the profiles, behaviours and perceptions of visitors attending racing events held at Silverstone (including the British Grand Prix).
This chapter sets out how, using this information, the 2002 model has been updated to assess the impact of the 2008 event under the following headings: •
the geography of impact
•
updating the model
•
total expenditure
•
economic impact by spatial area
•
results
•
sensitivity testing.
8
The Economic Impact of the 2002 FIA Foster’s British Grand Prix, Final Report, July 2003, Motorsports Industry Association 9 Income is derived from the wages, salaries, profits and rents resulting from expenditure 10 Silverstone, Final Report, November 2007, Comperio Research 9
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
The geography of impact 3.4
The 2002 study assessed the economic impact at both the regional level (described then as a 50 mile radius around Silverstone) and the UK. For this current study, three levels of impact have been considered: •
the British Grand Prix Silverstone impact zone (60 mile radius). The increase in the radius from 50 miles in the 2002 study to 60 miles takes account of the improvement in transport links from London, in particular the A43 bypass. Figure 3-1 provides a map of the impact zone
•
local (Northamptonshire county)
•
national.
Updating the model 3.5
Two factors have an effect on the components of impact: price inflation and changes in visitor numbers. Price inflation has been calculated using the consumer price index (CPI). All figures in this report are presented in 2007 prices and therefore all 2002 figures have been scaled upwards by 9.7% to reflect this.11 Unlike in 2002, visitor numbers cannot be assessed on the basis of ticket sales because the ticketing structure has changed. As the focus is now on three day tickets, it is important to use attendance estimates for each of the three days of the event, rather than ticket sales, because people purchasing tickets may not attend all three days. These estimates were provided by Silverstone and show that 65,000 attended the Friday, 80,000 attended the Saturday and 95,000 attended the Sunday12. This gives a total of 240,000 visitor days (as opposed to 122,000 for 2002) which has been used as a scaling factor for both on-site and off-site visitor expenditure.
3.6
Following the 2002 study, the focus of the economic analysis is on three different components of impact: •
ticket sales / hospitality
•
employment on-site
•
expenditure by visitors and teams.
11 Prices have been presented in 2007 prices instead of 2008 because the full year of data was not available at the time of completing the report. 12 These estimates are based upon analysis of ticket sales and assessment of the extent to which capacity crowds were achieved on each of the three days of the event
10
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited Figure 3-1: Map of 60 mile radius around Silverstone Circuit (the blue arrow marks the Silverstone site)
Source: Ordinance Survey, Crown Copyright License number 100019086, Postcode information at Royal Mail PLC (2008), produced by SQW Consulting Ltd (2008))
11
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Ticket sales / hospitality 3.7
The figure for ticket sales in 2008 is estimated at £14 million. Additional sales relating to the event were £3.7 million with the figure for corporate hospitality estimated at £4.8 million (the 2002 figure scaled by inflation).
3.8
A standard approach for economic impact assessments is to use expenditure to determine employment. However, this approach cannot be applied to the revenue generated from hosting the event because the expenditure on ticket sales and corporate hospitality is used to cover the costs paid to FOM (which does not directly impact on the local economy). While ticket sales and expenditure on hospitality are presented together as an indicator of the value of the event, it is the employment associated with hosting the event which is used to assess on-site employment. Employment on-site
3.9
Employment on-site is a combination of staff employed all year around and temporary staff employed just for the Grand Prix weekend. In 2002, the number for full year employment comprised 120 Brands Hatch Circuits Limited staff at Silverstone and 30 jobs elsewhere in the UK, a total of 150. This assumed that all of these jobs were dependent on the event (ie without the British Grand Prix, these jobs would be lost).
3.10
Due to the improved business model adopted by Silverstone, in 2008 this assumption no longer holds as staff at Silverstone are responsible for managing a year round programme of events and activities as well as servicing the businesses located at the site and general estate management. However, for consistency with the previous study, and reasons of commercial confidentiality13, we have assumed that all jobs at Silverstone are dependent on the event and a figure of 85 (ie the total number of people employed at Silverstone) has been used. Sensitivity tests around this figure have been carried out in order to assess the extent to which this impacts on the findings in the final section of this chapter.
3.11
Figures for temporary staff have been obtained from the Silverstone events manager (Table 3-1). This suggests a total of 4,650 temporary staff14 (which compares to 5,600 in 2002). This equates to 62 FTE jobs at the UK level (lower than the 82 FTEs estimated for the 2002 event) and 29 within the Silverstone impact zone.
13 We do not believe that it is appropriate to comment on how many of Silverstone’s 85 staff may be lost as a result of the relocation of the British Grand Prix 14 This figure excludes 850 temporary catering staff employed in general catering. This is as employment generated by non-hospitality catering is calculated elsewhere
12
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited Table 3-1: Temporary staffing Numbers of staff
Approximate number of days worked
Total staff days
Estimation of Full Time Equivalents (FTEs)
Estimated % resident /recruited within 60 miles of Silverstone
Estimated impact on ‘impact zone’ employment
Marshals
1,100
3
3,300
15
75%
11
Security/car parking attendants
1,300
3
3,900
17
40%
7
Police
70
3
210
1
100%
1
Litter pickers/cleaners
250
3
750
3
80%
2
Caterers (Hospitality only)
1,000
3
3,000
13
40%
5
430
3
1,290
6
50%
3
4,650
3
13,950
62
n/a
29
Other staff* Total
Source: Adapted from information provided by Silverstone *For example, valets, radio presenters, sweepers, health and safety personnel, phone engineers, giant screen engineers, programme sellers etc
Expenditure by visitors and teams On-site visitor expenditure
3.12
In addition to the revenue generated by Silverstone through hosting the event, visitors also spend money on-site on food and drink (e.g. catering vans), merchandise (e.g. stalls selling Formula 1 paraphernalia) and other goods and services. Using the figures estimated in the 2002 model and updating these to reflect the 2008 attendance figures and CPI, on-site expenditure by visitors is shown in Table 3-2. Table 3-2: On-site visitor expenditure Average spend per person day (£)
Estimated total spending (£000s)
% on-site spending
Food and drink (excluding hospitality)
22.60
5,423
40.1
Merchandise
32.94
7,905
58.4
Other
0.82
198
1.5
Total
56.36
13,525
100
Source: MIA, economic impact assessment of the FIA 2002 Formula 1 Grand Prix, updated to reflect latest attendance statistics and inflation (CPI)
13
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Off-site visitor expenditure within the 60 mile impact zone
3.13
Visitors attending the event will also spend in the wider economy on accommodation, food and drink, merchandise and other goods and services. Again, using the estimates provided in the 2002 model and updating these to reflect the 2008 attendance figures and CPI, off-site expenditure by visitors is shown in Table 3-3. Table 3-3: Off-site visitor expenditure Average spend per person day (£)
Estimated total spending (£000’s)
% off-site spending
Accommodation
20.75
4,981
60
Food and drink
9.77
2,344
28
Merchandise
3.74
898
11
Other
0.59
142
2
Total
34.86
8,365
100
Source: MIA, economic impact assessment of the FIA 2002 Formula 1 Grand Prix, updated to reflect latest attendance statistics and inflation (CPI)
Spending elsewhere in the UK
3.14
Using the 2002 study, expenditure by visitors on fuel purchased to travel to/from the Grand Prix is estimated at £1,638,143 (the 2002 figure, scaled up to reflect the increase in visitor numbers and CPI).
3.15
Additional expenditure, within the UK economy, from overseas visitors attracted to visit primarily by the British Grand Prix is estimated at £173 per overseas visitor (£156 scaled for inflation). This is multiplied by the minimum estimate of 2,930 overseas visitors (which has not been scaled for uplift as it is assumed that all the increase in visitors is UK-based) 15 to give an estimate of £508,000 expenditure (in addition to fuel expenses). This includes all expenditures on accommodation, food, drink, travel and other items. This expenditure is in addition to the spending incurred by visitors while attending the event itself (which is estimated above in Table 3-2).
3.16
This additional off-site expenditure can be included in the impact assessment as the 2002 study showed that many of these international respondents indicated that they had come to the UK primarily to see the Grand Prix, but had spent additional time and money elsewhere in the country as part of their visit. In other words, in the absence of the British Grand Prix, this additional expenditure would be lost to the UK. Expenditure by all race teams
3.17
In 2002, the Grand Prix weekend comprised more than just Formula 1, with a programme that included British Formula 3 (21 teams), Formula 3000 (10 teams) and the Porsche Supercup
15
The evidence to suggest that the increase is all UK based is the 2007 visitor surveys that show that around 2% of British Grand Prix attendees came from overseas – this equates to roughly 3,000 which is in line with the 2,930 figure used previously. 14
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
(10 teams). As part of the 2002 economic impact study, interviews were conducted with these various teams in order to assess their spending patterns. 3.18
In 2008, along with the Formula 1 event, there were Porsche Supercup, Grand Prix 2 and Historic Saloons. With no additional information regarding their spending behaviour, we have used the expenditure by teams estimated in the 2002 study and uplifted these by CPI in order to estimate team expenditure in 2008. This is shown in Table 3-4. Table 3-4: Expenditure by teams (£000s) On site (2002)
Off site within the 60 mile radius (2002)
Elsewhere in UK (2002)
Total 2002
Total 2008 (2007 prices)
Formula 1
4,135
712
9
4,856
5,329
Formula 3
4
11
-
15
16
Formula 3000
12
40
5
57
63
Porsche Supercup
3
186
7
196
215
4,154
949
21
5,124
5,624
Total
Source: MIA, economic impact assessment of the FIA 2002 Formula 1 Grand Prix, updated to reflect inflation (CPI)
Media expenditure
3.19
TV coverage of the event in 2002 was managed by Chrysalis Television and subcontracted to BBC Resources. The figures given by Chrysalis for 2002 indicate that spending in the area over the Grand Prix week was likely to have amounted to a total of £125,000 for accommodation and £50,000 for food and drink (of which £25,000 was spent on site).
3.20
In 2008, the event was covered by ITV and involved a lower number of media personnel. According to new information, provided by Silverstone, 150 TV production personnel were involved in the 2008 event. This compares to an estimated TV crew of 200 in 2002. However, new information also shows that the 2008 event involved 320 media personnel (in addition to the TV crew) and 120 photographers. With comparable figures not available for the 2002 study, we have taken the 2002 TV media expenditure estimates (scaled up to reflect CPI) as a conservative estimate of media-related expenditure (equivalent of £27,000 on site expenditure and £165,000 off site expenditure). Helicopter travel
3.21
The Grand Prix weekend is a major event for UK helicopter operators, with most operators providing shuttle services to and from Silverstone Circuit. In 2002, according to Cranfield Aviation Services, some 8-10,000 people travelled by helicopter, spending an average of around £400 each for the return trip. In 2008, it is estimated that some 3,200 people used helicopter services and that the average fare was £520. This fall in helicopter travel is likely to be due to changes in the perception of how difficult it was to travel to Silverstone by road in 2002 (ie before the completion of the A43 bypass). On this basis, the turnover from the provision of helicopter shuttles to and from the event has been estimated at a total of around £1.7 million.
15
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
3.22
Most firms providing helicopter services are based outside the 60 mile radius impact zone but fly helicopters and crews into the 60 mile radius area prior to the weekend. In 2002, helicopters operated from 18 locally based feeder sites including airfields, farms and sports clubs. This has now been reduced to six feeder sites. Based on interviews with two companies operating in this way in 2002, it is estimated that approximately 10% of turnover is spent on the purchase of goods and services (accommodation, catering, sites, marquees etc.) in the impact zone, as a direct result of providing services to Grand Prix visitors. In addition, around a third of the companies are permanently based within the 60 mile radius and therefore can be expected to spend a higher proportion of the income within it.16 From these results, it is estimated that spending within 60 miles of Silverstone Circuit resulting from the provision of helicopter services amounts to approximately £305,000 per year, out of a UK total of £1.7 million.
Total expenditure 3.23
The combined expenditure outlined above is shown in Table 3-5, split by spending on-site, in the Silverstone 60 mile radius impact zone and in the UK. Table 3-5: Total spending (£000’s) Spend on-site
Silverstone impact zone (60 mile) spend
UK spending
Total
17,700
-
-
17,700
4,829
-
-
4,829
13,525
8,365
2,146
24,037
Team expenditure
4,559
1,042
23
5,624
Media expenditure
27
165
-
192
-
305
1,358
1,664
40,641
9,877
3,528
54,046
Tickets Hospitality Visitor spending
Helicopter travel Total Source: various, outlined above
Economic impact by zone 3.24
The economic model is used to determine employment and expenditure statistics for all three levels of impact. The way in which that geographic split is determined is reviewed here. Silverstone British Grand Prix impact zone (60 mile radius)
3.25
Based on previous studies of local economic impact, the 2002 impact study assumed that: •
16
one FTE job is supported by £40,000 of general visitor spending in the impact zone, taking account of direct, indirect and induced effects
Following the 2002 study, this has been taken to be 35%. 16
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
•
£0.35 of local income (in the form of wages, salaries, profits and rents) is supported by each £1 of visitor expenditure
•
leakage of 75% (ie 75% of the employment supported by visitor and team spending, excluding ticketing and hospitality, is based outside the 60 mile radius impact area).
3.26
These same rates are used for the present study.
3.27
The MIA 2002 study argued that while these are relatively conservative assumptions, there are reasons why multipliers might be expected to be low, in particular the fact that many of the businesses serving the event move into the local area specifically for the weekend, importing labour and equipment from elsewhere in the UK. Local (Northamptonshire level)
3.28
In order to assess the economic impact at the Northamptonshire level we have assumed that all ticketing and hospitality expenditure, and other on-site expenditure, can be assigned to the county. While in reality, given the positioning of the Silverstone site, on-site spending will also occur in the district of Aylesbury Vale in Buckinghamshire, it would be impractical to try and apportion on-site spend across the two Districts. Therefore, ticketing and hospitality expenditure, and other on-site expenditure in Aylesbury Vale, is included in the Northamptonshire impact assessment.
3.29
The MIA 2002 study does not provide any insight into the proportion of off-site spending that takes place in Northamptonshire. As a result, this has been estimated through the development of our own accommodation capacity model. The model has been developed by: •
identifying all Lower Super Output Areas (LSOAs) that fall within the sixty mile radius
•
determining employment in hotels from 2006 Annual Business Inquiry data
•
estimating the number of beds available by local authority based on the employment statistics and a conversion of 2 beds per employee (based on the average density suggested in English Partnerships Employment Densities guide).17
3.30
This suggests that of the 53,000 visitors that stay in hotels, Northamptonshire accommodates about 9,000.
3.31
In addition, a further 3,000 (1,000 multiplied by three per residency) stay in local residences.18 Given the location of Silverstone, these have been assumed to be split evenly between Northamptonshire, Buckinghamshire and Oxfordshire. There are also a further 25,000 that stay on campsites which are largely based in immediate proximity to the Silverstone site. As a result, we have assumed campsite visitors to be split evenly between Northamptonshire and Buckinghamshire. This gives a total of 22,500 visitors to 17
http://www.urcsonline.co.uk/webmaster3/files/urcs/website/backgroundDocuments/Document/Employment%20 Densities%20-%20Simple%20guide_1.pdf 18 Through the consultation process, we were informed that local residencies are increasingly being let over the British Grand Prix weekend. From our assessment of the main letting website, we have estimated that no more than 1,000 properties are let over the weekend. 17
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Northamptonshire which is 28% of the total visitors staying off-site. This percentage is used to estimate the proportion of off-site expenditure/employment that accrues to Northamptonshire. National 3.32
At national level, tourism expenditure has a greater economic impact as less money leaks out of the UK economy than the local economy. Following the MIA 2002 study, the following have been applied: •
one FTE job is supported by £25,000 of general visitor spending in the UK, taking account of direct, indirect and induced effects
•
£0.6 of income (in the form of wages, salaries, profits and rents) is supported by each £1 of visitor expenditure
•
leakage of 25% (ie 25% of the employment supported by visitor and team spending, excluding ticketing and hospitality, is based outside the UK).
Results 3.33
The results for the three levels of impact are shown in Table 3-6. Table 3-6: Economic impact by area Expenditure (£000’s)
Northamp -tonshire employme -nt (FTE)
Employment in 60m radius (FTE)
Total UK Employment (FTE)
Northamptonshire Income (£000’s)
60m radius Income (£000’s)
Total UK Income (£000’s)
Organisation of event (tickets / hospitality)
22,529
137
137
279
1,918
1,918
4,185
On site visitor/team spending
18,112
113
113
543
1,582
1,582
8,145
Off site spending
13,405
69
247
536
959
3,458
8,040
Total (2008)
54,046
319
497
1,358
4,459
6,958
20,370
Total (2002)
34,672
n/a
403
1,148
n/a
5,600
17,200
Source: SQW Consulting
3.34
In summary, the 2008 British Grand Prix generated: •
total expenditure of £54 million directly attributable to the event at the UK level, of which around £51 million (94%) was spent within the 60 mile impact zone and £44.4 million (82%) was spent in Northamptonshire
•
employment of 1,358 FTE jobs in the UK, of which 497 were within the 60 mile impact zone and 319 in Northamptonshire
18
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
•
3.35
income19 of £20.4 million within the UK as a whole of which £7 million directly benefited the 60 mile impact zone of the study and £4.5 million directly benefited Northamptonshire.
The 2002 study suggested employment in the impact zone of 403 with expenditure of £34.6 million. This suggests that nominal expenditure has increased by 56% and employment by 23% (within the 60 mile radius impact zone) and 18% at the UK level. Sensitivity testing
3.36
The assumption that all of the 85 staff employed at Silverstone are dependent on the British Grand Prix was used both for consistency with the previous study and to ensure commercial confidentiality. This is the level of employment that would be lost if Silverstone were to close, in its entirety, as a result of the relocation of the event to Donington Park. However, given the strengthened business model adopted by Silverstone (described in chapter 2), this is highly unlikely. As a consequence, a useful sensitivity is to assume that 10% of jobs are lost. This lowers the economic impact of the 2008 British Grand Prix by 76.5 jobs. Additionality
3.37
The 2002 study provided estimates of the overall economic impact. However, it also noted that this was not necessarily the same as the economic activity that would be lost regionally and/or nationally if the British Grand Prix were to cease. This is because the economic impact includes the deadweight (or non-additionality), ie the activity that would take place anyway.
3.38
In the absence of the Grand Prix, almost all of the 2008 impacts within the 60 mile radius impact zone (including Northamptonshire) would be lost. Indeed, the measured impacts used in the assessment in 2002 (and repeated here) were derived from people who visited Silverstone from outside the impact zone. As a result, if the British Grand Prix were to cease entirely, this expenditure would be lost to the area.
3.39
Additionality, at the national, level would be less significant in the absence of any British Grand Prix. As most British Grand Prix visitors are from the UK, it is reasonable to expect that they would replace expenditure on the British Grand Prix with spending elsewhere in the UK economy. However, spend by overseas visitors and by the Formula 1 and supporting teams can be considered as truly additional because, if the British Grand Prix were to cease entirely, the spending associated with taking part in the event would be lost overseas.
3.40
With respect to the event itself, therefore, the net impact on the UK economy if the British Grand Prix ceased to occur would be to threaten up to 245 FTE jobs and result in a loss of £6.1 million of expenditure (ie the UK expenditure of overseas visitors, Formula 1 teams and supporting teams and the jobs that this expenditure supports). This, however, does not take any account of other, more indirect, effects that the loss of the complete British Grand Prix could have on the wider motorsports industry which are discussed in detail in chapter 5.
19
Income is derived from the wages, salaries, profits and rents resulting from expenditure 19
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
4: Assessing the impact of the Formula 1 British Grand Prix moving to Donington Park in 2010
Introduction 4.1
This chapter assesses Scenario 2, the potential economic impact that the planned relocation of the FIA Formula 1 Grand Prix will have on Silverstone and Northamptonshire when the event moves to Donington Park in Leicestershire from 2010.
4.2
Through our review of background material and consultations with public and private stakeholders, the following four potential impacts were uncovered as the most significant:
4.3
•
the extent to which the economic impacts of the British Grand Prix (estimated in chapter 3) will be lost to Northamptonshire
•
the extent to which the current business offer at Silverstone may be affected
•
the extent to which the Silverstone Circuit Masterplan may be affected (which is considered within the context of the current economic downturn)
•
the extent to which business investment decisions in Northamptonshire (both current and prospective) may be affected.
The remainder of this chapter discusses each of the issues set out above in turn.
The extent to which the economic impacts of the British Grand Prix will be lost to Northamptonshire 4.4
All of the on-site expenditure associated with the event (£40.6 million) will be lost to Northamptonshire when the event relocates to Donington Park. The critical issue here, therefore, is the extent to which the impact of the off-site expenditure (e.g. hotels and associated spending) by visitors to the 2008 Grand Prix will be lost to Northamptonshire as a result of the relocation.
4.5
Overlaying a 60 mile radius around Donington Park over the 60 mile radius for Silverstone illustrates the overlap between the two catchment areas (Figure 4-1). The map shows that Northamptonshire is wholly included within the Donington Park 60 mile catchment, even though it is on the periphery of this boundary. This suggests that while off-site expenditure would be reduced, as Northamptonshire shifts from being the focus of the catchment area to the periphery, it could still expect to attract a proportion of off-site expenditure.
20
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited Figure 4-1: 60 mile catchment zones of Silverstone and Donington Park (Silverstone site is marked with a blue arrow; Donington Park site is marked with a red arrow)
21
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
4.6
4.7
However, this conclusion ignores a number of important considerations: •
with the proximity of East Midlands Airport to Donington Park, it is likely that some domestic, and many overseas visitors, will choose to fly to and from the event. It is not considered plausible that these visitors would be prepared to travel as far as Northamptonshire for overnight accommodation
•
unlike much of Northamptonshire, Leicestershire and Derbyshire have an established leisure tourism market which is already well served by hotels and other overnight accommodation. This again suggests that visitors would not choose to travel as far south as Northamptonshire for overnight accommodation
•
with closer proximity to the West Midlands than Northamptonshire, and, in particular the recently redeveloped Birmingham City Centre, stakeholders felt that a large proportion of visitors would choose to stay in the West Midlands when attending the event. With a range of large 4* and 5* hotels, Birmingham will hold particular appeal to the higher spending visitors
•
traditionally, the perception of Donington Park has been that of a ‘northern racing venue’. Whilst only 60 miles north up the M1 from Silverstone, visitors may not make the connection between Northamptonshire and the relocated event in Donington Park.
Given these considerations, it is unlikely that Northamptonshire will retain a significant proportion of the 9,000 visitors that we were able to estimate stayed in hotels in the county in 2008 (see chapter 3). In addition, we would estimate that all of the visitors staying in local campsites and rented residencies will also be lost (since one of the primary reasons for staying in these forms of accommodation is that they offer ‘walking distance’ proximity to the event). Through familiarity, we expect that during 2010 and possibly 2011, a proportion of hotel staying visitors may well continue to reside in Northamptonshire. However, in the medium term, without a deliberate and targeted marketing campaign, the level of off-site British Grand Prix visitor expenditure in Northamptonshire could be negligible.
The extent to which the current business offer at Silverstone may be affected 4.8
The Silverstone Technology Park provides business space for a range of motorsport-related businesses as well as the National College of Motorsport. The core components of the site include: •
approximately 35 micro/small businesses20 operating in high technology and motorsports related businesses on various locations on the Technology Park
•
the Silverstone Innovation Centre which provides start-up and incubation space for up to 40 businesses.
20
A micro business is defined as a business with between 1-9 employees, a small business is defined as a business with between 10-49 employees 22
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
4.9
The extent to which these types of businesses may be affected are discussed in turn in below. Businesses operating in high technology and motorsports related businesses
4.10
For the purposes of this study, these businesses can be broken down into two broad categories: those that are either directly or indirectly involved in Formula 1 and those that are not. While the scope of the study did not allow for a full survey of all on-site businesses, we were able to canvass the views of representatives of both groups of businesses and cameos are presented in the text boxes below. Business A (indirectly involved in Formula 1): For this precision engineering business involved in supplying Formula 1 teams with bespoke car parts, being located on the same site as the race was seen as very important for business viability. It was reported that Formula 1 teams often need a 24 hour turnaround from when they place the order to when they receive the part, and having three teams close by (and one adjacent) obviously helps in this respect. More than this, however, it was reported that being located on the site of the British Grand Prix was also important as it reinforced the perception that the business was ‘in touch’ with the demands of the Grand Prix event. Reinforcing and protecting this perception is so important to the business that even when it sub-contracts orders out to other business, it ensures that the part is firstly delivered to its address at Silverstone, so that the part can be delivered by hand to the Formula 1 team in question. This personal service assists in reassuring the Formula 1 teams of the high level of regard that the business holds for the confidentiality surrounding their supplier contract with the teams. For this business, therefore: “the move of the Grand Prix is seen as a real blow – close proximity to the teams really matters, and being on the site of the event reinforces this perception of proximity” Whilst it was thought that it would be unlikely that Formula 1 teams would gravitate towards Donington Park, the fact that this perception of proximity would be removed could, it was argued, mean that teams may increasingly look for supplies elsewhere and, as a consequence, force the business to diversify into other areas of specialised engineering in order to remain a viable operation.
Business B (not indirectly or directly involved in Formula 1): For a high technology business that monitors, assesses and develops systems to minimise ‘white noise’ (the interference that can be caused by electronic components being placed in confined areas, particularly in cars), the move of the British Grand Prix to Donington Park is not seen as significant. This business serves mainly the commercial automotive market and some of the other motorsport racing teams, but not Formula 1 teams. It was stated that: “We located at Silverstone because of the Silverstone Circuit Masterplan and its vision for the area. We do not have strong supply chain linkages with other businesses on the site, but we want to be located on a site that is renowned for hosting world class motorsports business. If the loss of the British Grand Prix affected the Masterplan, then yes, our reason for locating here would be affected, but there are no reasons to suggest that this will be the case”
4.11
In summary, some businesses, either directly or indirectly involved in Formula 1, will be affected by the move of the British Grand Prix to Donington Park. Even those businesses not involved in Formula 1 could be affected if the move has a real – or even
23
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
perceived - detrimental effect on the Silverstone Circuit Masterplan. This could result in businesses re-assessing their decision to locate at Silverstone. 4.12
The potential effect on the Masterplan is discussed in detail below, while discussions regarding how Silverstone and its partners can work to mitigate any negative effects associated with the relocation of the British Grand Prix are provided in chapter 6. Start-up enterprises located at the Silverstone Innovation Centre
4.13
4.14
Feed-back from the Innovation Centre manager on locational motivations of tenant companies has highlighted the following key factors: •
young businesses see the strength of the ‘Silverstone brand’ as a means of raising their profile in the market place
•
the appeal associated with the Silverstone brand means that product launches and networking events tend to secure high turnouts as people are keen to visit the site
•
whilst difficult to access by public transport, locating at the Silverstone site is seen as a good way of reducing on travel expenses as clients and suppliers were keen to come to Silverstone for meetings.
For these businesses, the loss of the British Grand Prix is unlikely to affect the appeal of the Silverstone brand. Instead, the view was that: “Silverstone is the home of motorsport and holds events around the year, the loss of one weekend of activity is not going to affect its brand”.
Silverstone Circuit Masterplan 4.15
This section assesses how the Silverstone Circuit Masterplan might be affected by the relocation of the British Grand Prix. Figure 4-2 overleaf provides an overview of the Masterplan.
24
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited Figure 4-2: The Single Vision Masterplan
Source: Adopted Development Brief, Silverstone Circuit Masterplan, February 2009
25
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
4.16
Table 4-1 provides a summary of the employment that is estimated to be generated by the Masterplan. The largest sites, with respect to employment, include site K (the Business Park), site L (the Silverstone Hub & Welcome Centre), site U (the Education campus) and site R1 (the exhibition and conference zone). Table 4-1: Silverstone Circuit Masterplan, employment estimations by site Site key
Employment are these FTEs (numbers)
Phasing considerations, where: Phase 1: 2009-2011 Phase 2: 2012 – 2018
C1: Woodland/outdoor pursuits
n/a
Phase 1
G1, G2 (E & F): Tech Park
450
Phase 1
H1, H2 and H3: Hotel, conference and serviced apartments
200
Phase 1: 67 jobs (1 hotel)
K: Business Park
650
Phase 1
L: Silverstone Hub & Welcome Centre
500
Phase 2
M, Manufacturer Test Centre
30
Already underway
U: Education Campus
370
Phase 1
Q: Country leisure pursuit area
20
Phase 2
R1: Exhibition & conference zone
413
Phase 2
W/W1: Sport & leisure complex
150
Phase 2
E1: outside BRDC ownership
140
Phase 2
Maintain current staff levels
Phase 1
P: Existing 4 wheel drive
20
Existing facility
J: Technical support services
40
Existing facility
X: Existing BRDC areas
10
Phase 2
Circuit facilities Option A or Option B
Phase 2: 133 jobs (2 hotels)
TOTAL Phase 1
1,627
TOTAL phase 2
1,366
Grand Total
2,993
Source: SQW Consulting, adapted from the Adopted Development Brief, Silverstone Circuit Masterplan, February 2009
4.17
We understand that the economic downturn and associated fall in the value of commercial developments taking hold late in mid 2008 has led to a fall in the land value of the development. The exclusion of residential land resulted in a loss of value of £8 million. The other non-core land identified for sale (sites K, H1 and part of G2) originally carried a value of around £27 million in Spring 2008 but CB Richard Ellis (who advise the BRDC on land values) have reported that this will have fallen by at least 30% at December 2008.
4.18
Whilst this fall in value is not directly related to the move of the British Grand Prix to Donington Park, our consultations with senior Silverstone managers and wider stakeholders did highlight that certain elements of the Masterplan are in danger of being affected by the event relocation. It was felt that there are investors whose interests in the development are in 26
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
some way influenced by the site hosting the British Grand Prix who may consequently delay or even cancel their planned investment. 4.19
4.20
4.21
This scenario could be related to the plans for hotel and catering facilities for the site: •
the first, lower grade, hotel planned as part of Phase 1 would not be threatened by the relocation of the British Grand Prix. However, the second, higher grade 4*, hotel planned for Phase 2 could be delayed for two to three years until investors were assured that the site would attract enough custom to meet target occupancy levels and profit margins. Whilst the loss of direct trade from the relocation of the British Grand Prix would be taken into account, the fundamental issue is the extent to which the relocation effects the wider business investment decisions on site K (Business park) and sites G1 & G2 (Technology Park). If hotel investors are not convinced that these developments will attract high calibre businesses demanding high quality hotel and conferencing facilities, they might refrain from committing investment and wait to be convinced otherwise
•
without higher grade hotel and conferencing facilities on the horizon, it is feared this may have a negative knock-on effect on encouraging flagship higher value businesses to locate at Silverstone.
Such a vicious circle whereby a hold-up in investment in higher grade hospitality facilities delays and deters high value, flagship investment would be damaging for the Masterplan. In this case, the effects could be: •
the delivery of up to 1,16721 employment opportunities could be delayed by at least two to three years
•
the potential value added, provided to the Northamptonshire and Buckinghamshire economy, could be reduced as the 1,100 employment opportunities on sites K (650 jobs) and sites G1 & G2 (450 jobs) are characterised by lower value added (ie Gross Value Added per employee) business activity (compared to what would have been the case had the British Grand Prix been retained).
However, with correct contingency measures, including a comprehensive marketing campaign, Silverstone along with NEL and its partners have an opportunity to take a series of proactive steps to ensure this negative scenario does not materialise. These recommendations are introduced and discussed in chapter 6.
The extent to which business investment decisions in Northamptonshire (both current and prospective) may be affected 4.22
The scope of this study did not allow for a comprehensive survey of Motorsport Valley® businesses or potential motorsports investors to assess the impact that the relocation of the British Grand Prix will have on future location and investment decisions. However, our 21
This figure is equal to sum of estimated employment supported by Sites G1 & G2 (450 jobs) , K (650 jobs) and the higher grade hotel planned for phase 2 of the development (67 jobs) 27
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
stakeholder consultations and experts have helped us to arrive at a series of conclusions. These are presented under the following headings: •
the effect on current motorsport businesses located in Northamptonshire
•
the effect on prospective Northamptonshire.
motorsport
businesses
that
could
locate
to
The effect on current motorsport businesses located in Northamptonshire 4.23
Table 4-2 provides a list of some leading motorsports businesses currently located in Northamptonshire. As can be seen, companies range from Cosworth, a company that has been supplying engines for Formula 1 for over a decade, to engineering consultancies such as Advanced Engine Technology, through to Whittlebury Hall Hotel, a well regarded business hotel. It has been estimated that Northamptonshire is host to 450 motorsport companies, employing in excess of 16,000 employees. Table 4-2: Sample of motorsport related businesses located in Northamptonshire Business name
Organisation type
Advanced Engine Technology
Engineering Consultancy
ADR
Racing team
Cosworth
Racing and high performance engine manufacturer
ERC Brakes
Brake Systems
Fortec
racing team
Ilmor Engineering
Engineering and engines
Mahle Powertrain
Integrated Powertrain Solutions
Mercedes-Benz HighPerformanceEngines
High Performance Engines- Formula 1 race car engines
RML Group
Automotive and motorsport engineering, from concept to reality
Rockingham Motor Speedway
Development of oval and road course circuits
Santa Pod Raceway
Race circuit for drag racing
Sutton Motorsport Images
Motorsport picture agency
Variohm Eurosensor
Importer/distributor of industrial sensors
Whittlebury Hall Hotel
Hotel and Spa
Source: Provided by the Motorsport Industry Association
4.24
The question we have posed is: to what extent are these companies located in Northamptonshire because of the proximity of the British Grand Prix or due to the county being an integral part of Motorsport Valley®?
4.25
In answer, all of our consultations have pointed to the significance of Motorsport Valley® rather than the British Grand Prix. Indeed, it appears that historically Northamptonshire and the British Grand Prix have not been synonymous. Moreover, with just two of the six UK-
28
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
based Formula 1 teams based in the county, it was widely agreed that proximity to the Formula 1 teams was not a motivation for locating within Northamptonshire. 4.26
With the conclusion that motorsport business location decisions in Northamptonshire are driven primarily by the need to be at the heart of Motorsport Valley®, the next question is: to what extent will the relocation of the British Grand Prix to Donington Park erode the strength of Northamptonshire within Motorsport Valley®? The response from consultations was that the relocation could lead to Northamptonshire-based businesses reassessing their location if they perceive sector related investment in the area to be waning. This again underscores the importance of ensuring that investment interest in the Silverstone Circuit Masterplan is maintained, an issue we return to in the final chapter of this report. The effect on prospective motorsport businesses that could locate in Northamptonshire
4.27
4.28
As with the location decisions of businesses already located in Northamptonshire, ensuring that the Silverstone Circuit Masterplan is not affected by the relocation of the event will be vital for attracting new investment into the county. Our consultations provided two examples of investment decisions being influenced negatively by the move: •
company A: a major motorsport business with 500 staff, located outside the East Midlands region, had advanced plans for expanding their business with a new facility at Silverstone. However, the reported uncertainty of the British Grand Prix at Silverstone after 2010 was a key contributor to a change in strategy. This business has now invested at its present location outside the region
•
company B: a smaller but expanding motorsport business with 60 staff had advanced plans to locate at Silverstone but has decided against the project.
These examples provide evidence that the relocation of the British Grand Prix is already having a negative effect on business investment in the county. This reinforces the need for a joined-up and proactive strategic marketing campaign between emda, NEL, Silverstone and other partners to ensure that Northamptonshire’s strong position, at the heart of the Motorsport Valley® cluster and the East Midlands, remains strong. In order further to explore the impacts of the relocation, an in-depth investigation on the developments planned at Donington Park would complement this assessment.
29
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
5: Assessing the impact of the loss of the British Grand Prix
Introduction 5.1
There were a number of reasons behind the decision by FOM to move the British Grand Prix to Donington Park from 2010. Principal amongst them were the BRDC’s inability to generate any financial return on the event without any Government assistance. Since then, delays in securing adoption of the Development Brief, the current economic downturn and the increasingly challenging economic parameters of the current Formula 1 business model, make it difficult to assess the likelihood of the loss of the British Grand Prix to the United Kingdom. However, with governments in China, Turkey, Malaysia and Bahrain already committing substantial funds to secure the event, the long-term future of a Grand Prix in the United Kingdom, at any venue, is uncertain.
5.2
In chapter 3 we estimated that the loss of the British Grand Prix would threaten up to 245 FTE jobs and £6.1 million of income at the UK level. However, with the motorsport and High Performance Engineering (HPE) cluster (Motorsport Valley®) estimated to generate £6 billion in annual turnover, by far the most significant impact associated with the loss of the British Grand Prix would be any detrimental effect that it might have on the wider business cluster.
Overview of Motorsport Valley® – assessing the relationship between the ‘motor’ and the ‘sport’ 5.3
In 2003, Motorsport Research Associates (MRA) undertook a study of Motorsport Valley®22, providing a comprehensive mapping and offering a thorough understanding of one of the UK’s most significant global industry clusters. The cluster was estimated to generate an annual turnover of £5 billion, directly employing over 40,000 people (with 25,000 highly trained engineers) in over 3,000 businesses.
5.4
Table 5-1 summarises a SWOT analysis of the cluster sourced from a report of the DTI Motorsport Competitiveness Panel, presented to the Secretary of State for Trade and Industry in July 200323
22 A Study into the UK Motorsport, and Performance Engineering Cluster, Final Report, Prepared for the Department of Trade and Industry (Automotive Unit), 2003, Motorsport Research Associates 23 Report of the Motorsport Competitiveness Panel, presented to the Secretary of State for Trade and Industry in July 2003
30
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited Table 5-1: SWOT analysis of the UK Motorsport Industry Strengths
Weaknesses
•
Strong, integrated technical and service capability
•
Lack of customer focus
•
Skilled labour pool (technical, design)
•
Future viability of circuits (low profits)
•
Infrastructure – circuits, wind tunnels, testing
•
•
Motorsport history/culture
No home Original Equipment Manufacturers (OEMs) – i.e. OEMs tend to local appropriate knowledge in the medium/long term
•
Technology/R&D led
•
Technological lock in - composites/aerodynamics
•
Entrepreneurial managerial skills
•
•
Grass roots sport & industry symbiosis
Management highly entrepreneurial and suited to smaller businesses
•
Inward investment track record
•
Participation rates have peaked
•
Industrial base of aerospace/ automotive/ defence
Opportunities
Threats
•
Developm ent of new technological base (e.g. CFD, Energy Efficient Motorsport)
•
Substitution of existing technology (composites, rolling-ground wind tunnels)
•
Developm ent of base of SMEs toward world class companies
•
Italian strength in lower formulae
•
Development of industry infrastructure in US and Far East
•
The loss of world-class events
•
Appropriation of enhanced knowledge created by OEM inward investment
•
Standardized value-for-money technology •
Increasing cost base unsustainable
•
Strengthening of grass roots structure (skilled volunteers, license holders, participation avenues)
•
Growing OEM overseas ownership creates knowledge & supply leakage
•
Transfer of motorsport capabilities in to other sectors (e.g. performance engineering, event managem ent)
•
Standardisation of motorsport technological paradigm (spec parts, one-make series)
•
Generate value from historic motorsport base
•
Weakening grass roots structure (skilled volunteers, license lapse rates, fragmented participation routes)
Source: Report of the Motorsport Competitiveness Panel, Report presented to the Secretary of State for Trade and Industry, July 2003
5.5
The report highlighted the cluster as being characterised by vertical disintegration, involving UK firms delivering high value added innovations to global companies which have the capacity to invest to make the most of the innovative potential. This has been seen as key to the cluster’s success: “it has been the continued ability of Motorsport Valley® to route investment through, and root investment in, itself that has delivered its position as one of only a handful of UK clusters labelled ‘established, deep, growing and of international significance”.
5.6
Given these inherent competitive strengths, the impact of the UK losing the British Grand Prix would appear of minor significance as the vertical disintegration and international nature of the motorsport and HPE cluster could be expected to result in firms simply continuing to develop products and R&D for international investors. This argument is supported by the MIA’s 2003 report on the Economic Impact of the 2002 FIA Foster’s British Grand Prix which concluded that “the wider UK motorsport industry does not depend directly on the British Grand Prix. It is likely that the UK would continue to retain a significant motorsport industry even in the absence of the event”.
5.7
However, the report goes on to acknowledge that: “the British Grand Prix does perform an important role as a showcase for the UK motorsport industry …and as a major focus for business development and networking”. The 2003 MIA study extends this argument by 31
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
describing the ‘constructor’ and ‘event’ as providing two distinct, yet complementary, parts of the motorsport and HPE cluster business system. The report states: “simply put, this is the relationship between the ‘motor’ and ‘sport’ in motorsport” and goes on to explain that “the capture of these activities (constructors and events) and their associated supply chains would represent the ultimate goal of cluster development”. 5.8
The loss of the British Grand Prix could have a detrimental effect on the wider Motorsport Valley® business cluster if the ‘constructors’ component of the cluster was affected by the removal of the event. Formula 1 Original Equipment Manufacturers (OEMs) have become increasingly integrated with automotive OEM engine suppliers (particularly in the current economic climate), and any impact on their investment decisions would be likely to have a significant effect on the wider cluster. Evidence of this integration is provided in the text box below24 . Extract taken from: Motorsport Going Global, the challenges facing the world’s motorsport industry, Nick Henry, Tim Angus, Mark Jenkins and Chris Aylett “Formula 1 engine building has increasingly been brought in-house by the OEMs either setting up specialist engine-building facilities from scratch (such as Toyota in Germany) or expanding on existing OEM competition engine-building facilities (Renault, Honda, BMW) based in the OEM parent company. A third solution is to buy an existing engine specialist, as did Ford with Cosworth and Mercedes Benz with the Ilmor engine-building specialist, now renamed Mercedes-Benz HighPerformanceEngines”.
5.9
The British Grand Prix is most ‘profitable’ (ie lowest cost) to attend for all the UK-based Formula 1 teams. This contributes to their profit margins and affects their company profits in the UK, and their ability to employ. Additionally, many use the event to offer hospitality to their UK-based staff at low cost. If there were no British Grand Prix then costs would rise for UK-based teams and profit margins would reduce. This may affect their future investment decisions.
5.10
Overall, therefore, it is clear that ascertaining the economic value and importance of the spatial proximity of the Formula 1 British Grand Prix is not straightforward. The vertically disintegrated, international nature of the UK motorsport and HPE cluster means that there are very few direct linkages between the ‘construction’ and ‘sports’ components of the cluster. However, it is clear that the role of the ‘sports’ component of the cluster in ‘bringing together’ and ‘showcasing’ the UK motorsport and HPE cluster is important.
Relationship between the UK-based Formula 1 teams and the British Grand Prix 5.11
To test these linkages, we have drawn from a survey undertaken as part of the Report of the Motorsport Competitiveness Panel. Although five years old, the view from our internal expert panel has been that there is little evidence to suggest that responses would differ significantly if asked again in 2008.
24 It is worth noting that in December 2008, the FIA proposed that Formula 1 teams could choose to source a single approved ‘powertrain’ at an agreed price. Their selected single supplier is Cosworth in Northamptonshire. It is too early to estimate the effect of this positive proposal on Northamptonshire.
32
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
5.12
5.13
The survey was undertaken with five Formula 1 teams and two engine builders and attempted to uncover: •
the importance of UK track testing facilities in teams’ decisions to locate in the UK
•
the importance of the British Grand Prix in teams’ decisions to locate in the UK.
Whilst track testing and Formula 1 are inextricably linked, breaking down the survey into these two constituent parts allows for an appreciation of the extent to which it is the testing or the event itself which influences location decisions. Changing FIA regulations mean that in 2008 testing is limited to 30,000 kilometres per calendar year per team and in 2009 no testing will be allowed during the race season. Despite this, it is evident that track testing will always form an important part of Formula 1 teams’ product development programme. The importance of UK track testing facilities in teams’ decisions to locate in the UK in 2002
5.14
Respondents were asked in 2002 how many days they spent testing in the UK and overseas and at which sites. Overall, 19% of Formula 1 testing by UK-based companies took place in the UK (98 testing days), with 83% of this testing taking place at Silverstone (81 days). This is equivalent to 15% of all (UK and overseas) Formula 1 testing by UK based companies.
5.15
When asked to grade the level of importance of the availability of UK testing facilities on the businesses decision to locate in the UK, 50% (three) of respondents who answered the question stated that it was very important, 33% (two) stated that it was important and 16% (one) stated that it is neither important nor unimportant. Testing decisions were related to three factors: a) affordability (43%), b) the fact that circuits were FIA approved Formula 1 circuits (29%) and c) convenience (29%). Importantly, when asked which sites they would use if their main UK testing site was not available, 60% (six) of the frequency of responses (ie respondents were able to give multiple answers) stated that they would look for circuits overseas, 30% (three) would look for alternative UK sites while 10% (one) would reduce testing.
5.16
By far the largest impact which a decline in UK motorsport testing infrastructure would have on the respondent’s business was reported to be cost increases (57%, four respondents). ‘Reduction in competiveness’, ‘erosion of reason for being in the UK’ and ‘an effect but not disastrous’ all received 14% (one) each. When asked to describe the impact a decline in UK motorsport testing infrastructure would have on the UK motorsport industry, qualitative responses were as follows: ‘substantial’, ‘erosion of reasons why successful’, ‘decline of core infrastructure’, ‘effect teams through suppliers’, ‘loss of prestige’, ‘loss of opportunity to witness Formula 1 intimately’, ‘undermine events as testing key adjunct’ and ‘job losses’.
5.17
Whilst these survey results demonstrate the importance of UK testing facilities for UKbased Formula 1 teams, the results also show that the loss of UK-based testing would not in itself lead to teams considering leaving the UK. However, the survey findings illustrate that the most damaging impact, which the decline of UK testing facilities could have, would be on the motorsport industry, located in Motorsports Valley®, itself. If the
33
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
industry were to be damaged over a period of time, this could begin to influence UKbased Formula 1 teams’ location decisions, particularly if this ‘erosion’ effect led to a marked reduction in the UK’s ability to produce winning Formula 1 teams and the location of vital suppliers. The importance of the British Grand Prix in Formula 1 teams’ decisions to locate in the UK in 2002 5.18
5.19
5.20
All respondents felt it was important for the UK to host the Grand Prix and world class motorsport events for the following reasons: •
“because the UK is largest global supplier/home to the motorsport industry…”
•
“product must be visible, seen in action, as part of reputation …And an event is the end-point and shop window”
•
“supports industry infrastructure and inspires the next generation”.
Respondents were asked what difference having the Grand Prix and world class motorsport events in the UK made to their company and responses were as follows: •
“considerable; commercial and emotional focus of season”
•
“showcase to local partners within global arena/infrastructure”
•
“showcase for staff to attend”
•
“loss would erode location reason. In particular supply of motivated staff”.
When asked to articulate the impact of a reduction in the number of UK-hosted world class motorsport events, it was commented that: •
“events are ‘pillars’ of UK reputation, position and ‘ownership’ of the world motorsport industry”
•
“loss would see erosion of position and be a catalyst for gradual decline”.
5.21
In summarising the impact of world class motorsport events on the UK industry, the DTI Motorsport Competitiveness Panel Report states that: “UK motorsport circuits are under competitive pressure from some other countries, many of which offer state subsidies to stage major motorsport events at those facilities that are either financed or owned by local/regional/national governments. The Panel felt that a UK presence for such prestigious events is very important for the health of the sport and the industry in this country, in the long term, in that it also raises and maintains the general awareness and interest in domestic motorsport”. In turn, one of the Motorsport Competitiveness Panel’s recommendations to Government was: “that the Board accesses appropriate resources to ensure that the UK continues to host key world class motorsport events (e.g. Formula 1 World Championship, World Rally Championship and World Superbike)”.
5.22
Facilitated by NEL, we made contact with all six UK-based Formula 1 teams to ask for their participation in the study. However, we were only able to secure a consultation with one of 34
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
the teams. In order to protect their confidentiality, views from this consultation have been made anonymous. The headline findings from this consultation are presented below:
5.23
•
with regards to testing, it was reported that the unpredictable weather in the UK does make testing abroad increasingly attractive. However, despite this, and considering the new testing regulations, it was felt that UK circuits could do more to promote ‘demonstration runs’ which allow UK-based Formula 1 teams to invite staff and guests to view their cars in action
•
it was not felt that the relocation of the event in 2010 to Donington Park would have a detrimental effect on the Formula 1 team as long as the facilities are at least as good, or better, than those currently offered at Silverstone
•
the main threat for the Formula 1 team, if the British Grand Prix were to cease entirely, was stated to be the potential loss of sponsorship. It was explained that major UK based sponsors want to ‘live and feel’ the Grand Prix, so its loss may threaten their continued support. Moreover, it also explained that the loss of a second major consumer and commercial market (ie the UK along with the US) could also threaten continued support from sponsors
•
the loss of the British Grand Prix would not threaten the Formula 1 teams’ decision to locate in the UK because of the teams’ reliance on the local skills pool and the level of investment that has been committed to infrastructure. It was stated that: “even in the long-term it would not be practical to relocate due to the level of infrastructure we have in place here”
•
it was argued, however, that the loss of the British Grand Prix could have a detrimental effect on domestic and global interest in motorsport. It was stated that: “we rely on the media buzz in the UK to generate stories around the world. The loss of the UK event could lead to the alienation of domestic and overseas fans and a corresponding fall in participation and interest in the sport”.
Overall, with respect to the UK-based Formula 1 teams, the findings lend themselves to the argument that a decline in testing facilities, or the loss of the British Grand Prix, would not directly lead to a reassessment of teams’ location in Northamptonshire or the UK. Of more significance is the negative effect that a decline in testing facilities, or the loss of the British Grand Prix, could, over a period of time, have on the wider Motorsport Valley® business cluster. This in turn, could indirectly result in Formula 1 teams reassessing the competitiveness of their location in the UK vis-à-vis other leading motorsport industry countries. For this to happen, however, the UK Motorsport Valley® businesses would need to experience a marked reduction in their ability to support and produce winning Formula 1 teams. This possibility, along with the role which the loss of the British Grand Prix could play in this, is discussed below.
35
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Assessing the loss of the British Grand Prix on the UK in meeting the ‘global motorsport challenge’ 5.24
If the UK can continue to provide the ‘winning formula’ for Formula 1 teams and others in world class motorsport, investment into the UK is likely to continue – indeed, this is the reason why so many teams are located here in the first place. However, regardless of the threat of the loss of the British Grand Prix, the overriding challenge for businesses within Motorsport Valley® will be the globalisation of the industry. In particular, as cars and motorsport penetrate the largely untapped, yet potentially colossal, markets of Brazil, Russia, India and China (known as the BRIC countries), it will be vital for the UK not to lose out to the other leading motorsport countries (USA, Japan, Germany, Italy and France) or countries with emerging motorsport industry interests.
5.25
Motorsport Going Global25 provides a comprehensive international assessment of the global motorsport industry and its challenges albeit before the current economic difficulties. The report describes three potential scenarios for the future development of the global motorsport industry: •
consumer-led business model: in recognition of the need for motorsport to become more attuned to the behaviours and needs of customers (who attend events, watch events, purchase cars and consume motorsport news), the industry needs to develop expertise in market segmentation, brand awareness and, potentially, influence the regulation of the sport, so that events are shaped to appeal to different consumer segments
•
production-led business model: this scenario is driven by the production of motorsport vehicles with particular features including:
the OEM/regulation-driven production business model: an example is the Audi R10 diesel Le Mans Prototype car which won the Le Mans 2006 race. Audi, keen to develop their diesel brand and leading technology whilst also wanting to dispel negative perceptions of diesel performance, worked closely with the regulator ACO to secure flexibility in the regulations which allowed them to compete successfully
entrepreneurial/emerging market-driven production business model: specifically relevant to motorsport development in the BRIC countries. One example is the development of a racing event in China based on the development of a series of Formula Ford 2000-equivalent spec cars (a design first developed in the USA), using components and engines produced in China at very low cost. The low cost of production, combined with funding from investors who see the commercial value in the TV branding opportunity, allows teams to enter for free (which is vital given the local market has yet to demonstrate value in motorsport). This enhances the probability that the series will find a Chinese-based champion, in turn supporting commercial investment.
25
Motorsport Going Global, the challenges facing the world’s motorsport industry, Nick Henry, Tim Angus, Mark Jenkins and Chris Aylett 36
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
To what extent will meeting the ‘global motorsport challenge’ depend on Motorsport Valley® businesses developing new skill sets? 5.26
The development scenario where this could present an issue is the case of the ‘consumer-led business model’. To understand how to segment the market, develop brands, design series and market them successfully to the BRIC countries is a significant task that will involve substantial levels of marketing expertise. Whilst this will involve importing certain skills from companies that already understand these markets, a UK skills base that understands how the sector works will also be important. A criticism often levelled at the British Grand Prix, and Formula 1 in general, is that it is ‘out of touch’ with its consumers. This would suggest that the new required connections between ‘consumer’, ‘production’ and ‘participation’ are not currently present in Motorsport Valley®. Whilst acknowledging that the Motorsport Valley® business cluster cannot influence the ‘design’ of the British Grand Prix on its own, if it is accepted that the most effective means of developing these connections is through domestic application, then the loss of the event could hinder the ability of businesses in Motorsport Valley® to exploit this growth scenario.
5.27
With respect to the second business model, the ability of the Motorsport Valley® business cluster to exploit either variant of the growth scenarios is not considered to be constrained by the loss of the British Grand Prix. Indeed, the UK has considerable skills and expertise in product development and the commercial automotive sector (that would be required under the ‘OEM/regulation-driven production business model’). Similarly, it is difficult to see how the skills required to respond to opportunities under the ‘entrepreneurial market-driven production business model’ would be particularly enhanced by retaining the British Grand Prix. To what extent will the loss of the British Grand Prix affect Motorsport Valley’s® ability to produce winning teams?
5.28
While the ‘consumer-led business model’ is the only scenario whereby the loss of the British Grand Prix could be considered detrimental to Motorsport Valley’s® development, it is difficult to see how even if this model proved the dominant growth scenario, it would affect the industry’s ability to produce winning teams in world class motorsport.
5.29
However, and as noted by the authors of Motorsport Going Global, the one thing of which we can be certain is that none of these scenarios will happen in its pure format, but instead a hybrid of these growth scenarios will emerge. The growth scenario that does evolve will depend on the redefined nature of the relationships and connections between the drivers of the industry - ‘production’, ‘participants’ and ‘consumers’. As these fundamental shifts take place, the loss of the British Grand Prix will certainly not assist, and in some cases may hinder, the Motorsport Valley® business cluster’s ability to meet the ‘global motorsport’ challenge.
5.30
An illustration of the importance of hosting a Formula 1 event is provided by the Director of the Indianapolis Economic Development Corporation Motorsport Initiative. When asked about trying to get the USA back on the Formula 1 calendar, he responded: “we know the event doesn’t get enough revenue sales to make it viable here, but Formula 1 is recognised around the world as one of the ultimate components of US motorsport, and provides us with the opportunity to bring top level international racing to the US”. 37
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
6: Study recommendations
Recommendations 6.1
6.2
Our recommendations are presented in the form of a risk register which covers: •
the issue under consideration (e.g. the relocation of the British Grand Prix to Donington Park from 2010) and the nature of the risk
•
the likelihood of the issue occurring
•
the scale of impact that could occur
•
the owner of the risk (ie who is responsible for monitoring the risk and leading on contingency measures)
•
the mitigation and contingency measures required to minimise the likelihood of the risk occurring and/or scale of the risk.
The risk register is presented in Table 6-1. It should be considered as an evolving list that will require regular review and update on the nature of already identified risks and new emerging risks. Table 6-1: Risk Register Issue and risk
Probability of occurring (High/Medi um/Low)
Scale of impact (High/Medi um/Low)
Risk owner
Mitigation and contingency measures
High
Medium (for the county)
NEL & South Northamptonshire Tourism Information
Working with business representation groups (eg Brackley Means Business) and public sector organisations, marketing plans need to be put in place to:
The 2009 British Grand Prix Missing the opportunity to maximise the value of the 2009 British Grand Prix at Silverstone
•
Celebrate the event in the area’s main towns with the aim to maximise the number of people who come and spend in the area during the event
•
Ensure that visitors are aware that they are visiting Northamptonshire and encouraged to visit the area for a general holiday/recreation activity, and in particular, make use of the county’s existing attractions.
Relocation of the British Grand Prix to Donington Park in 2010 Current Silverstone businesses reassess their location
Medium
Medium (for Silverstone)
Silverstone
Working closely with NEL, Silverstone to develop a targeted marketing plan to ensure that businesses are reassured of the viability of its business model and the Masterplan. Silverstone to elaborate its long-term
38
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Issue and risk
Probability of occurring (High/Medi um/Low)
Scale of impact (High/Medi um/Low)
Risk owner
Mitigation and contingency measures
strategy to reduce dependence on the event and highlight the successes that have already been achieved. Components of the Silverstone Circuit Masterplan investment being delayed
Medium
High (for Silverstone)
Silverstone (but also the two district councils and NEL)
As above, a targeted marketing plan to reassure investors that Silverstone remains a highly attractive investment location. Again, emphasis should be placed on the long-term strategy to become less dependent on the Grand Prix event, including plans to invest in track and spectator improvements for the new Moto GP event. Mention should also be made of the new events that Silverstone plans to attract. In addition, it will be vital that Silverstone maintains its motor racing track to a level consistent to receive an FIA Grade 1 licence and to continue providing testing facilities to Formula 1 teams to ensure they are still closely associated with the site and the message that Silverstone remains a world class venue is reinforced. NEL and partners to support Silverstone in the diversification and implementation of the Masterplan.
Silverstone is not fully prepared for the eventuality that Donington Park for whatever reason proves unable to host the British Grand Prix in 2010
High
High (for Silverstone)
Silverstone and NEL
Significant efforts to be placed on ensuring that Phase 1 of the Masterplan can proceed as soon as possible in order for the planned pit and paddock improvements to commence. Maintaining FIA track testing status will be vital as this will demonstrate that Silverstone is ‘ready to go’ if called upon to host the event. Draft business plans for hosting the event in 2010 to be developed.
Silverstone is not prepared for the eventuality that Donington Park for whatever reason may not be able to host the British Grand Prix at all over its contractual period
Medium
High (for Silverstone and potentially the UK if the decision is made to remove the British Grand Prix)
Silverstone and NEL
As above, plus business cases will need to be prepared for FOM and Government setting out the Silverstone model for hosting the British Grand Prix, the timeline for achieving the specifications set out by FOM, and any subsidy required by Government.
Northamptonshire motorsport businesses reassess location
Medium
High (for Northampto nshire)
NEL
Building upon and broadening out the marketing undertaken by Silverstone to reassure businesses and potential investors in the Masterplan, work to be undertaken to promote the strengths and value of Motorsport Valley® in Northamptonshire. Consideration to be given to whether the 2009 British Grand Prix provides a useful and appropriate platform for this Motorsport Valley® message.
Failure to secure net benefits for the East Midlands
High
Medium (for the region)
To be confirm ed
With an understandable degree of competition between Silverstone and Donington Park, there is a risk that opportunities to maximise the benefits of the
39
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Issue and risk
Probability of occurring (High/Medi um/Low)
Scale of impact (High/Medi um/Low)
Risk owner
Mitigation and contingency measures
relocation for the East Midlands are lost. A multi-agency group (including Silverstone, Donington Park, Rockingham, and Santa Pod) should be established in order to ensure that investment and motorsport tourism opportunities are maximised and that, as a region, it maximises the number of world class motorsport events. The loss of the British Grand Prix British Grand Prix is removed from the Formula 1 calendar altogether
Medium
Medium (for the UK)
To be confirm ed
Unless the future of the British Grand Prix becom es more secure over the first six months of 2009, a senior task and finishing group could be established that, building upon the evidence of this report and further impact assessment evidence, arrives at a decision on what/if measures should be taken to secure the British Grand Prix for the UK.
The loss of the British Grand Prix erodes the strength of the Motorsport Valley® business cluster
Medium
High (for the UK)
To be confirm ed
As above, unless the future of the British Grand Prix becom es more secure over the first six months of 2009, a senior level pubic and private sector panel to be established to discuss and plan interventions that aim to ‘bullet proof’ the industry from any effects that may result from the loss of the British Grand Prix, including: •
Understanding how Motorsport Valley® can rise to the ‘global motorsport’ challenge
•
Understand how to encourage the emerging diversification of the sector into other areas of high performance engineering: defence, marine and aerospace
•
Understanding how to maximise the commercial value of energy efficiency expertise present in the industry.
Source: SQW Consulting
40
Economic Impact Assessment of the FIA Formula 1 British Grand Prix Report to Northamptonshire Enterprise Limited
Annex A: List of consultees A.1
Table A-1 provides a list of all those consulted with as part of the study. Table A-1: List of consultees Name
Title
Organisation
Ed Brookes
Finance Director
Silverstone
Alf Buller
Chief Operating Officer
Bee Bee Developm ents
Silverstone business A
Director
Anonymous
Silverstone business B
Director
Anonymous
Spencer Canning
Consultant Development Director
Silverstone
Joe Dickinson (em ail correspondence only)
Northamptonshire Ambassador
n/a
Mike Dixon
Investor Development Manager
SEEDA
Milton Keynes and Aylesbury Vale Julie Furnival
Investor Development Manager
Northamptonshire Enterprise Limited
Jez Goodman
Chief Operating Officer
Northamptonshire Enterprise Limited
Rollie Helmling
Motorsport Director
Indianapolis Economic developm ent Corporation
Michael Judd
Area Sales Manger
Hilton Hotels
Andy Kirkham
Senior Planning Officer
Aylesbury Vale District Council
Alex Lacey
Head of Events
Silverstone
Geoff Langston
Chairman
Brackley Means Business
Jean Morgan
Chief Executive
South Northamptonshire Council
Richard Phillips
Managing Director
Silverstone
David Randall
Tourism Executive
Northamptonshire Enterprise Limited
Ephraidge Rinomhota
Senior Economic Research Officer
Milton Keynes Council
Helen Ryan-Wallis
Promoting Oxfordshire Manger
Oxford Economic Partnership
Emma Thomson
Consultant Development Manager
Silverstone
Phillippa Tatham
Cultural Services Officer
SNC Tourist Information
Katie Tyler
PR & Marketing Manager
Silverstone
Fiona Unett
Waste Policy Officer
Northamptonshire County Council
David Wallace
International and Innovation Director
EMDA
Pat Ward
Group Manager for Economy and Enterprise
Buckinghamshire County Council
UK-based Formula 1 team
Anonymous
Anonymous
Source: SQW Consulting
A-1
