Melbourne vs HyderabadA Presentation on

Cost/Benefit Analysis of the Formula One Grand Prix Events

ByAmrita Vaswani, Amit Vibhakar, Tom Merkli

18 June 2004

Agenda• Aim of the Project

• Project Methodology

• CBA Framework Application

• Indian Formula One Grand Prix - Financial Analysis - Cost Benefit Analysis

• Australian Formula One Grand Prix- Financial Analysis

- Cost Benefit Analysis

• Comparative Analysis / Benchmarking

Project Methodology• Conduct a comprehensive

Financial Appraisal for both the Grand Prixs

i.e. a Project Cost Benefit Analysis Referent Groups - State Governments and the Grand Prix Corporations

• Social Cost Benefit AnalysisAlso includes the State

Population as the referent group• Benchmarking of both events as a

decision making tool to evaluate the worthiness of staging the Indian Grand Prix

C A B

Referent Group Analysis

A: Referent Group ( market prices)- Banks and State Government

B: Non Referent Group ( market prices)- Grand Prix Corporations

C: Referent Group(non- market prices)- Society ,i.e. population of Andhra Pradesh & Victoria

A + B – Financial CBA

A+B+C- Social CBA

Cost Benefit Analysis frameworkStep I

‘Identify Direct Costs and Benefits’

Step II‘Conduct Financial CBA’

Step III‘Estimation of Indirect Costs/Benefits in

Monetary Termsfor

IndirectMarket Goods

Indirect Non Market Goods

Indirect method of Valuation

(Revealed preferences)

Travel Cost Method

Hedonic PricingMethod

Willingness to Pay(WTP)

Step IVSet Social Discount Rate and select

appropriate Time Horizon

Step VEvaluate Risks

Step VIConsider Distribution effects

Step VIIConduct Social CBA

Willingness to Pay(WTP) via Shadow Pricing

Project Evaluation Via Comparative

Analysis

NPV maximizationCosts/Benefit

Ratio

If Social CBA >0

Undertake project

Do not undertake

project

YES

NO

Indian Formula One Grand Prix

Hyderabad CBA Tangible Costs and Benefits

Costs• Construction of Race Track• Land Acquisition• Employee Salaries• Payment of Prinicipal and

Interest on Federal Government Loan

• Opportunity Cost of State Government Overdraft loan

• Utilisation of Government machinery e.g. Policing, Public Transportation

• Upgradation of International Airport

• Construction of Six Lane Highway

• Construction of Hotels

Benefits• Ticket Sales• Advertising &

Sponsorship revenue

• International Tourist Revenue

• Reduction in Unemployment

• Increased Tax Revenues

Dire

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Economic Valuation of Hyderabad G.P.Intangible Costs and Benefits (Indirect)

• Costs- Traffic Congestion- Noise Pollution- Accidents and ‘The Dread Factor’- Loss of Cultural Heritage- Reduction in Demand for other popular events

• Benefits- Increased recognition on International map- Fully Operational International Airport- Improvement in Infrastructure ( better roads)

Hyderabad Net CBA

• Project life 2005 – 2016

• Total PV2005 as per Financial Appraisal:- US$ 350 Million

• Total PV2005 as per CBA:+ US$ 175 Million

Melbourne

• Adelaide until 1995

• Grand Prix since 1996 in Melbourne

• Victoria converted Public Park into Race track and founded AGPC

• Opposition from SAP

• Various studies exist

Melbourne CBA

Costs• Establishment Costs• Staging Expenses

• Labour adjustment• Policing• Lost revenue• Traffic congestion• Property damage• Accidents

Benefits• Sales Revenue (Ticktes)• Other Revenue (Spons.)

• Tourism surplus• Government loan• Psychic income

Dire

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Melbourne Net CBA

• Project life 1995 – 2005

• Total PV2005 as per Financial Appraisal:- US$ 93 Million

• Total PV2005 as per CBA:+ US$ 375 Million

Melbourne vs Hyderabad

• Project life 1995 – 2005

• Total PV2005 FA:- US$ 93 Million

• Total PV2005 CBA:+ US$ 375 Million

• Project life 2005 – 2016

• Total PV2005 FA: - US$ 350 Million

• Total PV2005 CBA: + US$ 175 Million

Thank you!

© 2004 Amrita, Amit, Tom