The opportunity cost of the Melbourne Grand Prix

Last Sunday, my wife Nancy and I had a great weekend in Mooloolaba, where I took part in the Ironman 70.3 event, along with a thousand or so other competitors from around Australia and the world as well as hundreds of spectators. As Nancy said, even though the Sunshine Coast isn’t far from Brisbane, we’d never get around to going if there weren’t an event like this, but the beautiful setting makes us keen to return.

While I was there, a friend mentioned that the Melbourne Ironman event had been cancelled because the date of the Grand Prix had changed, producing a clash. That got my mind away from transition times and back to economic policy.

The Grand Prix is subsidised to the tune of $60 million a year, a payment justified by the supposed benefits of tourism, estimated at 35 000 interstate and international visitors. Every serious economic analysis I’ve seen suggests that the net benefits are nothing like $60 million. Here’s Rod Campbell.

But, although I’m always banging on about opportunity cost, this particular example hadn’t occurred to me. In addition to the subsidy cost, the Grand Prix costs Melbourne events that would otherwise attract visitors without any subsidy**. The last Melbourne Ironman attracted over 2000 entrants, of whom a large share would have been visitors with accompanying family. It’s probably not the only event lost to Melbourne because of the Grand Prix. Add to that the potential visitors who choose an alternative destination to avoid the noise and congestion of the race, and you’ve cancelled much of the tourism benefit attributed to the Grand Prix.

* There are also nebulous benefits said to be gained from global TV viewers, who are supposed to be attracted to Melbourne by hours spent on the couch watching fast cars doing laps of Albert Park, interspersed with a promo clips/coffee break opportunities. I’m dubious.

** Various tourist bodies are listed as event partners for Ironman, but as far as I can tell, the monetary value of their support is trivial.

37 thoughts on “The opportunity cost of the Melbourne Grand Prix

  1. At least the $60m subsidy is public- I haven’t seen a figure for the ALP (state) and LNP (Council) spending our money for us on the recent spectacle of 2 people punching each other.

    I think the deadweight-loss of taxation would be a part of the opportunity cost if the alternative had been lower taxes.

  2. @Smith

    Indeed, and if they didn’t waste $60 million on motor races they could find $520 million. This n would be a 13% increase: quite a significant boost to public housing.

  3. @Ikonoclast

    It’s also true that if they spent less on schools they could spend more on public housing. Any money spent on anything could be spent on something else. If it was up to me I wouldn’t spend $60 million on a motor race, but a lot of people like motor racing.

  4. @Smith
    Like I said, I’m a passionate F1 fan for decades and I live in Melbourne, but I think hosting the race is like throwing good public money into the wind. If you added up all the $$$ pumped into the event since its been in Melbourne, you could probably build a pretty impressive tourist attraction to serve a similar purpose re: the economic justification.

  5. @Troy Prideaux
    If I was in power, my first act would be to ban all car racing. It must encourage a culture of speeding as fun, and prangs more so. ( and to be clear, I don’t actually like banning anything much!) I would also deregister firms who show it justified using dodgy estimates, probably the same cowboys who do the tunnel benefit/cost stuff. As for stadiums, the cost per seat shows how outlandish the assumptions are. Even worse, the Qld Governrment subsidized a Townsville stadium which include benefits from people in the region spending in Townsville rather than back home.

  6. I live close to the Albert Park GP track. Other recreational uses of the park are restricted for several weeks either side of the event. One of the more amusing aspects of the dodgy multiplier analysis that is supposed to justify public expenditure on the GP is that a lot of locals leave town. The so-called ‘benefits’ appear elsewhere. Two of my neighbours unexpectedly met one year at MONA, which has had such beneficial effects on Hobart that air travel to Tasmania is now slightly more expensive. The Victorian Government has long been besotted by events, including all codes of football, which are more than capable of standing on their own feet. While the aforementioned dodgy multiplier analysis is usually trotted out to justify the expenditure, I suspect politicians and the hordes of now under-employed journalists working in PR are also seeking additional colour and movement is their often limited lives.

  7. I can’t comment on the OC of the grand prix, but well done on the 70.3. I was competing too and it was excellent conditions for triathlon!

  8. I’ve mentioned this before on this blog, but two things are true of the GP as I understand it. Firstly it’s one of the few major Victorian evwnts that is exempt from standard open BCA scrutiny by the State Governent (it gets a free pass of this, of sorts). Secondly it doesn’t stack up anyway. I think there is something in Hansard about it. Its known to be a net loss to the State. Still, someone/s is doing well out of it.

  9. The global subsidy market just like films. I am told that the computer game industry is bigger than the film industry but received few subsidies because the lack of political photo opportunities

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