The Real Estate Implications of Formula One Racing | Pillsbury – Gravel2Gavel Construction & Real Estate Law
Formula One’s (F1) popularity has surged in recent years. On track, the 2021 season has been the most exciting in recent memory given Red Bull’s successful campaign against the reigning seven-time champions Mercedes. Off track, Netflix has popularized the sport by releasing four seasons of Drive to Survive, an episodic documentary that dives deep into how Formula One teams operate. Looking forward, the 2022 season won’t likely disappoint. New car and engine designs were introduced and races like the Singapore Grand Prix are back on the calendar. As the sport grows, more cities may consider hosting races to boost their global profiles. Here, we breakdown how real estate-related issues may affect such a decision.
Property Sourcing
Property sourcing for an F1 race can be challenging. Most F1 races are hosted in reputable global cities where approval processes can take considerable time and local interests may conflict with those of the event organizers. This is especially the case for street races, where local streets are converted into racetracks and noise pollution concerns are significant. The Miami Grand Prix is an example of a race that took considerable time and energy to approve. In 2019, plans to host a Miami Grand Prix in downtown Miami were thwarted by local activists due to noise pollution concerns. Then, in 2021, when the Mayor of Miami Gardens submitted a new bid to host a Miami Grand Prix in his city, city commissioners reportedly heard two hours of complaints from local residents that opposed the race. After the Miami Gardens city council approved the project, residents took their frustration to court and attempted to stop the race on grounds of racial discrimination and noise pollution. Reconciliations like a plan to pledge $5 million to fund community beneficial programs and a STEM program for local children failed to quell these concerns.
Residents might also oppose a race if it does not offer sufficient economic benefits. Development of the Buddh International Circuit in India faced significant opposition when residents learned that the land they gave to the city was being used to construct sports facilities instead of public projects, which many residents believed would have provided more jobs.
Building the Track
The Price Tag
Building an F1 track is an expensive endeavor. According to Forbes, the average construction cost of a typical F1 track is around $270 million. Sometimes, event organizers may need additional capital to purchase land for permanent facilities. For the upcoming 2023 Las Vegas Grand Prix, Liberty Media, the owner of F1, is buying $240 million worth of land on the Las Vegas strip to build paddock infrastructure for future Las Vegas races. Event organizers might also invest additional capital to help their race stand out from the competition. The Yas Marina Circuit in Abu Dhabi cost more than $1 billion to construct because it includes additional features like a marina and a high-tech hotel.
Grade One Circuit Requirements
According to Appendix O of the International Sporting Code, which is promulgated by the Federation Internationale de I’Automobile (FIA), F1 event organizers must construct Grade One compliant tracks, which have the highest standards of six potential grades. Some real estate-related requirements for Grade One licensure include the following:
Track Layout – FIA regulations mandate that track gradients must be gradual, especially in high-speed braking or curved sectors. The width of a track must be at least 12 m and the starting grids width must be at least 15 m. Such requirements ensure that racecars have enough space to overtake and steer through corners. Without them, collisions are bound to happen.
Facilities – Event organizers are required to provide facilities like race control, marshal posts, paddocks, and medical centers during races and some facilities have required design features. For example, the pit lane must be at least 12 m wide, with pit garages and race control facilities adjacent to the starting straight and separated by a pit wall and signaling platform. Access for emergency services must be prioritized and organizers must construct bridges and/or tunnels for emergency vehicles to move in and out of the circuit. All facilities must also be accommodative for spectators with disabilities by including features like designated viewing areas, special toilet facilities, reserved parking spaces, and paved walkways for wheelchair access.
Advertising – To prevent advertisements along a track from affecting the safety of a race, the FIA mandates that the location and characteristics of advertisements should not interfere with a drivers’ or officials’ visibility or produce an adverse or misleading optical effect. For instance, “bewildering repetition of brightly contrasting posters” and “badly placed hoarding” that may cause “misjudgment of the road layout” are prohibited. Advertisements on a track’s surface are strictly banned, and advertisements in a run-off area must not affect the area’s skid-resistance.
Boosts to Local Economies
F1 races can be big drivers of revenue for hosting cities. The Austin Grand Prix reportedly brings in approximately $300 million to the city annually, which is a larger revenue windfall than South by Southwest and University of Texas’s football home games combined. Furthermore, the Austin Grand Prix spurred the development of a 5,400 square foot medical facility that is used for year-round training for medical professionals and, during races, serves as a required trauma care location for drivers. Other facilities like the paddock building can be converted into a 500-person banquet hall and the racetrack can be converted into a concert venue. It’s estimated that the grand prix generates 2,000 jobs, increases Austin’s population, and further elevates Austin as a desired travel destination for tourists.
Like Austin, Singapore’s local economy has also benefitted from its grand prix. The Singapore Tourism Board estimated that F1 generates about 1.4 billion Singaporean dollars in total incremental tourism receipts. During the 2017 grand prix, there was a 413% increase in turnover at key restaurants and 332% increase in visits to shopping malls. The hotel sector often reports an impressive increase in hotel rates during the weekend too.
F1 races often contribute to property and infrastructure development immediately surrounding a circuit. As mentioned above, the Austin Grand Prix led to the construction of a massive medical facility and the Abu Dhabi Grand Prix led to the construction of an entire integrated tourism complex on Yas Island. According to a report released by Cavendish Maxwell, it is possible that the Saudi Arabia Grand Prix in Jeddah led to a $500 million investment in the Jeddah Islamic Port by DP World, a sponsor of the F1 team Renault.
Unfortunately, some F1 races encounter financial trouble. The 2011 South Korea Grand Prix failed to attract much tourism and generated a massive loss. The grand prix was eventually cancelled in 2013 due to financial concerns. Similarly, the Melbourne Grand Prix is often plagued by large costs and reportedly lost about 62 million Australian dollars in 2015.
Real Estate Investments by F1 Teams and Drivers
F1 teams and drivers are also contributors to the real estate market. Lawrence Stroll, the owner of Aston Martin, bought a large parcel of land near the Silverstone circuit in the UK to construct a new Aston Martin facility for its F1 team. Alfa Romeo reportedly entered the Ever Dome metaverse to provide new virtual experiences for fans on the team’s own virtual real estate. F1 drivers like Lewis Hamilton own sizable real estate portfolios consisting of high-end properties in popular grand prix locations like Monaco.
Formula One’s Expansion
According to the FIA’s most recent update on 3/2/2020, there are 39 circuits around the world that are licensed as Grade One tracks. Not all of these circuits are on the F1 calendar and some licenses have expired, but new circuits are always being added. The Jeddah Circuit in Saudi Arabia was licensed in 2021 and had its debut last year. The Miami Grand Prix debuted this year and the Las Vegas Grand Prix was added to the 2023 calendar. There are reportedly talks to bring F1 back to the African continent with a re-envisioned South African Grand Prix in the making. We expect more cities to join the F1 calendar as the sport grows.
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