Is it worth taxpayers’ money?
By Jung Min-ho
Organizers of the Korean Grand Prix face the monumental task of plugging a gaping hole in its bottom line and turning its finances around.
With this year’s event running from Friday through Sunday, two of its main sponsors have pulled out, with the deficit estimated to reach 30 billion won ($27 million).
Last year, the race lost 60 billion won. The 30 billion-won-reduction this year is not entirely explained by any added revenue. The first year saw 72.5 billion won in losses.
The contract to hold the Formula One (F1) competition is until 2016 but it appears to be a toss-up whether it will make ends meet, let alone turn a profit.
Of the estimated total budget of 75 billion won, the central government will take 5 billion won burden while the rest will be shouldered by the South Jeolla provincial government.
All this assumes a new importance as the race is financed by taxpayers’ money.
The organizing committee didn’t have any positive answers but one of its senior officials defended the grand prix by saying its long-term effects are more important than its bottom line.
Secretary-General of the F1 Korean Grand Prix Organizing Committee Park Jong-moon said during a recent interview, “Having worked in the sports industry for more than 30 years, I learned that operating a big sports event at a loss is inevitable.
“Even the 1988 Seoul Olympics was a money-losing event ... it is worthwhile, considering other effects that were far greater than profit,” he said.
Park added that residents have shown a fervent passion for hosting the Korean Grand Prix to eventually become a hub of motor sports in Asia.
Is the F1 event comparable to the Olympics? The answer is evident, considering two main sponsors last year _ POSCO and SK Lubricants _ have pulled out this time. They were supposed to provide $1.2 million each.
“After reviewing our corporate image and alternatives, we decided not to take the main sponsor deal this year,” a POSCO official, who refused to be named, said in a phone interview with The Korea Times.
Also hurting the event is the Yeosu Expo, held from May to August.
Many big-name corporations supported the event in Yeosu, another South Jeolla city, leaving them little left for the F1 race.
The slump in the global economy is also weighing down on the event.
When challenged whether staging the race is worth spending taxpayers’ money, Park said the organizing committee obtained a better deal from Formula One Management this year, such as preventing an extra 10 percent charge connected with hosting the grand prix.
Park may stand on a better footing, compared with the inaugural organizing committee, but not by much. The initial head, Chung Young-cho, was fired for turning in a 72.5 billion won deficit.
The organizers are trying hard to reduce the expected deficit by boosting ticket sales, providing the tickets at more affordable prices. However, even though the goal of selling 160,000 tickets was reached, the situation is unlikely to get much better regarding the fact that 160,000 ticket sales last year wasn’t enough to prevent the cash hemorrhage.
Aside from an operational cost of 25 billion won, additional money is expected to be spent on inviting the racers, supplying needed materials, and the specific cost was refused to be specified by an organizing committee official.
“We expect the up-to-date technologies used in F1 cars will transfer to the auto industry growth, as was shown in Japan,” Park said. “Besides, the positive effect from hosting the event for the regional economy is bigger than the loss.”
Despite financial worries, Yeongam has added new facilities including a kart circuit and a special camp site for the event in Haenam, some 22 kilometers from the host city.
Transportation has also been improved with the newly-constructed Mokpo Bridge which links West Coast Highway directly to the track.