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17 Adrian Sutil 857
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19 Max Chilton 769
20 Jules Bianchi 754
21 Marcus Ericsson 714
22 Kamui Kobayashi 663
23 Will Stevens 54
24 Andre Lotterer 1
Pook makes case why Long Beach will benefit from F1

by Brian Carroccio
Saturday, March 15, 2014

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Chris Pook in 2003 when he was CEO of CART
One of the major stories during recent weeks in the now Verizon IndyCar Series has been the unsettled future of The Toyota Grand Prix of Long Beach. Long Beach of course, is the 2nd longest running annual event on the IndyCar calendar, and has been a showcase event for the sport three decades running. 

Of course, the contract to stage an IndyCar race between the city of Long Beach and the promotion group Grand Prix Association of Long Beach ends after next year’s race. A week and a half ago, the Long Beach City Council met but did not reach a decision as to whether to renew with IndyCar and GPALB or open up the bidding to outside groups such as the one led by Chris Pook seeking to bring a Formula 1 race to the city.

Last week, AutoRacing1.com columnist Brian Carroccio outlined the situation in Long Beach. With knowledge of the costs associated with other F1 street races, Brian’s article raised significant questions regarding the financial viability of an F1 race.

The article elicited a fair amount of response, both positive and negative. One such responder was AR1 reader Pook. While Pook praised the "balance" of the article, he did take strong exception with some of the details noted in the article, and took time to present his case with Brian via phone and email over the past few days. Below, is Brian’s article from his discussions with Mr. Pook.

Might we soon see F1 cars on the streets of Long Beach again?
Before digging into some of the details of the present situation in Long Beach, which will form the basis for most of the article, Chris Pook and I discussed not-so-recent details. In particular, Mr. Pook took serious exception to my comment about him “running through large sums of cash,” during his tenure as CEO of CART in 2002 and 2003.

Of course, CART was a public company at that time, and it was well-known the series was spending major money to stay afloat. In particular, CART funded teams to the tune of about $1.5 million per entry in 2002, although that number decreased significantly in 2003. You might remember that this program was derisively referred to as "Pookfare." 

Pook obviously doesn’t dispute that CART went into bankruptcy after the 2003 season. We also didn’t get into huge detail on the matter (it’s not exactly an uplifting subject). Still, Pook contends my above comment was somewhat underhanded and not fair given the circumstances. After rereading my own comments, and hearing Pook’s side of things, I can’t say I disagree with him.

"After 2001, the series was in desperate straits," says Pook. "My directive from the CART Board and the company’s legal advice was to keep the series afloat, and do the best to help fund the teams in hopes of attracting a buyer. We had hoped that buyer would come earlier but it didn’t happen. If anything, it was a minor miracle we held on as long as we did.”

Of course, CART would go into bankruptcy in late 2003 before emerging in 2004 as Champ Car under new ownership. But my take-away from that brief discussion with Pook was that while no one can question the fact he was the CEO when CART went into bankruptcy, there was more to the situation than met the eye. 

And apparently, the same can be said regarding the unresolved situation in Long Beach.

The Costs:

Following the CART discussion, the focus of my correspondences with Pook focused on the future of Long Beach.

Last week, we at AR1 estimated it would cost $50 million initial investment to bring Long Beach up to snuff. To be clear, that was a conservative estimate based on legitimate numbers obtained from other F1 street events. Pook did not dispute the costs associated with other events, but vehemently stated our numbers about a possible F1 race in his hometown were off base. In particular, only minimal improvements to the present circuit are needed, according to Pook. 

"The current circuit measures 1.97 miles, and the FIA minimum is 2.01 miles", said Pook. "We can easily lengthen the hairpin up Shoreline Drive, and make some changes to the fountain section, which will get the course up to 2.254 miles. Pook also stated that FIA Director Charlie Whiting had already walked the proposed circuit.

"Turn 1 does need to be widened, and we would need to upgrade the pits with garages and the suites above them. We estimate these costs to be around $10 million."

Fine, the costs are not what many presume them to be. But who will foot the bill to upgrade the track?

According to Pook, his promotion group would handle the costs of upgrades to the current circuit mentioned above. When I asked him via email what the costs to the city would be in terms of these upgrades, his reply was “ABSOLUTELY ZERO” (emphasis, his).

Pook's Plan:

It is this minimal expense and risk to the City of Long Beach, where we find essentially the method being Pook’s plans to bring the F1 circus back to Shoreline Drive.

After all, if the costs to upgrade the circuit to F1 standards are absorbed entirely by Pook; if the only major disruptions to Long Beach are essentially inconveniences the city’s residents already incur on an IndyCar race weekend such as increased traffic from street closures; if essentially all the city has to do is transfer the rights to host the race from GPALB to Pook, and he will make the investment necessary for the city to benefit from all that comes from an F1 race, then we have to ask: how could the city of Long Beach not seriously consider such a proposal? Particularly when you consider…

Revenues:

No one questions F1 ticket revenues will be greater than an IndyCar race. The question with F1 is whether the promoter can recoup both his initial and ongoing investment with revenues from the event. While I presume he sees the potential profits of such a scenario, we did not speak about the costs/revenues involved for Pook’s group.

But working from the premise that Pook would be the one incurring the majority of financial risk, there are numerous metrics one can point to that present a rather convincing argument of how the city can benefit. One is net-tax revenue, which the Grand Prix of the United States in Austin, Texas provides a perfect illustration of.

Pook cites an independent economic study indicating that the inaugural F1 race in Austin produced a net tax gain of $4.9 million in sales tax revenue for the city of Austin. The net tax gain for the state of Texas was $17.2 million.

Further, Pook estimates the economic impact for Long Beach would exceed $100 million, at least three times what the annual IndyCar race produces. But using the $100 million metric, and given the 9% sales tax rate and 12% bed tax in Long Beach,  reaching $10 million in net tax revenue is feasible.

There are other factors that are a little more difficult to measure. One that Pook pointed out to me was the use of private planes. Noting that there are less than 10 private plane landings during an IndyCar weekend, Pook estimated that there would be around 100 landings at the Long Beach airport during an F1 weekend.

Not all dollars are equal

Another consideration here is not so much the actual money, rather the nature of the money. Let me explain.

Pook estimates that 98% of those who attend the F1 race at Long Beach would be from outside the municipality, with 70% of the crowd from outside the state of California. In essence, the money that will be spent will be “new” money for the local economy, not simply money changing hands between those within the community. One would have to presume the City of Long Beach would find this desirable.

Also, desirable to Long Beach would be the fact that since much of the crowd would be travelling from long distances, the hotels and restaurants would be crowded over a longer period. Pook also estimates that restaurants in Long Beach would do four times more business during an F1 race weekend than they do for an IndyCar race.

The immeasurable

Towards the end of our phone discussion, Pook made a similar point that I did last week, noting that it is nearly impossible to place a value on the huge global television viewing audience F1 boasts.

It will be a black day for IndyCar if it loses the Long Beach race.  Part of the blame has to go to the noose around IndyCar's neck - the miserable NBC Sports Network TV ratings
While we’ve been criticized here at AR1 for beating the IndyCar television problems to death, we find this matter comes up again and again and again. Simply put, 225,000 viewers on NBC Sports Network for an IndyCar race does the City of Long Beach, a popular convention and tourist town, no favors in terms of showcasing itself to a large audience. Pook reminded me (although he did not need to) that F1 has not only 300 million television viewers “per race” (emphasis, his), but an additional 100-200 million viewers watching the live stream.

For some perspective on F1’s global viewership, consider the Super Bowl only has about 125 million worldwide television viewers. Yes, from a global television perspective, any given F1 race actually dwarfs the Super Bowl.

Again, while it is difficult to place a value on this, let the record show F1’s global viewing audience doesn’t necessarily reach, but approaches a HALF BILLION (emphasis, mine) people per race? The Super Bowl, much less IndyCar, does not in any way compare.

Personal Opinion:

Let it be known that nothing in my conversations with Mr. Pook contradicted a particular point I made last week. If there is an F1 race in Long Beach, or probably anywhere for that matter, we know F1 Supremo Bernie Ecclestone will make money. Whether a promoter or municipality profits are entirely separate matters altogether.

In particular, how investments are recouped and what actual financial value F1 races bring, can be difficult to gauge. Many like me raised questions regarding the viability of Long Beach hosting F1.

However, as Pook presents the plan for F1 and Long Beach, the downside for the city appears to be not simply small, but non-existent. Yes, there are the basic costs, inconveniences, and disruptions associated with hosting major motor racing events. But Long Beach already has those with the IndyCar race. And when you consider the costs associated with improving the circuit, would be absorbed by Pook’s group, the potential downside for the city would appear, minimal. Conversely, the potential revenue, the fact that much of that revenue would be money from outside the local area, and the international exposure F1 brings, make the potential upside enormous.

If this is the case, it is here where Pook’s proposal differs from the data we acquired regarding other F1 street races.

For IndyCar, they once again find themselves in a position of weakness. With a diminished brand, and minuscule television audience, the future of the series’ second most-prestigious event very much hangs in the balance.

Because if you listen to the case Mr. Pook presents, the decision for the most important party here, The City of Long Beach, doesn’t seem to be that difficult. 

Brian Carroccio is a columnist for AutoRacing1.com. He can be contacted at BrianC@AutoRacing1.com.

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