How F1 Bankrupts Cities

How F1 Bankrupts Cities

If you look at the skyline of Las Vegas

or the harbors of Monte Carlos during a

Grand Prix weekend, you see the pinnacle

of human access. You see $20 million

cars, billion-dollar yachts, and

celebrities drinking champagne that

costs more than the average American's

annual mortgage payment. From the

outside, Formula 1 looks like a money

printing machine. It is the fastest

growing sport on the planet with a

valuation that has tripled in the last 5

years to over $30 billion. But if you

look closely at the balance sheets of

the cities that actually host these

races, you start to see a very different

picture. You see cracked asphalt on

abandoned tracks in Korea. You see

corruption trials in Vietnam. And you

see small business owners in Las Vegas

begging for relief funds because the

economic boom they were promised turned

into a blockade that destroyed their

livelihoods. We are told that hosting an

F1 race is the ultimate status symbol

for a global city, a guarantee of

tourism. investment and prestige. But

what if I told you that for the vast

majority of the whole cities, Formula 1

is not an investment. It is a

sophisticated financial trap designed to

extract public tax dollars and funnel

them directly into the pockets of a

media conglomerate, leaving the locals

with nothing but debt and tire marks.

So, how does this billion dollar heist

actually work? Why do mayors and

politicians keep signing these contracts

even when the math doesn't add up? and

what happens when the circus leaves

town. Today, we're breaking down the

economics of the F1 hosting trap.

To understand why cities go broke

hosting F1, you first have to understand

the business model of Liberty Media, the

America owners of the sport. Most sports

operate on a franchise model. If a city

hosts the Super Bowl, the NFL covers

many of its costs and the city reaps the

rewards of the influx of people. Formula

1 operates differently. It operates more

like a franchise extortion racket. You

see, Formula 1 doesn't pay to race in a

city. The city pays Formula 1. This is

called the sanctioning fee or the

hosting fee. Think of it as rent. But

instead of paying rent to use the land,

the land owner pays the tenant just for

showing up. In 2024, these fees are

astronomical. While historical tracks

like Silverstone or Monaco pay

significantly less or in Monaco's case

historically almost nothing, the new

destination venues however are being

squeezed for every penny they have.

Azerbaijan, Qatar and Saudi Arabia are

reportedly paying upwards of $55 million

to $60 million per year just for the

right to call the Grand Prix. And this

fee typically comes with an escalator

clause, meaning the price goes up by 5%

to 10% every single year of the

contract. Collectively, these fees

generate nearly $900 million a year for

Liberty Media. This is nearly a billion

dollars of pure profit transferred from

government treasuries directly to F1's

bottom line before a single car engines

even started. And here is the catch.

That $55 million check, that's just a

cover charge to get into the club. Once

the city signed the contract, they

unlocked the second level of the trap,

the infrastructure mandate.

In the old days, F1 races were held on

dedicated racetracks in the middle of

nowhere. Think of Spa in Belgium or

Nurburgrin in Germany. But Liberty Media

doesn't want races in the middle of

nowhere anymore. They want content. They

want the cars racing past iconic

landmarks, skyscrapers, and casinos.

They want street circuits. And this is

where costs spiral out of control.

Turning a public road into an FIA grade

1 circuit is one of the most expensive

construction project a city can

undertake. You cannot just close the

road and race. F1 cars produce 5G of

force in corners and travel at 220 mph.

A standard city streets would tear the

car apart. So the city has to rip up

miles of public infrastructure. They

have to lay down specialized high-grip

asphalt that is imported from specific

quaries. They have to weld manhole

covers shut so suction of the car

doesn't rip them out of the ground which

had famously happened in Las Vegas

before causing millions in damage. They

have to install miles of concrete

barriers, catch fencing, and

grandstands. And because it is a street

circuit, they have to pay to set it up

and tear it down every single year.

Let's look at the Vietnam Grand Prix

disaster. In 2018, the city of Hanoi

signed a 10-year deal to host F1. They

spent hundreds of millions of dollars

building a semi street circuit designed

by the famous engineer Herman Toki. The

track was finished, the grand stands

were up, and the asphalt was fresh. But

then the pandemic hit and shortly after

the key political backers of the race

was arrested on corruption charges. The

result, the race was cancelled not just

for one year, but forever. The city of

Hanoi is left with a massive concrete

white elephant sitting in the middle of

their city. Hundreds of millions of

taxpayers dollars were evaporated

instantly. The Afan dream never even

completed a single lap. Or take Jedha

Cornage circuit in Saudi Arabia. They

claim it is built in record time, but

estimates suggest the construction costs

alone were over $500 million. For a

wealthy petrol state, maybe it is a drop

in a bucket. But for a normal city

operating on a municipal budget, it is a

death sentence.

Now, the politician who signed these

deals aren't stupid. They know it costs

money, but they justify it with one

simple argument. We'll make it back in

tourism revenue. They tell the

taxpayers, "Yes, we are spending $100

million to host this, but we will

generate $500 million in economic

impact." This is the economic multiplier

argument, and it is the single greatest

lie in a sports hosting industry. Here

is how the math actually works. In a

normal business partnership, if you pay

for the venue and the staff, you get to

keep the revenue. In Formula 1, the

contracts are designed so that F1 keeps

almost everything that makes money and

the city keeps almost everything that

loses money. Let's break down the

revenue streams. First, we have TV

rights worth billions globally. F1 keeps

100% of that. Second, we have Pock Club

Hospitality, a curated F1 experience for

the ultra rich. If the grand stands are

economy, the PA club isn't first class.

It's the private jet. The $10,000

tickets, F1 keeps 100% of that. Then

there's trackside advertising. The

banners for Rolex, Hanakin, and LV, F1

keeps 100% of that as well. Last, we

have the merch, the $80 caps and the

$150 jerseys. Awa and the teams keep

100% of that as well. So, what does the

whole city get? They get the ticket

sales from general admission, which is

usually the cheapest seats in the house.

And in many modern contracts, F1 is

starting to demand a cut of that as

well. So, the promoter is left relying

entirely on incidental spending, hot

dogs, hotel rooms, and Uber rides. But

independent economists have studied this

for decades and they have found that the

multiplier effect is almost always zero

or negative. This is due to a phenomenon

called the crowding out effect. When a

mega event like F1 comes to town,

regular tourists stay away. They don't

want to deal with the traffic, the road

closures, and the price gouging. The

city trades its normal steady stream of

tourists for a sudden spite of F1 fans.

And Flynn fans aren't spending money at

the local mom and pop shops. They are

staying at international hotel chains.

They're eating F1 vendor food at the

track. And they're flying on

international airlines. The local

economy gets the noise, the traffic, and

the trash. While the profit are wire

transferred to Liberty Media's

headquarters in Colorado. If you want to

see the F1 trap in its most aggressive

form, we have to look at the 2023 Las

Vegas Grand Prix. This was supposed to

be the jewel in Liberty Media's crown.

They hyped it up as the greatest

sporting event on Earth. And for Liberty

Media, it was. They made over $1.2

billion in revenue. But for local

business owners of Las Vegas, it was a

catastrophe. To build the track, F1 and

the county had to shut down major roads

for months. They built a massive

temporary bridge on Flamingo Road that

completely blocked access to dozens of

local businesses, gas stations,

restaurants, and convenience stores. One

business owner, Wade Bowen, who owns a

gas station near the strip, reported

that his revenue dropped by 50% during

the construction phase. He lost millions

of dollars because customers literally

cannot get to his front door. Other

restaurant reported that their

reservation were empty during race

weekend because the regular Vegas

tourists, the one who gamble and eat at

steakouses, avoid the city entirely

because hotel prices had surged to

$1,000 a night. And when the race

finally happened, F1 erected massive

screens and covers along the pedestrian

bridge and fences to ensure that nobody

could watch the race for free. They

literally blocked the view of the city's

own landmarks. After the race, a group

of business owners sued, claiming losses

of over $23 million. And what was F1's

response? Greg Mafay, the CEO of Liberty

Media, simply said, "We brought $1.2

billion to the local economy." But the

$1.2 billion is an aggregate number. It

doesn't account for the disturbance. If

the MGM Grant and Caesar Palace made a

billion dollars and the local shops lose

$12 million, the economy grew, but the

locals were crushed. It was wealth

concentration disguised as economic

growth.

This isn't just a Las Vegas problem. If

we zoom out, we can see a trail of

destruction all over the world. Look at

the Korean Grand Prix. In 2010, the

region of Yungam in South Korea built a

$260 million track in a swamp. They were

promised it would turn the area into a

high-tech industrial hub. The race

lasted 4 years. It lost money every

single year. The organizers went

bankrupt. Today, the track is falling

apart. Used occasionally for local car

club meets. The industrial hub never

materialized. The taxpayers are still

paying off the bonds. Look at the Indian

Grand Prix. The Boot International

Circuit was a state-of-the-art

masterpiece that cost $400 million to

build. It hosted three races. Then a tax

dispute with the government shut it

down. Now the track is closed and the

return on investment is zero. Similar

stories with the Valencia street circuit

in Spain. This was supposed to be the

monle of Spain. The government spent

over €200 million building it. It is now

a ruin. Chanty towns have been built in

pit lanes. The expensive electronic

equipment was stolen years ago and the

politician who authorized it. Several of

them is now facing corruption charges

for kickbacks related to the

construction contracts. The pattern is

always the same. It starts off with the

promise. A politician wants a legacy

project. Then comes the deal. F1

extracts a massive fee and demands a

massive build. Then the reality, the

revenue falls short and the maintenance

costs are way too high. Last comes the

exit. F1 leaves for a new city and the

taxpayers are left holding them back. So

if the history books are filled with

these failures, why do new cities keep

signing up? Why is Madrid building a new

track right now? Why is Colombia trying

to get a race? The answer lies in the

psychological concept of sign value and

the political concept of sports watching

for developing nation or a second tier

city. Hosting F1 is a shortcut to global

legitimacy. If you are Saudi Arabia or

Qatar and you want to rebrand your

country away from just oil and human

rights abuses to luxury tourism

destination, $50 million a year is a

cheap marketing expense. They don't care

if the race makes a profit. They're

buying the image of the race. They're

buying the 60 seconds of drone footage

that shows their city looking futuristic

and clean on TVs around the world. It is

a loss leader for the government's PR

department. But for democratic cities

with real budgets like Las Vegas or

Miami or Melbourne, the math is much

harder to justify. And this is where the

friction is starting to show.

Traditional tracks like Hockenheim in

Germany simply cannot afford these fees

anymore. They have dropped off the

calendar because they refuse to bankrupt

themselves. In their place, we have

street tracks in totalitarian regimes or

massive US cities where the corporate

interests can bulldo local opposition.

Liberty Media has made a calculated

decision. They are moving away from

sport and towards entertainment. And in

the entertainment business, you go where

the money is dumbest and easiest. So

what does that mean for the future?

Currently F1 is riding a wave of

popularity driven by shows like Drive to

Survive. The demand is so high they can

charge whatever they want. But economic

bubbles always burst. Eventually cities

will realize that prestige of hosting a

race isn't worth the $500 million debt.

Eventually, the local residents like

those in Las Vegas and Miami will sue

the races out of existence due to noise

and disruption. And eventually, the only

places left racing will be the ones

where the government doesn't have to

answer to voters. Until then, the F1

circus will continue to travel the

world, setting up its tents, extracting

the gold, and leaving before the locals

realize they've been pickpocketed. For

F1, the cars are fast, the technology is

brilliant, and the racing is exciting.

But next time you see a mayor shaking

hands with the F1 CEO smiling for the

cameras, just remember you're not

watching a business deal, you're

watching a city sign its own mortgage

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