How the Formula 1 deadlock may impact the São Paulo economy

. Jul 29, 2019
formula 1 sao paulo brazil

Formula 1 has always drawn attention in Brazil, but in 2019 the spotlight was turned on the local Grand Prix (GP) earlier than usual—and it illuminated a troubling situation. Instead of betting on who might win the race, Brazilians are now asking whether the country will still host a race at all—and what might happen to their jobs if not. 

Brazil has been hosting a Formula 1 GP for the past 47 years and, since 1990, the race has been held at the Interlagos track, in São Paulo. The country is also, by far, the biggest market for the sport, with more than 115 million viewers—a passion fostered by the legacy of pilots like Nelson Piquet and late national idol Ayrton Senna. 

</p> <p>But, for São Paulo, Formula 1 is more than just entertainment. According to data provided by City Hall, the GP generated BRL 334 million in 2018, generating <a href="">10,000 direct and indirect jobs</a>. With 77 percent of tourists coming from abroad, it is the most significant event for international tourism in the city, impacting a local industry that generated BRL 330 million in tax collections last year. </p> <p>This is now being brought into question by the expiration of the city’s contract with Liberty Media, the American company that owns Formula 1, next year. An open battle has broken out over the hosting of the race, which may end up with the country losing its place as an F1 host altogether.</p> <h2>Business first</h2> <p>Despite Brazilian enthusiasm for the sport, Formulla 1 <a href="">began to lose fans</a> a few years ago, propelling a change in business model. The idea was to become more of an experiential event, rather like the Super Bowl, as <a href=",2840a5994e7815c021abb1c4936556257lwomlpb.html">F1 boss Chase Carey explained</a>. </p> <p>That change includes digital initiatives, but this may conflict with TV Globo, who owns the rights to broadcast races in Brazil—<a href="">as reported by news website <em>UOL</em></a>. According to the report, the broadcaster offered to pay less than Liberty had anticipated for the broadcast rights, fueling Liberty’s desire to take back control and invest in on-demand content. However, Globo also helped to pay for the championship fees in Brazil, which may reach up to USD 30 million.</p> <p>Due to a deal with former F1 tsar Bernie Ecclestone, Interlagos was exempt from this tariff until 2020, but after that, the state-owned circuit would have to find an alternative way to pay for it. According to <em>Folha de S.Paulo </em>newspaper, since 1990, at least BRL 830 million were invested by the government in renovation works.&nbsp;</p> <p>Losing the race may also be a huge blow to <a href="">São Paulo’s privatization plan</a>, drafted by governor João Doria during his two-year administration in City Hall. Currently, the racetrack also hosts<a href=""> music festival</a> Lollapalooza and smaller race competitions over the year. But the Brazilian Grand Prix is definitely the flagship event.&nbsp;</p> <h2>Friendly fire</h2> <p>As Formula 1 expands its locations around the world, São Paulo is not the only city that may lose out. Hockenheim, home to the German Grand Prix, may not make the cut due to the high fees charged by Liberty Media and the inclusion of two new circuits, Hanoi and Zandvoort, <a href="">explains <em>Deutsche Welle</em></a>.</p> <p>São Paulo, however, is the only race to be facing friendly fire. Rio de Janeiro, which used to host the race in the 1980s, has emerged as a challenger. To be able to host the Brazilian Grand Prix, the city is betting on a yet-to-be-built track in the Deodoro neighborhood, in the city’s West Zone. The project is estimated to cost almost BRL 700 million, which Rio authorities say will be fully covered by private initiative. The track was designed by architect Hermann Tilke, who is responsible for the circuits of Singapore and Bahrain. For Rio, Tilke has designed a 4.5 km track, with 80,000 seats—which may be expanded to 135,000 if necessary—and <a href="">36 boxes and a paddock for up to 5,000 VIPs</a>.</p> <p>The application by the <em>Cidade Maravilhosa</em> is openly backed by President Jair Bolsonaro, who even suggested new circuit be named after Ayrton Senna (who was born and raised in São Paulo). The decision to instigate a tug-of-war with São Paulo Governor—and former election ally—João Doria could be considered a <a href="">preview of Brazil’s 2022 presidential election.</a>&nbsp;</p> <p>In spite of support for the top of government, Rio faces a race against the clock to meet the deadline, needing to break ground and build the entire track in just over two years. Additionally, as <a href="">reported by G1</a>, the Prosecutor’s Office is investigating the consortium that won the bid to build the racetrack over suggestions of fraud, accusations that include the company’s president acting as a consultant for City Hall during the bidding process. Moreover, concerns with environmental legislation may delay permission for the construction works.&nbsp;&nbsp;</p> <h2>What is left for São Paulo?</h2> <p>Undoubtedly, losing the Grand Prix would be a significant blow to São Paulo’s events and tourism sectors. But for a city whose LGBT pride parade alone brings in BRL 403 million (more than Formula 1), the setback would hardly be fatal. </p> <p>Other events, like the <a href="">New Year’s Eve celebration</a> at Paulista Avenue, are also major revenue drivers. According to Observatório do Turismo, a research group maintained by SPTuris, tourism promotion agency of São Paulo, the end-of-2018 celebration drew in at least 1.9 million people; 39 percent of them are tourists, spending about BRL 1,025 per day.&nbsp;</p> <p>Observatório do Turismo also estimates that Carnival has a commercial impact to the tune of <a href="">BRL 2.3 billion</a>, with BRL 2.1 billion coming from <em>blocos</em> (or street parties) and BRL 220 million from the Sambadrome parade. And there’s the Virada Cultural too—a festival that aims to foster the <a href="">rebirth of São Paulo’s downtown</a> with 24h of food, music, theater, and other arts experiences. In 2019, the Virada Cultural generated <a href="">BRL 235 million</a> for the city.&nbsp;

Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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