1. Melbourne vs Hyderabad A Presentation on Cost/Benefit Analysis of the Formula One Grand Prix Events By Amrita Vaswani, Amit Vibhakar, Tom Merkli 18 June 2004

2. Agenda Aim of the Project Project Methodology CBA Framework Application Indian Formula One Grand Prix - Financial Analysis - Cost Benefit Analysis Australian Formula One Grand Prix - Financial Analysis - Cost Benefit Analysis Comparative Analysis / Benchmarking

3. Project Methodology Conduct a comprehensive Financial Appraisal for both the Grand Prixs i.e. a Project Cost Benefit Analysis Referent Groups - State Governments and the Grand Prix Corporations Social Cost Benefit Analysis Also includes the State Population as the referent group Benchmarking of both events as a decision making tool to evaluate the worthiness of staging the Indian Grand Prix CAB Referent Group Analysis A: Referent Group ( market prices) - Banks and State Government B: Non Referent Group ( market prices) - Grand Prix Corporations C: Referent Group (non- market prices) - Society,i.e. population of Andhra Pradesh & Victoria A + B – Financial CBA A+B+C- Social CBA

4. Cost Benefit Analysis framework Step I ‘Identify Direct Costs and Benefits’ Step II ‘Conduct Financial CBA’ Project Evaluation Via Comparative Analysis NPV maximization Costs/Benefit Ratio Step III ‘Estimation of Indirect Costs/Benefits in Monetary Terms for Indirect Market Goods Willingness to Pay (WTP) via Shadow Pricing Indirect Non Market Goods Indirect method of Valuation (Revealed preferences) Travel Cost Method Willingness to Pay (WTP) Step IV Set Social Discount Rate and select appropriate Time Horizon Step V Evaluate Risks Step VII Conduct Social CBA Step VI Consider Distribution effects Hedonic Pricing Method If Social CBA >0 Undertake project Do not undertake project YES NO

5. Indian Formula One Grand Prix

6. Hyderabad CBA Tangible Costs and Benefits Costs Construction of Race Track Land Acquisition Employee Salaries Payment of Prinicipal and Interest on Federal Government Loan Opportunity Cost of State Government Overdraft loan Utilisation of Government machinery e.g. Policing, Public Transportation Upgradation of International Airport Construction of Six Lane Highway Construction of Hotels Benefits Ticket Sales Advertising & Sponsorship revenue International Tourist Revenue Reduction in Unemployment Increased Tax Revenues Direct Indirect

7. Economic Valuation of Hyderabad G.P. Intangible Costs and Benefits (Indirect) Costs - Traffic Congestion - Noise Pollution - Accidents and ‘The Dread Factor’ - Loss of Cultural Heritage - Reduction in Demand for other popular events Benefits - Increased recognition on International map - Fully Operational International Airport - Improvement in Infrastructure ( better roads)

8. Hyderabad Net CBA Project life 2005 – 2016 Total PV2005 as per Financial Appraisal: - US$ 350 Million Total PV2005 as per CBA: + US$ 175 Million

9. Melbourne Adelaide until 1995 Grand Prix since 1996 in Melbourne Victoria converted Public Park into Race track and founded AGPC Opposition from SAP Various studies exist

10. Melbourne CBA Costs Establishment Costs Staging Expenses Labour adjustment Policing Lost revenue Traffic congestion Property damage Accidents Benefits Sales Revenue (Ticktes) Other Revenue (Spons.) Tourism surplus Government loan Psychic income Direct Indirect

11. Melbourne Net CBA Project life 1995 – 2005 Total PV2005 as per Financial Appraisal: - US$ 93 Million Total PV2005 as per CBA: + US$ 375 Million

12. Melbourne vs Hyderabad Project life 1995 – 2005 Total PV2005 FA: - US$ 93 Million Total PV2005 CBA: + US$ 375 Million Project life 2005 – 2016 Total PV2005 FA: - US$ 350 Million Total PV2005 CBA: + US$ 175 Million

13. Thank you! © 2004 Amrita, Amit, Tom