The Allure of Street Circuits and Why F1 is Hooked!
Hi there! Welcome to Track Limits, a weekly F1 newsletter where we break down the biggest headlines and explore the questions, topics, and trends that fuel our curiosity. Nothing is off-topic and a little fun is always part of the mix!!
Good evening!! Honestly, this wasn’t the topic I had planned to kick off the 2024 season with. But in January, the floodgates opened, and we experienced one of the craziest winter breaks ever! As a result, I’ve decided to set aside most of the issues I had prepared and just roll with it. There’s nothing like diving into the madness together and discussing the hot topics, trends, and the many questions we all have.
Including why Formula One seems so into street tracks. I hate to burst your bubble, but it’s not because fans love it or because it guarantees exciting races! So let’s dive into it.
Formula One’s calendar has been a hot topic over the last couple of years, not just because of the race locations but also the types of circuits the series has chosen to race on.
While street circuits were once few and far between, they now make up about 30% of the calendar, and fans aren’t thrilled about it. For a while, races like Singapore and Baku were absolute fan favorites, as they presented a novelty to the traditional circuits, which, let’s be honest, didn’t always deliver the most spectacular races. However, public opinion has shifted dramatically since more street races have been added to the calendar.
The most recent addition is Madrid, set to start in 2026, and rumors are swirling that Chicago and even Osaka are eyeing potential F1 street races as well. So why does Formula 1 suddenly seem to have a penchant for street races?
Destination Races
One of the major shifts we’ve witnessed since Liberty Media acquired Formula 1’s commercial rights is the introduction of sports tourism as a key market for promoting Formula One races. Until recently, F1 operated under the notion that it was a “traveling circus” that simply visited its fanbase around the world. This is no longer the case. Formula 1 has positioned itself as a destination event, allowing people to combine their love or curiosity for the sport with the desire to explore new places and have unique experiences.
To cater to this new customer base and tap into the growing sport tourism industry - which was valued at $683,17 billion in 2023 and projected to grow 17,5% until 2030 - Formula One needs destination races. Places that can host races but also allow Formula 1 to attract high rollers and even young middle-class tourists with disposable income.
A race in the middle of the countryside, like most permanent circuits, won’t cut it. But a buzzing metropolis with Michelin-star restaurants, trendy nightclubs, and five-star hotels will definitely do the trick!
Talk of The Town
However, promoting Formula One beyond its current audience has always been a difficult and expensive endeavor. That’s why Drive to Survive was such a game-changer. In a relatively simple and inexpensive way, it brought millions of new fans into the sport. But ever since the pandemic lockdown, the show hasn’t been able to pull the same numbers, as is evident by the number of viewers and viewing hours of season 1 over the last three years. ( No one starts a series with the latest season, suggesting otherwise is blasphemy!!)
Sure, F1 is currently riding an unusually long wave of hype - one it’s desperately trying to extend! But as much as races like Suzuka hold special meaning for fans, teams, and drivers, they don’t necessarily help the sport remain the talk of the town.
To overcome this challenge, Formula 1 has chosen to position itself in the middle of bustling cities and make a splash while being there. The constant media coverage it generates helps Formula 1 maintain its relevance and even sparks interest among local residents. Add in a few A-list celebrities, exciting brand activations, and a enticing concert lineup, and Formula 1 not only boosts its reach but, if they're lucky, encourages crossover among fans.
Curiously, this is a strategy Formula E has used since its inception.
Race on Sunday, Sell on Monday
The reason why awareness is important is that one of Formula 1's main revenue streams comes from sponsorship fees. Brands pay to sponsor events because they want to reach Formula One's audience. The more eyes on the sport, the more brands are willing to pay to be involved. However, not all races are created equal, meaning their marketability can vary significantly.
A big part of this has to do with the fact that most Formula One sponsors are luxury brands targeting wealthy customers. These individuals typically attend races to network, be entertained, and be seen. Locations like Monaco, Abu Dhabi, Miami, and Singapore are well-suited for this purpose, unlike the rainy and remote Spa! Therefore, if Formula 1 wants to boost its revenue - even in a scenario with fewer races on the calendar - it needs to include more events that can be marketed to sponsors at a premium price.
Manufacturers (OMEs) participating in the championship also have a vested interest in the locations of Formula One races. Let’s not forget that they race on Sunday to sell on Monday. If this ceases to be true and the investment in the sport no longer translates into actual sales, they may reconsider their involvement - which would be bad news.
So, who is the target customer of luxury car manufacturers like Ferrari, Aston Martin, McLaren, Audi, and Mercedes? It’s corporate clients and increasingly younger, high-net-worth consumers, living in urban areas in key markets like the United States, China, Saudi Arabia, UAE, Brazil, and the UK, to name a few.
This means that hosting races in these markets, which cater to this specific customer group, has commercial appeal for OMEs.
Profitability is Key
While the ability to generate more revenue is important, it’s not the ultimate goal for Formula 1 and its teams. Profitability has been their focus for years, which means companies must be run efficiently and costs must be controlled.
The first thing that was done to achieve this goal was the introduction of the cost cap. It has helped every team on the grid either reach or come close to profitability in the past two years. However, as the pandemic, widespread inflation, and recent geopolitical turmoil in Europe and the Middle East have shown, the prices of essential products and services Formula One depends on - such as fuel, energy, shipping, and raw materials - are extremely variable.
This means that the logistics and travel costs of the sport - which are enormous - can jeopardize profitability, especially for the smaller teams on the grid. Moreover, it’s important to remember that this impact extends beyond the teams, it also affects Formula 1, the FIA, Pirelli, and all the media outlets that cover Formula One around the globe.
There are several ways to reduce these costs, including having more staff work remotely, optimizing schedules, and consolidating shipments. Hosting races in urban areas is another significant way to impact costs, as it allows Formula One to use the existing infrastructure and amenities of the host city.
It Ain’t Cheap!
Race promoters face similar challenges regarding profitability. Permanent circuits require substantial upfront investment, ongoing maintenance, and depend on increasingly harder-to-get public funding and sponsors.
Although promoters do not publicly disclose the actual costs of organizing a Formula One race, estimates suggest that these can reach several hundred million dollars, not including the hosting fees charged by Formula 1. Let’s say, it’s not a cheap venture to undertake!
One of the main arguments governments have made to cut funding has been that Formula 1 doesn’t operate in locations that promote high-value tourism, and that its “in-and-out approach” fails to create long-lasting economic growth or positive social impact on local communities. As such, the cost-benefit analysis does not favor spending taxpayers’ money on a niche sport.
However, this assessment changes when the location is a major city with recognizable landmarks that are broadcast to millions worldwide. Moreover, attendees of sporting events in urban areas are more likely to spend more money and stay longer, undoubtedly amplifying the event's economic impact. This is true even when considering potential conflicts with residents due to noise and increased traffic congestion, for example.
This is why there has been imore government support for street races, as they are viewed as an initiative to boost the national sports tourism sector and a chance to tap into this highly lucrative market. With the added benefit that they don’t require a substantial upfront investment, as most maintenance costs are already the responsibility of the local government (for example, the roads). If the local authorities decide they no longer want to host races, they aren't left with an obsolete asset funded by public money. Something that has happened a lot with the FIFA World Cup, but Formula One has faced similar issues - just look at the Valencia track.
The race in Madrid serves as a great example of how local governments are increasingly willing to subsidize street races. The promoters are publicly funded organizations, along with the local and regional government. While they claim they are counting on sponsors to cover at least part of the costs, this doesn’t take away from the fact that it’s an initiative led by the public sector.
Sustainability Goals
However, Formula 1’s goals aren’t just financial. Sustainability has increasingly shaped the sport’s overall strategy, especially since the introduction of the Net Zero Carbon by 2030 target in 2019.
Contrary to popular belief, Formula One's main source of emission is not the race cars on track, but rather logistics and travel, which account to 73% of emissions and are mainly driven by teams, race promoters, and fans. This means that in order to achieve the Net Zero Carbon goal, Formula 1 urgently needs to address the logistics and travel of these stakeholders. The most easiest way to do this is through the most consequential thing they control: the calendar.
This means implementing measures such as grouping races by region and creating incentives and tools for teams, fans, and other stakeholders to use low-impact transportation when traveling to and from races. Especially the latter is something street circuits help with, mainly through the host city’s transport infrastructure, as highlighted by Formula 1 in their announcement of the Madrid race.
But street circuits offer additional value in terms of sustainability for the sport. One of the UN’s 17 sustainability development goals is creating sustainable cities. This means that local governments have been developing and implementing sustainable urban development policies and practices. As such, hosting a race in a metropolis more than likely means tapping into a power grid already using some degree of renewable energy sources, using a public transport network on its way to becoming fully “green” and taking advantage of a waste and water management system that adhere to industry best practices.
All of this enables Formula One to minimize its emissions without needing to invest in major infrastructures, amenities, or other resources - at least not to the same extent as it would in locations lacking these advantages.
This means that Formula 1 can optimize its calendar choices not only to achieve its financial goals but also to advance its sustainability ones as well. Which let’s be honest is smart! Moreover, if they want to, they can leverage their influence to drive sustainability initiatives in host cities and increase community impact by making it making such initiatives a condition to be part of the calendar.
Finding a Balance
Clearly, street races provide the sport’s major stakeholders with numerous benefits - there's no doubt about that! But does this mean that F1 will gradually evolve into a “street race championship”? My educated guess is no!
Formula 1 is acutely aware that the current car isn’t suited for narrow city streets. They are big and bulky and wheel-to-wheel racing isn’t happening. While the goal is to make the next era of cars smaller and lighter, a reduction of just 10 cm and 40 kilos may not be enough to ensure exciting races will happen.
Additionally, fans and drivers have been very vocal about the importance of several permanent circuits in terms of their historic and emotional value. Which is probably one of the reasons why Suzuka and Silverstone recently extended their contracts and others such as Monza likely to follow suit.
All of this seems to suggest that Formula 1 is trying to find a balance between what makes the sport interesting for fans but also a worthwhile investment for those taking part. Could there be other ways to achieve this without a “million” street races? Probably yes, but for now, this is the path Liberty Media has chosen.
As any long-time fan will tell you, calendars and expansion strategies evolve as the sport responds to external circumstances and stakeholder feedback. This is perfectly normal. Do I like this particular strategy? Not really! But honestly, it would be more concerning if they weren’t trying anything new at all!
Photo Credit: Williams Racing, Aston Martin