Indian Formula One: Racing for survival?

The $400m Buddh International Circuit (BIC) near the Indian capital of New Delhi reverberated with the roars of Formula One (F1) cars throughout the last week of October. What is still echoing is the uncanny silence over the question, “what next?” since the event was cancelled for 2014. Is it a mere case of lost novelty or is there more to the story?

The Indian Grand Prix, a Formula One race organised by the Formula One World Championship, made its debut in the country in 2011 to much fanfare.  F1 racing was traditionally centered in Europe, but Grand Prix races are now held worldwide for license fees. F1 boss Bernie Ecclestone, the president and CEO of Formula One Management (FOM) and Formula One Administration (FOA), has reiterated at various forums that India is an important market. 

However, on the ground, attendance numbers have dropped. According to official figures, the number of tickets sold during the third year stood at 65,000 in 2013 – a 60 percent drop from the debut year. 

India’s Grand Prix was also shadowed by glaring tax issues.  A petition was filed by an individual in India’s apex Supreme Court seeking a direction to stay the race, allegedly over the non-payment of entertainment taxes by the organisers for the 2012 event. The petition almost threatened to stop the third and last day of the event.

Amidst doubts, the event took place according to the schedule, but met with speculations that this could be the last race to be held in India.

In 2011, Jaypee Sports International Limited, who organises the event, inked a five-year contract with the FOM to host the championship in India.  However, the news announced by Ecclestone earlier this year that the 2014 Indian Grand Prix might have to be dropped to accommodate the racing calendar, has now been confirmed.

“…yes, there will be no race in 2014…but we are coming back in 2015…the first quarter to be precise and then again in 2016. We have a five-year contract, we will honour that,” confirmed Qamar Ahmed, a senior official at Jaypee. He also added that the F1 management wanted the next race in March 2014 but cautioned that it is not feasible to hold a race “so soon”.

The spotlight is on Jaypee. The company feels that like other businesses, they have also been hurt by the global recession and the fall in the value of the rupee during 2012-13. “The first year was special. The numbers have come down now but that is a trend we have seen world over. And regarding the non-payment of taxes, we have not done anything illegal,” Askari Zaidi, the official spokesperson of Jaypee, told Al Jazeera.

Non-exempt status

Formula One organisers in India face more challenges. A 2011 court ruling classified the grand prix as entertainment rather than sport, therefore, denying any tax exemptions on the earnings from the event. The government taxes every stakeholder – race promoters, the Jaypee Group, FOM, teams and even drivers. Furthermore, fans have to pay an entertainment tax when purchasing a ticket.

“…this (F1) should be recognised as a sport in India otherwise, we will not get all the benefits (that other sports get) and will end up paying extra taxes and duties”, observed Zaidi.

According to the officials, for the first F1 event in 2011, Jaypee Sports deposited Rs 24.59 crore ($4.03m) claiming a total collection of Rs 122.97 crore ($20.16m).  However, officials said the actual collection was worth Rs 147.96 crore ($24.26m) with an entertainment tax liability of Rs 36.99 crore ($6.06m).

An unfavourable environment, a long gestation period, rising costs and falling revenues all contributed to its 2014 cancellation.

Even as the International Olympic Committee upgraded the International Motor Sport Federation to a full recognition status, motorsports is still not considered a sport in India. Without recognition, motorsports cannot expect much from the government either in the form of concessions or tax waivers. 

“What can we say anything about F1? It does not fall under our jurisdiction”, said Alok Deswal, an official at the sports ministry.

Privately run

Moreover, the Grand Prix is state-owned in every country but India – where it is hosted by the private company Jaypee. The company claims that it has to pay an annual license fee of $35m to the FOM to host the event in India and that governments of other host nations share this license fee.

It also has to take into account maintenance charges, operating overheads and a forced contribution of $1.62m towards the National Sports Development Fund.

Vicky Chandok, the chief of the Federation of Motor Sports Clubs of India (FMSCI) told Al Jazeera that he is holding a series of meetings with the ministry officials to discuss the matter in the coming few weeks.

“I am confident that I would have something positive to announce in the next few weeks. The government has to give us the recognition which is long due…and I look forward to the 2015 event. A lot of effort and resources have gone into this, we cannot let it go waste just like that….also, the Rs 10 crores ($1.62m) that is contributed to the National Sports Development Fund by our sports needs to support us. It is a bit unfair otherwise..,” said Chandok who was happy that the Supreme Court delayed the hearing of the petition.

Anything beyond the five year contract remains unknown at this point. The build-up that F1 created in 2011 was not maintained this year despite the availability of cheaper tickets. Ticket prices ranged from $25 – $340.

“I was disheartened by all the negative news about F1 just before the race…” said Karun Chandok, a former racing driver.

However he added that India cannot be written off completely and that drivers and companies are still hopeful.

India is not alone; sports experts observe that even the flourishing circuits in Europe do not have enough funds to hold races every year. The south-eastern Asian markets are also not doing well. Turkey ran into financial issues with ringmaster Ecclestone in 2011. 

But many are worried, considering India is a prime market for motor sports. More importantly, the race is important for car manufacturers who are keen to capture a market of 1.2 billion people.  These race cars are maintained by full-time teams sponsored by large corporations or solely by car companies.

“Let me just say that it is going through a heavy weather like many other countries and yes there is going to be no event next year. But then the feasibility is linked to the automobile market in the country and the state of the economy. We need to see how the event captures the imagination of the people. As of now, it is not even as popular as football or tennis…am not even talking about cricket here. Another concern is the internal politics in our country. Motorsports hasn’t even taken off, there is a lot of potential. Hope the right kind of lobbying happens for the sake of the fans. And yes, the organisers need to convince the government,” said Ayaz Memon, a senior sports journalist.