Don't expect to see a Danish Grand Prix any time soon

Big events are fun, and draw in large crowds. But by itself, that doesn't mean that big events are worth the cost. Someone, often but not always taxpayers, has to be willing to pay the cost of hosting. A rational decision-maker would only be willing to host the event if the benefits outweigh the costs. This is a point that I'll be teaching in my ECONS102 class next week, so I was interested to read this recent article by Christian Gjersing Nielsen (Danish Institute for Sports Studies), Søren Bøye Olsen (University of Southern Denmark), and Arne Feddersen (University of Copenhagen), published in the Journal of Sports Economics (sorry, I don't see an ungated version online).

Nielsen et al. focus on the case of a return of the Danish Formula One Grand Prix (which was last held in 1962, although a Danish Grand Prix for Formula Three cars was last run in 1995). They focus on this because:

In 2017, a Danish consortium of private investors presented a plan to host a Formula 1 (F1) Grand Prix... in Copenhagen in 2020, 2021, and 2022.

Ultimately, the plan fell through because it required government funding, and while the national government seemed supportive, but only if the Copenhagen City Council contributed financially. The Council ultimately withdrew its support for the event, and the idea never progressed. Nielsen et al. ask whether the Copenhagen public would actually have been willing to fund the costs of the event, which are significant:

...hosting an F1 Grand Prix in Copenhagen would cost approximately €58 million (adjusted to 2023 prices) annually, including salaries (€15.5 million) and temporary stands (€14 million)... plus an additional annual fee of between €14 million and €50 million for hosting to the rights owners, Liberty Media Corporation...

Nielsen et al. undertook a survey of Copenhagen residents, asking a hypothetical question about their willingness to pay (WTP) for a Grand Prix to be hosted in Copenhagen. Specifically:

Respondents were then asked to imagine that Liberty Media had approved Copenhagen hosting F1 in 2026, 2027, and 2028 and that the private and government funding was already in place. To make hosting conditioned on their response, they were also told that Copenhagen would only accept hosting the race if enough taxpayers would support a temporary municipal tax increase at the household level... Following this, respondents were randomly assigned to two groups. The first group was told that the tax amount that they would have to pay if Copenhagen ended up hosting F1 would depend on their household income... Respondents assigned to the second group did not receive this information and were instead asked to state their household income in the latter part of the survey...

This is an application of the contingent valuation method (which is quite a polarising method, with many debates that I have written about, most recently here). Their sample is about 2000 people, once they exclude 'protest' responses, and just 1452 in their preferred 'weak knife-edge' sample - those who were responsive to a difference in the cost of hosting the event. Based on their range of samples, Nielsen et al. find that:

...mean annual WTP (in the 3 years that Copenhagen hosts F1) estimates between €22.95 and €36.94, while the weighted models result in mean WTP estimates between €24.34 and €43.07, with €30.24... as our central estimate due to the theoretical considerations about consequentiality... Extrapolating our mean WTP estimates to the 320,825 households in Copenhagen Municipality, the aggregated annual WTP (in each of the 3 years that Copenhagen hosts F1) is between €7.36 million and €13.82 million, with €9.70 million (n=1,452, weighted) being our central estimate.

This compares unfavourably with the costs. Specifically:

...the public costs—ignoring indirect or intangible costs—would amount to between €14.4 and €21.6 million annually. Based on our central mean estimate of €9.70 million, the benefits for the households in Copenhagen make up between 44.9% and 67.4% of the public costs, which does not justify hosting F1.

The Copenhagen public are not willing to pay enough to cover the costs of hosting a Grand Prix. So, don't expect to see a Danish Grand Prix any time soon.