Formula One Bets Nearly $300 Million on Las Vegas As Next Big Hub for Auto Racing
Liberty Media Brings Grand Prix to Famed Strip After Major Land Purchase and Extensive Capital Investment
Formula One racing league owner Liberty Media is wagering on the Las Vegas Grand Prix to become the next big boost for the gambling capital’s sports and entertainment sector after investing nearly $300 million in real estate to bring the event to the famed Vegas Strip.
Englewood, Colorado-based Liberty Media, the parent company of race organizer Formula One Group, last year acquired a 39-acre redevelopment site adjacent to the Las Vegas Strip for about $240 million. The company has since splurged in a big way to develop the track and ready the site with pit and paddock facilities, seating areas and other race-support facilities, bringing its total investment for this weekend's inaugural Las Vegas Grand Prix to about $280 million through this year’s third quarter.
“We did incur significant expense in launching year one in Vegas, and that included extra provisions for safety, security and traffic planning, which was required by local regulators,” Liberty Media CEO Greg Maffei told analysts during the company’s quarterly earnings call last month. “And we had several nonrecurring items, for example, our first-year-only opening ceremony, and the design and launch of our multipurpose app and creation of a fan database.”
The CEO said Liberty Media executives expect the Vegas event to reach full-fledged profitability starting in its second year. “We remain bullish on the broader value creation at Las Vegas Grand Prix that far outweighs the increased investment in start-up costs,” Maffei said.
Operators have placed the finishing touches on facilities including what organizers describe as the largest pit building on the Formula One racing calendar, with a rooftop deck and wraparound balcony that will provide 360-degree views of the track.
The Las Vegas Grand Prix is projected to generate $1.3 billion for the tourism-centric Las Vegas economy, according to an economic impact report from real estate consulting firm Applied Analysis. That would make it the single-largest special event in Las Vegas history.
More than $360 million of the aggregate impact is estimated to take the form of wages paid to thousands of workers who will be employed directly or indirectly as a result of the race and its preparations. Analysts and regional economic development officials have estimated race-related tax receipts of nearly $83 million, including a $38 million boost in entertainment taxes, $23 million in hotel room taxes and $17 million in sales taxes.
“An often overlooked benefit, Las Vegas hotels will be sold out the week before Thanksgiving, transforming a traditionally slower-than-average period,” Applied Analysis Principal Jeremy Aguero said in the October report that was commissioned by the Las Vegas Grand Prix organizers.
As the race date approached this week, there were signs that some of that hotel demand had yet to materialize, as some properties near the Strip reported lower than expected bookings and average room rates. Ticket prices were also reduced for some race tickets and pre-race events amid slower than expected sales, according to race and event organizers.
“The first iteration of a major event in a new city is often accompanied by growing pains, and the Las Vegas Grand Prix is no different," said Michael Petrivelli, director of market analytics for CoStar Group in Las Vegas. "Locals have dealt with unrelenting construction and traffic around the Strip for the past year."
Practice and qualifying rounds for the race, along with numerous related side events along the Vegas Strip, are scheduled for Nov. 16 and 17 before the main event on Nov. 18. As 10 teams of 20 drivers navigate a 3.8-mile course created along the Strip and adjoining avenues at speeds topping 200 mph, media from around the world and the larger racing industry will be closely watching the results.
The Vegas Strip hasn’t hosted a major auto race since the early 1980s, when Caesars Palace presented a smaller-scale Formula One race on land behind the hotel-casino property, and that event lasted just two years after drivers complained about issues including the course’s small size and seasonal desert heat. The site of the Caesars event was later redeveloped and currently includes the property’s Forum retail center.
This latest Formula One event arrives after the September debut of the $2.3 billion, high-tech Las Vegas Sphere arena at the Venetian Resort, designed in the shape of a giant ball that can transform itself into multiple lighted and colorful configurations. That venue is not far from where baseball’s Oakland A’s are planning to build a $1.5 billion ballpark on the current site of the Tropicana hotel and casino.
Other developers are looking to bring pro basketball and soccer to Las Vegas with their own planned projects, after prior developments that lured the NFL and NHL to the gambling capital. The $1.9 billion Allegiant Stadium near the Strip, home to the NFL’s Raiders since 2020, is scheduled to host the Super Bowl in February.
Petrivelli noted regional officials' long-term economic expectations for the Grand Prix were reflected in Clark County's approval of plans allowing Formula One to use the Las Vegas Strip through at least 2032. Regional officials are counting on the race to deliver bigger long-term fiscal benefits than the Super Bowl, including heightened interest among commercial developers.
"The success of the Las Vegas Grand Prix will certainly be accounted for by potential developments, as will the relocation of Major League Baseball’s Athletics,” Petrivelli said.
Las Vegas is the nation’s largest hospitality market by room count and had the third-highest average occupancy rate in the U.S. during the past 12 months at nearly 78%, trailing only New York City and the Hawaiian island of Oahu, according to CoStar data as of Nov. 14. But occupancy is not forecast to reach 2019's peak levels for at least another five years, despite the region hosting big recent events including Formula 1 racing, the NFL’s Pro Bowl and the upcoming Super Bowl.
Still, tourism officials reported that Nevada’s statewide gaming revenue has been breaking records with a monthly take topping $1 billion since March 2021, the biggest chunk coming from Las Vegas and the Strip in particular. Las Vegas airport officials reported passenger traffic up 10% from a year earlier through the first nine months of 2023, with more than 42 million visiting the region.
