FROST: The Economic Impact Of COVID-19

Tim Frost

WILMETTE, Ill. — The COVID-19 pandemic has canceled thousands of events worldwide, including races. This column will examine the financial impact the coronavirus could have on the motorsports industry.

As the racing season was getting underway, health concerns were beginning to appear on the radar screen.  Weeks later as the initial events were being held, reality began to set in.

The sports industry is taking a major economic hit. It has long been considered resilient to most interruptions; wars, terrorism, walk-outs and weather included.

Motorsports is visible and public — making the ability to balance safety and maintaining economic viability more delicate. Racing has always powered through, but it is different this time.

The consequences from races being canceled or postponed are far-reaching. They extend from the racer taking the checkered flag to the teams and sanctioning bodies to the tracks and their vendors to the spectators in the grandstands and even this publication.

The monetary blow will vary from professional drivers to grassroots teams to shop mechanics to concession stand workers, but each depends on revenue from motorsports to drive their respective businesses.

The negative impact will create a direct economic hit and the loss of opportunity. A large number of races will not be able to be rescheduled, limiting the ability to make up for lost revenue.

The health concerns around the mass-event business and the potential for transmitting the virus are overriding factors. When a sense of normality returns, will fans want to gather at the race track again?

The combined health and economic crisis, with no finish line in sight, makes planning uncertain at best.  Track and series officials are making contingency plans for rearranged events. Facilities have the social and legal responsibility to protect those attending large gatherings.

The largest track operators will see the biggest impact. It could lead to financial ruin, including bankruptcy. The ability to replace lost revenue may not exist. Incurred expenses and sunk costs could be devastating.

Media fees are the largest source of money for the motorsports industry. These funds are distributed among the tracks, teams and sanctioning bodies. It is crucial to the financial viability of every stakeholder. Each major race is worth millions of dollars in television broadcast fees. The goal to run a complete season is at the top of everyone’s mind.

The ability to protect their losses with insurance will be limited. Policies would have to have been pre-purchased and specific exclusion language for diseases would have had to been added when the threats were identified.

Legal contracts will hold the details. Force majeure provisions may relieve one party of liability for non-performance due to circumstances beyond one’s control. Special situations such as medical conditions or governmental actions are open to interpretation.

Attending races depends on the discretionary income of fans.  As the economic downturn deepens, ticket and merchandise purchases may be difficult to justify.

Refund policies vary from one promoter to another. Cancellations may be treated like a rainout, fans can attend the rescheduled race later in the season or defer to the following year. Track officials are being flexible to create value and loyalty.

Races are huge sources of revenue for the local economy. A typical NASCAR Cup Series weekend attracts 150,000 attendees and generates more than $100 million in economic impact. These events fill hotel rooms and restaurants, and create jobs for numerous sectors of the economy. Local tax revenue will be diminished if the races are not held.

The cottage industry of businesses that support racing is unique. They include metal companies, tire manufacturers, fuel suppliers, transportation entities and media companies.  Demand for their products is diminished when events are not run.

Part-time concession and track workers paid hourly with no benefits will see no earnings from canceled events.

The motorsports industry has entered unprecedented and uncharted territory. The ability to be flexible and adapt is crucial.

Fortunately, that is where racing succeeds.