Barbagallo Raceway
Preliminary Project Concept March 2009
Background
GHD Pty Ltd was engaged by the Department of Housing and Works (DHW) on behalf of the Department of Sport and Recreation (DSR) to conduct a review of Barbagallo Raceway in Wanneroo, Western Australia. The focus of the review was to identify and quantify the improvements needed to ensure the site is suitable to continue hosting future rounds of the V8 Supercars Championships. Barbagallo Raceway is the only permanent facility in Western Australia capable of hosting a V8 Supercars Championship event. V8 Supercars Australia Pty Ltd (V8 Supercars) has publically declared that it will exclude Barbagallo Raceway as a racing venue if major track improvements are not completed within the next year or two.
The review has been completed in two stages. The first stage involved the preparation of a Needs Assessment and Site Condition Report that identified three options for improvement. It should be noted that while input was sought from V8 Supercars, no feedback or confirmation was received in relation to the options presented in that report. The second stage was the completion of a Business Case, the subject of this report.
Business Case Methodology
In conducting the Business Case Analysis, three distinctive infrastructure options were assessed:
- No infrastructure improvements;
- Minimum upgrades to meet current needs; and
- Upgrade to international racing standards.
The financial analysis of the options was focussed on the calculation of the Net Present Value (NPV) of investment based on operational cost data provided by the Western Australia Sporting Car Club (WASCC), and capital cost estimates estimated by GHD. It should be noted that financial data provided by WASCC was very limited, particularly related to the V8 Supercars event. This has impacted the accuracy of cash flow projections.
With regard to capital investment, three scenarios for each of the options have been analysed: government grant, shared investment and commercial loan.
WASCC Financial Capacity
WASCC is not currently able to generate sufficient recurring revenue to provide a full capital contribution towards a significant upgrade to Barbagallo Raceway. WASCC must realise income from new initiatives and activities if it is to have the capacity to sustain higher operational costs that may be generated by the proposed infrastructure upgrades, or to service any loan that may be required to meet the capital costs of the required infrastructure upgrades.
Capital Investment
No potential investors other than the State Government were identified. Given WASCC's financial status, the development of the facility will be wholly reliant on funding provided by the WA Government.
Although WASCC appears to be the only organisation with the resources and technical knowledge capable of organising and running the events at the track, the management of marketing and promotion could be significantly improved for large scale events, particularly the annual V8 Supercars round. Further investigation into external management and/or promotion of the V8 Supercars event could occur in the Master Planning Phase for this project, given the strong linkages between marketing and the attributes of the raceway infrastructure.
Conclusions
Infrastructure Option 1 does not involve any major upgrade to the track or facilities and as such the capital cost is nil. Minor improvement works by WASCC are likely to continue as part of its normal operations. However, these works are unlikely to adequately address the key issues raised for the raceway with the exception of potential improvements to the promotion of the V8 Supercars event.
As detailed financial information pertaining to the V8 Supercars event was not provided by WASCC for reasons of commercial confidentiality, estimations of possible revenue losses can not be determined with confidence. However, it is assumed that there would be no growth in WASCC membership and even a potential decline in existing member support.
Infrastructure Option 2 involves improvement works to the current facilities, new pits and garages, and construction of 11.2km of new race track. These improvements address most of the key issues raised by V8 Supercars and the current users of the facility. This option presents economical advantages not only to WASCC, as new sources of revenue could be realised, but it may also create financial and social benefits for the community in general.
From WASCC's perspective, the financial viability of Options 2 is to a great extent directly related to the extent of the capital contribution required from WASCC. As concluded from the NPV analysis, any capital investment exceeding 10% of the total upgrade cost will be financially unsustainable for WASCC as it would be solely reliant on the achievement of recurring increases in revenue to cover the major loan obligations.
Other risks associated with this option include the environmental constraints associated with the rezoning of the additional land required for track extension, as well as the possibility that V8 Supercars would raise further issues with the raceway in the future as no improvements to the existing track are included in this option.
Infrastructure Option 3 involves an upgrade of the existing track as well as construction of approximately 2 km of additional track, up to current Fédération Internationale de l'Automobile (FIA) standards. Other improvements are new pits, garages and general amenities as well as significant upgrades to existing medical facilities.
Significant growth revenue opportunities can be realised through this option. With the proposed upgrades the facility would be capable of hosting international racing events as well as the addition of other motor racing categories. However, as concluded from the NPV analysis, any capital contribution exceeding 30% will compromise the financial ability of WASCC to achieve positive cash flows. In addition to some environmental constraints associated with the rezoning of the additional land required for track extension, this option creates some challenges for WASCC as it would have to maximise the utilisation capacity of this new facility. This will place significant additional pressure on WASCC to organise and run several additional events per year including international racing categories.
Special attention should therefore be given to better promotion and management of events, and some partnership model options could be explored.
Recommendations
GHD recommends Infrastructure Option 3 based on a 100% government grant as the funding scenario. This is subject to master planning and the resolution of land availability issues mentioned in this report. It is also recommended that WASCC continues managing the facilities and events at Barbagallo Raceway and is responsible for undertaking ongoing facility maintenance and provision for capital replacement over the life of the facilities.
The specific recommendations are:
- Retaining V8 Supercars event at Barbagallo Raceway is the preferred outcome irrelevant of the three options proposed. Long term viability of the both the facility and WASCC is dependant on a hosting of large scale events.
- Retain WASCC as the operational manager of Barbagallo Raceway for all of the proposed options to ensure the facility is well maintained and continues to deliver services to the motor sport community.
- State Government as the sole capital contributor for the upgrading of the facility. Any significant upgrade to the facilities is unlikely to be recovered through an increase in revenue. WASCC is responsible for all maintenance and restorative capital contributions, usually allowed for at a rate of 2% of the capital costs per annum. Due to the high use and nature of the facilities and amenities that would be provided it is recommended that this allowance be higher than 2% and is to be determined in the Master Planning phase.
- That a collective group is formed from the key stakeholders including WASCC and the City of Wanneroo for promotion and marketing of major events including V8 Supercars.
- Should there be support for a significant upgrade of the facility, a Master Plan and supporting Business Case are required to ensure the project is sufficiently defined and outcomes are reached.
- That any important decisions made regarding the improvement of the facility, are to be inclusive of all users and other potential categories. Apart from the diverse revenue opportunities generated through an integrated approach, in the long term this would produce greater financial and social benefits to the larger community.
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