Triple Bottom Line Approach in Modern Event Management

1.0 Introduction

Events play an important role in host destinations in terms of the economy, culture, and society (Li and Blake, 2009). events are defined as “spatial-temporal phenomenon, and each is unique because of interactions among the setting, people, and management systems, including design elements and the programme” ( Getz, 2008: 404). The most obvious benefits are economic, as events like the Australian Grand Prix can fill hotel rooms and restaurants (Derret, 2004). Overall, Getz (2008: 405) argues:

…destinations develop, facilitate and promote events of all kinds to meet multiple goals: to attract tourists (especially in the off-peak seasons), serve as a catalyst (for urban renewal, and for increasing the infrastructure and tourism capacity of the destination), to foster a positive destination image and contribute to general place marketing (including contributions to fostering a better place in which to live, work and invest), and to animate specific attractions or areas.

However, events also have social, political, cultural and environmental impacts, for example, successful events can help to build community pride and increase cohesiveness (Gursoy et al., 2004). This report focuses on the Australian Grand Prix, which is held annually in Albert Park, Melbourne. The race has been in this location for 16 years, since it moved from Adelaide in 1994 (Lowe, 2004). This event would be defined as a hallmark event, as it is a “major… sporting events of international status which are held on either a regular… basis” (Hall, 1992: 263).

The Albert Park race circuit is unusual in that it is a temporary track that is laid out on public roads within the park area, especially for the Grand Prix each year. Melbourne won the race to stage the Grand Prix after an aggressive takeover strategy, but there were immediately a series of protests from local environmental campaigners who argued that any economic benefits to be derived from the race would be dwarfed by the ecological damage that would be caused by having up to twenty-four high performance motor racing vehicles racing in the location (Fairley et al., 2010). These protests have been maintained, on and off, ever since, but have not so far led to a rethink regarding the decision to hold the race at Albert Park (Fairley et al., 2010).

Another reason for the continuing controversy over the event is the relatively large amount of government funding that it receives. Critics continually argue that the Australian taxpayer should not subsidise one of the richest and most affluent sports in the world (Fairley et al., 2010). However, defenders of the Grand Prix insist that the economic benefits to the city of Melbourne – due to the thousands of fans who flock to the city each year, as well as the teams, drivers, sponsors and other personnel from the teams themselves – far outweigh the amount of public money that is used (Liu, 2010). Nevertheless, as government-funded race circuits in the Middle East and Asia continue to threaten the survival of ‘traditional’ events in countries such as Australia, Great Britain and Germany, it is clear that “no Grand Prix event run on purely commercial terms, i.e. without some degree of government backing, can be tenable in the long run” (Liu, 2010: 630). Clearly, therefore, the controversy surrounding the Australian Grand Prix is likely to increase over the next few years. The track currently has a deal to host the event until 2015.

This report discusses the implications of the Triple Bottom Line (TBL) approach in modern event management using the Formula 1 Australian Grand Prix as a case study. Section 2.0 discusses the TBL approach briefly, which lays the foundation for Section 3.0 which discusses the application of the TBL approach to the Australian Grand Prix. In this section, the major stakeholders are identified and the impacts of the event on them are noted. Section 4.0 concludes the report, discussing the potential strategies for managing these key stakeholders.

2.0 Background: The Triple Bottom Line Approach

According to Hede (2008), the TBL approach is borrowed from accounting and finance and is a method of measuring organisational success that takes into account the economic, environmental impacts of an activity and combines it into a single framework. Thus the aim of this approach is to provide a more rounded and comprehensive overview of the impact of an event than would be the case if it were analyzed purely in terms of a single factor such as its business success and the level of revenues. For example, Henriques and Richardson (2004: 105) argue that “isolating single strands of economic impact… can be virtually impossible, and would anyway fail to paint a comprehensive picture of the true impact of an event.” The TBL approach recognises that most events have both positive and negative implications and, as such, cannot be judged in simple black and white terms. For example, an event such as a Formula 1 Grand Prix might on the surface seem to damage the ecology of a location such as Albert Park, but might bring in sufficient revenues for the local authority to be able to invest in the park and have an overall net benefit. One of the primary benefits of this approach is therefore the interrelatedness of the three bottom line factors (Henriques and Richardson, 2004).

In applying the TBL approach to event management, Hede (2008: 13) combines the TBL approach with Stakeholder Theory and argues that this approach allows the “underlying principles of the TBL [to] be implemented to special event planning so that the outcomes of special events can be enhanced for their stakeholders.” Figure 1 below shows how the TBL approach and Stakeholder Theory have been integrated into one framework by Hede (2008). Fairley et al. (2010) also advocates the use of this approach.

The stakeholder theory of management is designed to serve the interests of all the various groups that have an interest in the corporation and therefore the corporation has an obligation to consider the interests of customers, employees, shareholders, communities, suppliers, and financiers in all aspects of their operations (Kelly and Oliver, 2003). Thus

Stakeholder management requires, as its key attribute, simultaneous attention to the legitimate interests of all appropriate stakeholders, both in the establishment of organisational structures and general policies and in case-by-case decision making (Donaldson and Preston, 1995: 67).

This is clearly applicable to events management as advocated by Hede (2008) and Fairley et al. (2010), as the interests of all groups need to be taken into account when an event is being hosted. Putting all this together, the TBL approach is one that implies that “organisations should assume accountability for their economic, social, and environmental impact and that such assessment should be measured and communicated to relevant stakeholders” (and Fairley et al., 2010: 4).

3.0 A Triple Bottom Line Analysis of the Australian Grand Prix

Hede (2008) identified primary stakeholders as businesses, community groups, governments, residents (attendees and non-attendees), shareholders, sponsors, tourists (attendees), employees (event and non-event), volunteers, and the media, and these are represented in Figure 1. Secondary stakeholders include environmentalists, competitors, emergency services, and event associations and these are not represented in the diagram but are still discussed below. For the Australian Grand Prix, the primary and secondary stakeholders and the impacts they experience are discussed below.

F1 Fans and Sports Tourists

These stakeholders can be argued to have a strong claim, as they have a powerful and legitimate claim on the event (Mitchell et al., 1997). As noted in Figure 2, their interest is primarily in the social impacts of the event. These stakeholders can be seen as dominant as the success of the event depends on these stakeholders (as discussed below).

Event Organisers and Sponsors

These stakeholders seem to have the strongest claim, since they have a powerful claim on the event backed by Australian Grand Prix Act, 1994 and by the Australian Government. They can also be seen as dominant stakeholders in the event. Formula 1 races are administered by the Formula One Group (FOG), led by Bernie Ecclestone and owned by CVC Capital Partners (70%), JPMorgan (20%) and Ecclestone (10%). Each race circuit pays an annual sanctioning fee for the right to host a Grand Prix. This varies from race to race based on various considerations, and the precise amount is rarely revealed, but it is estimated that Melbourne pays around AUS$30 million annually (compounded annually at 15%) (Fairley et al., 2010). This would seem to be broadly in line with the fees paid by most other tracks (with the exception of Monaco). Other factors that must be covered by the organisers include the provision of marshals, advertising and promotion, support races, seating and ticketing arrangements, security, ‘parc ferme’[1] and paddock environments for teams and drivers, and the necessary transport infrastructure to get people to and from the event (ref).

The real variation concerns ancillary factors such as on-track sponsorship: some tracks retain the rights to sell this advertising and keep the profits, while others trade this for a reduced race sanctioning fee. Again, both FOG and the Melbourne organizers have been reluctant to reveal details of such arrangements, but it is believed that the Melbourne track organises advertising and retains this income. Since 2007, the race has been sponsored by Qantas.

Income for racetracks comes from a variety of sources. Actual ticketed attendance over the three days of an event remains important. Fridays are given over to testing sessions, Saturdays to more testing plus qualifying and some support races, and Sundays (always the most heavily attended) are for the race itself. Crowd figures since 1995 have dropped off, but in recent years have begun to improve as shown in Figure 2. As can be seen, the Melbourne event has never reached the 500,000 spectator level that was achieved by the final Adelaide race in 1995, and attendance steadily declined between 1996 and 2005, at which point a small rally took place. The Grand Prix has settled at between 300,000 and 300,500 in recent years, despite the potential inducements offered by Australia finally having a race-winning Grand Prix driver again (Mark Webber) and despite the onset of the financial crisis. In fact, one of the most startling aspects of the attendance figures is that, since 2005, they have been remarkably consistent, weathering not only the global economic crisis but also more specific issues such as a number of transport strikes (aimed specifically at the Grand Prix), rising unemployment in Australia, the death of a marshal at the 2005 event, and a number of other problems.

Figure 2: Australian Grand Prix Melbourne crowd figures, race day, 1995-2009

(shaded area indicates figures for Adelaide)

However, relatively stable attendance figures do not necessarily indicate a stable financial basis for the race, especially given that race sanctioning fees have been rising year-on-year and other costs have also risen. In 2010, the race posted its latest financial figures and revealed a loss of AUS$49 million, a 25% increase on loss from the 2009 race (Reuters, 2010) and a clear indication that the core event itself is may not be economically viable. In fact, losses for the race have been steadily rising year-on-year since at least 2005.

Government and Taxpayers

Both of these groups have a strong stake in the event, with the government having a powerful and legitimate claim, which combine to create authority (Mitchell et al., 1997). On the other hand, taxpayers have an urgent claim based on the amount of subsidy being provided by the government for this event. However, taxpayers do not seem to be dominant stakeholders because it does not appear that they have the power to determine whether the event continues or not, unlike the government.

The total input from the government is approximately AUS$40 million, which means that the government covers the entire sanctioning fee plus a contribution to the running costs (Fairley et al., 2010). When major sporting events receive public funding, there are inevitably grand claims about the economic impact of those events for the surrounding economy. On a simple level, if the state government invests AUS$40 million in the Melbourne Grand Prix, it should be able to demonstrate that the surrounding economy benefits by more than that sum if the government is to avoid accusations that it is merely subsidising an expensive sport. The main way in which tourism organisations try to achieve their economic objective is to attract visitors who spend on the event (and on local products such as hotel rooms and restaurant meals) and therefore the major objective of events tourism is to translate intention to visit a destination into an actual visit (Auld and McArthur, 2003). However, demonstrating the economic impact of any event is notoriously difficult as Szymanski (2009: 31) notes, “the investment is easy to quantify and define, but the return – which can include hotel bookings, transport, franchises, restaurant income and almost any aspect of the location’s economic cycle – is much harder to determine.”

It is therefore unsurprising that economic impact reports commissioned by the National Institute of Economic and Industry Research (NIEIR) and the Victorian Auditor-General’s Office (VAGO) produced dramatically contrasting conclusions regarding the impact of the Grand Prix in Melbourne. The NIEIR report, commissioned by the organisers of the Grand Prix, was much more favourable in terms of the economic benefits it identified, while the VAGO report “State Investment in Major Events” from May 2007 found far more areas where the economic impact was being dissipated and was failing to meet its theoretical level. It is not difficult to see how such issues become highly politicised: the VAGO report was in part funded by those who are opposed to the race due to ecological considerations, while the NIEIR report was funded by those who have strong economic reasons to want to keep the race running. This degree of politicisation adds an extra layer of confusion to any analysis of the economic impact of the Grand Prix. Still, the losses incurred by the Australian Grand Prix Association, reported by Reuters at AUS$49.2 million which is double the loss in 2006, supports the argument that taxpayers are bearing the burden for hosting this race, with the opportunity cost being less money spent on heath, education, and social services. Additionally, recent research by Giesecke and Madden (2007) demonstrates that economic impact assessments of major events based on input-output methodology (used by NIEIR) typically leads to inflated estimates, supporting the conclusion of the VAGO report that there was no evidence that the Melbourne Grand Prix event is leading to induced tourism.

Businesses and Employees

These stakeholders also have strong claims on the event, however they are not necessarily powerful stakeholders. The Grand Prix represents a platform for a vast array of other international and local businesses to promote their goods and service offerings (Cairns, 2009). However, while the Grand Prix is a major marketing outlet for involved and sponsoring businesses (Cairn, 2009), the impact on local businesses is less apparent. According to Fredline (2004), those residents and businesses that directly benefit from the hosting of the grand Prix would have more positive perceptions of the event, which was borne out by their research showing that those involved in tourism or other business positively impacted by the event perceived the event more positively than the general population. In their systematic review of the data on the economic impact of events McCartney et al. (2010) concluded that:

The overall impact of major multi-sport events on economic growth and employment was unclear. Two thirds of the [18] economic studies reported increased economic growth or employment immediately after the event, but all these studies used some estimated data in their models, failed to account for opportunity costs, or examined only short term effects.

Thus, as found by the VAGO report, it seems that local businesses may not be making out as well as they could have from the hosting of the Grand Prix.

Environmental Groups, Community Groups, and Residents

This is the final group discussed here. These stakeholders have a legitimate claim on the event and also have an urgent claim, but lack the power to change anything major regarding the event. For example, the ‘Save Albert Park’ group as formed in early 1994, however they have still been unsuccessful in their goal of eliminating or relocating the Grand Prix (Fredline, 2004).

On one hand, residents benefit from the hosting of the event because they can take part in the festival events surrounding the race day, such as the street parades, markets and annual rock concert and this may improve their quality of life (Fairley, 2010). Additionally, some residents note that the hosting of the event has led to better maintenance of public facilities, employment opportunities, and greater pride in Melbourne and so most respondents in Fredline’s (2004) study (68%) indicated that they would like the Grand Prix to continue. However, some costs and benefits are only felt by some of the population, for example, locals involved in tourism may receive a direct economic benefit while those that normally use Albert Park for recreation may be most affected by this event. This is particularly an issue for the Australian Grand Prix because Albert Park is a public park that is close to the downtown core of Melbourne and is also adjacent to densely populated inner-city residential suburbs, which has made it one of the most popular and well-known parks in the city (Lowe, 2004). As a popular public park Albert Park is the home of several sporting clubs and many local residents use the area for general athletic and leisure activities. Fredline (2004) found, as expected, that those residents that used to park frequently were more negatively affect by the Grand Prix and so held more negative views towards the event than those that rarely or never used the park. Overall, the Grand Prix leads to negative impacts of the Albert Park Reserve and also disruption and loss of amenity caused to park users and sporting clubs by the 4-5 months of Grand Prix occupation.

4.0 Discussion and Conclusion

The analysis of the impact of the Grand Prix on the local, regional, and national economy seems to indicate that the economic benefits are less than the economic costs, leaving taxpayers to subsidise the event. This picture does not improve when the social and environmental impacts are included, because there seems to be no clear evidence that these ‘intangible’ impacts are more positive than negative. However, the dominant stakeholders (event organisers, fans, sponsors, and the government) seem to be making out well from the event, while the dependent stakeholders (the taxpayers, environmental groups, and taxpayers) seem to be bearing the brunt of the negative impacts.

Aggregation of impacts across the entire community or the entire country hides the fact that certain groups within the community are negatively affected by the Grand Prix, even if some groups are reaping benefits. Fredline (2004) argues that this then raises the issue of social distributive justice. It is also clear that some residents may feel disenfranchised by the planning process, as the decision to locate the event in a major urban park was taken unilaterally by the Government (Lowe, 2004). Since the local community can be seen as an ‘internal customer’ to the extent that they are a part of the product being delivered, some kind of internal marketing may be useful in achieving higher levels of satisfaction within the community (Fredline, 2004). A consultative process may be one way of undertaking this.

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[1] Parc ferme, literally meaning “closed park” in French, is a term used to describe a secure area at a Grand Prix circuit wherein the cars are driven back to the pits post-race. According to the FIA Formula One regulations, the area must be sufficiently large and secure so as to prevent unauthorised access to the cars, while allowing technical checks to take place.