Surge in Costs Plagues Formula One in Las Vegas

Posted on: September 21, 2023, 05:50h. 

Last updated on: September 21, 2023, 05:50h.

Inflation hits hard as Formula One Group (NASDAQ: FWONA) faces challenges in Las Vegas.

Las Vegas Formula One F1 Strip casino
An artist’s rendering of what the F1 race in Las Vegas on the Strip will look like in 2023. Formula One could spend twice as much than expected to pull off the race. (Image: F1)

The company’s expenditure on the Las Vegas Grand Prix, scheduled for November 18, has surpassed $400 million. This surpasses the initial estimate of $210 million. However, Formula Run remains optimistic about achieving profit and revenue targets.

Despite inflationary cost pressures, we expect no change in revenue and profitability assumptions. We remain confident of our return profile of this incredible project which will support the incremental capital investment that we are making,” said Liberty Media CEO Greg Maffei in a recent interview with Business F1.

Earlier this year, Formula One Group forecasted that the Las Vegas Grand Prix could generate revenue of $500 million, positioning it as one of the most profitable events on the circuit’s calendar. Additionally, there is speculation that the race’s local economic impact will rival or exceed that of the Super Bowl, which will be hosted by Las Vegas in February 2024.

Inflation Challenges

Formula One isn’t the only one grappling with the effects of inflation, but the exact causes of the cost overruns in Las Vegas remain unclear.

High material costs, a limited labor pool, and the highest interest rates in two decades are contributing to elevated financing costs. Nevada, led by Sin City, is posting record gross gaming revenue (GGR) figures on a monthly basis, but signs of inflation are emerging in the gaming industry.

Gaming executives are already noticing the impact of inflation on spending trends at casinos nationwide. This is resulting in reduced visits to regional casinos due to high gas prices and decreased impulse spending in popular destinations like Las Vegas.

Despite these challenges, there is optimism that the race will have a significant economic impact, potentially leading to one of the most profitable gaming weekends in Las Vegas’ history.

Concerns about Room Rates

When the date for the Las Vegas Grand Prix was announced, Strip operators experienced a surge in hotel room bookings at higher price points. However, this trend has since subsided, raising speculation about the event’s impact on gaming companies. Analyst Barry Jonas from Truist Securities explored this topic in a recent note to clients.

“Most higher-tier room packages have been booked (many with no/more limited cancellation policies),” wrote Jonas.

While gaming executives anticipate that the November 20 weekend will be one of the highest-grossing gaming events in Las Vegas’ history, lower-tier/economy class hotels are experiencing falling room rates.

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