Table of Contents
Introduction .................................................................................................................................................. 4
Industry Overview ..................................................................................................................................... 4
Mission Statement .................................................................................................................................... 4
Goals and Objectives................................................................................................................................. 4
Operations Plan............................................................................................................................................. 4
Site Plan .................................................................................................................................................... 4
Track Layout and Features ........................................................................................................................ 5
Track Services Provided ............................................................................................................................ 5
Organizational Tasks ................................................................................................................................. 6
Daily Tasks ................................................................................................................................................. 6
Weekly Tasks ............................................................................................................................................. 6
Seasonal Tasks .......................................................................................................................................... 6
Annual Tasks ............................................................................................................................................. 6
Capital Budget ........................................................................................................................................... 7
Working Capital......................................................................................................................................... 7
Human Resources ......................................................................................................................................... 8
Staff ........................................................................................................................................................... 8
Job Descriptions ........................................................................................................................................ 8
President ............................................................................................................................................... 8
VP Marketing......................................................................................................................................... 9
Marketing Assistant .............................................................................................................................. 9
Accountant ............................................................................................................................................ 9
Lawyer ................................................................................................................................................... 9
Medical Personnel ................................................................................................................................ 9
Security ................................................................................................................................................. 9
Generic Track Staff ................................................................................................................................ 9
Safety Inspectors ................................................................................................................................. 10
Track Supervisors ................................................................................................................................ 10
Overall HR Strategy ................................................................................................................................. 10
Shareholders’ Agreement ....................................................................................................................... 10
Marketing Strategy ..................................................................................................................................... 11
Target Market ......................................................................................................................................... 11
Marketing Goals ...................................................................................................................................... 11
Marketing Mix ......................................................................................................................................... 11
Product ................................................................................................................................................ 11
Price .................................................................................................................................................... 11
Place .................................................................................................................................................... 12
Promotion ........................................................................................................................................... 12
Competition ............................................................................................................................................ 12
Saskatoon International Raceway ....................................................................................................... 12
Saskatoon Auto Clearing ..................................................................................................................... 12
Differentiation Strategy ...................................................................................................................... 13
Financial Plan .............................................................................................................................................. 13
Initial Capital ........................................................................................................................................... 13
Projected Incomes, and Sensitivity Analysis ........................................................................................... 13
Risk Analysis ................................................................................................................................................ 14
Critical Variables ..................................................................................................................................... 14
Contingency Plan .................................................................................................................................... 15
Dividend Policy ........................................................................................................................................ 15
Break Even Analysis ................................................................................................................................ 15
Net Present Value ................................................................................................................................... 16
Internal and External Rate of Return ...................................................................................................... 16
Summary ..................................................................................................................................................... 16
Appendix I ............................................................................................................................................... 17
Appendix II .............................................................................................................................................. 18
Appendix III ............................................................................................................................................. 19
Appendix IV ............................................................................................................................................. 20
Appendix V .............................................................................................................................................. 21
Appendix VI ............................................................................................................................................. 21
Executive Summary
Racing has a fantastic pedigree across the world. It is a multi-billion dollar industry, and is one of the
most watched and valued sports currently in existence, with automakers such as Mercedes-Benz and
Ferrari spending hundreds of millions of dollars each year on their racing teams. In Canada, however,
motorsport is a woefully under-represented facet of the sports world, and is the perfect market to
attempt to capitalize on due to the low volume of competition.
Outlined in this business plan is all the information necessary to construct and run a successful racing
circuit, including the costs and risks involved. The plan concludes by saying that building a racing circuit
outside of Saskatoon could be a highly lucrative investment, provided that the equity to finance the
entire project could be secured. Debt cannot be used to finance the project until at least five years into
the project’s life, as it will result in a severely unprofitable venture.
However, if the financing can be secured, Circuit Saskatchewan would become a profitable venture –
potentially an extremely profitable venture, if given enough time and if enough effort is put in to
establishing the circuit as Canada’s premier racing circuit, and using that pedigree to attract high-level
races to the track. It is not unreasonable to say that – ten to fifteen years in the circuit’s future, it could
be earning returns of $50 million per year, or more.
Operating within Saskatchewan, Circuit Saskatchewan will provide a new, exciting, and unique source of
entertainment for everyone living in the province, and even those living outside the province. It will also
provide an excellent source of revenue for the province of Saskatchewan, and the owners of the circuit
for decades to come. As well – it will provide a much-needed boost to tourism for Saskatchewan. After
all, who wouldn’t want to come visit Canada’s premier racing circuit?
Introduction
Industry Overview
Motorsport is, without a doubt, one of the most successful sports ventures of the last century. Formula
1 racing, for example, attracts nearly half a billion viewers with each race; and serves as a multi-billion
dollar business, making it one of the most widely spectated sports events in the world, falling behind
only the World Cup, and the Olympics.
Formula 1 is not, however, the only motorsport event that exists – there are hundreds of grand prix
events, amateur club races, manufacturers club races, etc. While these events don’t bring in the same
level of revenue as Formula 1, they still provide significant levels of revenue for all parties involved.
Motorsport circuits are in short supply within Canada, however. They are located almost entirely within
Ontario and Quebec, leaving a large portion of the country without easy access to a racing circuit. This is
a problem that Circuit Saskatchewan hopes to capitalize on, by constructing Canada’s premier
motorsport circuit.
Mission Statement
“Bringing the enthusiasm, passion, and excitement of motorsport to all Canadians.”
Goals and Objectives
Circuit Saskatchewan needs to achieve the following:
-
Remain open long enough to attract major racing events to the circuit (approximately 5
years)
Host at least 2 racing events per week during the 26 operating weeks of the year
Host at least 2 track days per week during the 26 operating weeks of the year
Within the first 5 years, begin hosting at least 1 major event per month during the 6
operating months of the year.
Maintain an average of 2,000 spectators per event or greater
To receive recognition as Canada’s premier motor racing circuit
Operations Plan
Site Plan
Circuit Saskatchewan will operate on approximately 400 acres of farmland, located north of the
Saskatoon Industrial area, right across from Saskatoon Auto Clearing. This area was chosen, as it is out
of the way of possible urban development (as racing circuits are awfully noisy), but still in a fairly
accessible location for citizens of Saskatoon. Given that the track is nearly 6.5km long, a lot of land is
necessary to put it down, and this was the nearest plausible location for the circuit. This location also
provides us room for expansion, and enough space to place an office building through which we can
arrange events, plan for the future, etc.
Track Layout and Features
See Appendix I for an image of the planned track layout.
There are a lot of key features for this track. Primary among which is its ability to operate with as many
as 3 circuits simultaneously. This provides an opportunity for significant increases in revenue from track
rentals, as well as a lot of opportunities for different racing events.
There will be a skid pad (where the “Helipad” is on the image), which will play host to driver training and
autocross events. Our office building will be located off to the side of the skid pad.
The circuit features approximately 6.5km of race-grade asphalt, ensuring high levels of grip for vehicles,
and serving as an attraction to many motorsport teams.
There is seating for 5,000 spectators initially; with room for future expansion should the circuit prove to
attract more than 5,000 spectators regularly, or once the circuit begins to play host to major
international racing events.
20 pit garages will be provided initially, each garage being quite large – around 90 square meters. There
will be room for expansion in the number of pit garages as well, should it prove necessary in the future.
Track Services Provided
Circuit Saskatchewan will also have many different options to produce revenue, including:
-
-
-
-
-
Driver training on both the skid pad or track, where professional driving instructors will
instruct the attendees in any manner of driving techniques, from high speed cornering, to
maintaining control during a skid. As well, partnerships could be formed with SGI and/or
the RCMP to provide driver training to police officers, or safe driving courses for regular
drivers.
Track days, where the track is open to the public. An entry fee would be paid, equipment
would be provided if necessary, and then drivers are free to race around the track under the
supervision of track staff to ensure safety.
Professional events – Grand prix, touring events, manufacturers’ races, Formula 3000, etc.
These will be the Main source of income for the circuit, as the revenue generated from the
teams and the advertising around these events will add up significantly once the events are
regularly being hosted. These events will also likely attract high numbers of spectators.
Amateur races – 24 hours of LeMons, club events, etc. These events are more fun, and
significantly less serious than the professional events. They won’t attract the significant
levels of advertising revenue that the Professional events will, but they will still attract
spectators to the track, which will provide revenue.
Track rentals – private rentals for groups to spend afternoons or evenings racing with
friends.
Fuel will be provided on-site at market prices
Safety inspections will occur before cars are allowed on the track
-
Safety equipment can be rented on-site (helmet, suits, gloves), and is mandatory for those
wishing to race on the circuit
Organizational Tasks
Daily Tasks
The track is available for use from 8am until 11pm 7 days a week all year long – the assumption has
been made, however, that racing events will effectively stop completely once the snow hits the ground,
so a 26 week operating year is used for calculations. The track will still be available during winter
months, but it is unlikely that there will be more than one event a month, at most.
When an event is booked, the manager and staff will all arrive 90 minutes before the gates open. Staff
will be briefed by the manager on their expected duties for the event – everything from safety
inspectors, to vehicle mechanics, judges, safety car, tow drivers will receive a quick overview of their
expected duties for the day. Major events often have their own staff to accompany the event, and
ensure everything runs smoothly, so Circuit Saskatchewan staff will act in tandem with the event staff in
these occasions.
Upon completion of the events for the day, all vehicles are to be removed from the premises, and the
gates are to be closed and locked. The track will be scanned by staff, and any debris is to be removed.
Once the track is clear, fuel supply levels will be checked, and fuel will be ordered for the next day. Any
cash collected during the day (from either ticket sales, or track access) will be taken into the city and
deposited by the acting manager on shift.
Weekly Tasks
Every week all safety equipment will be checked for damage, and replaced if necessary – this includes
helmets, suits, and gloves.
There will be a weekly managerial meeting to discuss current promotions, and to obtain any updates on
new events that are scheduled for the circuit, and any changes to already scheduled events.
Seasonal Tasks
At the beginning of every new racing season (the end of April or beginning of May), any damage to the
track will be repaired. All existing event contracts will be confirmed, and planning will begin for the
season’s events – track days, amateur and professional races will be booked and scheduled, etc. As well
attendance for the season will be reviewed, and customer surveys will be performed so the
management team can try and increase attendance at the track; as attendance will be an ongoing
concern for the entirety of the circuit’s life.
Annual Tasks
There are three tasks that will need to be completed annually. The first is the annual report, which will
need to be produced and shown to all shareholders. The second is a year-end meeting to discuss all the
goals for the next year (track attendance, specific racing contracts, upgrades to the track or spectator
seating) and how they will be achieved. The last yearly task will be the implementation of any track
upgrades that are deemed necessary. This will likely include expansions into spectator seating, perhaps
the introduction of a clubhouse to the track.
Capital Budget
Appendix III outlines the capital budget.
The cost of purchasing 400 acres is an estimation based on the price of 40 acres of land approximately
20km away from our desired location; extrapolated to cover 400 acres, and increased by 20%, as the
land will need to be purchased from the a farmer who will want to be compensated for the lost income
due to losing 400 acres of farmable land.
The cost of paving, grading, drainage and landscaping is based on an estimate provided by ASL paving of
approximately $10 per square meter for basic paving. Including the cost of Grading, drainage, and the
landscaping that will be necessary for the track, as well as upgrading the cost from basic paving to trackgrade paving boosts the cost to approximately $150 per square meter.
The overall capital investment necessary for the track is approximately $23 million. With a project this
size, however, the assumption should be made that errors will occur, and that the errors will be very
expensive, and the actual costs could increase to nearly $30 million.
Operating Expenses will be comprised mainly of Property taxes, and Employee wages. Debt cannot be
used to fund this project as the risk level is too high, and the repayment period too long to reasonably
encourage a lender to provide a loan, so this project will necessarily be entirely equity financed. Taxes
are expected to be $1.35 million in the first year, and to grow at the rate of inflation (2%); while
employee wages are expected to be $2.25 million and are expected to grow by 5% every year to ensure
employee retention.
Working Capital
As mentioned above, this project needs to be funded entirely on equity. This means that there needs to
be cash available for all expenses – however, once the track is completed, smaller loans could be
negotiated with a bank, and used to pay off expenses during the formative years when the track will be
less profitable.
Accounts receivable should not be a major problem – while many of the scheduled events will involve us
extending terms of credit to the customer, the high-profile nature of the track and the events will work
to keep all parties honest. As well, we have a lawyer on staff who will be able to deal with any issues
arising from disagreements regarding receivables.
Accounts payable will be used for a lot of the larger events that arrive at the track further in the circuit’s
life – approximately 4-5 years in – as major events generally require fees to be paid to host the events
on a specific track; and then income is collected by the track in the form of advertising revenue, tickets
sold, etc. These will be paid once the revenue has come in from the event – from both advertising
revenue and ticket sales. Any non-event based bills will be paid with cash immediately, including wages
and maintenance. As well, if necessary, Circuit Saskatchewan will secure a loan from a local bank to
settle any payables outstanding, particularly in the initial unprofitable stages of the businesses life.
Human Resources
Staff
Circuit Saskatchewan will need at least 28 full-time staff members during its operating season. They are
as follows:

President

VP Marketing

Marketing assistant

Accountant

Lawyer

Medical Personnel (4 per race, minimum)

Security (2 officers during the day, 2 at night)

10 Generic track staff – concession, cash handling, general assistance, runners

2 Safety inspectors for non-professional events

3 Track supervisors to enforce rules, maintain safety
As well, the services of a local towing company – Astro Towing – will be used during race events, to
remove damaged cars from the track. Any other services required will be outsourced to local companies
(electrical, plumbing, etc).
Appendix II illustrates the organizational flow chart.
Job Descriptions
President
The President will be in charge of overall fiscal, responsibilities of the track, as well as communicating
with stakeholders, public relations, hiring and firing staff, and overseeing any upgrades for the track to
keep them on budget.
Previous experience with managing a medium-sized firm is a must – at least five years. Given that most
of the responsibilities are financial, an accounting or finance background would be the most useful.
Some sort of graduate degree is necessary.
VP Marketing
The VP Marketing will be responsible for acquiring contracts for major racing events for Circuit
Saskatchewan. As well, they will be responsible for public relations, media relations, advertising for
Circuit Saskatchewan, and receiving advertisements from parties in advertising on the circuit. Excellent
social skills are a must, as is previous experience in the racing industry, preferably more than 10 years,
and a graduate degree in Marketing.
Marketing Assistant
The Marketing Assistant will assist the VP marketing in all facets of the job; contract negotiation and
collection, advertising, market research, etc. Previous experience in the racing industry is preferred, but
not necessary. A graduate degree in Marketing is necessary, however.
Accountant
The Accountant will be responsible for preparing financial statements, and taking care of the books. 3-5
years experience is required for this position
Lawyer
The Lawyer will be mainly responsible for contract negotiations, but will also be writing up waivers,
contracts, service agreements, and the multitude of other legal paperwork that will be necessary in
operating a racing circuit. The Lawyer will deal with the insurance companies, and ensure that Circuit
Saskatchewan is complying with all legal regulations set forth by the government. 5 years is the
minimum acceptable level of experience for the Lawyer.
Medical Personnel
The Medical Personnel will be responsible for treating any injuries incurred on the track, and will
transport the injured persons to the hospital if necessary. They will be contracted out from M.D.
Ambulance in the city; to ensure that they are fully capable paramedics.
Security
Security will be used to maintain order on the track, and ensure no unwanted presence is allowed to
remain on the grounds. There will be two daytime security officers, and two night officers. They will be
hired out from SPI security.
Generic Track Staff
The generic track staff will perform the routine unskilled duties around the track – taking cash, providing
concession (once a concession is built later in the circuit’s life), general track assistance. No experience
is necessary – the tasks they will be performing should require no more than five minutes’ explanation.
Ideally this would be volunteer work; but it is more likely that these will be part-time employees.
Safety Inspectors
These will only be for non-professional events. The Safety Inspectors will perform a quick overall safety
check on each car coming in to race on track days, or days when the track has been rented out for a
private function, to ensure that the cars are in good enough condition to race, and do not pose a safety
hazard. Experience as a mechanic is necessary for this – preferably 3-5 years.
Track Supervisors
Track Supervisors are expected to know and enforce all track rules, and all race-specific rules. They will
be responsible for training all Track Staff, and ensure people are behaving responsibly – staff, and
drivers. 2-3 years experience with a racing circuit is a must.
Overall HR Strategy
There are two goals for the Human Resources strategy. The first is to ensure that Circuit Saskatchewan
attracts high profile racing events to the track, which is done by hiring capable, experienced Marketing
staff. The second goal is to ensure a safe, high-quality racing experience for spectators and drivers by
strictly enforcing circuit safety rules, which is why experienced Track Supervisors are hired.
Employees should always feel valued, and feel as though they are a part of a team on the track – that is
the environment we want to promote. Fortunately, that will be fairly easily done, given that we will be
hiring staff who are passionate about motorsport into a job focused entirely around motorsport.
Employees will be kept informed about any updates to track policy, and any changes or trends emerging
in the fields of motorsport to ensure that they remain educated and capable.
Shareholders’ Agreement
Circuit Saskatchewan will be funded via a partnership with either the City of Saskatoon, or the Province
of Saskatchewan. The high level of funding necessary, the extensive payback period, and the riskiness of
the project negate the use of banks for loans, and are exceedingly unattractive to personal investors.
There would absolutely be benefits for the City of Saskatoon in establishing a racing circuit, however –
tax income, revenue from the major racing events held later in the circuit’s life, jobs being provided, and
another entertainment facility to keep the citizens of the city happy.
Whenever possible, dividends would be paid to the City of Saskatoon; however the majority of income,
particularly in the formative years of the track, will likely be used to fund circuit operations.
Marketing Strategy
Target Market
The target market for Circuit Saskatchewan is Men and Women between the ages of 18 and 40, which
equates to roughly 50,000 people in Saskatoon alone. This market is the age group most likely to attend
a racing event – either as a spectator or a driver, and is also the largest single age group in the city of
Saskatoon.
Marketing Goals
There are two marketing goals for Circuit Saskatchewan. The first is to attract and retain a steady
stream of high-profile races to the track. The second is to get people from Saskatoon and area (and in
the future – from across Canada) to the track, either as spectators or racers. The infrastructure, is there,
it just needs to be used. See the section on Promotion for ways in which we will entice people to the
track.
Marketing Mix
Product
Our product is simple – entertainment. We have a racetrack set up so people can either watch races, or
participate in races or other motorsport events. The types of races will vary to keep things fresh and
exciting, but they are, nonetheless, races.
Price
Pricing will vary depending on the event being hosted, and whether people are spectating or
participating.
For spectators, pricing will be as follows:
-
Free on Track days, or other non-event races (autocross, driver training)
$10 per person for local events – local club races will be the primary event here
Up to $100 per person for large international events (Grand Prix races, touring
championships, etc)
For Drivers:
-
$200 per person for track days. This includes unlimited track access, with fuel provided at
market price, and safety equipment included if it is necessary.
Track rental prices are shown in the following chart:
Track
Weekend/Holiday
Weekday
Evenings
Course A
Course B
Course C
Full Track
$
$
$
$
$
$
$
$
250/hr
300/hr
350/hr
500/hr
2,500.00
3,000.00
3,500.00
5,000.00
1,875.00
2,100.00
2,450.00
3,350.00
Place
Our track will be located right across from Saskatoon Auto Clearing, on the other side of the highway.
See Appendix IV for the site location map. This location is out of the way enough to not disturb local
homeowners with the noise pollution created by a racing circuit, but is close enough to the city to
provide easy access to the Track.
Promotion
There are several promotion methods that will be used for the track. First, one month before the Circuit
officially opens, we will begin a marketing blitz. We will do interviews on local news, television stations,
and radio stations. We will put up Billboards advertising the location of the new circuit along Warman
road. We will advertise to local car clubs by offering group discounts for using our track within the first
3 months of opening. We will start online marketing with a Facebook page, with pictures, video of the
track, and dashboard camera videos of drivers doing laps around the track. In our opening week, we will
host track days offering 5 free laps around the track. Our goal during this first week is simply to get
people interested in the track, and out to the location.
Once the initial marketing blitz is over, we will consistently be advertising all major racing events on
local television channels, radio stations, and on our website and Facebook page. As well, we will take
out advertisements in driving magazines (Car and Driver, and Top Gear) in our third and fifth years of
operation. As well, billboard advertisements in other major cities across Canada – particularly Toronto,
Montreal, Calgary and Edmonton – will be used to try and attract people from across Canada to our
track.
The advertising budget for Circuit Saskatchewan is $150,000 per year.
Competition
Saskatoon International Raceway
SIR is a drag strip operating in Saskatoon, it offers spectators a chance to watch and partake in drag
races during the summer months.
Saskatoon Auto Clearing
Saskatoon Auto Clearing is a high speed ring that will be located just across the highway from Circuit
Saskatchewan. It hosts some local events during the summer months.
Differentiation Strategy
Circuit Saskatchewan is a larger, more exciting course capable of holding more cars on the track,
operating as three separate circuits, capable of hosting international events, and the circuit itself is
available for public use. As well, it would be prohibitively expensive for the local competition to try and
compete in the areas of Circuit Saskatchewan, as it would require an adjustment to their infrastructure
Financial Plan
Initial Capital
Circuit Saskatchewan will require $23 million in equity financing to begin – however, attempts will be
made to raise $30 million in equity financing in order to account for unforeseen construction costs.
Attempts will be made to receive the equity from the Saskatchewan Government, or the city of
Saskatoon. The proposition will be that the interest in motorsport, and the revenues associated with
running a successful circuit will more than repay the costs of building the circuit in the long run (5-10
years or longer).
Projected Incomes, and Sensitivity Analysis
In our base case, we are assuming that every week, Circuit Saskatchewan will see 5,500 spectators, each
purchasing a ticket for $15. We are also assuming that there will be two track rentals per week, at a cost
of $3,000 per rental. We are assuming there will be approximately 100 customers attending our track
days weekly (this is assuming 2-3 track days per week, with around 30 customers per track day), each
spending $200 for admission. As well, in year 1, advertising revenue is expected to amount to $500,000
for Circuit Saskatchewan. This provides us with the following:
2010
2011
2012
2013
2014
Total sales
3,321,000
4,259,480
5,476,288
6,824,050
10,221,848
Net Income
(741,150)
(22,515)
1,007,378
1,734,644
4,164,141
End RE
(741,150)
(763,665)
243,713
1,978,357
6,142,498
We feel these numbers are realistic – we’ve aimed for a more conservative realistic estimate for our
base case as well; with a project this size, caution must be exercised at all levels.
Next, for our sensitivity analysis, we started with our worst case scenario. See Appendix V for the
information relevant to the worst case scenario. The Total Sales and Net Income are as follows:
2010
2011
2012
2013
2014
Total sales
1,696,000
2,224,720
3,079,687
4,122,833
7,314,277
Net Income
(2,366,150) (2,057,275) (1,344,519) (451,692)
End RE
(2,366,150) (4,423,425) (5,767,943) (6,219,635) (3,638,352)
2,581,284
You can see that, in the worst case scenario, the circuit still makes profit in its fifth year, and as a result
of increasing advertising revenues and ticket sales, will continue to increase profits at a respectable level
beyond its fifth year, making the circuit a more desirable venture, the further you project into the
future. It should be stated, however, that the accuracy of projections decreases significantly the further
you go into the future, so only a five year projection was deemed appropriate for Circuit Saskatchewan.
Lastly, in our best case scenario (see Appendix VI for the relevant details):
2010
2011
2012
2013
2014
Total sales
3,971,000
5,100,840
6,473,031
7,954,626
11,447,263
Net Income
(91,150)
681,006
1,584,119
2,582,576
5,083,202
End RE
(91,150)
589,856
2,173,976
4,756,552
9,839,754
You can see that the circuit, if everything goes very well, begins generating healthy revenues in the
second year. It should be noted that the Province of Saskatchewan, if it decides to invest in this project,
would receive tax dollars based on the sales of the circuit, as well as dividends beginning in year 6; as in
the first 5 years, Circuit Saskatchewan will be using the retained earnings for any expansions that are
deemed necessary.
Risk Analysis
Critical Variables
There are three critical variables that are absolutely key to the success of Circuit Saskatchewan: Ticket
sales, track day sales, and Advertising revenue.
Since Circuit Saskatchewan is the only track in Saskatchewan, and the best track in Canada to offer track
days, keeping track day sales up will not be difficult – it will just require some promotion of the actual
track days themselves.
Ticket sales for spectators will require significantly more advertising – particularly while Circuit
Saskatchewan is establishing itself in the community. However, as more significant events begin arriving
to the circuit, it will become significantly easier to keep ticket sales high.
The real issue is that of advertising – Circuit Saskatchewan is dependent on high volumes of advertising
dollars coming in. The first few years will be the most difficult, as there will be a very low number of
high-profile races coming to the circuit. We will be relying on high volumes of advertising from local
businesses to provide the income. As time goes on, and Circuit Saskatchewan starts playing host to
international events, it will be a lot easier to receive larger sums of money for advertising space. The
ultimate example of this would be advertising from Formula 1. If Circuit Saskatchewan were to play host
to a Formula 1 race (which is the ultimate goal of this circuit), t is not an unreasonable expectation to
assume that companies would be willing to pay upwards of $1 million to have their logo displayed along
the track during a formula 1 race. The potential advertising revenue from a single Formula 1 event is
well into the tens of millions of dollars or higher. Even for lower profile events that could be hosted 5+
years into the life of Circuit Saskatchewan, it is not unreasonable to assume that advertising revenue
could well exceed $5 million per race.
Contingency Plan
Unfortunately, the scale of this business belies the idea of a contingency plan. The assets of the track
can’t be liquidated; they would have to be demolished. Circuit Saskatchewan must succeed at some
point. It is possible that the circuit would prove unprofitable for the first owners; but successive owners,
purchasing the circuit at a discount, could turn the circuit into a profitable venture after a period of
time. The only effective contingency plan if Circuit Saskatchewan proves unprofitable, therefore, is to
sell it.
Dividend Policy
There will be two owners of the Circuit. The first would be myself; and the second would be the
Government of Saskatchewan, or the City of Saskatoon. 90% of dividends would go to the Government,
or the City, with the remaining 10% being paid out to myself, the other owner. However, the dividend
policy will prevent dividends from being paid out until at least the sixth year of operation, to ensure that
the cash is available to the business to implement any necessary changes that may have been
overlooked in the initial plan – spectator seating expansions, track modifications, safety modifications,
etc. Once the sixth year has begun, Circuit Saskatchewan will retain 3 months’ of operating expenses as
Retained Earnings, and the rest will be paid out in dividends. Since Circuit Saskatchewan is profitable
past year five in every scenario analyzed in the sensitivity analysis, it will be possible to secure loans
from banks to perform any upgrades on the track, so there will be no need to keep high levels of equity
sitting in the business.
Break Even Analysis
Using year 3 as our base case, as it is around the time that operations should settle into a rhythm, it is
calculated that we will need 4,997 spectators purchasing tickets every week at $15.61 per ticket in order
to break even. Since the projected numbers are for 7,600 customers per week, there is a large margin of
safety around the breakeven level.
Net Present Value
The assumption made is that, due to the unbelievably risky nature of opening a racing circuit, the
required return on investment will be astronomically high – 50%. Using this value, and the base case
profit numbers from the projected incomes, the Net Present Value comes in at -$10 million dollars.
However, when the ROI is reduced to 22%, the NPV of Circuit Saskatchewan becomes 0. A 22% return
on this investment is still quite good, and it would be better if we were to project further into the future
- the calculated Terminal value is spectacularly low for this business due to the exponential growth in
Advertising revenue that is expected to occur beyond the reasonable projection range of 5 years.
Internal and External Rate of Return
The internal rate of return for Circuit Saskatchewan is 12.3% - again, this will increase significantly as the
business carries on into the future due to the exponential increase in revenues that should occur past
the 5th year. However, it must again be stressed that projecting beyond 5 years for a venture this risky
could prove to be woefully inaccurate.
The external rate of return is -17.4%, due to the complete lack of dividends, and the fact that the
company is completely financed by equity.
Summary
Circuit Saskatchewan is a racing circuit capitalizing on a market that is completely untapped in
Saskatchewan. By providing a high-quality, safe, exciting and fun experience for both drivers and
spectators, Circuit Saskatchewan should be able to establish a racing market for the Prairie Provinces,
and will be able to establish itself as Canada’s premier racing circuit. As well, it is a completely profitable
business venture, providing an estimated 22% return on investment or higher if profits grow
exponentially for a few years after the 5-year projection period provided.
If the government of Saskatchewan, or the city of Saskatoon were willing to accept a high risk venture,
and the spill over effects it could have on the domestic economy (as increased tourism would occur as
Circuit Saskatchewan became more internationally recognized), as well as a wait time of more than five
years before a significant return is realized on the investment, then Circuit Saskatchewan is a completely
feasible venture.
If the governments were not willing to accept the venture, then it would be completely unfeasible – no
venture capitalist or bank would accept a project as risky and expensive as Circuit Saskatchewan for a
22% return on their investment over 5 years.
Appendix I
Appendix II
President
VP
Marketing
Marketing
Assistant
Accountant
Medical
Personnel
Lawyer
Track
Supervisors
Security
Safety
Inspectors
Other Staff
Appendix III
Track:
Purchasing Land
Paving, Grading, Drainage, Landscaping
3,000,000.00
15,112,500.00
Fencing and Barricades
1,050,000.00
Garages
1,530,000.00
Fuel Tank (5000L)
Total Track Cost
75,000.00
20,767,500.00
Other:
Office building
500,000.00
Office Equipment
10,000.00
Safety Equipment
96,250.00
Spectator Seating
1,000,000.00
Environmental impact fees
Total Other Costs
Total Initial investment
100,000.00
1,706,250.00
22,473,750.00
Appendix IV
Appendix V
Schedule 2: Revenues
2010
2011
2012
2013
2014
Number of Customers/Week
Number of Weeks/Year
Average Purchase/customer
3000
26
10.00
3600
26
10.20
4140
26
10.40
4554
26
10.61
4782
26
10.82
Number of Track Rentals/Week
Average Purchase/customer
2
3,000
2
3,000
3
3,500
4
3,500
4
4,000
50
200
500,000
70
200
750,000
84
200
1,250,000
97
200
2,000,000
106
200
5,000,000
1,696,000
2,224,720
3,079,687
4,122,833
7,314,277
Number of Track Day customers/Week
Average Purchase/customer
Advertising Revenue
Total sales
Appendix VI
Schedule 2: Revenues
2010
2011
2012
2013
2014
Number of Customers/Week
Number of Weeks/Year
Average Purchase/customer
6500
26
15.00
7800
26
15.30
8970
26
15.61
9867
26
15.92
10360
26
16.24
Number of Track Rentals/Week
Average Purchase/customer
2
3,000
4
3,500
4
4,000
Number of Track Day customers/Week
Average Purchase/customer
Advertising Revenue
Total sales
2
3,000
3
3,500
150
200
500,000
210
200
750,000
252
200
1,250,000
290
200
2,000,000
319
200
5,000,000
3,971,000
5,100,840
6,473,031
7,954,626
11,447,263