Jump to content

Motorsport.com: Is America's only Formula One track in trouble?


Recommended Posts

 

Is America's only Formula One track in trouble?
by: Steven Cole Smith, News manager, Motorsport.com
Posted: 15 minutes ago
How Circuit of the Americas may be facing an uncertain future.
After three Formula One races at the Circuit of the Americas, a 3.4-mile purpose-built road course in Austin, Texas, you might suspect COTA is riding high. You might be wrong.
The Austin Business Journal named COTA one of the stories to watch in 2015 in an end-of-2014 story: “COTA puts on big shows but struggles financially: Despite an estimated $897 million in economic impact, the Circuit of The Americas race track is still a long way from profitability. Attendance dropped again for 2014’s United States Grand Prix, and rumors of an effort by investors to sell the facility persist.”
That’s just the headline. COTA’s economic concerns may lie much deeper than that. Let’s look at how COTA got where it is – the good and the bad.
In the beginning…
Five years ago this month, a scruffy parcel of hilly, mesquite-covered land just outside Austin, Texas, was visited by men in suits. Some were wearing cowboy boots, better to fend off the healthy population of rattlesnakes.
Yes, they thought, this just might work. The land wasn’t much good for farming or cattle. It was destined to become Wandering Creek, a subdivision of small homes on small lots. The local residents, most of whom lived on multiple-acre lots, did not much like the idea, and the area was pasted with “Stop Wandering Creek!” signs.
The formal announcement came in July of 2010: The land would become a race track. Local residents still weren’t thrilled. Said one: “Are we excited about it? No. But it's better than 2,000 teeny-tiny tract houses.”
That Austin, easily the most liberal city in Texas, would support a major auto racing road course was remarkable, and many residents didn't. But the man who thought it up, local resident and race promoter Tavo Hellmund, already had in hand an agreement with Formula One honcho Bernie Ecclestone to bring an F1 race to Austin – a fact that Ecclestone let slip in May, thus causing much peeing of pants in the racing community to try and determine who in the U.S. racing community had that much clout with Ecclestone.
It turned out to be Hellmund, a former racer whose father promoted races in Mexico. Hellmund became friends with Ecclestone – a man who is regarded as having no friends when it comes to business dealings – but Ecclestone had enough faith in Hellmund to put pen to paper regarding an F1 race in Texas, thus guaranteeing Hellmund and his investors, most notably Bobby Epstein, a financial wizard who happened to already own much of Wandering Creek, the ultimate bargaining chip.
The hitherto-unknown Hellmund was suddenly a major player in the motorsports world. The three men who would soon be publicly out front on the project were Hellmund, Epstein, and Red McCombs, a certified Texas zillionaire with an almost cartoon-character personality. McCombs was a car dealer who was selling Fords when the original Mustang came out in 1964: They were so scarce he offered to change his legal name to Red Mustang if Ford would give him more cars to sell.
McCombs immediately lent an aura of credibility to the project. The now 87-year-old co-founded Clear Channel Communications, and he was a former owner of the San Antonio Spurs, Denver Nuggets, and the Minnesota Vikings. When McCombs said he was putting his money behind a race track and Formula One, people listened. His total investment was about 15 percent of what the project cost, but having his name attached was a valuable in itself.
Texas chips in $250 million
It was Hellmund, though, working with Texas State Comptroller Susan Combs, who came up with the innovative idea of how to help pay for the Formula One race. The sanctioning fee Ecclestone would charge would be slightly north or south of $25 million a year.
Texas already had a Major Events Trust Fund, designed to attract huge one-off events like the Super Bowl. Essentially the Major Events Trust Fund takes sales and other tax revenue presumably generated by the massive influx of out-of-town fans, and rebates it to the event organizers to help pay bills. The state agreed to a 10-year, $250-million plan to finance the F1 sanctioning fee, months before work even began on the track. Austin agreeded to add more to the $25 million, so far about $4 million per F1 race.
If it sounds like Hellmund had his ducks in a row long before the track was announced, he did. “I’ve been working on this for years,” he said at the time.
Eventually the track would be named Circuit of the Americas. On the day prior to that announcement, a Google search of “Circuit of the Americas” turned up only a few references to an airplane rally from decades ago. Now, Google “Circuit of the Americas” and you will get about 1,220,000 hits.
Groundbreaking was at the very end of 2010, with a 2012 race date in mind. Hermann Tilke would design the track, as he had the vast majority of F1 tracks worldwide the past two decades.
In April of 2011, there was a major press conference with Hellmund, Epstein, McCombs and 1993 Moto GP world champion Kevin Schwantz, an Austin resident and longtime friend of Hellmund’s. It was to announce a 10-year deal to bring the global motorcycle racing series to COTA. While Moto GP isn’t quite the powerhouse Formula One is, many promoters regard Moto GP as just as important, because Ecclestone and F1 control the money so tightly that Formula One is typically not a huge moneymaker for the track and promoter, while Moto GP can be.
At that point, everything looked great for Circuit of the Americas.
But soon, it all appeared to be going to hell.
News blackout
Shortly after that April press conference, news on the entire project seemed to go dark. Insiders were aware that there was a conflict between Epstein and Hellmund, but how deep it went was unclear. Later, it was obvious – it went quite deep.
Meanwhile, a lawsuit brought by concerned citizens in opposition to state funds going to a fund private business – the Major Events Trust Fund money – was decided in the track’s favor. Unfortunately for COTA, that may be a problem that hasn’t quite gone away. The Austin city council began to get a mass epidemic of cold feet, but they eventually warmed back up to the project.
Even so, observers near the Elroy construction site began to notice fewer and fewer workers – a problem, since under the best conditions, the timetable that would allow for a 2012 F1 race was tight enough. Comptroller Susan Combs began to get a case of cold feet of her own, announcing that the $25 million in METF money that was supposed to be paid to the promoters up front, would now be paid after the event. The summer, 2012 F1 race was pushed to November 18 to give the track builders more time.
But construction ground to a complete and formal halt in November, 2011, with the work maybe half done. At this point, we learned what the conflict was between Epstein and Hellmund: Epstein and his backers had the money, Hellmund and his small company had the contract with Formula One and Ecclestone.
At some point news accounts suggest that Epstein, since he was fronting the construction costs – which began at about $225 million, hit $250 million, then promptly rose to $300 million – wanted to own the contract with Ecclestone: Having it assigned to Hellmund gave him more clout than Epstein was willing to deed over.
So the contract Hellmund had with Ecclestone went into default, since Hellmund’s investors declined to fund it. This effectively shut Hellmund out, and allowed money man Epstein to seek his own contract with Ecclestone.
Which he did. At the eleventh hour, at the end of 2011, Epstein delivered a check to Ecclestone in England that would guarantee COTA a place on the 2012 F1 calendar.
Ecclestone made it clear in interviews, though, that he wasn’t particularly happy about the way his friend Hellmund was treated. And it seemed clear that the between-friends deal Ecclestone gave Hellmund did not extend to Bobby Epstein.
All good... almost
So all was good on Epstein’s end, except one thing: Hellmund, the only person on the COTA staff with a genuine understanding of how motorsports works, was gone, and Epstein had a half-finished track.
But money, of course, solves most any problem, and Epstein had to come up with a lot to get the COTA construction back on track. He did. But the track, which Hellmund originally speculated should cost about $225 million, would now top $400 million and rising; the latest figure is $414 million according to a study the track itself commissioned. Some of the cost overruns were simply due to the constant start and stop, others to unforeseen circumstances, such as miserable soil conditions that required digging to a depth of seven feet to find solid ground.
In the end, some corners were cut – each seat in the media center would not get its own small television showing the race, as Epstein promised this writer – but still, COTA ended up as the finest road course facility in North America. It may not be the finest road course – being built to F1 standards, it’s less organic than, say, a Road America or Mazda Raceway at Laguna Seca – but given the fact that it is a Hermann Tilke track, it’s a jewel.
As for Hellmund, he did not go away quietly. He sued Epstein and the other investors for $18 million. As expected, the suit never made it to court: It is obvious Hellmund got a settlement. And part of the deal is he can’t talk about the deal. But the bottom line: He was forced out of the project he created. He did not, however, stay idle for long: He is a driving force behind the Mexico Grand Prix, the first F1 race in the country since 1992. It will be held November 1, 2015 – one week after the F1 race at COTA.
The departure of Tavo Hellmund did not mean problems for COTA and Bobby Epstein are over, though. If fact, they may be just beginning.
Trouble in F1 land
Last October, a glowing report titled “The Economic Impact of the Circuit of The Americas” was released about the same time COTA was complaining about its tax bill. “Including its construction phase and annual economic impacts from FY 2013 as well as FY 2014, COTA has had an economic impact of $2.8 billion in the regional economy,” said the study, which was commissioned by the Circuit of the Americas.
An impact of $2.8 billion? Really? The Austin media did not seem much interested in questioning the source of that figure.
The release of the report would seem to coincide with a public relations campaign by COTA to help justify the state “rebate” funding it receives annually, and perhaps to bolster the track’s case that it pays too much in property taxes.
Indeed, a story in the Austin American Statesman newspaper about COTA’s hard value said: “Government appraisers say it is now worth $271 million, based on the recent construction cost, an assessment that would come with a tax bill of just more than $7.1 million. Circuit of the Americas executives contend the value has already dropped to about $100 million, which would mean a bill around $2.8 million.”
The story quotes F1 expert journalist Christian Sylt, who told the newspaper that the economics “call into question why investors would agree to fund construction. Maybe investors are not always aware of this destruction in value before they commit their money to a project … which costs around 20 times more than it will be worth.”
Despite the breathtakingly positive picture the study paints, the American-Statesman story quoted track chairman Epstein as saying the track is losing money. “A lot of people think we are Formula One. We are really just an entertainment venue. The people making money are the entertainers, including Formula One, and the people who work in Austin’s hospitality business.”
That's true.
The original plan for the first F1 race suggested that, if all went well, the track might turn a profit of $1 million. For a $414 million facility, that isn't a lot. So very much of the revenue for an F1 race is controlled by F1 that it is very hard to make money. For the first race, Ecclestone made the track paint over huge stars that decorated the track's apron beneath the observation tower -- he thought they represented an ad for the Lone Star State, and since Texas wasn't paying him, the stars had to go. (They returned in 2013.) Same for a small sign over the entrance to the infield tunnel from tequila and hair-care magnate Paul De Joria, a minor investor in the track -- the sign simply welcomed fans on behalf of the De Joria family. But De Joria didn't pay Ecclestone for welcome-to-the-track rights, so the sign disappeared.
Anyway, that tax bill is about $4 million more than the track wants to pay – and it has filed a protest. Said Epstein: “The venue cannot afford that kind of tax bill. If it creates an upside-down company, I could see the property — without the race contracts — going up for sale.”
And more bad press
Another story broke last fall that threatens to dig COTA into a deeper hole. The San Antonio Express-News published an investigative story titled “$250M in state funding for F1 track in question.” It said that the proper legal application for the Major Events Trust Fund money – which includes data supplied to, and by, Formula One chief Ecclestone – may not have been in compliance with Texas regulations. The story quotes Land Commissioner Jerry Patterson: “The process was botched from the beginning ... it was clear then and it’s even clearer now, the statute was not complied with.”
This has re-ignited the opponents to the state funding who lost that lawsuit in 2011; some are reportedly contemplating re-filing the suit.
Indeed, to say that COTA has benefitted mightily from the Major Events Trust Fund money is a dramatic understatement. In fact, it could be all that is keeping the doors open.
There are, actually, six separate “trust funds” administered by the state of Texas, which have funded over 500 events in the past decade. The main one applicable here is the Major Events Trust Fund, which is the biggest and richest, and is available only to the largest events that occur just once in the U.S. per year. The Super Bowl, for instance, held in Houston in 2004, drew $8.7 million in METF money.
In fact, COTA has dodged a bullet since the New Jersey F1 race was derailed -- had it occurred, the wording in the requirement for qualifying for the Major Event Trust Fund money can be intrepreted as specifying that if another similar event occurs somewhere in the U.S. that same year, the Texas F1 race might not qualify for METF money -- just as if there were two Super Bowls, for instance.
For fiscal year 2015, the National Cutting Horse Association – a sacred cow in Texas of long standing – will get about $2.5 million. The NCAA Division 1 football championship will get $10,729,323. The American Dental Association convention will snag $1,490,087.
Those are the only three, besides COTA, to receive more than a six-figure contribution. Most of the 27 events – so far – for FY 2015 are funded by the basic Event Trust Fund, like the American Miniature Horse Association World Championship ($39,231) or the Working Ranch Cowboy Association championships ($47,977).
As for Circuit of the Americas? For FY 2015, COTA is getting $28,562,562 for the 2014 Formula One race, $305,467 for the World Endurance Championship race, and $388,777 for the TUDOR United Sports Car Championship race, held the same day as the WEC race.
That makes COTA’s late-2014 take $29,256,806. By comparison, Texas Motor Speedway, for the NASCAR Sprint Cup race, will get $544,481.
So far, nearly $95 million
During the 24-month period that COTA has been open (November 2012-November 2014) they have had state funding for all 11 motorsport events, including the X Games, for a total of $94.63 million. During that same period, Texas Motor Speedway, which hosts NASCAR and IndyCar races, received $4.498 million.
Also interesting is that while the announced attendance of the Formula One races has been dropping, down a supposed 11 percent from 2012 to 2014, the money paid by the state of Texas, based on tax revenue spent by race fans from mostly out of state, has dropped only slightly, from $29,329,984 in 2012 to $28,562,562 for the 2014 race. That’s a dip of $767,422, which is less than three percent.
The original deal between Hellmund, Texas Governor Rick Perry (who leaves office January 20), Texas Comptroller Susan Combs (who left office December 31), was that the trust fund contribution by the state would be “performance based,” meaning that for years two through 10, any shortage of “incremental tax revenues needed to fully fund” what the state would pay would be repaid “through revenues from ticket sales.”
So it may be surprising that the state has no formal method of auditing the attendance of COTA events, which in turn would help determine how much incremental income is contributed by out-of-state race fans. And whether the state should be reimbursed some money if attendance, and resulting revenue, falls short of expectations.
Robert Wood, responsible for economic development and analysis in the comptroller’s office, says that the attendance figures are “based on estimates,” and are “reliant on some degree on the venue,” which in this case, would be Circuit of the Americas, which would report to the city of Austin what the attendance is, which would in turn report that to the comptroller.
The city and the comptroller’s office, according to Wood, don’t require hard proof of how many people attend a race. Nor do they require proof of, say, out of the 237,406 fans COTA clamed attended the F1 activities over all three days, how many people are being counted twice or three times. COTA claimed 107,778 for the Sunday race, which means there were 129,628 there on Friday and Saturday combined, which seems optimistic. Wood says guesswork and estimates determine how many fans stay for a three- to five-day period, or just come for an afternoon.
Just as optimistic was the track’s attendance figures for the TUSC and WEC September sports car race. The track’s official attendance figure was 50,334 for Friday and Saturday, more than double the highest guesstimate offered by a half-dozen journalists and public relations officials in the press room. “Total attendance was a 33 percent increase over last year’s International Sports Car Weekend, which brought in 33,591 people over three days,” said a COTA press release. During both days, entering and exiting the track multiple times, not once was this reporter asked for a ticket or a credential, making it seem essentially impossible to supply accurate attendance figures.
A little research project
So we did some research: The week of the Formula One race in November, several volunteers counted seats at Circuit of the Americas – bleacher seats, hospitality tent capacities, pit-side suites, even average capacity in the garages. This was backed up by dozens of photos taken during the week, as well as on Friday, Saturday, and on race day, Sunday.
Here are the estimates:
--There are 59,197 permanent and temporary grandstand seats (note that multiple temporary grandstands present in 2012 and 2013, were not there in 2014. Total grandstand seating capacity reduction is estimated at 13,032).
--Suites, skyboxes, loge boxes, hospitality tents (permanent and temporary) – 6,854.
-- Pit building, paddock, team buildings, garage area – 6,433 (this figure is the result of eight different breakdowns).
--Corner workers and safety crew, 100.
--Track vendors, 500.
--Facility workers, 1,900.
Subtotal: 74,987.
General admission figures were estimated, based on ground and aerial photographs, at 15,000 to 20,000 on Sunday, far fewer on Friday and Saturday. There were also multiple reports that general admission ticket holders were invited into the grandstands by track ushers.
So, figuring a completely-full 75,000 seats and staff, and 20,000 general admission ticketholders, the maximum Sunday crowd would be 95,000. And the volunteers said that some grandstands were not full – closer to 85 percent.
And as for Friday and Saturday attendance equaling the announced 129,628? It did not seem possible, agreed the volunteers.
None of this is to suggest that the executives at Circuit of the Americas have purposely misrepresented attendance figures to squeeze money out of the state of Texas. But common sense suggests that when the state is handing out event trust fund checks for tourist-related events – be they the Obesity Society Annual Scientific Meeting ($157,363), the Gay Softball World Series ($330,475) or the 2012 Formula One race ($29,329,984), you’d think the people of Texas would request a little more accountability.
That said, COTA is a superior facility, hosting some superior races. But no track in the U.S. has ever made a consistent, long-lasting relationship with F1 pay off in the long term. Hopefully COTA can. Because if it can’t, the prospect of any other facility making a sustainable, repeatable profit from F1 in particular, road racing in general seems remote.

 

 

 

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

×
×
  • Create New...