It has been a difficult week for Formula 1 fans in the U.S. The drama increases with each passing day and the future of the U.S. Grand Prix (USGP) in Austin has become more uncertain. Rumors that the race would be cancelled started a few weeks ago, but now those rumors seem likely to be reality, and it is increasingly difficult to separate fact from fiction. Be that as it may, let’s take a shot at doing just that.
Right now nobody in Austin has a contract with Formula 1, and if COTA does not agree to Bernie’s demands within a two week deadline set today, there will be no USGP in Austin in 2012... or perhaps ever.
It is a fact that Tavo Hellmund signed a contract with Bernie Ecclestone and FOM (Formula One Management) to host a Formula 1 Grand prix in Austin, Texas. This was first announced on May 25th, 2010. The announcement caught Tavo off-guard as it was somewhat impromptu. It was clear then and it is clear now that Hellmund’s Full Throttle Productions (FTP) did not have the money to finance this event using only their own resources. The annual license fees alone totaled $25 million.
Bobby Epstein and Red McCombs were recruited by Tavo to provide the finances necessary in order to build a circuit and promote the race. They formed a corporation to do so and named the race site Circuit of the Americas. Hellmund’s role in the corporation was never defined to the public, but it was assumed that the value of his contract would “buy” him equity in the newly formed corporation. He is listed on the webpage as a founding partner.
Based on comments made by Ecclestone this week, Formula 1 cancelled the contract with Hellmund and FTP due to failure to meet their contractual obligations, specifically payment of the annual licensing fees.
According to Autosport, Ecclestone said, "We had an agreement with Full Throttle Productions. Everything was signed and sealed, but we kept putting things off like the dates, various letters of credit and things that should have been sent, but nothing ever happened. Then these other people [COTA] came on the scene, saying that they wanted to do things, but that they had problems with Tavo [Hellmund]. They said they had the circuit and that they wanted an agreement with me. I told them they had to sort out the contract with Tavo, which they said they would. But that has gone away now because we've cancelled Tavo's contract as he was in breach.”
Based on those comments, I consider it a fact that there is no contract in place with anyone for a Formula 1 race in Austin.
The scuttlebutt I hear from Austin insiders is that COTA purposely failed to provide the necessary letters of credit due to their falling out with Hellmund. It was well known within the organization that this failure would lead to a cancellation of the contract, and it was known that Hellmund could not fund the fee requirements without their help. It appears that they let the cancellation happen so that they could enter into a contract with FOM that did not include Hellmund. I don’t know if this is fact or fiction.
The basis of the disagreement between COTA and Hellmund may be rooted in the problems with the Texas Major Events Funding. Using that money—funded from taxes paid by out-of-state visitors to major events in Texas—to pay the $25 million fee has been controversial in Texas, but the announcement awarding Weehawken, New Jersey a Formula 1 race beginning in 2013 apparently spooked the COTA investors as well as Texas State Comptroller Susan Combs.
Typically Major Events Funding is handed out after an event in held, once the tax accounting is complete. Combs had allowed the U.S Grand Prix to take advantage of an exception in the funding rules that allowed funding to be paid before an event. The exception was included in Senate Bill 1515 and was limited to events that would realize more than $15 million in fund benefits. The benefits are estimated based on the economic impact projections put forward in the application.
Obviously a competing Grand Prix elsewhere in the US erodes the value of the Austin GP and forces a reconsideration of the economic impact. The uncertainties of economic impact studies, and the erosion of the Austin Grand Prix’s value, forced Combs to reconsider the use of the exception for the fund disbursements.
There is one other threat to the fund’s use included in SB 1515—it can only be used for events that occur once per year. The New Jersey race may void Austin’s eligibility entirely.
Perhaps this is the way the deal went down, or perhaps it isn’t, but at any rate right now nobody in Austin has a contract with Formula 1, and if COTA does not agree to Bernie’s demands within a two week deadline set today, there will be no USGP in Austin in 2012... or perhaps ever.
Today Steve Sexton, president of Circuit of The Americas said, “We have been excited for and working towards a 2012 USGP race and now understand that Mr. Ecclestone is interested in moving the Austin race to 2013. We know the U.S. market is important to the teams and their sponsors and 2013 certainly allows time for the Circuit of The Americas to be ready.”
That sounds like making peace, and accepting there may be little more COTA can do; and no one gets exactly what they wanted back in May of 2010.