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Ingram: Can Austin Succeed Like Budapest?

Jonathan Ingram | Senior Writer, RacinToday.com Thursday, August 5 2010

Promoter Tavo Hellmund and Bernie Ecclestone are working to bring Formula One to Austin, Texas. (Photo courtesy of Full Throttle Productions)

By Jonathan Ingram | Senior Writer
RacinToday.com

It’s almost a shock to realize that it’s been a quarter of a century since the first Formula One race just outside of Budapest, site of this weekend’s Hungarian Grand Prix won by Mark Webber. Despite little history of F1 racing, the event near the one of Europe’s most charming cities became an overnight sensation in 1986. Can the promoters of the proposed U.S. G.P. in Austin, Texas strike the same sort of gold?

After a busy month of July, the key elements of the effort to bring F1 to the Texas state capitol are on the table. I, for one, am cautiously optimistic about seeing at least one or two Formula One races near the heart of the Hill Country, despite some big hurdles and question marks.

The outlines have finally been drawn by rookie promoter Tavo Hellmund, who kept key investors and partners in his back pocket in the initial months following the announcement of F1 coming to Texas in 2012, the first of ten scheduled races. Hellmund’s father Gustavo participated in promoting CART and F1 events in Mexico City in the 1980’s – but just where the money went and why the races disappeared remains a bit of a mystery. So son Tavo’s got some experience, but is it the right kind?

To believe in the U.S.G.P. you have to discount the prospect of enough ticket sales to cover what is a huge financial nut. Texas has a long and deeply appreciated open-wheel racing history featuring drivers like A.J. Foyt and Johnny Rutherford that continues with the relative success of IndyCar at the Texas Motors Speedway. Austin is in the middle of several major Texas cities and presumably demand for tickets will also come from Mexico. Response to an F1 race in Dallas in 1984 was strong – the crowd at the State Fair park was estimated at 90,000, despite a blisteringly hot day.

The discounted part: you can’t easily drive to Austin from Canada and who’s going to fly from Europe to see yet another Hermann Tilke track with no heritage? And, there’ll be no discount on some very expensive tickets, a problem already hurting other major racing series in the U.S. Last time I checked, there are no American drivers or teams in F1.

The lone appearance of F1 in the state at a Dallas street race wasn’t sundered by searing heat, although that contributed to a track that disintegrated in places. Rather the, ahem, rookie promoter and F1 organizer FISA had problems over the 1985 race date and a $200,000 surety bond resulting from the track surface issues.

The plan in Austin also calls for use of state property in the form of $25 million each year from the Major Events Fund. To access the funds, it requires an application to the offices of Susan Combs, the state comptroller who is already a major proponent of bringing the F1 circus to town. The discounted part – tax payer sentiment is already running nine to one against the idea, according to the comments section of the Austin American-Statesman. And, there’s a bona fide method of checking whether the money generated by the U.S. G.P. actually benefits the state of Texas – the fund must be renewed by increased tax collections. No crowds, no “rollover” state money for the following year.

Many people believe in the magic-like powers of recently announced chief investor Billy Joe “Red” McCombs when it comes to any kind of sports franchise or risky, multi-million dollar project. The 82-year-old billionaire and former owner of NBA and NFL franchises has proven himself a big leaguer in sports and finance. The discounted part– the best way to make money in this deal is to bring in seed money and sell a share to investors. Then close out one’s investment in the first couple of years.

These days F1 rights generally are close to $30 million a year, which falls nine million short annually of the politically proposed money. A track must be built for a multi-million dollar sum, and a single ticket has yet to be sold or sponsor named. (Personally, I think estimates of $200 million to build the track are inflated and designed to give potential investors better tax write-offs.)

One of the other primary partners is putting up the land for the location of the track – as opposed to cash. At a time when McCombs is being sued by the federal government for $45 million over a disagreement about capital gains in 2002 and 2003, can and will he generate enough cash for the project if investment falls short?

By comparison, the problems of getting necessary licensing, permits and environmental approvals for the track and building the necessary infrastructure in a scant 18 months are relatively minor.

Just for grins, I recently reviewed coverage of that first 1986 race in Hungary in On Track Magazine, the bible of F1 racing in America for many years published by Paul Oxman and where I contributed throughout the 1980’s and 1990’s.

Some local investors put up the money and built the rather tightly confined Hungoraring –expecting to satisfy pent-up demand in a country where Grand Prix racing had a “short” tradition. The diminutive Tazio Nuvolari won the lone pre-war event. Despite little Grand Prix history, the crowd at the inaugural race won by Nelson Piquet in a Williams FW11-Honda was estimated at 200,000 by some and was regarded as at least well over 100,000.

The promoters who came up with the wherewithal to make the event happen – which is still running after all these years – can testify that sometimes such risks pay off.

There was a dispute about just how much the rights fee for the race was paid to FISA, which was then the sporting arm of the FIA. One report indicated a whopping $900,000 was paid, but officials at FISA insisted that the payment was a mere $15,000. In all likelihood, the smaller sum was collected by FISA as the sanctioning group and the rest went to FOCA — the Formula One Constructors Association, where Bernie Ecclestone was a member thanks to ownership of the Brabham team and just getting his feet wet as an organizer of marketing rights.

In any event, we’re a long way from relatively simple build-it-and-they-will-come risks for anybody who wants to host an F1 race.

– Jonathan Ingram can be reached at jingram@racintoday.com

Jonathan Ingram | Senior Writer, RacinToday.com Thursday, August 5 2010
5 Comments

5 Comments »

  • NaBUru38 says:

    Another surprise from the Hungaroring, other that the little motorsport history in Hungary, is that the track is terribly boring to watch races.

  • Tim says:

    I look forward to possibly attending an F1 race in 2012, and remain optimistic that Austin could possibly host a third Cup road course race.

  • Ted says:

    Putting aside the questions about financing, state subsidies, etc, I wonder how they’re going to pay for access from Route 130 (itself no major interstate) WITHOUT state support, how they’re going to provide water and sewer for 100,000 people WITHOUT state support, how Bernie is going to react when he finds that he can’t land his 747s at the Austin “international” airport, what they’re going to do when they find that the cost of building TO F1 STANDARDS for 100,000 people will be $400 million rather than the $180 million they think it will cost (without a design, how do you get accurate cosntruction estimates?). I wonder how fast McCombs will bail on this when he finally does the numbers and figures out that the project will run $25 or $30 million in the red in year 1. Makes me wonder what funny stuff is smoked in Austin.

  • Karen Terry says:

    The correct promotion will be the key to the events success or lack of it.

    The organisers will have to do their homework to get the pitch right.