05/07/2010
NEWS STORY
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We all know that Grands Prix bring big promotional benefits to the countries which host them. Governments wouldn't foot the race hosting fees which average at £20.5 million ($31.06m) otherwise. The latest race to join F1's calendar, the US Grand Prix which will take place in Austin in Texas from 2012, is no exception. However, as Pitpass' business editor Chris Sylt points out in an article for Austin's main newspaper, the American Statesman, Texas may not be the only beneficiary of the race.
Surprisingly, despite F1 not being well-known in the US, the Austin F1 race promoter Full Throttle Productions, run by former F3 driver Tavo Hellmund, has managed to do what even the British Grand Prix failed to achieve. Hellmund has secured state funding for the race and a letter sent by Texas governor Rick Perry to Bernie Ecclestone on 7 April 2010 said that "Texas funding shall not exceed $25 million (£16.4 million) during any year the Agreement is in effect." It is believed that this funding will be used to directly cover the hosting fee for the race and will be paid from the Texas Major Event Trust Fund.
This fee will go into the coffers of Formula One Administration (FOA), which owns the commercial rights to F1, but the trail doesn't stop there. FOA is ultimately owned by the Jersey-based business Delta Topco and this company's majority shareholder is the private equity firm CVC. Private equity firms control huge funds which are amassed using money from super-rich individuals, banks and pension funds. These investors get a return on their money by the private equity firms using the funds to buy and sell companies like F1.
In 2006 FOA was bought for £970 million by a CVC fund which has a total of £4.2 billion in it and US state records show that one of the biggest investors in it was the California Public Employees' Retirement System (CalPERS).
CalPERS is the biggest US public pension fund and, crucially, it is owned by the state of California. CalPERS invested £200 million into the CVC fund which bought FOA and has already made a 13.8% internal rate of return on it. As of 31 December 2009, the cash that CalPERS has got out of the fund and the remaining value of its stake in it stand at £271.1 million. The money from Texas would give a further boost to FOA's revenues and profits which ultimately flow to the investors in CVC's fund including CalPERS.
It is ironic that the state of Texas, with its budget deficit of around £11.8 billion, will be spending taxpayers' money on a race which will ultimately help the state of California plug its own £12.6 billion budget shortfall. However, Ecclestone is confident that it will be worth it. Over lunch last week he told Sylt that "[the state of Texas] won't lose their money." He added that Full Throttle is "going to make an announcement shortly," about the backers behind the circuit which will be built to host the race. It will need them.
Ecclestone says that Full Throttle "are the only people we found in America who are going to build a world-class circuit." Construction of this will cost around £150 million and even if it is paid off by investors over a ten year period this would still come to £15 million annually. Money from ticket sales may cover this with the average revenue per race from spectators estimated by Formula Money to be £17.6 million. However, the catch is that the state funding is fixed at £16.4 million whereas the race hosting fee rises by 10% annually. By the tenth year of its F1 contract it is expected that Full Throttle will be paying around £38 million so that would leave a shortfall of £21.6 million after the Texas state has paid its contribution.
So who is likely to put up this money? Ecclestone would not say but according to some sources, Full Throttle's backers are believed to be American. However it may be more logical if they come from Mexico and this isn't just because of Texas' proximity to the country. Hellmund reportedly got money to fund his racing career from Mexican businessmen and his father, Gustavo Hellmund-Rosas, was president of Mexico's Grand Prix organising committee when the race was held in the late 1980s.
Further anecdotal evidence to bring Mexico into the frame comes with the news that FIA president Jean Todt attended the NASCAR at the Daytona International Speedway, accompanied by FIA Senate president American Nick Craw, the president of the Mexican motorsport federation Jose Abed,and none other than the country's richest man Carlos Slim Helú, who was last year linked with a buyout of Brawn GP.
The big question is whether the race will ever happen. We in Britain may be jaded after the debacle of Donington last year but Ecclestone is adamant that Austin will be different due to its government funding. But what good will this be if Full Throttle does not even have enough time to get the circuit built? "It maybe a bit tight two years," says Ecclestone. If Full Throttle fails to pull it off in time, Texas may lose a lot more than a promotional flagship.
"It might turn out to be expensive for Tavo. We've got some penalty clauses, although I wouldn't want to use them," Ecclestone said recently. Again we are reminded of Donington and reports claiming that Ecclestone could have taken legal action against its promoter, Donington Ventures Leisure (DVL), when it failed to raise enough money to host the British GP.
In reality, there would have been little point in Ecclestone suing DVL since it was already bankrupt. He would have just joined its list of creditors with no guarantee of getting his money because the company had no wealthy backer. Full Throttle however has the government support behind it so the one thing which seems certain about the US GP is that no one should be left out of pocket if it goes under.
Time till tell whether that this is the only difference the project shares with Donington.