05/10/2011
NEWS STORY
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Last week reports in Austin began to emerge saying that the future of the US Grand Prix, which is due to return to the Formula One calendar in 2012 after a five-year hiatus, may be in jeopardy. The reports claimed that the race may be at risk as a result of a change of its promoter and a major slowdown since June in work at the 1,000-acre site just outside Austin, the capital of Texas. As ever with these kind of rumours, there is some truth to the story but also some elements which aren't spot on.
The first point to explain is the difference between a race promoter and a circuit because although they can be owned by one and the same entity, often they are not. The promoter arranges the Grand Prix and its name is on the contract with the F1 Group which grants it the licence to host the race. In contrast, the circuit is simply the track and related facilities such as the media centre and pit complex. At many races, such as the British and Monaco Grands Prix, the promoter and the circuit are both owned by the same entity. However, this doesn't have to be the case and Austin fits into both categories.
The promoter is currently Full Throttle Productions, an Austin-based company owned and run by former F3 driver Tavo Hellmund. Full Throttle has hosted a wide range of events, from NASCAR races to football matches, and in May last year it was announced as being the promoter of the US Grand Prix in Austin which will take place for ten years from 2012.
Hellmund is also the founding partner in Circuit of the Americas which, according to media reports, is the company that owns the track that is being built. Other partners in Circuit of the Americas are reportedly Texan private equity firm Prophet Capital, run by Bobby Epstein, and McCombs Partners, the investment vehicle of Texan Red McCombs. The crucial point here is that the US Grand Prix promoter and the circuit are run by different businesses with different owners, with the exception that Hellmund is central on both companies and without question the key ingredient.
According to the recent reports, on Monday last week Hellmund called Susan Combs, who, as Texas' Comptroller is in charge of its finances, to ask whether a change in management or promoters would affect the circuit's eligibility for money from the state's Major Events Trust Fund. This is particularly important since it is the circuit's eligibility under this fund which enables the state to pay the $25m annual race hosting fee to the F1 Group. If a change in the promoter led to it becoming ineligible for this money it would destroy the business plan for the race since an unexpected $25m would suddenly need to be found every year.
On Tuesday last week, Combs reportedly sent a letter to the F1 Group's chief executive Bernie Ecclestone to confirm that a change in management or promoters would not affect the circuit's eligibility for the money. It is also understood that Combs revealed in the letter that Full Throttle is still the promoter of the race as it has not yet transferred its promotion contract to Circuit of the Americas. There is no doubt that this will happen and, far from being something which could jeopardise the future of the race, it is in fact a formality. Indeed, it is incredibly surprising that it has not happened months ago.
Reportedly Prophet Capital and McCombs are to provide all the capital (around $250m) needed to build the Circuit of the Americas and, prior to construction, Hellmund has arranged what no motorsport facility in the world has ever lined up: $25m annually in state funding and race contracts with F1 and MotoGP - the two most significant global motorsports series. Hellmund's input has made the project the envy of other race promoters and the transfer from Full Throttle to Circuit of the Americas is a key element of its business model.
Although the state of Texas is contributing to the race hosting fee, the circuit still has significant costs connected to the running of the Grand Prix including, at the most basic level, staff and power. The income from ticket sales covers these running costs and if there is a surplus it gives the circuit a profit which can be divided between its owners to boost their return. Essential to this strategy is the ticket sales income from the Grand Prix and it is the promotion contract which guarantees that it will take place.
This is why it has always been inevitable that the race promotion contract would switch from Full Throttle to Circuit of the Americas so the letter from Combs was nothing more than procedural. Accordingly, the same type of transfer from Full Throttle to Circuit of the Americas is also sure to happen with the MotoGP and V8 Supercars race promotion contracts.
It is for this very same reason that before Ecclestone began selling stakes in F1 in 1999 he needed to get its governing body the Federation Internationale de l'Automobile (FIA) to grant the rights to the sport directly to his company FOCA Administration (now known as Formula One Management). Prior to that happening, Ecclestone's company simply managed the F1 rights on behalf of the teams, who were the direct owners. However, Ecclestone was advised that this arrangement was not secure enough for him to be able to float or sell stakes in his business so the FIA granted the rights directly to his business.
It is worth noting here that the races where the promoter and circuit have different owners tend to be held at tracks whose business model does not depend on F1. For example the Canadian, Singapore, European and Belgian Grands Prix have privately owned promoters with the tracks owned in all these cases by the state. Clearly, losing the F1 promotion contract would not send the circuits into bankruptcy in any of these cases because they existed long before they held a Grand Prix. However, if a circuit such as Austin suddenly had to find an additional $25m annually it could push it over the edge.
Hellmund told Pitpass back in January that a merger or transfer of rights committing the Grand Prix to taking place at the Circuit of the Americas would occur "once the circuit company is ready." Accordingly, perhaps the most telling thing is that the F1 contract has not already been transferred to Circuit of the Americas.
Hellmund is supposedly a key partner in Circuit of the Americas so presumably he is waiting for assurances that the investors in the circuit indeed have the funding to ensure construction can be completed in time for the first race in November next year. The idea that perhaps the Prophet/McCombs group have not had the financial strength to proceed seems staggering, particularly considering what is in place. It is hard to know for sure what is going on since none of the parties are commenting.
Sources in Austin confirm that construction of the pit-building, media centre, grandstands, paddock and medical centre has yet to start and, as the recent reports correctly implied, if construction is behind schedule it could jeopardise the race. Pitpass does not believe that this is a valid concern since Hellmund has already cleverly succeeded in moving the race date from June to November 2012.
With a potential transfer of the promotion contract near, the hold up could be connected to money from the circuit company to make the race the success it deserves to be. It is the same with any major construction project - it all revolves around money.
That said, work resumed on Tuesday, the Statesman quoting construction manager Max Chapman as saying: "We just started back today. It was going great guns for a while," he added. "For the last couple weeks, until we got our bookwork done, it was a trickle, and it slowed almost to a stop the last three or four days."
It should also be noted that simply because the transfer of the promotion contract is procedural, that doesn't mean to say there won't be a change of the owners of Circuit of the Americas. Hellmund, Prophet or McCombs may well pull out of the company, as the recent reports implied. Who knows? What we do know is that if Hellmund is the one to go it isn't at all likely that it will be the end of his involvement with F1.
Hellmund is F1's Captain America and Full Throttle is synonymous with the sport in Texas. He got all the pieces of the puzzle in place to create a world-class venue including personally designing the track lay-out, coming up with a catchy name for it, getting the government support and securing the race contracts. It's no wonder that other countries are seeking his services about F1 consultancy and advice.
Ecclestone has said he completely trusts Hellmund and has known him since "before he was born." Hellmund's close relationship with him, Carmelo Ezpeleta and Kevin Schwantz (respectively MotoGP's chief executive and one of its top former riders) are likely to be crucial to keeping the races in Austin.
The relationship with Ecclestone started through Hellmund's father, Gustavo Hellmund-Rosas, who was president of Mexico's Grand Prix organising committee when the race was held in the late 1980s. Hellmund also worked for Ecclestone's Brabham F1 team in the 1980s and has stayed in close contact with him since then. The F1 boss has said that few people know and understand F1 as well as Hellmund and it is no understatement.