• Formula Money

Why the chances of a US Grand Prix in Austin look bleak

November 17, 2011

Saying that the United States Grand Prix is a poisoned chalice is somewhat of an understatement. The last time it was held was in 2007 at the Indianapolis Motor Speedway, two years after F1 incurred the wrath of American spectators when safety issues with Michelin tyres led to just six cars taking part in the race. Spectators threw bottles on to the track and sued F1's management as a result of what was widely considered to be a farce. The lawsuits weren't successful but the damage was well and truly done.

Indianapolis refused to pay F1's escalating race hosting fees which led to the race dropping off F1's calendar. Teams were in uproar that they were left with only Canada as a showcase for F1 in the lucrative North American market. The man who wanted to change all that was Tavo Hellmund. He was not widely known in F1 circles but his name was very familiar.

F1's boss Bernie Ecclestone says he has known Hellmund "since before he was born." It is almost not an exaggeration since his father, Gustavo Hellmund-Rosas, was president of Mexico's Grand Prix organising committee when the race returned in 1986 after a 15 year absence.

Hellmund got experience with all aspects of the event company from ticket taking and sweeping up to activation and promotion. However, he was distracted by the allure of motor racing itself and crossed the Atlantic to become a gopher at Ecclestone's Brabham F1 team. It was followed by a stint racing IMCA Modifieds, hybrids of open wheel and stock cars, before working his way up to competing in the Grand National series - the regional division of NASCAR. He then returned to England to race in Formula Ford, Formula Vauxhall Junior and Formula Three.

However, Hellmund couldn't get event promotion out of his system and back in the US he began to arrange hot air balloon festivals and concerts with attendance of around 70,000 people. Promoting a motor race was the next natural step and in 2004 Hellmund's company, Full Throttle Productions, arranged its first: the 'Texas Racefest' in Austin. This was a sell-out due to it being the only event combining a Grand National NASCAR race with a meeting from the USAC Midget Car series which has spawned such renowned drivers as Jeff Gordon and Tony Stewart.

Hellmund says he "stayed in touch with Bernie because we had known each other since I was a kid and he knew what I was doing as far as events and promotion." He adds that "we started talking hard about Austin about two weeks after they publicly announced that they weren't going back to Indianapolis." It took Hellmund three years of lobbying, not just with Ecclestone but also with officials in Texas, to seal the deal.

In 2004 the government in Texas passed a bill to make available a fund to attract major events, such as the Superbowl, World Cup and Olympics. Hellmund noticed that although it wasn't on the state's list, F1 was the only global motorsport which would fit into this category. Hellmund met with his local senator and applied for F1 to be included. He got what he wanted and, after meetings and a council vote, $25m of funding was made available every year to cover the F1 race sanction fee.

With his experience as a driver Hellmund was able to design a sweeping track, known as Circuit of the Americas, which looked like it would offer real on-track excitement. He located 1,000 acres of land just outside Austin to build it on and he put together an investment team to stump up the estimated $250m required to buy the real estate and build the circuit. His backers included Texan billionaire Red McCombs, co-founder of the outdoor advertising company Clear Channel, and Bobby Epstein, owner of Austin-based private equity firm Prophet Capital.

It is understood that Epstein is the majority shareholder in the company which owns Circuit of the Americas with McCombs and Hellmund holding minority stakes in it.

The only missing piece of the puzzle was a contract to host a race but in May last year this too fell into place when Full Throttle inked a contract with the F1 Group to host the US Grand Prix for a decade from 2012. In turn, Full Throttle had an agreement with the circuit owning company and construction on the track began. All seemed sweet.

The first major hurdle came when the date of the race was changed from the initially proposed June 17, 2012 to November 18. It was said that this change was made to improve the success of the race as the blisteringly hot temperatures in Austin in June could put off spectators. Behind the scenes however the change had another effect which was much more significant.

According to a letter sent on May 10 2010 by Texas' comptroller Susan Combs to F1's rights-holder Formula One World Championship, "full funding of the entire sanction for 2012 will be paid to Formula One World Championship Limited ('FOWC') no later than July 31 2011. In subsequent years, two through ten, of the race promotion contract, i.e. 2013 through 2021, we will be sending $25 million dollars to FOWC by the end of July 31st of each year preceding the actual race."

It is understood that one condition of this payment is that the money from the state's fund cannot be paid out more than a year before the event takes place. It meant that once the race date changed to November 18, the fee for the first year could not be paid on July 31 this year and this put the contract holder, Full Throttle, in breach of contract.

"Tavo has got a contract which unfortunately is in breach," says Ecclestone. F1 races pay their race sanction fees before the events take place so missing the payment date didn't just put the contract in breach, it also put the grand prix in jeopardy. However, given Ecclestone's close relationship with Hellmund, there was no chance he would scrap the race just because of late payment. Ecclestone knew that all he had to do was wait until after November 18 when the money could instead be paid. An unexpected roadblock has thrown this off course.

Over the past year Hellmund, McCombs and Epstein seem to have fallen out with each other. Ecclestone gives an insight into this by saying "the people that were supposed to be partnering with [Tavo] say that they own the land and have spent, they say $100m, Tavo says $40m on getting to where they are at the moment, starting to build the track."

It is understood that the owners wanted to part ways with each other - either Hellmund would buy out the others or vice versa. The decision eventually settled on was for Epstein and McCombs to take the lead but doing so required Circuit of the Americas to sign a race promotion contract directly with the F1 Group. This is because the existing contract was with Full Throttle and Ecclestone says "we've cancelled Tavo's contract as he was in breach."

Ecclestone is believed to have offered a contract to Epstein at a meeting in London in October but the terms contained in it were not the same as the ones in the contract to Full Throttle.

It is not known precisely how the terms differed but it is possible that they covered points such as the share of trackside advertising retained by the race promoter. Circuit of the Americas' business model was based on the terms of Full Throttle's contract so a reduction in what is offered could prevent the race from being viable. One certain change is that Ecclestone has moved the date for the first race from 2012 to 2013.

"The contract we proposed to them is ten years from 2013," says Ecclestone. With the previous contract cancelled and Epstein and McCombs being new contractual partners for Ecclestone, there is no reason why the F1 boss should offer them the same terms as Full Throttle had. However, it seems that they are not happy with this situation as a statement from them on Tuesday said that "organisers of Circuit of the Americas...are suspending further construction of the project until a contract assuring the Formula One United States Grand Prix will be held at Circuit of the Americas in 2012 is complete."

Unsurprisingly, Ecclestone is irked by this kind of posturing. Throwing down the gauntlet he says that "they have been sent a contract but they missed that deadline. I can't solve it. We told them a month ago that if it isn't signed then that is it. All they need to do is sign a contract. If they don't sign we will have to cancel at some stage in December." This deadline makes sense since there is a World Council meeting next month which, realistically, is the final time the 2012 calendar can be changed without causing too much disruption.

Faced with the risk that the race will not take place next year Combs has taken drastic action to protect the state's finances. "The state of Texas will not be paying any funds in advance of the event," she said on Tuesday. This effectively puts the brakes on the race ever taking place because if Ecclestone's fee is not paid in advance it is highly unlikely he will give the grand prix the green light.

Austin is renowned for being one of the greenest cities in America so if the grand prix does not take place a new race could begin as the state chases down who is really to blame for leaving it with a 1,000-acre construction site.

With hindsight, it is perhaps easy to see just how bold a gamble this project really was. Getting $25m of annual state support is a feat in itself given that America is a country which knows little about Formula One and still has a bad taste in its mouth from the scandal of Indianapolis. In comparison, the British Grand Prix, which is one of the best attended races on the F1 calendar in a country with decades of connection to the sport, gets no financial assistance from the government. Somehow Hellmund managed to pull off this incredible feat and that alone makes him a visionary in F1. So even if Austin never hosts an F1 race the sport could do a lot worse than making a concerted effort to ensure that he remains involved.

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