COTA’s F1 future: “We’re screwed,” says Epstein

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Being the prophet of doom is not always the most difficult of the soothsaying pastimes. When Bobby Epstein and Red McCombs cut Tavo Hellmund from the deal agreed to partner in the COTA build project and the F1 race promotion of the newly returning US GP – the writing was on the wall for COTA before an F1 tyre turned in anger.

The TJ13 2012 article, Law suit involving Austin GP promoter, detailed the dispute between Ecclestone’s family friend, Tavo Hellmund and the partners in the COTA project.

Ecclestone was clearly unimpressed with the behaviour of McCombs and Epstein toward Hellmund and made this clear in an interview with Adam Cooper. “I was disappointed insofar as he [TAvo] had what he thought were partners that could finance the business and wouldn’t let him down. Really, they let him down, and they’re trying to steal from him, get him out of [the project] and do the whole thing themselves.”

The contract Ecclestone signed with Hellmund for a US GP was torn up following Tavo’s exit from the project and Ecclestone forced a new and less sympathetic set of terms and conditions on McCombs and Epstein. Bernie explained his rationale: “Knowing that they were going to be the people bankrolling him, and knowing what happened to them [and what they did to Tavo], we don’t feel that they are reliable as they should be”.

This meant the upfront fee to Ecclestone – as a guarantee COTA would in fact be constructed – in all likeliness was raised. But more importantly the FOM protection offered to ‘new’ F1 race hosts – who have suffered the start-up costs of delivering an expensive new F1 facility – was given to McCombs and Epstein. By comparison, Malaysia and Singapore for example were given guarantees that their race would not suffer regional competition either side of their event during the term of their first contracts.

The result in year four of the US GP in Austin, COTA was scheduled back to back with the returning Mexican GP.

Epstein revealed following the race that the event had been a financial disaster, but specifically cited the loss of revenue from ‘concessions’ running into ‘millions’. The numbers attending the F1 event in COTA in fact held up well, given fears that up to 40% of their audience in the first three years had been fans travelling from Mexico. The Sunday race figures were down from 2014 by just 6,000.

However, COTA has been receiving a state subsidy of $25m because of the economic benefits received in Austin and Texas from out of state fans specifically visiting the area because F1 is in town. Incremental tax receipts alone in previous years have been estimated at around $22-23m.

Despite the COTA claims that F1 fan numbers at the US GP were only down around 5%, Officials with the governor’s office have revealed to the ‘Statesman’ that the state pay out to COTA this year will fall by 20%. A loss of nearly $5m. Having heard this news, Bernie Ecclestone responded saying that, “If it’s changed, it’s going to be difficult to continue the race in Austin.” The state subsidy is a significant contribution to the race hosting fee Ecclestone charges COTA – which despite this in previous years has made a loss on the F1 weekend.

Epstein is more direct with his assessment of the bad news. “To use a technical term,” he said, “I think we’re screwed.”

There may well now be a legal dispute, because as part of the deal to build COTA, Epstein and McCombs believe they received guaranteed state subsidy of $250m guaranteed for 10 years. COTA officials are accusing the state office of changing the criteria used to calculate the state subsidy, given that attendance was down just around 5%. Epstein described this as “a breach of trust,” adding, “the state clearly made promises. I think we made a deal, and we lived up to our end of the deal. It’s like you go to a restaurant and order a dinner, and then after you’ve eaten the meal they change the price.”

The reduction in the COTA subsidy is no post event surprise for the owners, because when announced Bobby Epstein remarked, “It hit us cold. No one could foresee this coming.” Tavo Hellmund’s former business partner revealed had the tickets not been sold, they would have considered cancelling the 2015 F1 COTA event. He concludes, “But the big question now, is – Is the race coming back?’”

FOM would levy hefty penalties on the COTA race promoters should they withdraw from the F1 calendar in 2016. Yet, this will be weighed against the increasing losses COTA is suffering and whether the whole project should be abandoned.

A deal to sell COTA earlier to IRG Sports & Entertainment, a Florida-based company that owns multiple race tracks around the country, fell through.

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17 responses to “COTA’s F1 future: “We’re screwed,” says Epstein

  1. The reduction in the COTA subsidy is no post event surprise for the owners, because when announced Bobby Epstein remarked, “It hit us cold. No one could foresee this coming.”

    Maybe this should read “…..subsidy is a post event surprise……”

    This totally reverses the statement.

    In any event, this race is probably dead. So much for Bernie’s American strategy.

  2. A couple of misconceptions.
    Red McCombs, at best, is a second tier investor. He was actually, little more than a name, to attract other investors.
    He at no point, has ever had much say in the decisions, or operations of Cota..
    The second misconception, is the major events trust fund, and the Texas enterprise monies.
    There was never an agreement to pay a specific dollar amount to Cota.
    The only guaranty was, F1 and other events, would qualify for these funds
    The 25 million dollar figure, was just a number based on, x amount of people, would equal, x amount of economic impact. But never a set dollar amount.
    I would not consider it a subsidy.
    If there was no track, the state would get no money anyhow..
    I think what brings it into question is, the lack of accountability in how they arrive at the number paid out.
    I don’t think you can just call it a government handout. If someone spends several hundreds of million dollars to bring an event that bring hundreds of millions in impact to your state, it is like the government paying you a tax for them making money off of you.

  3. –But more importantly the FOM protection offered to ‘new’ F1 race hosts – who have suffered the start-up costs of delivering an expensive new F1 facility – was given to McCombs and Epstein.

    I’m presuming there is an important “not” missing from the last part of that sentence!

  4. Circuit developers, owners and promoters must be the biggest idiots in the circus. How often do they strike deals which quickly become unsustainable?

  5. So Epstein feels it’s unfair the governor’s office changed it’s formula… kinda like Hellmund probably felt it was unfair when Epstein cut him out. Sauce. Goose.

    .

  6. Greedy phucking troll Bernie. Seriously, this has to stop. COTA is an amazing facility, this year it was the best GP of the season thus far, and America and the manufacturers both want and deserve a race on US soil. It makes no sense that F1 would race in Azerbaijan than race in the USA. If Bernie wants to be in the business of gov’t subsidies collection, which it seems like is the mandatory requirement to host a GP, perhaps they should all be in China or France?

  7. Looks as though between them, Bernie and the Lone Star State will finish off the Austin race despite it being so well received, WC Fields said “Never give a sucker and even break” and these guys seem to have a lot of bad luck. The weather was probably the final nail in their coffin. Hope the race can survive but Bernie will probably move on to the next cash cow.

  8. What is the problem with f1? Every time we have a half decent track,the four horsemen ride into town and rip it up. I am no great fan of the tilka sandboxes but somehow this one works. I really do hope we don’t lose this track from the series as its turning into one of the greats.

  9. This is not, an F1 or Bernie Ecclestone problem.
    FOM, told Cota the price, they agreed.
    The price has not changed.
    The state, has not changed , the amount they give to Cota.
    There was never an agreement to pay Cota 25 million dollars a race.
    The amount, was based on, x amount of people, would equal, x amount of economic impact.
    It looked at , hotel, airports, rental car, and alcohol sales, to derive at the number paid out.
    Cota was basing their numbers off of people thru the gate for the 3 days.
    The problem with that is, it counts a person going all 3 days, as 3 people
    And I don’t think there is any question that Cota was being pretty liberal with their attendance numbers .
    And Cota s reported numbers, did not exclude people who did not come from out of town. Also a prerequisite of the Metf.
    Once the state started looking at actual s tax numbers, and had models to compare with, it was determined that the economic was less than originally thought.
    Now, imo, that’s a really polite way of saying, for the past 3 years, Cota has been screwing the state.
    The bottom line is, if we lose F1 and, or, the track, you need to look at the management, /ownership of Bobby Epstein, as the reason for its failure

    • I agree with much of what you say. However, if a person comes to Austin for 1 day/night – they will spend x on hotels, eating, travelling etc. If a person comes for two days/nights, its not unreasonable to suggest they will double their spend. So if the model was based on a person’s spend per day and the associated tax revenues, counting the total clicks through the turnstiles is fair.

      The question is – how many of these clicks are discounted tickets or even free tickets for locals to boost the attendance.

  10. This really highlights the problem wit the way F1 is run. It’s run by Bernie and the ONLY thing he considers is profit. He has no interest in the teams welfare. i.e. The USA is a huge market for the teams (Merc, Ferrari, McLaren, Lotus, Renault not to mention their sponsors) and Bernie just sees the dollars he (and CVC) can earn. Not the fact that more exposure to the US market them more manufacturers and big brands that would see F1 as an attractive marketing tool. It’s almost like he fails to see that subsidising (more like less in fees) new tracks in the US will lead to more teams and better funded teams with bigger tv audiences and eventually more income for him.
    The fundamental problem is Bernie and CVC have been enabled to extract as much money as possible from the venues and pay out as little as they can get away with, without any consideration to the teams or venues long term welfare. The venues do, to a large degree have themselves to blame, i.e. they signed the contracts and onlyy they could calculate if it was affordable. The teams on the other hand, well they only saw the contract they signed, also only they knew how much they needed to run the team but that calc was screwed when the V6 came in and manufacturers could charge what they wanted. Which they had the right to as FIA didn’t specify cost cap before manufacturers started development. So the teams got screwed by FIA and the way the changes were implemented. In fact if we can remember back to when the 3 new teams came in under the promise of a budget cap, the cost of the v6 is, I think not far off what the original budget cap was supposed to be!
    The whole F1 governing/promotion system needs a shake up.

    That’s a long ramble, sorry if anyone read to the bottom 🙂

  11. But the measured impact, was never to be based on attendance.
    That is just how Cota looked at it
    The comptroller looked at a week that little is going on and compares it to the week of F1.
    The 25 million dollar figure, was just a number that Cota came up with, to estimate what they thought the payment should be. The problem was, no one ever checked it against the actual numbers for the week. Now, it’s become a bit of a political football, and it’s receiving the scrutiny, that it should have been given from the start. As it should be, to remain a viable and supported program.

    This was not a shock to Cota. They knew it would happen eventually.

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