It should have never come off the rails. Poor planning yields poor results. The dedicated F1 fans in the US actually do deserve better. No excuse really. Lets hope you are right and by the end of this week its all back on schedule!
Well, well, well.... My how things change. I hope people will recognize Simon's prescience on this. He took a lot of barbs along the way. Here's what it seems like happened (to me)... it's probably obvious at this point. Tavo gets the F1 deal and shops it around to investors. It's a somewhat flimsy proposal, but has some legs to it, so (as Simon predicted), McCombs buys the land as a safety play, knowing he'll always have that if everything goes to hell. Epstein comes on and sees dollar signs and finances (directly or through connections) a chunk of the construction. Just like an inventor who gets crapped on after a product manufacturer realizes they are doing all the work, COTA is looking at Tavo and asking "what have you done for me lately?". Tavo wants a payday for his contract, and Epstein thinks that's bunk since he and Red did all the heavy lifting. So you get what we have here. Which is the way he (Epstein) wants it. Well, he gets it! But I digress... Epstein doesn't know half as much about Ecclestone as he thinks he does. So he thinks he has what it takes to step into the ring with the dwarf. Epstein says to Bernie "what do we need Tavo for? We have a circuit, you have F1... let's get together". Bernie is happy to do so - at market rates, which are $35-40MM a year. Epstein's ego takes over and he feels slighted... but he doesn't realize Bernie has all the cards. He has another race in NJ under his belt, and he knows Epstein has a chunk of land that he doesn't own, populated with a bunch of work and construction that has zero alternative value other than as a racetrack. He knows Epstein is not going to blow $300-400MM just to save $10MM. Bernie doesn't care if/when Susan Combs pays - Bernie will make sure he gets his money. And even if they front it, Epstein and Combs are still ahead - paying up front and getting paid back by the state "sometime" is a lot better than dumping $300MM into construction that you can't use. Bernie promises to send Epstein the contract. Epstein gets the contract from Bernie for the higher amount and blows a gasket. He hasn't realized yet that he's been outmaneuvered. He still thinks he has a move to make, but he's already dead. He decides to play for sympathy, playing up the hundreds of construction workers sitting idle, and the hundred thousand fans that wanted to visit world-reknowned Austin, TX for the F1 race. It's backfiring and blowing up in his face. Bernie doesn't care one bit (nor should he) about those 300 workers, and it was COTA's decision to sideline them anyway. The 100,000 fans will much more happily visit a place people actually want to go to - NYC. Bernie is in the catbird seat. The only questions are whether Epstein will capitulate in time to save his investment, or if he will either let it drag on too long and lose by inaction, or (perish the thought) think he can tangle with Bernie in court... in which case he may as well just take his money and set it on fire, because he'll never see the race then. As for Tavo, as much as I bashed the guy, I feel sorry for him a bit... for better or worse he got this contract, and Epstein tried to do an end-run around him. That sucks... and it was a bad move, because nobody knew Bernie was that tight with Tavo. But they know now. And the other part of this is that it all looks really, really bad for the state. Combs is in an impossible situation. Pay Bernie after all of this is going on? She has many new blips on her radar that weren't there before. Do not forget she is a politician, not an accountant. She has a race in Jersey, she has Bernie admitting to bribery, she has a work stoppage and COTA saying the race won't happen unless FOM bends to their will, and all this after she already weathered a date change and the haphazard way this whole deal was put together. She's run out of political capital on this. She has to appear to be the cold, constituent-respecting hard-edged bean counter now... and that means no money before the race takes place. And that is probably an immovable position for her - politically and ethically now, and probably codified legislatively before long. Which means Epstein now has to come up with Bernie's fee AND the payoff to Tavo - and that's if he takes the cheap option. If he doesn't realize he's been beaten, he will have to take the more expensive option - paying Bernie's higher fee and not getting the Texas money until after race-day. And that's assuming he doesn't ride this turd into the ground by trying to outwit the Ecclefox on political and business maneuvering. Bernie wins. Again! I am in awe of his deal-making acumen. Image Unavailable, Please Login
With the NJ race closer to where Bernie always wanted a race (New York), I think that no matter what the owners/promoters do, the race will not happen in Austin. Bernie always commented that F1 does not need the US, even though the teams and sponsor want a race here. There is no way the US is going to get, and be able to support, 2 races a year. I think Austin was a smoke screen for the NJ/NY event.
Not to say "told ya so", but if you take a step back and look at this situation, it was a farce from the get-go. Bernie charges a ton for the race. Even if they sell 100,000 tickets at $500/ea, that's $50 million in revenue. If you need to pay $30MM of that (or thereabouts) to Bernie, when you add in the operational cost of the race (which has to be several million at least), advertising costs, and ongoing maintenance of the track, you have to pretty much sell out the circuit year after year just to break even. There is NO WAY to turn an annual profit of $40MM/yr, which is what you need to do just to break even on a $400MM track on a 10-year deal, which is if you don't include opportunity cost of money. Again, looking at it objectively... if you take out the cost of building a facility, you make it $400MM easier to turn a profit. It's like reading a business plan for a new company, and the founders propose to start by constructing a new building. You'd read it and do a double take - why on earth would you build when you can rent? So when we have existing tracks, why on earth would you build one? Doesn't make sense. NJ is doing this just right - a road circuit. No track construction costs. Not to mention that NYC is a destination that is actually interesting and attractive to the international traveler. I'm amazed Austin got as much traction as it did. Look at dwindling attendance at most other new F1 tracks and you can see it's crazy to invest in a race that carries an unnecessary $400MM track construction charge. If there is a race in Austin in 2012, it will be the start of a black hole of debt that will consume everyone who gets close.
Not to push this into P&R but maybe they're hoping Perry gets into the oval office and gives 'em a federal bailout!
Tavo was successful so far in doing what I always posted early on: A plan to sell a plan for a profit. How much do you think his take will be or should be?
It's not over until Bernie says: "We're going somewhere else!" However, this is a complete mess at the moment and the expression: "Shooting yourself in the foot!", does spring to mind. Bernie must be slightly baffled though, usually he has to go to great lengths to get his "divide and conquer" methods to work and yet here he hasn't had to do anything at all!. One thing that is for certain though, he's the one person who'll come out of this ahead of the game!. As for the: "will it/won't it" issue, I still think it will but the doubts are starting to creep in!. (And I still think it will only last a couple of years if it does happen!)
+1 I can't see anyway it now happens in 2012. After that, we supposedly have NJ so the whole METF money could be pulled - Although, as I've said before, I never really understood why a $400MM project hinged around $25MM coming from the state. With apologies if this is a repost - From Autosport - I was going to edit it down a little, but it's just fascinating reading to me....... Doesn't sound good..... Cheers, Ian
It's a $25M per year subsidy. It basically covers Bernie's fee, though its symbolic value is perhaps even more important. Without it, the whole thing comes down like a house of cards.
Because of the closeness of Central and South America, and the massive influx of their people moving here along with their fondness for the sport, I think it is a mistake to not go ahead with it. I see far more big money F1 fans here then I ever do in NYC or Jersey.
Uh-oh. Seems the dwarf has had enough of this BS. Just published at Autosport; I'd guess they're done Cheers, Ian
Fair enough. I hadn't thought of it as a "symbolic gesture". Hopefully the $25MM per year also increases annually too - Apparently, Bernie generally cranks the fee up by 10% per year - So in 10 years (the life of the contract!) they're gonna need a lot more from the good people of Texas....... [Thanks folks! ] Having said that, it sure looks like it's dead in the water to me. Cheers, Ian
Damn, I really want this to happen more than anything. There are plenty of out of work Texans that could benefit from this, especially the folks that lost everything in the summer wildfires. I'd hate to see wind up like another Texas project like superconducting super collider.
With NY/NJ looking good and room in the schedule for others why bother if you are Bernie. He is probably tired of the lack of development, start of marketing etc. The project never seemed to have real fire. Sad. Dedicated US F1 fans deserve better. Bernie is rather blunt about the whole scenario. Its ugly if true and who is to doubt the little maestro? I wont.
+1 Reading Bernie's comments again it seems *all* they have to do is come up with a letter of credit within the next couple of weeks - "How hard can it be?" - We're supposedly talking about guys who can fund a $400MM project here after all. Cheers, Ian
If they have so much money this could have been settled in a matter of minutes. The question is what are they waiting for as Tavo is no longer a factor and has not been for sometime evidently. How strange.
I don't mind being known as the cheerleader responsible for getting the thread title changed from "cancelled" or whatever it was. I still think the current title still works, but I'm now on the other side of the fence. I think it's a low probability this race will happen. I think SRT Mike had hit the nail on the head so well with his summary that only one swing of the hammer was necessary to drive the nail right into the coffin. If I had it to do over again I would still be a cheerleader. Right up until I read yesterday afternoon that there was a hedge fund guy involved who is neither a) a Texan (like Tavo, Red) b) in the business of racing and race promotion nor c) a roll up the sleeves entrepeneur (like Tavo, Red)
Well, what Tavo has and what he did are actually pretty valuable... but all that value is realized the moment someone funds the race and Tavo's contract from Bernie can be realized. After that happens, Tavo is just a drag on the balance sheet. Epstein and McCombs got involved because they obviously see the profit potential of this. The F1 contract is "worth" 100k-150k fans per year, at a ticket price that probably averages $400 or so. So over the course of the 10 years, that's several hundred million dollars. If Tavo wants a 2% commission, that's $10MM. And I think that's probably reasonable. But I bet Epstein is fuming over this, because he's dumping $300MM into this, and can just go right to Bernie - or so he thought. But it's not really different than a realtor. Once you know about a house for sale and have seen it, what do you really need the realtor for? On the other hand, would you be in the position of wanting to buy the house without that realtor? Home sales have MLS... but there isn't an equivalent in F1.
$25MM per year, for 10 years. That's $250MM. If your income is $50MM a year on ticket sales for F1, and you spend $400MM building the track, that's $10MM per year profit. I bet it costs a large chunk of that (maybe all of it) just to host the race - facilities staff, maintenance, taxes, utilities, etc. So you maybe come close to break-even or turn a small profit. Then you do other stuff to earn money - track days, other race series, race schools and the like. But without that state money, that $250MM has to be paid from somewhere else. All of a sudden, you don't just about break even on the race.. you turn a $25MM loss every year, and you have to make that up on your other events. I doubt most tracks even earn $25MM a year, so starting each year having to cover that nut makes it unprofitable. As an investor, I can buy the "we'll break even on F1, but F1 will cover the track construction costs... then we sell that asset the rest of the year for profit". But I can't buy going $25MM into the hole each year for F1... it would be cheaper just to host the race elsewhere.
