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Grand Prix of America loses managers

NEWS STORY
06/05/2013

Holding a Grand Prix close to New York is a plan which is nearly as old as Formula One itself. As the following memo (pdf) shows, a New York race even had a date on the calendar back in 1985. It was due to take place on 22 September and Marlboro was considering becoming its title sponsor for the whopping amount of $1.5m. It may not seem like much now but back then it was a great deal, particularly in the United States where F1 was not as well-known as in Europe.

The race didn’t take place of course and the memo reflects the scepticism about the event as it states that “there is little chance that the organizers can pull off the race this September. Most likely, the race will be run next June in combination with the other North American races, Montreal and Detroit.” The outlook hasn’t changed much since then.

The race finally seemed to be on track in October 2011 when it was announced that, nearly 30 years after the previous attempt, it would yet again get a date on the calendar. This time the Grand Prix of America was due to take place in June this year on a 3.2-mile street circuit which snakes alongside the Hudson river opposite Manhattan's historic skyline. It was a grand plan and, remarkably, the organisers trumpeted that they would not even need public money to pull it off. Pitpass’ business editor Christian Sylt was sceptical that the race would ever take place from that moment on. There is good reason for his hunch.

F1 races are generally run to break even at best with the ticket sales covering the hosting fee and governments providing some or all of the money used to fund the running costs. In summary, they tend not to be profitable businesses so there is little financial incentive for private investors to buy stakes in them. If they break even or, even worse, make no profit then it makes it hard for investors to get their money back through dividend payments. Likewise, if the business isn’t profitable then it isn’t likely it will be easy to sell which means that it could be tough for an investor to get a return by offloading his stake.

Bearing this in mind it may seem that private investors wouldn’t invest in any F1 race promoters but in fact this is far from the case. For example, Singaporean billionaire Ong Beng Seng is one of the biggest backers of his country’s Grand Prix and he also happens to own several hotels in the area. It means that he benefits from the increased rates and occupancy in his properties during the Grand Prix and this offsets his investment in the race organiser.

In the case of New Jersey, property development firm Roseland, owns a lot of the land on which the race is due to run. This makes it a logical candidate for investing in the Grand Prix but it is reportedly not putting any money into the race.

So why else would investors put money into a race promoter? Circuit of the Americas in Texas, which hosted its first US Grand Prix last year, is a good model when it comes to attracting investment. Its backers include beverages tycoon John Paul DeJoria, Red McCombs – the co-founder of outdoor advertising company Clear Channel and Bobby Epstein, founder of hedge fund Prophet Capital Management. Their money was used to run the race and build the 3.4 mile track whilst state funding covers the annual hosting fee.

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