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F1 filing error threatens US GP

NEWS STORY
25/02/2019

As F1 bosses seek to expand the sport in their own backyard, just weeks away from the start of the new season, two of the existing races in America are under threat.

As previously reported, government funding for the Mexican Grand Prix is to be withdrawn and diverted to a controversial rail project, a move that has left Sergio Perez seriously concerned for the event's future.

"I really hope we can keep it," he told reporters at Barcelona this week. "It cost us so much to get a place and now if we lose it, I think probably that will be the end.

"We will have to wait another thirty or fifty years to get it back," he added. "It's a great exposure for your country to have a grand prix. It will be a shame if we really lose the Mexican Grand Prix."

Meanwhile, while the sport's owners hopes of staging a race in Miami appear to have ground to a halt, an - ahem - systematic error, threatens to bring out the red flag on the United States Grand Prix at the Circuit of the Americas.

With a mind on Perez' claim that a Grand Prix is "great exposure for your country", most events receive government funding, the two that don't being the British and Brazilian rounds of the world championship.

With ticket revenue the only source of income for the circuits - revenue from broadcasting, on-site corporate hospitality and advertising going directly to the F1 coffers - in most cases the government in question has to cover the all-important hosting fee, its incentive being that "great exposure".

In 2004, the State of Texas, in its desire to attract world class sporting events, passed a bill to create a fund for such purposes, and while this was initially targeted at attracting the like of the Superbowl and the Olympics, F1 was subsequently added, and it was agreed to pay $25m (19.1m) to COTA each year for the duration of its contract to host the United States round of the world championship.

The money comes from tax revenue generated by the event consequently the taxpayer isn't actually funding the race. Indeed, in 2017, the Grand Prix had a direct economic impact of around $274.3m according to a report by the state, so the $25m handed over to COTA was chickenfeed by comparison.

Last August, COTA began the process of claiming its funding for the 2018 event, the initial step in the process being the filing of an application by the Circuit Events Local Organizing Committee (CELOC). According to Forbes, "the application is made under the Major Events Reimbursement Program (MERP) and is based on previous economic impact reports for the race".

However, no money is handed over until months after the race when the exact crowd numbers are known and can be included in the report.

Under this system, event promoters can see the approximate amount of funding they will receive before the event has even taken place.

"The money received by COTA is paid annually to F1 itself as a hosting fee," explains Forbes, "so any hurdles with the application could jeopardize the future of the race".

The 2018 application was made on 31 August, and seemingly all was well.

On "September 24, 2018, our office initially approved the establishment of a MERP fund for your event", wrote Bryan Daniel, executive director of economic development & tourism at the state of Texas, in a letter to CELOC on 8 October.

However, it subsequently turned out that all was not well.

In 2017, Texas introduced new legislation which requires that an event making an MERP application, requires a human trafficking prevention.

The legislation was passed too late to impact the 2017 race but was necessary for 2018.

In short, the legislation ensures that the state can prove that it isn't funding events which rely on slavery in order to be held.

Of course, COTA is not involved in human trafficking and in 2018 a plan was put in place well in time for the MotoGP event that April.

However, as Forbes points out, "new legislation requires a separate human trafficking prevention plan to be filed for each event making an application", which meant the Formula One Grand Prix was not covered, which meant the state was unable to hand over the required funding to COTA.

Intriguingly however, the law states that neither COTA nor CELOC can file the human trafficking prevention plan, instead, it has to be done by the site selection organization for the event which, in this case, is F1 itself.

The terms by which MERP funding will be provided state that "not later than the 30th day before the first day of the event, a site selection organization submits a plan to prevent the trafficking of persons in connection with the event to the office of the attorney general and the chief of the Texas Division of Emergency Management."

According to the latest post-event report from the state of Texas Governor's office, responsibility for filing the plan rests solely with "Formula One Management Ltd", which was the Site Selection Organization for the event."

In fact, the plan was eventually submitted on 3 October, just 18 days before the race, and as a result the MERP application stalled.

With all its global experience, F1 is expected to be up to speed with any local legislation that affects it in the various jurisdictions where it holds races, especially those laws which could red flag an event if they are not fully complied with.

Quite why Formula One Management didn't file the plan by the deadline isn't clear, and while the company was asked for comment it declined.

The Austin American-Statesman reveals that a letter from Bryan Daniel, says that "an event may receive funding through a MERP fund only if a human trafficking prevention plan is submitted to the Office of the Attorney General and the Texas Division of Emergency Management ('TDEM') no later than the 30th day before the first day of the event. This requirement is also clearly stated on the event application form and in our office's guidance document.

"According to your event application, the U.S. Grand Prix is scheduled to begin on October 19th. But as you have since acknowledged, no human trafficking prevention plan was submitted until October 3rd. TDEM has also confirmed that it received no human trafficking prevention plan until that date. The submission for this event was thus not in compliance with the statutory condition for funding referenced above. Therefore, based on the plain language of that statute, the 2018 Formula 1 United States Grand Prix is not eligible for funding under the MERP due to the failure to timely submit the required human trafficking prevention plan. For that reason, the September 24th application approval letter is hereby rescinded."

In the wake of the letter revealed by the Austin American-Statesman, COTA issued a statement in which it said that "the anti-trafficking plan was on file for other events throughout the year, so it is not a question of implementation. In April of 2018, the Circuit of the Americas operations team developed a human trafficking plan to be included in the Emergency Action Plan (EAP) for the 2018 MotoGP Grand Prix of The Americas. That plan stayed in place throughout the entire 2018 race season.

"As the reimbursement for the 2017 USGP was not paid until ten months after the event, we remain hopeful the 2018 issues can still be resolved. Circuit of The Americas is a private company and does not release financial information."

A spokesman for Texas Governor Greg Abbott subsequently said that "in this case, the law is clear that if a human trafficking prevention plan is not submitted 30 days prior to an event, a reimbursement from the Major Events Fund cannot be issued.

"The State of Texas and COTA have a productive partnership that has had a tremendous economic impact on the city of Austin and the state as a whole, and our office is already working with COTA on next year's race."

Though the wording offers hope to COTA the fact is that the circuit now has a major cashflow issue in that it paid the requisite $25.9m (19.8m) hosting fee to F1, but the circuit has not received its state funding, for a mistake which is the responsibility of F1.

On the one hand, as Forbes states, "the Attorney General could rule that the statute was complied with even though the paperwork was not filed by the deadline. If so, it would be nothing more than a technicality. However, there is no guarantee that this will happen".

Meanwhile, the situation is hardly likely to ease the relationship between COTA and F1, which was already seen as fractious.

Indeed, COTA was one of the circuits behind the recent statement from the Formula One Promoters Association in which a number of issues were highlighted, not least Liberty Media's plan to offer a revenue sharing deal for the proposed race in Miami.

Already struggling, hence the need to promote high profile pop concerts over the Grand Prix weekend in order to boost crowd numbers and revenue, COTA, which is currently out of pocket to the tune of $25.9m (19.8m) has every right to feel aggrieved at another of F1's - ahem - systematic errors.

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READERS COMMENTS

 

1. Posted by emcomments, 03/03/2019 14:02

""What kind of slaves do the Texans organizers have been using to host their grands prix? Does slavery still exists in USA-Texas? What slavery has to do with F1? Did Ecclestone know about all this mess?"

It is connected to prostitution, so to answer you question: 1. The prostitute kind. 2. Yes. 3. It has large events (Grand Prix) which attract inter-state prostitution. 4. Yes, that's why the required documentation was in place for 2017 unlike when taken over by Carey and Co."

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2. Posted by Uffen, 25/02/2019 22:24

""The money comes from tax revenue generated by the event consequently the taxpayer isn't actually funding the race."
Hmmm. Well, taxpayers are paying the tax. What you mean is that the non-race-attending Texas taxpayers are not funding the race. One big reason Texas wants the race is to attract tourists who will pay taxes while they are in Texas. The event generates hotel revenue (taxed) and restaurant revenue (taxed) and transit revenue (taxed), plus taxes on other cultural spots tourists may visit, etc., then you mention concerts.

Just a nit but it sounded odd. "

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3. Posted by FQITW, 25/02/2019 14:04

"Intriguingly however, the law states that neither COTA nor CELOC can file the human trafficking prevention plan, instead, it has to be done by the site selection organization for the event which, in this case, is F1 itself.


According to the latest post-event report from the state of Texas Governor's office, responsibility for filing the plan rests solely with "Formula One Management Ltd", which was the Site Selection Organization for the event."


The above all looks clear enough, doesn’t it?
"

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4. Posted by ZJAY, 25/02/2019 1:17

"We can mince the words about who is to blame, however common sense would dictate that if I was waiting to be reimbursed 25 million dollars I make sure all the paperwork is filed and on time. Yes the law dictates that the organization who select the site must file the anti trafficking plan but “COTA issued a statement in which it said that "the anti-trafficking plan was on file for other events throughout the year, so it is not a question of implementation. In April of 2018, the Circuit of the Americas operations team developed a human trafficking plan to be included in the Emergency Action Plan (EAP) for the 2018 MotoGP Grand Prix of The Americas. That plan stayed in place throughout the entire 2018 race season.”

That means COTA is the one who is the local organization who must do all the legwork. They admit that they are the ones who seethe plan anyway. Also COTA is the party who need to get reimbursed.

But everyone in this forum and the author of the article as usual feel better beating F1 management. After all they are the one making all the money and all the bad decisions and they are the ignorant ones.

Poor COTA they just lost 25 millions becaue they relied on F1 to file the plan which they believed was on file because F1 should be more familiar than COTA about Texas Law. Makes perfect sense.

LOL"

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5. Posted by imejl99, 24/02/2019 22:18

"COTA caught between F1 and bureaucracy... Bureaucracy is ruthless, other side is plain incompetent. "

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6. Posted by Yeyox02, 24/02/2019 18:56

"What kind of slaves do the Texans organizers have been using to host their grands prix? Does slavery still exists in USA-Texas? What slavery has to do with F1? Did Ecclestone know about all this mess?"

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7. Posted by 79-626inHI, 24/02/2019 17:20

"My guess would be that FOM was too busy with "more important" things than reading and compiling with local regulations, such as moving their London offices and increasing staff, trying to roll out digital streaming applications, creating new theme music and graphics, redesigning the logo (again not checking legalities), and of course eliminating the offending grid girls. If it was FOM's mistake then they will need to reimburse COTA. "

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8. Posted by RDFox, 24/02/2019 16:51

"I'd say that COTA would probably be very much within their rights to demand that FOM refund the money that they were in line to receive from the state, simply on the grounds that it was FOM's error that cost them the money. If FOM declined, a lawsuit for damages would be reasonable and probably a fairly open-and-shut case in COTA's favor.

Of course, this would pretty much destroy COTA's relationship with FOM and likely spell the end of F1 in Texas, but I don't see FOM being willing to cough up the money they cost COTA voluntarily... and, honestly, FOM's contracts with tracks are basically designed to slowly bankrupt the tracks, anyway, so they might be best off filing it."

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9. Posted by Max Noble, 24/02/2019 12:07

"Who needs pay TV for entertainment? This is priceless. "

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