F1 and the Major Events Trust Fund: Truth vs. Fiction

There is a growing effort by many (including the environmental lobby) to throw fiction, disinformation and partial truths out to the public to try and turn the tide against the “supposed” public funding of the Formula 1 track and future races in Austin. Let’s look into the Major Events Trust Fund (METF) and see what is truth and what is fiction.

Texas Major Events Trust Fund

The Major Events Trust Fund (METF) was established by the state in 2003 to draw large events into our state. It used sales tax dollars to start the fund, and uses sales tax dollars to replenish it. Read more about it here.

The basic premise was to help cities and promoters out with the costs associated to host these large events. Advertising, infrastructure (fire, police, security, traffic control)…anything associated with the preparation for and presentation of the event and related activities. The comptroller estimates the increased tax revenue associated with the event, and can award a portion of that from the METF to the cities and promoters (NOT to exceed the estimate).

It has been used MANY times since inception, for anything from rodeos to tennis matches to CHAMP Car races. Car races? Yep, you heard me. Car races.

It’s interesting and noteworthy that State Senator Dan Patrick, R-Houston, has been calling into question this state program. Senator Patrick’s home area of Houston is currently receiving more than $13,000,000 from the very same fund for having hosted the NCAA’s Final Four College Basketball Tournament on April 2 and 4, 2011.

The $13,594,890 awarded to the City of Houston for expenses related to hosting the NCAA Final Four Basketball Tournament was the 3rd largest amount ever awarded and only the 3rd figure of 8 digits.

The City of Austin, until now, has never sought an amount greater than six digits.

In FACT, when we dig a little deeper and do a little math, we can see that since the introduction of this program:

  • Houston & Harris County have taken full advantage, collecting over $86,000,000.
  • They hit up the METF early and often, gaining 6 of the first 11 approvals ever granted.
  • They’ve benefited for such events as the NFL Super Bowl, the Major League Baseball All-Star Game, the Major League Soccer All- Star Game, the NBA All-Star Game, the Latin Grammy Awards, and wait…what’s this? RACE CARS!?
  • Yes, it’s true. Houston took money from the Major Events Trust Fund for the 2006 & 2007 Champ Car World Series Grands Prix of Houston.

Patrick and his constituency are benefiting greatly from the program, and actually that’s fine. That’s what the program is there for. Yet now he wants to examine it? Interesting timing, to say the least.

The Major Events Trust Fund is a program that enriches the state’s tax coffers and pays for itself via tax monies generated by the very events in question. It is designed to encourage the influx of money into the state from the outside to be spent and spent again, thus generating MORE money for state programs. Cutting off funding for projects like these is short-sighted, ill-conceived, and is nothing more than political grandstanding to the detriment of the taxpayer in the long term.

The argument that we’re taking from nursing homes, emergency services or teachers to pay for race cars doesn’t fly, at least if you want to take a factual (not emotional) look at the matter...

Patrick was elected in 2006, so at least one of the Houston Grands Prix was run and reimbursed under his watch.

Teachers or F1 Cars?

This was a headline sensationalized across the world when the budget debate began in this legislative session. The truth of the matter is the pots of money are completely separate…but closely connected.

Once an event happens, the comptroller studies the increased tax revenue for the area surrounding the event for a 30-day window. This tax revenue includes an alcohol/mixed beverage tax and hotel room tax. It can also include things like ticket surcharges (airline, airport, car rental and event tickets). It also includes sales taxes (retail) and food (restaurants).

The comptroller then skims off the top of these “increased” sales taxes the exact amount that was LOANED to the event organizers, replenishing the METF for another event to submit a request to. Everything ABOVE the “loan” is deposited into the state’s General Fund, to be used to pay teachers and other state programs.

So you see, without the event there would have been no increase in sales taxes. No increase in sales taxes means no additional funds into the general fund.

Sound a little too fantastic for you? They’ve been doing it since 2003 and have a pretty good system down. It seems to have worked so far.

Public Outcry

The public outcry over FTP getting a loan from the METF is actually somewhat confusing to me. As outlined above in the portion about Senator Patrick, many other events get these funds and nobody says a thing. Is it a perception problem with the public? Why would a single event suddenly bring such sharp focus on the METF?

One argument that has been put forth is F1 should fly on its own dime. If they can’t make it on their own, why should the public subsidize this event?

Well, why can’t the NFL, NCAA, NBA, Baseball or any of the other events that have used the trust fund operate on their own?

Are you people saying that THOSE guys are any different than F1? If so, how can you justify your position?

For the 2010 Super Bowl, Jerry Jones and the cities around Cowboy Stadium received $32 million from the METF. Are you saying the NFL can’t make money on their own? Or that Jerry Jones doesn’t have enough cash reserves sitting around to pay for his own costs associated to hosting a Super Bowl?

Or is it that you just don’t CARE about them getting it? Is it OK for anything EXCEPT racing? It seems to be the hypocritical position those of you opposing this are putting yourselves into, at least to those of us who actually have a clue how this program works.

A major economist that has worked with the Austin Chamber for more than 20 years has verified the importance of this event to the Austin economy. Angelou was responsible for the recruitment of 400 technology companies and some 70,000 employees to Austin, including, Tokyo Electron, Motorola, AMD, Cypress Semiconductor, Applied Materials, Samsung, and Sematech. He's got a pretty solid track record with Austin...you think maybe he MIGHT know what he's talking about?

F1 Has Never Made It in the USA

Then we have the naysayers spouting statements like F1 isn’t popular here, and nobody will attend the race in Austin. Well, you couldn’t be more wrong.

F1 has had a LONG and distinguished run here in the USA.

There have been 51 F1 GPs held in the U.S. in 53 years. There have been many years when the U.S. hosted 2 GPs, and the U.S. is the only country to have ever hosted 3 GPs in a single season ('82 & '83). In different cities, there have been a 20-year run, two 8-year runs, and a 5-year run.

Sebring: First US Grand Prix - 1959

Riverside: 1960 - Was a great turnout, but the layout of the circuit was deemed to be dangerous and F1 did not return. The track was re-designed in 1969, but the track was closed in 1989 due to its proximity to residential neighborhoods and turned into a shopping mall.

Watkins Glen: After single years at Sebring and Riverside, F1 raced at the Glen for 20 years (1961-1980) before leaving when the technology of the cars outgrew the outdated safety features of the track. In the 60’s, Watkins Glen was this sleepy little place in upstate New York. The track was built on a wooded hilltop outside the city, and was the favorite for many F1 teams & drivers. Even as far back as the 60’s, F1 drew crowds of 100,000 to Watkins Glen. HUGE sell-out crowds for 20 years is a failure? What, then, would qualify as a success?

Las Vegas: Caesars Palace Parking lot - (1981-1982). While Vegas had a good crowd, a parking lot isn't exactly a race track. It was doomed from the start. But they had great crowds PAYING to see it.  Las Vegas hosted one of 3 U.S. Grands Prix in 1981 & 1982.

Dallas: Fair Park (1984) - OK, they created a temporary street course in Fair Park in mid-July that disintegrated in the 100+ degree heat. It's still considered the bumpiest course ever raced in F1 history. The track had torn apart in practice and qualifying the days before so badly that emergency repairs had to be undertaken, leading to rumors of cancellation. Still, despite the rumors and despite the heat and poor racing conditions, 100,000 fans paid and showed up to see the race. At the end of the race, some drivers had to be helped from their cars due to heat exhaustion.

Detroit: (1982 - 1988) - The Detroit street circuit was a challenging course, but far from ideal. Detroit was a horribly bumpy street course that the local promoters actually routed over a railroad crossing. During the run the F1 had there, nearly every race had 50 percent of the drivers retired due to contact with the concrete barriers. It still holds the record as the highest number retired in an F1 race for the 1984 GP held there. Despite all that, it still enjoyed good attendance.

Phoenix: (1989-1991) - The only city which hosted the USGP and drew poor crowds was Phoenix, despite most of these cities (minus Watkins Glen and Indy) being saddled with crappy street circuits. The fact that the scorching heat of the desert Southwest played havoc with the cars AND the poor fan turnout caused it to be canceled after 3 years. The 1989 GP saw 26 cars start, but only 6 cars taking the checkered flag. The 1991 GP wasn't much better, with only 9 cars finishing the race.

There was nearly a 10 year stretch when the United States did not host a round of the Formula One World Championship.

Then came Indy...

Although Indy was ACTUALLY a part of the F1 Drivers Championship LONG before they built an actual road course inside the famous oval. From 1950-1960 F1 drivers raced there AS PART OF THE INDY500.

Indy: (2000-2007) - Despite multiple major problems at the venue, F1 raced there for 8 years, and annually brought out some of the highest attendance numbers of the F1 season, including the biggest ever F1 crowd. The 2000 USGP crowd of 220,000+ people was by all accounts I can find the largest single-day crowd in F1 history. The 2001 USGP was held about 3 weeks after 9/11, so this affected attendance, as you can well imagine. It was still the largest crowd in F1 that year at 175,000. Indy had some things besides 9/11 working against it, too. The half road-course, half oval (roval) Indy track, which allowed few passing opportunities and made for slow, tedious road racing compared to most tracks. The transitions between the infield course and the oval were harse and unsettled the cars. But worst of all, in 2005 there was the Michelin Tire mess, when cars using those tires were kept from racing due to safety concerns when Tony George had portions of the track diamond-cut *after* the tire suppliers had tested and formulated tire compounds & construction for the previous, smoother surface. The big drop in attendance came after this incident. Yet it was still over 100,000 and was on the upswing the last 2 or 3 years.

The F1 crowd also likes to party and spend money. In that regard, Indianapolis isn't exactly Vegas...or Austin.

Montreal (while not in the U.S., but only about 40 miles away) easily drew 300,000+ over 3 days this past June (2010) with a capacity race-day crowd of over 140,000.

Long Beach ('76-'83), Las Vegas ('81-'82), Dallas ('84), and Detroit ('82-'86) weren't USGPs. They were additional American F1 GPs in the years they ran.

Long Beach enjoyed a great run with F1 and immediately sought to continue their GP after losing F1. They have done so brilliantly, and have now held GPs for 37 consecutive years ('75-'11).

Before the F1 events came to Long Beach, it was a dead and desolate wasteland of empty warehouses, abandoned buildings and homes. Crime was rampant there. The revitalization that the Grand Prix brought to that city was nothing short of astounding.

The mistakes made in Dallas won't be repeated here. This will be a permanent facility and the F1 race will be held no later than early June or in the Fall. The paving will be formulated for the stress loads caused by the grip levels of F1 cars. Technology has advanced by leaps & bounds since 1984. Polymers are added to the mix to stabilize the pavement in high-temperature environments. It's WHY the tracks in the Middle East don't break up when their average temperatures in the daytime hover around 115 degrees.

F1 never returned to Texas, but it wasn't because Dallas didn't want them back and it wasn't because F1 didn't like Dallas. The drivers and FOM love Texas. It was more because there really was no way to get good racing there in that venue that was safe for the drivers while putting on a good show for the fans. Circuit of the Americas won't have ANY of the problems that come with a temporary road course.

F1 Attendance & Revenue -

Revenue from the race is where Bernie Ecclestone has a stranglehold on the world. Bernie, as President of Formula One Management (FOM), sets the rules for how a race is run. There is no denying that under his leadership Formula One has risen in international stature as the premier motorsports racing series.

The viewing audience for F1 averages around 600 MILLION, each and every race. FOM retains all TV rights and revenue associated with F1. FOM retains all TRACK advertising revenue from the F1 events themselves, and controls who can advertise at those events. Although it is not known for sure, I believe that FOM also gets a huge percentage of the merchandising revenue from the track for F1. FOM also get all of the revenue from the “Paddock Club,” an elite club that the wealthy go to inside the F1 paddock. They (of course) get all of the sanctioning fees from the event organizers.

This doesn’t leave a lot of room for the event hosts to make a lot of money. Ticket sales, event parking, some percentage of the merchandising (clothes, hats, etc.) and trackside food & beverage are where they have to make a profit. How much profit they make is directly related to the costs associated with hosting F1.

Many who say they are against this race point to circuits like Melbourne and Monaco and try to say that they operate at a loss. That simply is NOT true. Melbourne has had a drop in their 3-day tickets sales of 75,000 people in their 15-year run of hosting the F1 World Championship. In 2009 their numbers were ONLY 245,000, down from a high of 330,000 for their inaugural event.

Where the street circuits get whacked is the actual costs of setting up and tearing down for an event. Every year Melbourne, Monaco, and Montreal have to set up the course, grandstands, public toilet facilities, etc. and tear them all back down after the event is finished. Estimates are between $35-$45 million dollars spent every year, just to have a track to race on. Think of it as always starting nearly $50 million in the red before a single ticket is sold.

Circuit of the Americas will have none of those issues. Once the PRIVATE funds have been spent by the investors on the facility and the infrastructure, they only need to invest in maintenance from there on. Expansion of the facilities is a different line item, not at all related to hosting an F1 event.

Formula One Attendance -

From 2005 - 2008, the AVERAGE worldwide attendance for Formula One (on race day) was between 180,000 – 200,000. The demographics for those attending the events are pretty interesting as well.

The average weekend attendance (Friday, Saturday and Sunday) is 300,000.

Of those attending:

  • 22% - Out of country
  • 38% - Out of Region
  • 19% - In-Region (living further than 50 miles from event)
  • 21% - In-Region (living within 50 miles from event)

F1 Event Economic Samples:
Bahrain Grand Prix Example (2008)

  • $150M Facility Expense (built in 2004)
  • $394M Economic Impact for Bahrain with the F-1 GP in 2008
  • 127,000 Attendance of 2008 Bahrain F1 GP

United States Grand Prix (Indianapolis) Example (2000-2006)

  • $90M Facility Upgrade Expense (2000)
  • $240M Annual Economic Impact associated with the F-1 GP
  • 150,000 Average Annual Attendance of Indy F-1 GP (Race day only)

Australian Grand Prix (Melbourne) Example (2008)

  • $150M Facility Expense (built in 2004)
  • $280M Annual Economic Impact associated with the F-1 GP
  • 293,000 Attendance of 2008 Australian F-1 GP (Weekend)

Malaysian Grand Prix Example (2008)

  • $125M Facility Expense (built in 1999)
  • $221M Annual Economic Impact associated with the 2008 F-1 GP
  • 115,000 Attendance of 2008 Malaysian F-1 GP (Race day only)

These economic figures were not pulled out of thin air. They were calculated by the cities listed from years of hosting their own Formula One events.

Austin: Attendance & Revenue -

Nearly every USA F1 Grand Prix has had record-setting attendance figures, and have RARELY seen below 100,000 fans in more than 50 years of Formula One racing here. And 100,000+ fans ARE going to pump HUGE amounts of cash into the local economy. Any way the naysayers try to spin it...if those 100,000 fans spend ONLY $1000 for the weekend (extremely low-ball), that is $100 MILLION dollars spent in Austin, for a single weekend...minimum.

Money spent in OUR restaurants, bars, stores and hotels.

I expect we’ll see closer to 150,000 attendees, but would be thrilled if we got closer to the average of 180,000 – 200,000. That would nearly double the money spent in Austin. That money will keep employees working, will encourage new businesses to open, and will grow the Austin economy. Using that $100 million figure, the sales tax income for the city will be a minimum of $2 million, for a single event.

How many teachers can they afford to pay with $2 million?

Then we have the property taxes that will be levied on this facility. What was once scrub land will now be a $400 million jewel in Austin’s crown. The properties AROUND that facility? Well, they’ll increase in value as well. As companies build around it, there’ll be more tax revenue for the city…And let’s remember that those figures above are for a SINGLE event. FTP have already announced MotoGP to come in 2013, and I’m sure that by the end of this there will be about 6 major races held there annually.

Then you have the concert facilities being planned there. How about moving ACL Festival OUT of Zilker Park so it doesn’t destroy the grass there? Live outdoor venues for SXSW could move there as well. And they will ACTUALLY have parking for all those people there at Circuit of the Americas! It will also have public restroom facilities and Class 1 emergency services facilities, complete with a Trauma Center.

Wow! What a concept!

Additional Economic Benefits -

Then you have the unknown economic benefits from this event. People who come to Austin alone for an F1 race that bring their families back for something like SxSW or ACL Festival. While an unknown quantity, it is none-the-less a direct effect of having such a facility here. And who wouldn’t want to come spend time in Austin with their family?

And what about businesses moving here? Anything from suppliers for the track to R&D firms wishing to use their facilities, all bringing JOBS and people (taxes) into Austin.

A White Elephant in Elroy?

Of the 43 purpose-built race tracks built for and hosting Formula One since 1950, only a very few are no longer in use. Even after F1 went away, they are still used for racing series other than F1 year-round. I think there are only 3 of them closed now, so about 93% are still operational.

Some saying that once F1 leaves this will become a white-elephant in Elroy can't be more wrong or misinformed.

The really nice thing about the truth is it never changes. The real & truthful facts about the METF will come to light no matter how much people try to skew them.

But please, let's not let facts get in the way of the BS.

References –

Tim Woods - Senator Patrick & METF funds for Houston...Thanks Tim!
Texas Ahead.org - http://www.texasahead.org/tax_programs/event_fund/approvals/
Texas Trust Funds - http://www.texastrustfunds.com/5.html
Formula One Tracks - http://en.wikipedia.org/wiki/List_of_Formula_One_circuits

 

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