US GP under threat as Texas cuts state subsidy by $5.5m

The future of the US GP has been thrown into doubt by the news that the Texas state government has dramatically reduced the subsidy it pays to to the Circuit of the Americas, and which in effect covers a large chunk of F1’s sanction fee.

Originally the state had made a $250m commitment over 10 years, and the race received $25m per year in 2012, 2013, and 2014, but this has been cut to $19.5m for this year. The circuit was made aware of this number before the race weekend, although the news has only just emerged.

It comes on top of the losses caused by the bad weather at this year’s event, which led to reduced sales of concessions and also had an impact on the event’s viability.

“To use a technical term, I think we’re screwed,” circuit chairman Bobby Epstein told the American-Statesman. “It hit us cold. No one could foresee this coming. But the big question now is, ‘Is the race coming back?’”

Meanwhile Bernie Ecclestone told the paper: “If it’s changed, it’s going to be difficult to continue the race in Austin.”

The whole COTA project was built around the idea that the race qualified for a subsidy that is paid to major events to reflect the income that they generate for the cities that host them. This is in effect based on how much tax revenue out-of-state visitors generate during their stay.

The Texas Major Events Trust Fund payment for the Grand Prix was approved by previous state governor Rick Perry and administered by the office of Comptroller Susan Combs, who worked closely with event founder Tavo Hellmund and Ecclestone when COTA was still in the planning stages.

However, on September 1 responsibility was transferred to the office of current Governor Greg Abbott, who took over from Perry in January this year. Following an audit by Texas State Auditor John Keel Abbott’s staff have used a different formula and concluded that the event is worth around 20% less to the state than previous figures suggested.

In his report Keel noted: “Although the Comptroller’s Office prepares post-event studies after a major event, those studies cannot accurately determine whether the estimated incremental tax receipt increases were actually collected.

“Specifically, those studies state that determining the measurable change in tax receipts due to a major event is difficult due to the size and population of the state. In addition, taxes are remitted to the State based on receipts from 30-day to 90-day periods, which makes it difficult to isolate the economic effect of a particular major event.”

He also made it clear that in the past some tax types had incorrectly been included in the calculations: “The Comptroller’s Office inappropriately implemented that methodology by including certain information in its calculations that is not permissible. Specifically, when the Comptroller’s Office used economic modeling software to estimate the incremental tax receipt increases associated with major events, its estimates included tax impacts for tax types that statute does not permit to be considered.

“Based on output from a demonstration that the Comptroller’s Office’s staff performed using the estimated direct spending amounts for an actual major event, auditors determined that 22 percent of the total funding that would have been approved for that major event was caused by the inclusion of tax types that were not permissible.”

Keel’s report can be found here: http://www.sao.state.tx.us/reports/report.aspx?reportnumber=16-001

11 Comments

Filed under F1, F1 News, Grand Prix News

11 responses to “US GP under threat as Texas cuts state subsidy by $5.5m

  1. GeorgeK

    I speculated if this subsidy was ever going to be audited at the time it was granted. All politics being local, I wonder if Tavo has any friends at the state who are now sticking it to COTA for his ouster out of the deal?

  2. Don Davis

    Of course Bernie immediately thinks: “We can use that date for the GP of Outer Buttcrakistan!” Get real little man……

  3. Brian

    The real question, IMHO, is whether Bernie *REALLY* wants multiple races in the U.S. or is just “yapping nonsense” and will sacrifice a real foothold in America, a great, purpose-built F1 track , and serious potential for finally growing F1 in the U.S. for a “measly” $6 million. If COTA goes down then Bernie and the F1 manufacturers can kiss F1 in America goodbye forever and we will no for certain just how serious Bernie was about the American marketplace.

    NO ONE will pony up the money, time, and energy for a sport that (a) few Americans ‘get’ and (b) offers essentially no return on the investment. This isn’t China or Russian or Azerbaijan where Bernie and his cronies can just raid the treasury at will. Not one government entity in the U.S. would buy into Bernie’s contractual nonsense. So it has to be private investors. And private investors would laugh Bernie out of the office if he proposed to them what he gets away with in those totalitarian regimes. This could very well be America’s F1 moment of truth for decades to come (forever?)

    • Don Davis

      Brian: Well said!

    • GeorgeK

      What bothers me is this subsidy money came out of a fund specifically established by the state of Texas to create new business. Well, they got it, and by all measures it is successful beyond all expectations.

      So a new political regime now wants to redefine the terms and nit pick the dollars and lower the subsidy?

      Damn foolish and short sighted!

      And Bernie is Bernie, what else did we expect him to say? Besides, he now has an enthusiastically supported GP a little ways down the road in Mexico, so Austin is now expendable, in his grand vision of the world..

      • Brian

        The key phrase = “new political regime”. The state busts its ass to generate new business and to poach existing businesses from other states yet the clowns elected to run things have zero trouble throwing a positive, world-class, world-watched, tourism-inducing business under the bus for some sad, meaningless act of political theater. The word “pathetic” doesn’t even come close…

      • The problem really isn’t with Greg Abbott, the new Governor, it is that people just don’t understand how the METF works.

        See my comments below…

  4. LRM

    Just one more example (of many) how the cost of F1 is out of whack with economic reality…

  5. In order to be consistent, I need to point out that what Texas has isn’t a subsidy. No tax dollars come from anyone’s back pocket, no tax dollars come from any line on a state budget.

    The METF was created so that Texas wouldn’t lose out on “Large” sporting events like the Superbowl or NCAA Final Four tournament. It also added the Formula One race a few years back.

    The event happens and people from around the world come here to spend the hard earned money. Those sales taxes are collected and a large portion of the sales taxes are given back to the community that hosted the event (in this case it also gave back to a local group on behalf of a community).

    So, if the event doesn’t happen then there are no extra sales taxes collected to give back. SIMPLE

    • Brian

      I get how it works. Always did. I just think it’s more than a little “suspicious” that the newly elected group arrives and immediately dives into this topic to find where the previous group “did it wrong”, offers up press releases explaining where they did wrong, etc., and crows about the savings they have now made.

      I do agree that for COTA to now claim that they planned/counted on $25 mil per year for the next decade was either grossly naive or grossly disingenuous.

      I guess my real point is that rather than trying to score minor, fleeting “PR value only” political points, maybe that same group of folks could better expend their energies finding ways to make the race succesful. That would (in theory) generate far more than $6 million per year for the local/state economy.

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