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Baltimore Grand Prix Update – 2012 edition

2011 December 8
by Dennis Coates

Over a year ago I posted about the agreement between the City of Baltimore and Baltimore Racing Development that brought Grand Prix racing to Baltimore. The event has come and gone, it was held Labor Day weekend, but the real excitement for a sports economist’s point of view has all been post race.

Because of the claimed benefits to the city, and because the event was in my backyard, Michael Friedman, from the University of Maryland, College Park sport management program, and I developed a survey that was then administered outside the gates at the Grand Prix. We asked basic questions like where the respondent was from, how many nights were they staying, were they staying in hotels, and how much were they spending on various categories of goods and services. (Michael and I thank Patrick Rishe for sharing his surveys from other sporting events with us so we would have a model to follow.) Over the course of the three days of the Grand Prix, our surveyers, grad students from Michael’s program, collected 210 completed surveys. Michael and I wrote up the results, which you can find here. We sent the paper to the local press, and television and newspaper interviews ensued. I got fifteen minutes of fame and called an anti-sports crusader and a quack.

The bottom line of our report was simply that the evidence we collected suggested at best about $10 to $15 million of spending that would not have occurred in the absence of the Baltimore Grand Prix (by non-Maryland residents without accounting for how much such spending would have occurred without the race) and about $27 million in total spending (adding spending by Maryland residents to that of out of towners). Our results were called unscientific and city officials said the public should wait for the report the city had commissioned to get a more accurate measure of the benefits.

That report came a couple of weeks later and found spending impact of about $47 million after applying a multiplier to the “direct” spending. The spending on goods and services by out of town visitors listed in the city-commissioned report is about $22 million. For my money, their $22 million and our $15 million are pretty similar numbers. And, of course, it is important to know the projected values of the spending that were used by the proponents of the Grand Prix and the city to justify spending city and state money on it. Before applying a multiplier, the Baltimore Racing Development prospectus predicted $70 million of spending, and after applying a multiplier that number was $119 million. After hearing the good news that the event generated $47 million in spending, boosters declared the race a great success for the local economy. Producing 40% of what you promise is surely a low bar for success.

Throughout November, reports about the shortcomings of Baltimore Racing Development have abounded. The company is unable to pay its bills, missed payments on loans, and fails to meet contractual obligations like replanting trees that had to be cut down to make way for the race course. Hope that a new company will take over management of the Baltimore Grand Prix and save has been expressed by elected officials and race boosters. An article in today’s Baltimore Sunreports that Baltimore Racing Development owes $12 million but has $100,000 available and $600,000 in assets. “Baltimore Racing Development owes $3.1 million to vendors, $2.5 million to the Maryland Stadium Authority, $1.9 million to Baltimore and $1.7 million in contractual payments to different firms.”

The former CEO of Baltimore Racing Development states in an op-ed in the Sun that the company failed because it didn’t get the big subsidies that similar events in other cities receive. The city, he contends, should subsidize the event even more. Mayor Stephanie Rawlings-Blake quipped that “If I could have subsidized anything, it would be his business acumen.”

Lost in this discussion of additional subsidies is that every dollar of subsidy comes out of the “benefits” the city reaps from the event. Since the benefit numbers, that is the spending generated by the event, are already substantially lower than projected, further subsidies would only make the race an even worse deal for the taxpayers. Of course, every dollar of subsidy is an additional dollar of profit, or one less dollar in losses, to Baltimore Racing Development. And that points up the bottom line for the whole event – it was about a private entity seeking rents by currying favor with government officials.

With plans in place to continue to host the event for the remaining four years of the contract, it seems this farce is only in the first act.

Update:

The city of Baltimore officially canceled its contract with Baltimore Racing Development, the organizers of the inaugural Baltimore Grand Prix. The company is $12 million in debt, with $1.5 million owed to the city in unpaid taxes and fees. The company owes about $750,000 to the city for fire, police and other services. To be clear about the taxes owed, these appear to be taxes collected by the company on ticket and merchandise sales; in other words, they are funds paid by buyers of tickets and souvenirs that Baltimore Racing Development seems to have inappropriately spent.

Still, the city of Baltimore continues to tout the great success of the event, despite their own report finding that it produced only about 40% of the economic impact that had been promised. This is important because the city is looking for some investors to take over management of the event which remains on the schedule for the 2012 season.

3 Responses
  1. PorshaRacer permalink
    December 9, 2011

    Prof. Coates has been right on the money! Irrespective of whether the economic impact is $70 million, $47 million, or $22 million or even less — the City of B can’t afford to play host again to such a complex Inner Harbor Grand Prix party without certain financial and managerial components: 1. a signature multi-million dollar cash up front sponsor such as Toyota ( Long Beach GP) or Honda ( St. Petersburg GP); 2. numerous other Fortune 500 corporate cash sponsors that were missing from the BGP 2011 3. additional $ millions to repair the ‘race course’ after a hard winters’ night of ice/snow storms that will destroy the 2011 paving/surfacing job that was funded by $6.5 million of Federal stimulus dollars designated for repair of ingress/egress Interstate 395 ‘feeder streets’; 4. an experienced management team that has actual business ‘seat time’ with motorsports’ permanent race courses, ie; Summit Point, Charlotte Motor Speedway, Road America, Fontana, Laguna Seca, or IndyCar street racing events, ie; Denver, Detroit, Edmonton, Houston, Long Beach, Miami, St. Pete, San Jose. (Managing a local night club/promoting a rock concert or being involved in promoting the Preakness horse race — as in the original BRD group doesn’t work); 5. doing real due diligence by both the City of B and the BRD for what the event numbers ( P&L) are from past decade of IndyCar street racing events. So, if there appears to be a full course ‘waving’ yellow flag on the BGP race right now…with over $12 million in debts to be settled — it will take a HERCULEAN effort by a new BRD group to be able to go ‘green’ again for 2012 — with immediate new signature corporate sponsorship and mega ticket sales that should have already been made. The race clock is sure ticking on the BGP… Vroom, Vrooom?

  2. Rob Macdonald permalink
    December 11, 2011

    Good one Dennis – nice report and nice post above. What’s the latest in the US media on the true Grand Prix, Formula One, coming to Texas next year? The FIA has confirmed the event, but it sounded shaky. Goodness knows what the economic impact analyses will be saying about the event, but I can imagine

  3. Sam permalink
    December 13, 2011

    Always enlightening to see more and more of ‘reality’ coming into the world of sports. It is a pity that some of us have to be branded anti-sport when I think it would be fair to say that we love sport! I was interested in this post as we’ve had something very similar in New Zealand with the V8 Supercar race being hosted in the city of Hamilton. We have not had a truly independent report on the realised economic impact, but it was the same old story, which goes something like this: Race attracted to city with substantial economic impacts trumpeted after the first race, five years later the race is to leave Hamilton as the promoters have gone belly-up (they only lasted three years) and the city is incurring costs that were somehow never mentioned when the economic impact report was produced….

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