By Julie Scharper and Luke Broadwater, The Baltimore Sun
February 15, 2012
Mayor Stephanie Rawlings-Blake's administration has struck a five-year deal with a new team to manage the Baltimore Grand Prix race, including new safeguards designed to insulate the city from losses — a provision crafted after last year's financial debacle left millions of dollars in unpaid taxes and vendor bills.
Officials plan to unveil a contract Wednesday with Downforce Racing, a company headed by an Indianapolis contractor and two former Constellation Energy Group Inc. executives, to run the second annual Baltimore Grand Prix. The company takes its name from the strong force exerted as a racecar hits high speeds. The contract, which still could be tweaked, must be approved by the city's Board of Estimates.
The contract stipulates that a portion of the proceeds from each ticket sold will be placed in a "lock box" escrow account controlled by trustee chosen by city — ensuring that the racing group, unlike its predecessor, would pay city admission and amusement taxes and service fees.
The lock box "eliminates any concern that we won't get paid," said Councilman William H. Cole IV, one of the deal's architects. "Only the city of Baltimore can authorize release of it. They can't get loans against it. They can't charge against it. They can't pledge against it. They can't dance on it. It's our money."
Under the contract, the city also would retain the right to inspect Downforce Racing's financial records at any time. While city officials say they frequently reviewed statements from Baltimore Racing Development, they acknowledge they were not aware of the extent of the group's debts, or of a high-interest loan the company took out weeks before the race.
At the same time, the city isn't imposing some of the same fees that the previous organizer, Baltimore Racing Development, blamed in part for its financial woes. The city is demanding hundreds of thousands of dollars less from Downforce Racing than it did from Baltimore Racing Development, which failed to pay $1.5 million in city taxes and fees.
Cole and Deputy Mayor Kaliope Parthemos, who negotiated the contract with Downforce Racing, say they are confident that the group will not fall into the same financial problems as the previous group. The city terminated its five-year contract with Baltimore Racing Development late last year, after the group accrued a total of about $12 million in debts.
Although three other groups submitted proposals to organize the race, only the members of Downforce received the blessing of executives from IndyCar, a racing league that has already added the second Baltimore Grand Prix to its 2012 calendar of events, she said.
The new group has about six months to snag sponsors, line up vendors and sell tickets before the three-day racing festival over Labor Day weekend.
Downforce is headed by Dale Dillon, a contractor who built tracks for IndyCar races in St. Petersburg, Fla., and Toronto, and swooped in to serve as Baltimore Racing Development's general manager in the final weeks before last year's race. Dillon is also seeking to start an IndyCar race in Fort Lauderdale, Fla., next year.
Dillon said he was confident that his experience working on other races would prevent the group from having the same problems as Baltimore Racing Development.
"Those are great events with great attendance," he said. "It's a model we'll be fortunate enough to learn from. These races can be successful and they can be money-makers. There's a passion side to it, and they go hand in hand."
The other members of the team are Felix Dawson and Daniel Reck, who met while working together in the energy commodities trading side of Constellation Energy.
Dawson was president of the global energy trading and investment division, which had offices in Baltimore, Houston, London and Sydney. In 2008, after that division ran into financial difficulties, Constellation was forced to order significant layoffs, and the entire company was driven to the brink of bankruptcy.
"A lot of businesses had trouble in 2008," Dawson said. "It was a fantastic business to be a part of. That entity went from a handful of people to 800 people."
Reck also worked for Enron Corp. and left shortly after the energy company imploded amid a financial scandal in 2001. He declined to discuss in detail his experiences there.
"I'm happy to have that conversation. I could talk for days about that topic," Reck said of Enron. "But it's not really related to what we're talking about today."
Both Dillon and Dawson played a part in last year's race. Dillon is credited by city officials with pulling off the race as Baltimore Racing Development struggled with leadership issues. Dawson invested $300,000 weeks before the race began. Neither was considered an officer of the company, city officials said.
While the three have strong business backgrounds, and Dillon has worked on three other races, the Baltimore contract would mark the first time any of them would organize all aspects of a race.
"The operational side of it and the coordination with the city, we've got," Dillon said. "The marketing aspect of it, we've got a learning curve."
The men declined to say how much money they've put into the race but said they were the only three investors. They will not be taking salaries, although Dillon's company would receive payments as a subcontractor.
The group expressed confidence that the race would be profitable, but would not say whether they expected to turn a profit in the first year.
"We expect to make money doing this," Reck said. "We're not doing this on a purely charitable basis."
The Downforce Team called the contract, as negotiated, a "good deal for everyone involved."
The contract, which is to go before the city's five-member spending board next week, demands considerably less money from Downforce Racing than the previous contract asked from Baltimore Racing Development.
The contract levies a $3 fee on each ticket sold to pay for city services. Assuming 110,000 tickets are sold — the number of tickets purchased last year — the new company would pay $330,000 for city services such as firefighters and police officers detailed to the event. The city charged the previous group $500,000 for city services, and later tacked on a $250,000 fee for public safety costs.
City officials said they were confident that the new group, under Dillon's leadership, would utilize significantly fewer city workers than Baltimore Racing Development.
Moreover, the new team would not be required to pay the $250,000 racing fee that the city charged Baltimore Racing Development.
And, while the old team was forced to pay $100,000 to a community impact fund for neighborhoods along the race route, the new group would be assessed a 50 cent fee for each ticket sold for that fund. Assuming 110,000 tickets are sold, that means that about $55,000 would go to the fund.
City officials touted the race's economic benefits and said that continuing the race was the best way to recoup more than $7 million that Baltimore has invested in preparing roads for the race and other costs associated with the racing festival.
The contract does not require Downforce Racing to pay back the debts Baltimore Racing Development owes to the Maryland Stadium Authority, the state's quasi-public economic development arm, or a half-dozen contractors and private investors. Several vendors have sued Baltimore Racing Development over unpaid bills, but it's unlikely that vendors as well as city and state taxpayers will recoup their losses.
The contract does ask Downforce to give preference to last year's vendors as much as possible, but does not require the new group to work exclusively with the companies who were not paid last year.
Dillon said the team will post all bids on the company website to solicit contractors. While the contract suggests goals for hiring local companies and minority- and women-owned firms, they are not legally binding, city officials said.
"It will be up to us to decide who the most qualified contractors are," he said.
The Downforce team said they planned to avoid one of the previous group's public relations snafus — cutting down trees along the race course.
City officials said they are in discussions with IndyCar and its sponsors to replant the approximately three dozen trees that were chopped down to clear the way for last year's race.
Dillon said he expected increased economic impact from the race this year. He said news coverage of the race's financial troubles will help increase ticket sales.
"Unfortunately, there's been all kinds of news related to this event," he said. "The good news is that helps sell tickets. Any news will help generate sales."
The new team expressed high ambitions for the race, which was lauded last year by drivers and IndyCar executives seeking a toehold in the Mid-Atlantic region.
"It's a real gem for the city," Dawson said of the race. "We have every reason to believe it's going to become the premier street race in the market."
Highlights of Grand Prix contract
•Part of proceeds from ticket sales to be placed in escrow account to cover taxes
•City to levy $3 fee on each ticket sold to pay for services
•Organizers do not have to pay $250,000 racing fee that city charged Baltimore Racing Development
•Community impact funds to be based on ticket sales
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