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NewsOpinionEditorial

A grand mess

FinanceCommutingLabor DayStephanie Rawlings-BlakeGoldman Sachs Group, Inc.

The Baltimore Grand Prix's problem was not that the city didn't do enough to subsidize the race but that an inexperienced and unwieldy management group overpaid for goods and services and underestimated the amount of capital it would need to cover first-year losses. That's the inescapable conclusion to be drawn from a series of internal documents obtained by The Sun's Luke Broadwater.

They show the race faces debts of more than $12 million, only $1.9 million of which is owed to the city in taxes and service fees. Former Baltimore Racing Development Corp. CEO Jay Davidson claimed in an op-ed in Sunday's Sun that the race's problems were due, in large part, to Baltimore's insistence that the organizers pay taxes and fees that other cities waive for such events. That contention is bunk. Baltimore could waive those costs, and Baltimore Racing Development would still owe $10 million but have only $100,000 in cash and $600,000 in assets.

The documents come from a confidential proposal by Felix J. Dawson, a former Goldman Sachs and Constellation Energy executive, to effectively buy out Baltimore Racing Development. Whether his plan, which involves a $3.3 million infusion of cash from his investment company, Wilkes Lane Capital, would be enough to right the finances of the race is hard to say. But it is clear that the only way to salvage the race — and the significant public investment in it — is for a new owner to take over and to bring in managers with actual experience in running an event like this one.

For all the trouble that Baltimore Racing Development is in now, the race was at a basic level a positive event for the city. Some 160,000 people attended over three days during Labor Day weekend. The course was exciting and beautiful, and locals and out-of-town visitors alike had a good time. It produced a $47 million economic impact for the city — a far cry from what race organizers promised, but still not an insignificant amount. Repairs to the streets downtown before the race were a huge headache for commuters, but the race itself produced less chaos than many feared.

All things being equal, it is an event that would be worth holding again, but not one that a cash-strapped city should be in the business of subsidizing any further. Baltimore spent nearly $7 million on road repairs before the race. Although that was mostly federal money that could not have been spent on, say, keeping recreation centers open, it did amount to concentrating a large chunk of transportation funds in one area that might not otherwise have been at the top of the priority list. And the cost of police and other services for the race amounted to $750,000.

Those investments are only worthwhile if race organizers hold up their end of the bargain — which includes reimbursing Baltimore for some of the services it provided and paying its admissions and amusement taxes, plus an annual $250,000 event fee. The spillover effect from the extra spending the race brings is certainly welcome, but it is uncertain and difficult to calculate. We need to be able to justify this deal in precise, hard figures.

The only chance Baltimore has to recoup its investment and prosper from this event is if it runs for the five years we were promised. But that is no reason for Mayor Stephanie Rawlings-Blake to back down from her insistence that BRD pay its bills to the city by the end of the year. If a new, more professional and better-capitalized management team can take over and salvage this event, that's great. But the finances of Baltimore Racing Development are so bad that success for any new ownership team is not something the city can afford to bet more money on. Anyone who takes it over — be that Mr. Dawson or someone else — should do so with the knowledge that the debts the race owes to the city, and its commitments for the future, are not negotiable.

Copyright © 2014, The Baltimore Sun
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