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Baltimore Grand Prix: Good money after bad?

FinanceGrand Prix of BaltimorePublic OfficialsLabor Day

When it became clear that the Baltimore Grand Prix was in financial ruin and wouldn't be able to pay the city millions it owed in taxes and expense reimbursement — not to mention millions more it owed to the state and to assorted vendors — former Baltimore Racing Development CEO Jay Davidson took to The Sun's op-ed page to pin the blame on the lack of subsidies from the city. He suggested that Baltimore waive the fees it was charging the race organizers in exchange for a bigger share of the eventual profits.

The reaction from MayorStephanie Rawlings-Blakewas swift and harsh — and for taxpayers, reassuring. She called Mr. Davidson's idea "nonsense" and added: "If I could have subsidized anything, it would be his business acumen."

We offer a reminder of that exchange because Ms. Rawlings-Blake and her administration seem to have forgotten it entirely. The deal they announced yesterday with a new management company that would run the race for the next five years is perhaps an even bigger sop to race organizers than Mr. Davidson was proposing. Yes, the city has learned its lesson and inserted clauses to make sure it will be paid before anyone else, but it has also agreed to terms so generous that it may well never recoup its investment, and could, in fact, wind up subsidizing the race for years to come.

So far, Baltimore has invested about $7 million in roadwork and other repairs to prepare the race course and $750,000 in expenses for police and fire protection and other labor costs. Adding on unpaid admissions and amusement taxes and other fees, Baltimore Racing Development owes the city a total of $1.9 million. The Maryland Stadium Authority is out $2.5 million, and assorted vendors are owed millions more. The new race organizers are under no obligation to pay any of that back.

Perhaps it was unrealistic to hope (as city officials initially did) that a new set of investors would take on any of Baltimore Racing Development's debts. Perhaps those losses would have to be written off as a painful learning experience. But what did the city learn?

It appears to have taken a lesson from the hardball terms a Virginia company insisted on for a last-minute, $1.1 million loan that helped save last year's race. In that agreement, Thermopylae Sciences & Technology demanded terms that ensured it was paid back first — even before Baltimore Racing Development paid its taxes. This time, the city has made sure that part of the ticket proceeds will be put in an escrow account to cover taxes and service fees.

The city is guaranteed to get paid under this arrangement, but it is also guaranteed to get paid less. Gone is the $250,000 fee the city got for hosting the race under the previous contract. And gone is the promise to reimburse the city for its expenses. Instead, the city would get a $3 fee on every ticket sold. Last year, that would have amounted to $330,000, or less than half of the actual cost. City officials are confident that the head of the new race management group, Dale Dillon, will be able to run the event in a way that uses substantially fewer city resources. That's a somewhat dubious assumption, in that he was running Baltimore Racing Development in the final weeks before last year's race. Even the neighborhoods around the race get less in this deal. They were due for $100,000 a year in impact fees under the previous contract but would get 50 cents per ticket sold under this one. Race attendance would have to nearly double for the neighborhoods to come out even.

We want to be able to support the grand prix. We advocated in the past for public subsidies for the professional sports stadiums in Baltimore, arguing that their eventual economic and cultural value made the investment prudent. Most would agree that it has been. The large crowds of enthusiastic racegoers that packed downtown Baltimore last Labor Day weekend made it seem for a moment that the investment in the grand prix might similarly pay off. But we now know that the excitement of the event masked a fiscal debacle, and in that light, we must be doubly cautious in how we view the effort to salvage the race this year.

The new management group comes with more IndyCar experience and a less cumbersome governance structure than Baltimore Racing Development had. The city would have better access to its financial documents and would be first in line for payment. But we cannot escape the conclusion that this deal still leaves the city with the risk that it will be subsidizing the event for years to come.

The matter comes for a vote in the Board of Estimates next week. It will be approved — Ms. Rawlings-Blake controls three of the five votes. But we cannot help but fear that this deal will amount to throwing good money after bad. For the sake of the city, we hope we're wrong.

Copyright © 2014, The Baltimore Sun
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