It was a party unlike any Baltimore had ever hosted during the usually sleepy Labor Day weekend, with candy-colored cars speeding noisily around the Inner Harbor to the delight of crowds drawn to the city's inaugural Grand Prix.
But behind the scenes, event promoter Baltimore Racing Development was falling into financial and organizational disarray. Two months later, the city faces something of a morning-after dilemma: Does Baltimore continue dancing with BRD, which owes $1.5 million in taxes and unpaid services, or change partners for future races?
"They're not at home in their living room playing with toy cars," said Deputy Mayor Kaliope Parthemos, the city's point person for the Grand Prix. "If they can't get it together, they need to get out of the way or let someone else run it."
The city is increasingly impatient with BRD. As much as city officials want the Grand Prix to become an annual Labor Day tradition, they are wrestling with budget shortfalls that threaten to close recreation centers. Observers say it is simply the wrong time to use taxpayer money to cover debts of a private company that was supposed to produce the IndyCar race and related events.
"That would be a hard sell in today's environment for sure," said Chris Ballestra, managing director of development for St. Petersburg. The Florida city experienced multiple fits and starts in trying to establish a street race, going through different promoters and racing leagues before settling on a group that has brought a grand prix to town for the past seven years.
"The public is really in love with the event," Ballestra said. "But if we had to be closing libraries or schools or rec centers, my guess is the conversation would quickly change."
Baltimore Mayor Stephanie Rawlings-Blake, who expended much political capital with her staunch support of the race, has threatened to break the city's contract if BRD does not pay its debt by Dec. 31.
"The ball's in their court," Rawlings-Blake said of Baltimore Racing Development. "We made it clear that they need to settle up and pay the bills that are owed. This was a really magnificent event that needs strong management to make it successful in the future."
The city faces a tough choice: either help BRD shore up its finances and operations, and trust that it can turn itself around in time to lay the groundwork for the 2012 race, or start over with a different group. And that has to happen in a fairly short span of time, given the complicated nature of the three-day festival, with multiple races, drivers, entertainment venues and other attractions.
The city "has to decide if it wants to take the risk of this happening again," said Lisa Delpy Neirotti, an associate professor of tourism and sports management at George Washington University.
Despite BRD's problems, Neirotti expects the city will want to build on the Grand Prix's successes — the event drew some 160,000 spectators and splashed images of a sparkling downtown over a nationwide cable TV broadcast — even if it has to forgive some of the company's debt.
Still, the depth of Baltimore Racing Development's troubles cannot be underestimated. It is currently without a CEO and has been sued by investors and vendors. In addition to the $1.5 million it owes the city, the company missed a $470,000 loan payment to the Maryland Stadium Authority, which drew the money from BRD's escrow account.
In retrospect, many of the financial problems may have been predictable, say those familiar with the staging of such events. Major sporting events generally need a title sponsor to shoulder a good portion of production expenses, but Baltimore Racing Development failed to land one.
"In order for it to work, it's not just about attendance," said Thomas H. Regan, who was a consultant to a grand prix held in Denver and now is an associate professor of sport and entertainment management at the University of South Carolina. "It's about the sponsorships, and the people with the money spending the money."
St. Petersburg's Ballestra credits having Honda as the title sponsor of the city's race with keeping public expenditures down. He estimated that the city spends about $150,000 a year on the race, not including staff time.
By contrast, part of Baltimore Racing Development's current debt to the city is $500,000 for police and other services, and $250,000 for firefighter costs that the company failed to anticipate. The rest of the $1.5 million it owes, the city says, is in unpaid event taxes and fees.
Even with Honda's sponsorship, though, it took a couple of years for the St. Petersburg race to turn a profit for its promoter, according to news accounts. Ballestra said the promoter "is always the critical part" in producing a successful event.
"It can be the Achilles' heel," he said. Ballestra was worried when his city's race promoter went through a partial ownership change a couple of years ago. But the group kept its "boots-on-the-ground" manager and his team largely intact, and Ballestra doubts racegoers even noticed a change.
"It wasn't even a hiccup," he said.
Some troubles are expected in the inaugural year of hosting an event with so many moving parts, Ballestra said. "You sort of get a mulligan in year one," he said, referring to a do-over in golf.
But now, observers say, Baltimore has to do some shifting of players and agreements if it hopes to bring the event back in 2012.
"The city needs to assist in finding a new investor for the property … a new management, a reorganized deal with the league and the city," said John Moag, the former chairman of the Maryland Stadium Authority who now runs a sports investment banking and consulting firm.
Most agree the fixes have to begin within BRD, which in its short and turbulent existence has seen its founder get bounced from the group by its CEO, who himself stepped down after recent lawsuits and the city's demands for payment.
Some who have dealt with the company say it is disorganized and lacking clear leadership, with about seven executives and managers vying for power. The group went through three general managers in just the past year, bringing in the last one just weeks before the race.
"That's one of the problems … no one really in charge," said Sean Conley, an original BRD investor who retains shares in the company.
Lonnie Fisher, who was fired six weeks ago from his managerial position, echoed some of Conley's criticisms. Fisher, a former co-owner of the Sonar nightclub who had organized concessions and performances, said that the constantly changing leadership contributed to a lack of direction.
Fisher said he arranged the race festival — including the food vendors and concerts — and then was summarily let go.
Fisher said that race organizers had been counting on last-minute ticket sales and concessions to balance the books. About 110,000 tickets were sold for the event, with the rest of the attendance being comped.
Terry Angstadt, president of IndyCar's commercial division, said BRD's business plan looked great, but "we had a couple of surprises when it came time to execute."
"Let's say you hired someone to do something, gave a deposit, and if they don't do it, you have to hire someone else to do it," Angstadt said. "That happened more than once."
Angstadt declined to offer more specifics on what he called BRD's "operational problems." He said he hoped the group's current investors would provide more capital, thinking that "if I'm already invested in this, I can live to another day by putting a little more in."
Another option would be to add investors, he said, and a third would be for a different group to take over as the local promoter.
"That is premature at this point," Angstadt said. "We're currently hopeful there can be a restructuring and a reinvesting. We are still optimistic it can be solved."
It is not unusual for cities to host a grand prix for a year or two but decide against future races. Or, as in the case of Detroit, a city sometimes will bring the race back after several years' absence.
Once Baltimore Racing Development is either stabilized or jettisoned, the priority has to be signing a major race sponsor, observers say. That may be easier after a successful first year, GWU's Neirotti said, but the clock is ticking even now for a race in September 2012.
"It usually takes 15 months to sign a major sponsor," said Neirotti, who has worked as a consultant for pro sports leagues and annual events such as the Legg Mason Tennis Classic. "It's because the sponsors want to leverage their involvement, they want to get their names on the tickets."
Getting new investments in an event whose promoter is so far in the red may be challenging, but far from impossible, she said. "People go into bankruptcies and get investors all the time."
Additionally, Baltimore may not be starting with an entirely blank slate — City Councilman William H. Cole IV, who has worked closely with BRD, said there are potential sponsors out there.
"I've fielded calls from people interested in talking to [BRD] about sponsorships," he said. "If people know they have solidified their back-office structure and resolved their debt structure, I think people will be lining up. I've heard from a number of companies, both locally and regionally, that are interested in sponsorship."
But nothing can happen, Cole said, until "they have their house in order."
BRD has been interviewing potential CEOs to replace Jay Davidson, an attorney who had headed the company. Among them is Felix J. Dawson, a former Constellation Energy Group executive.
Deputy Mayor Parthemos said the group has to act soon, but she declined to give a drop-dead date after which it would be impossible to line up sponsors and start selling tickets for the 2012 race.
Parthemos left open the possibility of negotiating with BRD on a portion of its debts. "With regards to city services, we can work it out within the fiscal year, but they have to pay the taxes by Dec. 31," she said.
Peter Collier, Baltimore Racing Development's chief operating officer, vowed that the company would not run from its problems. He said the group hopes to hire a CEO and restructure within the next couple weeks.
Still, Collier acknowledged that having the will doesn't automatically translate into finding the way out of BRD's financial difficulties.
"Far be it from me," he said, "to have the wisdom as to what the solution is."Copyright © 2015, The Baltimore Sun