Racing Agreement

MotorSports Development Agreement

1. Why did the City not issue a Request for Proposals for the Grand Prix or encourage a public process for selecting a new team?
   
   Professional service contracts with the City do not require a Request for Proposals process; such proposals are listed on the Board of Estimates agenda and considered by the Board of Estimates at its weekly public meeting. The professional expertise to manage and operate an IndyCar series street race is very limited. Discussions began with interested parties immediately upon termination of the previous contract. In no case, did the City prevent interested parties from submitting proposals for consideration. Furthermore, the City needed to enter into an agreement with a promoter who could secure an IndyCar sanctioning agreement within a short time period in order to host a 2012 event.
2. How many proposals did the City received and why did the City select to work with Downforce Racing, LLC?
   
   The only proposal that the City received, which had the confidence of IndyCar and ability to secure an IndyCar sanction Agreement, was submitted by Downforce Racing, LLC (“Downforce Racing”).
   
   The City received three other proposals: 1) O’Neill Motorsports (Gregory O’Neil and Sharon Grinnell); 2) North American Motorsports Events (Geoffrey Whaling); and 3) City Challenge, a Germany-based motorsports company (Hartmut Beyer). None of these proposals demonstrated the ability to secure an IndyCar Sanction Agreement required for the race and/or the experience to put on an IndyCar street race.
   
   Downforce Racing is led by three key members with a combination of proven professional street car racing experience and strong financial management. Dale Dillon of Dillon Racing, LLC has over 10 years of experience in the racing industry and has led the race operations for the St. Petersburg Grand Prix, Toronto Grand Prix and last year’s Baltimore Grand Prix. Indy Car has endorsed Dillon Racing, LLC as a capable operator of an IndyCar street race. Felix Dawson and Dan Reck of Wilkes Lane Capital, LLC are both accomplished financial managers and private investors. Wilkes Lane Capital is a Baltimore-based partnership focused on advisory and private investing in the energy sector. Prior to establishing Wilkes Lane Capital, both held executive positions at Constellation Energy Group in Baltimore. Mr. Reck and Mr. Dawson are both City residents.
3. Has the City reviewed the financial capacity of Downforce Racing and does the City believe Downforce Racing has the financial capacity to be successful over the 5-year term of the contract?
   
   The Agreement provides provisions for the City to review a financial plan for 2012 race (and each subsequent race) based on evidence of the required unencumbered assets operate the race and demonstrated substantial financial resources of the Key Participants in a form acceptable to the City’s Director of Finance.
4. Will any individuals from BRD be involved in the race moving forward?
   
   None of the BRD managing partners or executives are or will be members of Downforce Racing. Dale Dillon served as General Manager for the inaugural Grand Prix, after being recruited by BRD several weeks prior to the event, and provided limit investment capital to BRD. Dale Dillon was instrumental in making sure the inaugural Grand Prix was a success in the few weeks he was with BRD. Felix Dawson was a limited investor in the inaugural Grand Prix, but had no decision-making or management role. Dan Reck was not affiliated with the 2011 Baltimore Grand Prix or BRD.
5. Can Downforce Racing change its members or key leadership?
   
   Downforce Racing cannot change more than 50% of its ownership or change any of the Key Participants without approval by the City.
6. What will make this team more successful than Baltimore Racing Development, LLC (BRD) and why does the City believe the event will be successful given last year’s financial troubles?
   
   Last year’s Grand Prix drew nearly 160,000 fans from around the world. The event was received extremely well by Baltimore’s citizens, racing fans and the racing profession internationally. With prudent business management and appropriate safeguards, the City believes the event can be successful financially for the promoter, City and State. The City has taken the necessary steps to ensure it receives payments toward City services and collects all applicable taxes prior to the event commencing. All Admissions & Amusement taxes will be collected and held in a “lock box” escrow account at the point of sale and will only be accessed by the promoter with approval of the City. In addition, each ticket will have a Racing Event Fee (the equivalent of a surcharge fee) to cover certain City service expenses, which will also be held in a “lock box” escrow account.
7. What are the terms of the new Agreement and how do they differ from the previous agreement?
   
   Collection of Payment: Under the terms of the new Agreement, the City will collect and escrow all taxes and fees paid directly by the event to offset City costs. Specifically, each ticket sold will include a 10% Admissions and Amusement tax and a $3.50 Racing Event Fee, both which will be collected at the point of sale and placed into an escrow account, subject to an escrow account agreement, which will be held by a City-appointed trustee and accessed only upon written approval of the City. In 2011, the fees to be paid by the promoter were not to be collected until after the race.
   
   Racing Event Fee & City Service Fees: The Racing Event Fee ($3.50 per each ticket sold, escalated at $.25 per year) is intended to cover 50% of City service costs and community mitigation funds. For major events, the City typically charges the promoter 50% of the cost of City services, recognizing the positive economic impact large-scale events provide to the City and local businesses; the Grand Prix will be treated in the same manner. The directly Impacted Communities (Federal Hill Neighborhood Association, Sharp-Leadenhall Planning Association, Otterbein Community Association, Harbor Walk Townhouse Association, Harborway Condo Association, Harborway East Condo Association, Ridgely’s Delight Association, and Harbor Court Condo Association) will receive $.50 of the Race Event Fee charged for each ticket sold. These funds will go toward cleaning and greening efforts in their communities.
8. What is the City doing to protect itself against a default of payment by Downforce Racing?
   
   Under the terms of the new Agreement, the City will collect and escrow all taxes and fees paid directly by the event to offset City costs. Specifically, each ticket sold will include a 10% Admission and Amusement tax and a $3.50 Racing Event Fee, both which will be collected at the point of sale and placed into an escrow account, subject to an escrow account agreement, which will be held by a City-appointed trustee and accessed only upon written approval of the City.
9. Is the City being reimbursed for any payments owed by BRD by the new team?
   
   No. The City and State expect to benefit significantly from the $47 million yearly economic impact and the positive national and international exposure generated by the event.
10. Will vendors for the 2011 race be repaid for outstanding invoices by the City or Downforce Racing?
    
    Downforce Racing will do all that it can to work with the vendors of the 2011 race recognizing that those vendors made a significant contribution to make the event successful and may still be owed monies from last year’s race. However, Downforce Racing reserves its right to make prudent business decisions that will ensure a successful event going forward. In 2011, vendors entered into private contracts with a private promoter.
11. What benefits in terms of direct and indirect benefits does the City believe the event will generate, including community benefits?
    
    The 2011 Baltimore Grand Prix generated an economic impact of $47 million. Last year, the City received over $1 million in hotel taxes, parking taxes, community mitigation funds, and fees. In addition, the City intends to collect the unpaid Admission and Amusement taxes totaling approximately $600,000. The State of Maryland generated over $2 million in sales tax from the Grand Prix.
    
    In addition, the City was showcased internationally to an estimated 2.7 million US viewers and an audience comprised of 75 different countries. Individual races were televised on notable networks including ABC and the NBC Sports Network (formerly Versus).
    
    Under the terms of the new Agreement and based on the City tax revenue collected from hotels and parking facilities, the City expects to generate in excess of $1.7 million in direct revenue (i.e. A&A taxes, hotel taxes, parking taxes, and Racing Event Fees) per year, totaling approximately $8.5 million over five years. In addition, as part of the new Agreement, 50 cents from each ticket sale will be provided to impacted communities for event mitigation funds.
12. Is the contract subject to MBE/WBE and local hiring requirements?
    
    Downforce Racing must comply with all City laws regarding contracting with minority- and women-owned businesses to make best efforts to reach goals set by the City. Downforce Racing has agreed to post all appropriate Requests for Proposals (RFPs) on their website and meet with the Minority and Women's Business Opportunity Office to review potential opportunities and review goals.
    
    In addition, Downforce Racing will use commercially reasonable efforts to award at least 25% of the contracts under its control to Baltimore-based and qualified business enterprises. Downforce Racing must also comply with the Mayor’s Employ Baltimore Executive Order by using reasonable efforts to hire at least 35% of its local labor force for the Race and Race Events from qualified individual residents of Baltimore City.
13. What terms and conditions will be in place to ensure vendors are paid in future years?
    
    Contracts between Downforce Racing and private contractors for the event will be negotiated and agreed upon between the private parties. The City has no role in those negotiations.
14. Does the City anticipate BRD paying the Admissions and Amusement taxes for 2011 and other payments owed to the City? How much money is the City owed from last year?
    
    The City anticipates collection of last year’s Amusement and Admission tax, in amount of approximately $600,000, currently owed by BRD. The State Comptroller’s Office, which is responsible for collecting Admission and Amusement taxes for local jurisdictions, has already taken aggressive enforcement action to collect taxes owed. There is approximately $700,000 in fees owed to the City under the Motorsports Agreement by BRD from the 2011 race. The City will take the necessary legal actions to seek any payments owed to the City. Despite, the unpaid fees, the City did collect over $1 million in direct revenue from the event from hotel and parking taxes, plus fees and community impact funds.
15. Is the City requiring a performance bond from Downforce Racing?
    
    No. Because the City is collecting its taxes and fees upfront, a performance bond is not necessary. The City has included risk management language to protect the City. In addition, the City has the legal right to pursue Downforce Racing in the event that any misrepresentations are made by Downforce Racing regarding fraud, financial capacity, or improper recordkeeping.
16. Does the City intend to file suit against BRD for outstanding financial obligations to the City?
    
    The City is taking the necessary legal actions to protect itself and seek any payments owed to the City.
17. Does City believe there is time between the contract’s approval and the event to host a successful 2012 Grand Prix?
    
    Yes. The City and Downforce Racing believe there is ample to plan and successfully execute a2012 race. All major street improvements are complete. Based on the 2011 race operations, the City has analyzed and adjusted operations to streamline coordination efforts and address all issues pertinent to the event including, but not limited to, temporary road closures, traffic management, safety and security.
18. Does Downforce Racing or the City plan to replace and plant the trees agreed to by BRD in the MOU dated August 8, 2011?
    
    The City intends to work with IndyCar and its sponsors to replant the approximately 18 trees removed for the 2011 race and not replanted by BRD, as well as, the additional recommended tree plantings throughout Downtown.
19. Are the impacted communities in support of the Grand Prix?
    
    The City is unaware of any formal opposition to the race from impacted communities. Councilman Cole is working with the impacted community groups in his district and will advise the Mayor’s office of any current or future issues raised by the impacted communities. The Mayor’s office is committed to minimizing and mitigating, where possible, impacts to affected community groups. 
20. If the City had not terminated its agreement with BRD, would the City, State and vendors be in a better position to be repaid?
    
    BRD was on notice from the City to reorganize and restructure its organization since September 2011. The City provided BRD ample time to restructure itself and pay outstanding debts and taxes to the City, State and private vendors. After several months, there was no progress on the part of BRD to provide a plan for moving forward. There was no payment of the Admissions & Amusement tax. There was also no discussion or effort by BRD to pay vendor debts. As such, the City had no choice but to terminate its contract with BRD on December 29, 2011. Terminating the contract allowed the City to work with other potential promoters to execute a new agreement.
21. A new agreement is the only means by which the City, State and vendors will have the opportunity to generate revenues in future years.
    
    The City believes allowing the event to continue with new management is the best option for all parties owed monies by BRD. If the City had not terminated the agreement, the City believes there would not be a race in 2012 or subsequent years. .
22. What are the estimated profits/returns Downforce Racing expects from the 5-year contract? Does the City receive profit-sharing from the Agreement?
    
    Potential profits from events such as the Baltimore Grand Prix vary greatly depending on many unpredictable factors, such as weather, attendance, and sponsorships. These factors present a high risk investment to the promoter. The Agreement allows Downforce Racing to make up to $1 million per year in net distributable cash, after which the City will receive 10% of the net distributable cash on an annual basis.
23. Can the City terminate the Agreement if it feels Downforce Racing, LLC cannot execute a 2012 race?
    
    Yes. Section 10 of the Agreement outlines the termination rights of the City due to a default and failure to cure by Downforce Racing. In addition, failure to meet certain date-specific benchmarks as stated in the Agreement will result in a default. The benchmark dates and items to be completed prior to the race are as follows:
    
    By March 15, 2012, Downforce Racing must:
    
    1. Enter into a Ticket Escrow Account Agreement with the City;
    2. Provide the form of financial reporting to the City it plans to use;
    3. Enter into a sanction agreement with IndyCar;
    4. Enter into a lease agreement with the Maryland Stadium Authority;
    5. Identify any repairs to the Street Improvements required for the 2012 race.
    
    By May 1, 2012, Downforce Racing must:
    
    1. Enter into a Parking Rights Agreement with the Parking Authority of Baltimore City (if applicable);
    2. Enter into a lease agreement with the Convention Center;
    3. Enter into an agreement with the Maryland Transit Administration;
    4. Provide a proposed Safety and Security Plan for the City’s review.
    
    By June 1, 2012, Downforce Racing must:
    
    1. Provide a final draft of the Event Management Plan for the City’s review.
    
    By June 30, 2012, Downforce Racing must:
    
    1. Secure written approval of IndyCar that the race track meets or satisfies all applicable street race standards to conduct the race.
24. Will the City need to make additional street improvements to the Race Track for 2012 and if yes, what are the costs?
    
    There are no significant construction improvements anticipated to the Race Track for the 2012 race. However, the City will make any necessary repairs due to normal wear and tear. Per the Agreement, costs for any material changes to the race track will be shared by the Downforce Racing and the City on a 60/40 split, respectively. The City has the right to terminate the agreement if improvements are believed to be financially unreasonable based on the economic returns to the City from the event.
25. Has the new promoter secured a title sponsor?
    
    To the City’s knowledge, Downforce Racing has not secured a title sponsor for the event, but is in discussions with potential sponsors.