City threatens to end deal with racing group

Baltimore Racing Development owes $1.5 million, city says

November 07, 2011|By Julie Scharper and Luke Broadwater, The Baltimore Sun

City officials threatened Monday to end their contract with the company that staged the inaugural Baltimore Grand Prix race, saying it owed the city more than $1.5 million — a development that casts doubt on the future of the three-day racing festival.

Deputy Mayor Kaliope Parthemos said in a statement that the financially beleaguered Baltimore Racing Development "has not honored the terms of its contract with the city" and that the company must "restructure and recapitalize or sell itself to investors in order to make the event profitable in the future."

Baltimore officials, who had inked a five-year agreement with the company, not only invested in road repair on the racecourse near the Inner Harbor but also agreed to provide police, parking and other services for the Labor Day weekend event. Now city officials have given Baltimore Racing Development a Dec. 31 deadline to pay taxes and debts owed to the city and state. The race's future would be in jeopardy if the contract is severed and another entity doesn't take over, officials acknowledge.

"They've got to work out their debt issues in a timely fashion, or there isn't going to be a Year 2," said Councilman William H. Cole IV, who represents the Downtown area and worked closely with the race group to prepare for the event.

"If BRD doesn't exist, I don't believe there's a 2012 race, unless there's another group that's going to step in," said Cole.

The city is the latest to seek repayment from Baltimore Racing Development, and company officials acknowledge that they haven't been able to cover some vendor bills and repay loans. But those company officials also have vowed to cover their debts — in part with hoped-for revenue from a title sponsor for next year's race — and have begun to make changes at the company.

Jay Davidson, who had acted as a public frontman for the Grand Prix, said he has stepped down as CEO of Baltimore Racing Development, and the company is looking to hire someone with a stronger business background. The company also is seeking to hire a new general manager, Davidson said.

"I'm a lawyer; I'm not an MBA," Davidson said. "I don't have a business background."

The company, Davidson said, had suffered from being "too democratic." He said it might benefit from a more streamlined leadership structure that a CEO with more "traditional experience" and "internal authority" could bring.

Davidson said he planned to stay on at the company and to continue promoting next year's event, though his new title hasn't been established. "Titles don't matter to me," he said, adding that he might assume of the role of senior vice president of sales.

Mayor Stephanie Rawlings-Blake has been a strong backer of the Baltimore Grand Prix, frequently touting the economic benefits of the race and the positive attention the spectacle would bring to the city. IndyCar announced after the first race in September that the Baltimore event would be part of its 2012 schedule.

The Grand Prix event generated about $47 million in economic impact, according to a city-commissioned study released last week. That falls short of original forecasts from organizers that it would generate $70 million in spending and a total economic impact of $120 million.

According to Parthemos, the racing group owes the city $488,000 in admissions and amusement taxes and $500,000 for police and other city services.

The city also is billing the racing group for $250,000 for firefighters who kept watch on the pit lanes and other safety workers — an expense that had not been anticipated by race organizers, Parthemos said in an interview.

The city has not yet cashed a check for $250,000 for a race event fee, specified as part of the contract. The money was held "with the understanding BRD needed to restructure its cash reserves," according to the statement.

Baltimore City also invested more than $6.5 million in public funds in preparing roads for the racecourse.

Baltimore Racing Development's debts include a recently missed $470,000 loan payment to the Maryland Stadium Authority that the agency covered by pulling from the company's escrow account; a $350,000 bill from the company that erected the race grandstands and a $50,000 loan from Davidson's father-in-law.

Some of those debts are the subject of legal actions — six lawsuits have been filed against Baltimore Racing Development in recent months, and those plaintiffs claim the company owes them a total of about $1.6 million. Another vendor that provided concrete barriers and signs says it is owed $200,000, an amount the owner says could sink the company if not paid.

Company officials have acknowledged that they are delinquent on some bills and that they planned to reach out to upset vendors. Davidson said he recently had dinner with his father-in-law, who sued the company, and told him to not expect payment for some time because his is one of the smaller debts the company owes.

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