January 16, 2012
By Kyle Novak
The recent announcement by Baltimore mayor Stephanie Rawlings-Blake that the city will no longer honor the contract with Baltimore Racing Development (BRD) marks the sign of another street race on the brink of collapse. BRD was the original promoter of the Baltimore Grand Prix and has since been marred in controversy from failure to pay bills to vendors as well as an ongoing failure to pay outstanding bills for city services and taxes. The future of the event is now far from certain. However, IndyCar and the American Le Mans Series (ALMS) still have the event on their respective calendars here and here. While a casual fan may see the recent news as disastrous to the once promising street race, this type of turmoil is nothing new. Lurking behind most street races is a financial model that simply is not sustainable for long-term success. IndyCar continues to move away from racing on ovals and is seeking to make a splash in any new market that will expand the brand. The probability of more street races being added to the schedule continues to rise. But can these events survive on such shaky ground?
Street races can rejuvenate a city longing for an urban renewal. The excitement of world-class race cars screaming down city streets at more than 200 miles per hour can make even the most novice motorsports fan stop and stare. The roar of racecars echoing off skyscrapers is unmatched. The excitement that builds among city residents is greater than any event that doesn’t revolve around a ball or puck. During race weekend, hotels fill, restaurants thrive, and uncanny buzz builds as a city prepares for the spotlight. Convention and visitor’s bureaus glow with the thought of their city being showcased on national TV.
While street races can be a dream for a chamber of commerce looking to shine a positive light on their city, the ability of a promoter to turn a profit in the short life span of these events (often five years or less) is next to impossible. A promoter must be profitable to guarantee long-term success of the event. To ensure profitability, a promoter must do what any other business must do – make more money than it spends. However for a new street race such as the one in Baltimore, the deck is stacked against the promoter before the first grandstand is constructed.
Starting a street race from scratch involves a tremendous amount of start-up expenditures. The temporary concrete barrier wall that lines the circuit must be manufactured, the debris fence that attaches to the wall must be fabricated, and perhaps the most expensive portion of all, city streets must be repaved. Even a small bump on a city street normally traversed by our daily drivers could wreak havoc on an IndyCar or ALMS prototype. The wall, fence, and street repaving projects must all be started at least one year before the event and these costs must be fronted before one ticket is sold and before any sponsor check is delivered. The combined start-up costs for a new street race often hovers between 10 and 15 million dollars. Of course, cities will sometimes contribute to street repaving projects as they benefit residents for years to come but the costs of the race infrastructure is often borne solely by private investors. Banks are reluctant to lend money to an event that revolves around corporate sponsorship and no history of selling tickets.
Keeping in mind the costs to develop basic infrastructure, a new event has to build grandstands, install the race barrier and debris fence, spectator fencing, temporary power, restrooms, signage, security, tents, fuel, construction equipment, tow trucks, safety crews, and most importantly, a staff to run the operation. Even the cash needed to support the volunteer efforts can be in the tens of thousands of dollars. And the extremely time intensive build schedule - often less than 30 days and completely torn down within 15 days – puts additional strain on the event.
As the operational side of a street race starts to chaotically take shape, so does the sales and marketing. Sales managers hustle to find the crown jewel in motorsports event sales – the infamous title sponsor. A title sponsor can make or break any sporting event but are vital to a street race. While other venues such as stadiums and NASCAR ovals can generate revenue opportunities all year, a street race only has one weekend to capture revenue. As the event draws near, the price of potential sponsorships will continue to plummet. A company considering a title sponsorship knows that it can maximize value from a title sponsorship two months from race weekend rather than six months out when the price is twice as high.
To expect a sales department to sell enough sponsorship for the event to break even is simply unrealistic. A $50,000 sponsorship doesn’t offset the cost of chain link fence needed for the safety of the spectators. A $100,000 sponsorship doesn’t offset the bill for security. The list goes on and on. Grandstands cost approximately $20 per seat to build and if each seat is sold for $50, a promoter will profit $30 per seat. If 50,000 seats are built at a total cost of $1,000,000 and then sold for a gross of $2,500,000, the race is left with $1,500,000 in net income – not even enough money to pay for the concrete barrier wall for the first event. This is considering a sell out and every ticket priced at least $50 – both rarities these days. Without a major title sponsor or a large amount of ancillary sponsors, a race simply has no chance to be profitable.
While the sales staff toils away, race financiers soon grow wary with how lopsided the company’s balance sheets have become. Buyers’ remorse sets in once investors realize the amount of money they are actually spending to offset the tremendous operational costs. This is where the problems begin to mount. When checking accounts begin to dry up, vendors are promised payment at a later date. In the case of the Baltimore Grand Prix, sometimes never. Thus the event closes its doors or again seeks to find enough investors to revitalize the event.
Despite the grim outlook, street races can succeed in the right circumstances. Sponsorships and ticket sales are always a necessity, but finding the right city as a host means everything to the success of these events. A city must be willing to be a financial partner, not just a landlord. By doing so, a city can advertise itself as a destination and give people reasons to come visit while ensuring the viability of a positive civic event for years to come. Focusing on big markets for new street races continues this cycle of failure. For example, hundreds of thousands of people come downtown every weekend in Chicago, but rumors of a street race have circulated there for years. There is simply no room for another event in these large markets and no incentive for a city to lay out the cash that is needed to partner with the event. Combined with the competition in these markets from traditional ball sports, a street race is doomed to fail.
Of course, street races will always be expensive to build. The Grand Prix of Long Beach and now defunct Grand Prix of Cleveland are examples of events that can be built in a cost-effective manner. Good civic partners and loyal vendors make all the difference in running an efficient event that has a chance at being profitable. When seeking new events, IndyCar and their partner promoters should look deeply into exactly how much support local governmental officials are willing to provide. Smaller cities without major sports teams should be looked at as possible solutions. If IndyCar would be willing to swallow some pride and go to a smaller city desperately seeking to rejuvenate itself, they may find the next Long Beach. Not just from a purely superficial standpoint but also a financially stable one as well. Street races will continue to be and will always be some of the most unique events on the sporting landscape. However without a better financial model and better management, the unfortunate calamity seen in Baltimore will continue to occur.
KYLE NOVAK is a project manager for Steinberg Sports and Entertainment and will graduate from Ohio Northern University College of Law in May, 2012. He formerly served as Director of Operations for the Cleveland and Houston Grand Prixs in addition to later serving as Program Manager for the Volkswagen Jetta TDI Cup. Follow Kyle on twitter and on facebook.
A sports blog with Richard Justice Matt Leinart came to the Texans to resurrect his career. Things ended badly in Arizona, with some believing Leinart had neither the work ethic nor talent to play in the NFL. For these two seasons, he has had the advantage of learning the game and the position from Gary Kubiak and of watching how Matt Schaub goes about his business. Schaub changed the locker room at Reliant Stadium the moment he walked in the door. It’s hard to imagine any NFL quarterback working harder or being more prepared. He’s a professional in every way you can define the word. He’s among the first to arrive and last to leave. He understands that the vast majority of his job description is drudgery, that is, studying video, familiarizing himself with game plans etc. Is it Matt Leinhart’s time to shine? (Brett Coomer/Chron) Schaub had been with the Texans only a couple of weeks when Kubiak left the facility one afternoon and noticed a group of players gathered around the quarterback’s vehicle. They were laughing and cutting up, and at that very moment, Kubiak was convinced he’d gotten the right guy. Playing quarterback isn’t just about making the right throws. It’s about being the face of the franchise and being the toughest guy and the most prepared guy and a dozen other things. Agent Leigh Steinberg once said that quarterback was the most unique position in professional sports because it was part management, part coach, part player, part ambassador.SportsJustice
What do you have for us, Matt Leinart? Next man up for Texans
By Leigh Steinberg
It would be late at night, usually after midnight,at my home in the Berkeley hills overlooking Oakland and San Francisco and the phone would ring….”uh,uh Leigh, it’s Al, whaddayouknow”. The accent was a blend of Brooklyn and the deep South. Throughout the 70’s,80’s and 90’s the calls would come like clockwork. Al would pick my brain for every last morsel of player and agent gossip. He was more wired throughout the world of football than the C.I.A. He spent hours every day with the phone glued to his head calling owners, general managers, coaches, players, agents, scouts, football secretaries, and trainers. As we talked he would digress into other areas of interest - the Greek Wars, the politics of Renaissance Italy, the Civil War. He taught me as much about how to evaluate talent and mold a winning franchise as I could have learned majoring in the NFL at the University of Football. The dawn would be breaking, the Campanile from the Berkeley campus ringing five bells, and still he would be talking.
I went to undergrad and law school at the University of California at Berkeley and fell in love with the Raiders as a student. I purchased season tickets back in the days of Stabler, Hendricks, Biletnikoff, Shell, Upshaw and held them until recently. Little did I dream in school that I would become intimate with the owner.
We need to remember the Al Davis in his prime, the genius innovator of Raider Pride and the vertical passing game. He engineered the survival of the American Football League and forced the NFL to merge. He was on the cutting edge of progressive ways to sign, develop, and mentor players so they played better in the Silver and Black. He pushed the limits and perameters of team marketing and winning over public interest in a game that was then a distant second to Major League Baseball. He championed African-American capability to coach and be executives and labor leaders. As time passed, he aged, and the game started to pass him by. When I was giving the presenting speech at the 2006 Hall of Fame for Warren Moon, Davis was presenting Coach John Madden. He spoke eloquently at the podium, but he had grown frail and was taken to events in a wheel chair.
In 1976, my second year as a sports attorney, I signed “The Tossin Tulsan” Jeb Blount, a quarterback from Tulsa. It came time for the Raider pick in the second round and their braintrust voted 9-1 to select Chris Bahr, PK from Penn St, the pick—Jeb Blount. The 1, Al. I had a series of lower round picks with the Raiders in the late 70’s - players like LB Jeff Barnes, WR Rich Martini, who embodied Al’s keen eye to see Raider qualities in college players that no one else perceived. And he was brilliant for years! In 1981 I represented their first round draft pick, Curt Marsh, LT from the University of Washington. The Raiders had the most confusing front office imaginable. I negotiated with eight different representatives over the years, including Al, Ron Wolf, and Steve Ortmayer. Curt was huge, Al loved huge lineman, big bodies and characters. He selected a 6’9 DE named Charles Philyaw, who was large enough to play the whole defensive line. Al asked if I could help Charles, who was from the Deeeeep South. Charles asked me questions like why FB Mark Van Eeghan got to have “both names” on the back of his jersey.
Al developed an interest in my client Jim Lachey, All Pro LT, then playing for the San Diego Chargers. Jim was unhappy at San Diego and wanted to be traded but the Chargers were in the same division and couldn’t block very well without Jim. I told Al he would never pull off the trade, but somehow he got his old employee Steve Ortmayer to trade Lachey for Napoleon Kauffman and a lower round draft choice. At the end of his career Howie Long, my client, wanted to redo his contract one last time. I was worried because Al could get stubborn with players he felt crossed him—like Marcus Allen and Steve Beurlein—and not treat them very well. Howie was holding out and my apprehension grew. Howie was calm and confident. “Don’t worry, Leigh. I’m one of Al’s Boys, we got something special going”. Al gave in and gave Howie the contract he was asking for. Al loved his core of loyal players and took care of them forever. He paid for medical treatments and helped his alumns out of financial problems. And he was totally prepared to pay top dollars to his favorite players.
Remember Al Davis as one of the greatest innovators and pioneers in the history of the NFL. Not for some of his mistakes in later years. Al, I’ll miss the calls but I know you’re up their keeping tabs.
By Leigh Steinberg July 30, 2011 For weeks I’ve been predicting that a deal would be struck by the NFL prior to apocalyptic damage to training camps and the season, so credit the parties for getting it done with minimum public controversy and disturbance. Now comes the though part: making sense of the most frenetic period of business activity in the history of the NFL. All the moves coinciding with the opening of training camps can be confusing, so let’s add some clarity. Amid the Oklahoma Land Rush and speed-dating chaos, there is a method to the madness. Normally the action begins in March with the beginning of free agency. Players with four years of experience and expired contracts would be able to sign with any team they choose. They are called unrestricted free agents. Players with less than four years of experience and expired contracts are called restricted free agents. Teams that sign those players know they will surrender draft picks to the current team based on the size of the contract they offer. The original team can retain the services of the restricted free agent by signing them or matching the best offer they receive. Unrestricted free agents are generally talented players, but not the teams’ biggest superstars. Normally franchises will not allow a superstar to get close to the end of his contract and will offer an extension for larger dollars. If those negotiations are unsuccessful, then a team can designate one player as its franchise player and force him to sign a one-year contract for the average of top players at his position. Because unrestricted free agents offer the best opportunity for a team to improve its outlook at a position, star — but not superstar — players get the advantage of competitive bidding and often sign disproportionally large contracts. The wooing process has allowed a player to visit a variety of franchises and take over the decision-making process over his career for the first time. I have players look introspectively and identify their value and priority system. They rank as follows: 1: Short-term economic gain 2: Long-term financial security 3: Family considerations 4: Geographical location — weather, size of city, proximity to home 5: Profile and endorsements 6: Winning team 7: Coaching 8: System employed by team 9: Stadium and facilities 10: Playing time This will prevent confusion between competing considerations and avoid cognitive dissonance and unclear decision making. We then project the most likely team’s interest and what alternative scenarios may develop. Teams do the same prioritization and projection. In this game of musical chairs, the best organized, most forsightful agents, players and teams achieve their goals. But this process was put in deep freeze by the lockout this year. Players have been nervously contemplating their futures and teams have been bemoaning the lack of ability to use the offseason to smoothly integrate their new free agents into their systems. This season, the term for unrestricted free agency changed temporarily to six years. There are 400 to 500 players in this category. Friday marked the first day for official signings, and the Land Rush has begun. The teams need to sign these players amid the opening of training camp. June 1 would normally mark the time that teams would have to be under cap limits. When a player is cut, traded or retires, an immediate charge is created against the salary cap. Releasing a player post June 1 allows a team to spread this charge in a more deferred way. Typically several hundred players are waived in this group and add to the number of unrestricted free agents that are on the market. This waiving of players has started occurring during the last few days. When the NFL Draft ends in April, there are normally a large number of potential rookies who are signed by teams as undrafted free agents. Teams may sign as many as twenty players. Because of the need to have lower-priced backups and special teams players to enable teams to pay stars and still fit under the cap, many of these players end up making rosters. However, this process was frozen because of the lockout and with roster sizes expanded to 90, you can add another 600 players to the Wild Wild West of activity. Drafted rookies may not participate in training camp until they sign contracts with their teams. Because of compensatory picks, this group may reach as many as 300 players. There is a new salary cap for rookies that dictates length and certain financial limits. Normally teams and agents would have time to study the new regulations and design creative structures. And then there are the inevitable disgruntled veterans who are demanding new or restructured contracts and threatening not to report to camp before they receive new deals. Where is Monty Hall when we really need him? Imagine new coaches who have not met any free agents, rookies or their own rosters, yet are trying to institute orderly systems. Imagine front offices opening training camp with hundreds of transactions to consider. However, the NFL has a long tradition of being able to process prodigious amounts of business in a compressed time frame. I split up our office into deal teams and could finish 40 to 50 contracts in several weeks. Look for established front offices, coaches and players to adjust quickly, while disorganized organizations start slowly. The NFL has found another way to completely dominate sports news for the next couple weeks, and you won’t be able to tell the players without a scorecard. LEIGH STEINBERG is a renowned sports agent, author, advocate, speaker and humanitarian. His column appears weekly. Follow Leigh on Twitter @steinbergsports or blog.steinbergsports.com.
