Michaelian on why Long Beach is better off w/IndyCar

GPALB President and CEO Jim Michaelian

One of the major stories during recent weeks in the newly-named Verizon IndyCar Series has been the unsettled future of The Toyota Grand Prix of Long Beach. Long Beach of course, is the 2nd longest running annual event on the IndyCar calendar, having been a showcase Indy car event for three decades now.

Two weeks ago, the Long Beach City Council met to discuss whether they should renew their contract with IndyCar and promotion group Grand Prix Association of Long Beach or open up the bidding to outside groups such as the one led by Chris Pook seeking to bring a Formula 1 race to the city.

At that time, AutoRacing1.com columnist Brian Carroccio outlined the situation in Long Beach. With knowledge of the costs associated with other F1 street races, Brian’s article raised significant questions regarding the financial viability of an F1 race. The article elicited a fair amount of response, both positive and negative.

One such responder was AR1 reader Chris Pook, who took strong exception with some of the details noted in the article, and took time to present his case with Brian via phone and email. Mr. Pook’s case for an F1 street race in Long Beach was published by Brian this past Saturday.

Monday, Brian spoke by phone with GPALB President and CEO Jim Michaelian via phone. Michaelian and GPALB hope to continue hosting an IndyCar race in Long Beach beyond 2015.

"Basic Performance"

My conversation with Mr. Michaelian began with some big-picture acknowledgements. He talked about the history of The Toyota Grand Prix of Long Beach, and how the event, which will be run for the 40th time next month, and 30th time as an Indy car race, has been an enormous success on no uncertain terms.

Yes, whether it is the fact gorgeous skyscrapers now sit where there were once strip clubs and tattoo parlors; whether it is the fact the event has survived (and thrived) through numerous Indy car sanctioning acronyms and political infighting; whether it is the fact the Grand Prix has successfully built long-term corporate sponsorships with heavyweights such as Coke, Toyota and Tecate; whether it is the fact the Grand Prix is the second-longest running event on the IndyCar calendar, Michaelian cites these reasons and others, as evidence of the enormous success that is The Toyota Grand Prix of Long Beach.

But he also reminded me of this: Grand Prix Association of Long Beach, which Michaelian has been part of since its inception in 1975, has promoted each and every installment of the Grand Prix. While the company has changed ownership a few times (most recently in 2005, when it was bought by Kevin Kalkhoven and Gerry Forsythe), GPALB has as much a constant in the most successful street race in North American history as Toyota, Shoreline Drive and the Pro/Celebrity race. And with the benefit of a successful relationship with the city, and the involvement of committed corporate partners, no one questions what Michaelian calls the impressive “basic performance,” of his company, over the past four decades.

Further, Michaelian noted that there were no recent developments that would call this into question, citing 175,000 spectators attending the event in 2013, an impressive number for any live sporting event this day and age.

In short, GPALB, IndyCar and the City of Long Beach have an unquestioned track record of success together, and little if any evidence exists suggesting anything will be different going forward.

Takuma Sato takes the flag in 2013

IndyCar

Fair enough. But 250,000 people watch an IndyCar race and F1 is well, F1.

Michaelian doesn’t dispute the power of F1’s immense global TV audience. He did note that the multiple series which run over the course of the Long Beach weekend in addition to IndyCar, added up to about 10 hours of total television coverage or what he called “pretty substantial exposure.”

He also interestingly mentioned that Hulman and Co., CEO Mark Miles who “is working hard for an over-the-air TV slot for the Grand Prix.” However, Michaelian also cited the busy television slot the race was up against particularly with the NBA playoffs (an ABC property) having a playoff game against the Grand Prix.

Still, it is not television where Michaelian has his doubts regarding the F1 race.

Costs

After two weeks of researching the costs associated with F1 street events, Michaelian did not need to share the following with me. However, the finances involved in putting on Formula 1 events are not only incredibly complicated, but “vary enormously from country-to-country,” said Michaelian, citing some nine-digit investment figures on the part of municipalities in certain parts of the globe that help fund F1 events. Referencing an estimated $25 million from the Texas’ Major Events Trust Fund, which helps fund The United States Grand Prix, Michaelian noted that such public money was rare in the United States. And where such funding would come from in Long Beach, the GPALB President and CEO, did not know.

Also, “that $10 million seems low to me,” said Michaelian’s citing Pook’s estimates from Saturday’s article about the upgrades necessary to the circuit. “For example, the cost of the safety system here (bridges, concrete walls, fencing, etc.) is almost half of that amount right there. And we (GPALB) own that.” He added, “there would also be significant costs of extending upgrading the circuit and building pits and garages. Where will the funding for all that come from?”

In short, the math of a potential F1 race in Long Beach doesn’t make sense to Michaelian.

Other Doubts

Mr. Michaelian pointed out another element that I’m not sure has been explored in-depth: exactly what level of interest F1 Supremo Bernie Ecclestone has in Long Beach.

“We’re not too deep into Long Beach at this point,” said Ecclestone two weeks ago in this Long Beach Press Telegram article. “We’ve got 20 races throughout the world and fortunately — or unfortunately as the case may be — we only have one race in America (in Austin), and I still don’t know what we’ll do in New York.”

One never knows with the somewhat effusive Ecclestone, who usually plays it pretty close to the vest. However, reading between the lines it doesn’t seem as though he’s too keen on Long Beach at the moment.

Michaelian also raised doubts about the economic impact of an F1 race particularly Mr. Pook’s suggestion that an F1 race would have three times the economic impact of the IndyCar race for Long Beach. One factor Michaelian pointed to was that 95.7% of the city’s hotel rooms are already occupied during the IndyCar weekend. The increased demand, according to Michaelian, would be serviced by hotels in cities near Long Beach, but not entirely Long Beach itself.

In short, Michaelian noted that some of the revenue from the increased numbers F1 brings would wind up in Long Beach; just not all of it.

That may be so, but if Pook’s group is willing to assume those costs, wouldn’t the City of Long Beach find that desirable?

Not necessarily.

Yes, “somebody has to pay for all that,” said Michaelian when talking about the initial capital investment necessary to start a race. However, to Michaelian whether that party is the promoter or the city doesn’t matter so much, for the simple fact that the net or cumulative drain on assets, will compromise one party or another’s ability to operate a successful event. And if one party’s ability to operate effectively is strained, you have something that is not presently a major concern with GPALB…

Risk

Remember, I wrote that Pook’s plan limited the downside risk to the city. Not so, says Michaelian.

“In this case, the city has a huge risk, said Michaelian. “This is not your typical project, where you have company A, B and C, bidding on a contract.” Rather, “this is a situation where you have one company that has performed above and beyond for 40 years versus other companies that have no record of performance.” In stating this, Michaelian noted that GPALB reimburses the city every dime of its expenses plus permit fees annually and has since its inception.

“The other companies could succeed, but what if they don’t? Then the City either loses the event, or has to chip in to keep the event going.”

According to Michaelian, just because Pook is presenting a plan that limits the city’s initial financial commitment, should not be interpreted as the city having no risk. After all they’d be…

"Surrendering Equity"

"Another consideration here is the race date," said Michaelian. “We’ve been in that April slot for years, and that wouldn’t be a guarantee with Formula 1. They typically run in the Far East this time of year.”

Michaelian didn’t say directly, but noted that should F1 secure the rights from the City, the event’s date would be subject to the whims of the sanctioning body. In other words, it wouldn’t necessarily be on a date that works well for the City of Long Beach and the vendors.

Also, Michaelian notes his company’s relationships with sponsors, experience in promoting a successful event, fruitful relationship with the city, and a myriad of factors that contribute to the built-in equity, Long Beach has in the IndyCar race. To Michaelian, the solution is simple…

“We would like to continue that relationship”

Given the reasons outlined above and others, Michaelian believes that his group and the event in its current form present the best option for the City. Sure, bringing the F1 circus to Shoreline Drive would undoubtedly increase exposure, and overall cash flow for the local economy. However, to do so would be in Michaelian’s view, “abandoning something without contingency, interruption or drama, which has been an unqualified success for forty years.”

In Closing:

To begin, I’d like to briefly thank both Mr. Pook and Mr. Michaelian for providing their time and insights for what turned out to be an unexpected mini-series of articles regarding the future of North America’s most successful street race.

To Michaelian, Long Beach’s success and the merits of his company’s role in that success, make the case for itself. Yes, every April, whether it is CART, Champ Car, the IRL, or IndyCar, the people flock to Shoreline Drive by the hundreds of thousands to witness The Toyota Grand Prix of Long Beach. The sun is almost always shining, the restaurants and hotels are full, and the event is affordable, as everyone (IndyCar, GPALB, the City of Long Beach, fans, and City residents) has won for in Long Beach the past four decades.

I don’t think Pook, who was ironically the founder of the Grand Prix, and successfully brought IndyCar to Long Beach in 1985, would dispute any of that. He simply believes he has proposed a better alternative for the city going forward. And although he harbors significant doubts, Michaelian does not outright dismiss Mr. Pook’s claims that the grass could in fact be greener on the other side.

He does however very much believe a hefty price might be paid in order to find out. And considering the track record success of Michaelian and company have established in the last four decades, one has to ask: would it be wise to even bother?

Brian Carroccio is a columnist for AutoRacing1.com. He can be contacted at BrianC@AutoRacing1.com.