From left, OWRS principals Kevin Kalkhoven and Paul Gentilozzi, along with supporter Carl Russo, have a lot more to smile about today. (Photo by LAT Photographic)
If the judge was an IRL fan, as many in Indianapolis are, he didn’t let it influence his decision: After hours of testimony and debate, Federal Bankruptcy Judge Frank J. Otte rejected the IRL’s considerably higher cash offer for the assets of the bankrupt CART Inc. in favor of a bid from Open Wheel Racing Series LLC. Otte’s decision followed the recommendation of CART’s creditors committee, which preferred OWRS’ bid because it accepted existing contracts and liabilities.
“Based on the information I’ve heard, and knowing full well we have another side in this matter, I feel the best business judgment is to approve the sale and asset transfer to OWRS,” the judge said after a hearing at U.S. District Court in Indianapolis.
Otte’s decision came after six hours of legal wrangling among lawyers for CART, OWRS, the IRL and other interested parties. Several race promoters testified, including the man CART insiders call Jargon Joe, Mexico City race manager and former CEO Joe Heitzler.
Before the hearing began, the creditors committee knew that OWRS would increase its initial bid from $1.6 million (plus guarantees of 2003 prize money) to $3.26 million, essentially matching the bid from IRL president Tony George. George’s original offer applied specifically to CART’s hard assets--transporters, equipment and the mobile medical unit--and rights to the Long Beach Grand Prix.
When the morning session ended, Otte advised both groups to prepare their final bids for the afternoon. The IRL returned from lunch having quadrupled its offer to $13.5 million. Moreover, it agreed to take more of CART’s race dates, including one race in Mexico, another in Canada and three unspecified road races from 2005 through 2007.
So how did OWRS prevail? Even with the IRL offering to take more of CART’s race contracts, the balance of CART’s dates would clearly fall by the wayside. That would create legal liabilities as promoters tried to recover penalties built into the contracts.
There was debate as to exactly what those liabilities amount to. CART estimated between $10 and $30 million. Promoters who testified said their companies stood to lose as much as $80 million if they had no race. Either way, OWRS would accept all of CART’s race contracts, or at least the liabilities that go with them.
“There is a vast difference between $13.5 million and $3.2 million,” Otte concluded. “But we must also consider the assumption of contracts. We know there will be litigation and damages.”
After the ruling, IRL boss George shook hands with Paul Gentilozzi, one of the three CART team owners behind OWRS, and his primary adversary in a recent war of words.
“I felt we had an opportunity to unite open wheel racing,” George said to the TV cameras on the courthouse steps. “But I’m not interested in any kind of merger now that they have those assets. I’m not interested in giving up the equity we’ve got in the IRL.”
In the end, Otte’s decision was essentially as the OWRS principals had predicted. While it nearly doubled its cash bid, OWRS still acquired what it needs to operate CART for less than half its original offer: a per-share buy-out of CART’s parent company, publicly held Championship Auto Racing Teams, for nearly $8 million. That offer was withdrawn in December in favor of the prepackaged bankruptcy that began the bidding contest with the IRL.
“You can never be sure when you go into a courtroom, but we were confidant in our offer and our business plan to continue CART,” Gentilozzi said. “Now we get ready for Long Beach in April.”
Otte made no ruling on claims from three CART venues, including Road America and Laguna Seca, which contend that their contracts with CART are not transferable. Yet both tracks settled after the hearing and will be on CART’s 2004 schedule, according to Gentilozzi. The settlements were expected to be finalized at a subsequent hearing. International Speedway Corporation’s attempt to recover the $2.5 million it paid for CART’s canceled 2003 race at California Speedway is far from settled, though the OWRS bid for CART’s assets included a $500,000 fund dedicated to covering ISC’s claim.
For the immediate future, it appears that the status quo holds, with two U.S.-based open-wheel series lining up for another season. OWRS has promised 15 or 16 races, an improved TV package and at least 18 cars for the 2004 Champ Car World Series, with the schedule beginning April 18 in Long Beach. Yet it remains to be seen whether the uncertainty of the last several months will affect CART’s remaining teams (and fans). It’s likely that the rancor of the last few weeks will leave both sides as angry as ever.
Then there are the publicly held Championship Auto Racing Teams. Presumably, proceeds from the asset sale could be distributed to the parent company’s shareholders. Yet it’s not clear how that might occur, because the public company’s board of directors resigned en masse in December.
BELOW IS THE OFFICIAL STATEMENT FROM OWRS:
LANSING, Mich. (Jan. 28, 2004) -- With today’s decision in U.S. Bankruptcy Court in Indianapolis by Judge Frank J. Otte, Open Wheel Racing Series, LLC (“OWRS”) will immediately take over operations of the Champ Car World Series. Judge Otte ruled the bid submitted by OWRS partners Paul Gentilozzi, Kevin Kalkhoven, and Gerald Forsythe was the best option for all concerned parties.
The ruling means OWRS acquires all assets of the Champ Car World Series, including all race-related equipment as well as the race contracts with various promoters. In effect, the ruling guarantees North America’s premier open-wheel racing series will compete in 2004 and beyond.
The final 2004 race schedule, television plans, and team, driver and sponsorship announcements will be forthcoming throughout the next two months. The series anticipates an 11th consecutive season of drawing more than 2.2 million spectators--a streak unmatched in North American open-wheel racing.
“We’re extremely pleased Judge Otte agreed with the recommendations of Championship Auto Racing Teams and the Creditors’ Committee, and allowed us to preserve what we believe is the finest racing series in the world,” said Gentilozzi. “We will make the most of this opportunity and will ensure Champ Car teams, drivers, partners and fans are never again subjected to a situation like this.”
Kalkhoven was equally delighted. “None of this would have been possible without the unbridled support of our valued race promoters and team owners that stuck with us through all the IRL’s much-publicized machinations, or without the fervent support of the fans,” explained Kalkhoven. “Every supportive letter and e-mail we received strengthened our desire to resolve this matter properly. We are all acutely aware of the responsibility we now bear for the Champ Car community and we, along with everyone else in the series, will strive to exceed our expectations every day.”
Said Forsythe, “I’m just glad all this is over and we can get back to the business of what we do best, and that’s giving our many fans the kind of racing they’ve come to expect from the Champ Car World Series.”
Preparations continue for the 2004 season, which begins April 18 with the crown jewel of North American racing, the Toyota Grand Prix of Long Beach. Defending series champion Paul Tracy of Forsythe Racing will lead a pack of the world’s top talent in the chase for the Vanderbilt Cup, which is awarded to the series champion.