COTA lauds economic impact amid reports of taxation dispute

As it prepared to host the Formula 1 United States Grand Prix for the third time this weekend, Circuit of The Americas launched a promotional effort lauding the $897 million in economic impact to the Austin, Texas area generated by the track in 2014. The figures were detailed in a study prepared by New York-based Greyhill Advisors that was commissioned by the circuit.

The analysis represents all COTA events, activities and annual operation for FY 2014, defined as Oct. 1, 2013, to Sept. 30, 2014. The time period captures one full cycle of COTA's major annual events, including the 2013 Formula 1 USGP, 2014 MotoGP Grand Prix of the Americas and ESPN's 2014 X Games, as well as track rentals, and concert and events at Austin360 Amphitheater. The full report is available here.

The timing of the report coincides with a legal effort being undertaken by COTA to reduce the amount it pays in property taxes. The track was built in 2012 for between $300 million and $450 million, according to various reports, but a story this week in the Austin American Statesman revealed, "Government appraisers say [COTA] is now worth $271 million, based on the recent construction cost, an assessment that would come with a tax bill of just more than $7.1 million." The Statesman says COTA executives contend the value has already dropped to about $100 million, which would mean a bill around $2.8 million.” COTA executives contend that construction costs should not be part of the track’s valuation.

COTA's tax dispute underscores the challenges facing such state-of-the-art facilities in maintaining financial viability, as they tend to lose much of their value as soon as construction is finished. The Statesman quotes Formula Money editor Christian Sylt as saying that the economics "call into question why investors would agree to fund construction. Maybe investors are not always aware of this destruction in value before they commit their money to a project … which costs around 20 times more than it will be worth.”

Along with its construction costs, COTA must pay a hefty sanctioning fee to host F1, which reportedly amounted to $22 million in the first year with an undisclosed annual increase, until the 10-year contract expires. The track pays for that and associated costs with incentives from the state of Texas, which The Statesman reports amounted to about $29 million for each of the first two F1 races.

Austin city officials noted the positive impacts the are has gained from the development of COTA, whose facilities extend beyond the racetrack itself.

"COTA has turned out to be much more than just a racetrack," said Austin Mayor Lee Leffingwell. "It's a job creator, a revenue generator, and a destination for quality, year-round entertainment. These benefits to taxpayers result from racetrack construction that was solely funded by private investment. I commend COTA for its positive impact on our community and its contribution to Austin's emergence as an international city."

According to the commissioned study, there were 1.1 million attendees across all COTA events in FY 2014, leading to $731 million in economic impact. An additional $166 million is attributed directly to COTA operations.

Over the course of the year, COTA hosted six motorsports and other major sporting events, 18 concerts and 110 track rentals and other events.

Formula 1 generated $507 million in economic impact for the Austin metropolitan area. All other major sporting events, including ESPN's X Games, generated $161 million in economic impact. Concerts and events at Austin360 Amphitheater (ABOVE) generated $49 million in economic impact. Track rentals and other miscellaneous events generated an additional $14 million in economic impact, according to the report.

COTA's annual activities and operations combined to support 9,100 jobs in the Austin metro region representing $306 million in annual payroll for Austin-area workers. Direct visitor spending injected into Austin area business establishments such as restaurants, bars, hotels and retailers totaled $423 million.

"COTA is a thoughtfully designed facility that has helped Austin successfully compete for and host events that put our city in the global spotlight," said Bob Lander, Austin Convention and Visitors Bureau President and CEO. "We attract over 21 million visitors annually – three times as many as only a decade ago. Tourism has a substantial impact on the Austin economy providing nearly 54,000 jobs and $6.2 billion in direct traveler spending. World-class facilities like COTA greatly enhance our ability to attract new international audiences and markets that widen our spectrum of business."

Since it was announced in 2010, COTA's cumulative economic impact on the Austin metro area has been $2.8 billion, with an average annual impact on the Austin area of nearly $700 million per year, according to the report.

Included in the cumulative impact was construction of COTA's 1,500-acre campus, which supported more than 7,100 jobs representing $350 million in annual wages. The economic impact from construction was $918 million, the report said.

"We built COTA to be a part of the economic and cultural fabric of Austin," said Circuit of The Americas Chairman Bobby Epstein. "We've created a place where Austinites can enjoy world-class sports and entertainment, and it's gratifying to see the enormous benefit to local businesses big and small."