Nurburgring: How the world's most famous track went bust

Back in February this column first chronicled the financial woes of arguably the greatest circuit of all time, the Nurburgring. Dubbed the "Green Hell" by Jackie Stewart back in 1968 after he won that year's German Grand Prix in atrocious weather - gross mismanagement had brought it to its knees.

Eight years after Stewart's epic four-minute win, the circuit snaking through central Germany's Eifel Mountains almost took the life of reigning champion Niki Lauda in a fiery shunt after the Austrian slammed into the barriers lining the 14.189-mile track. Thereafter the writing was on the wall.

The Nurburgring never again hosted a Formula 1 grand prix, with the race moving to Hockenheim. In 1984 an F1-compliant circuit was built in shadow of Big Daddy, and while the weather is as capricious as ever, that remains about the only unique selling point the 'Newburgring', which first hosted the German GP in 1985, enjoys.

Thereafter it hosted the 1995-6 and 1999-2007 European GPs, with 2009 signalling the first German GP run under the infamous 'timeshare' deal struck with Hockenheim by F1 tsar Bernie Ecclestone. Hockenheim hosts the race in even years, the Nurburgring in alternate seasons.

2009 was also the year in which it became conspicuously apparent that the local county government - the circuit falls within Rhineland Palatinate - which owns 90 per cent (the local Ahrweiler district owns the balance) of Nurburgring GmbH, had utterly overstretched itself. It had built an enormous entertainment complex complete with space-age rollercoaster and five-star hotel at a projected cost of £170million.

Overruns meant the (still unfinished) project hit £312million; worse, promised private investors failed to materialise, forcing the state to assume full ownership of the folly instigated by Kurt Beck, then as now prime minister of the palatinate, although he currently governs in coalition with the Green Party - which brings its own (motorsport) issues - ostensibly to provide employment opportunities in a rural area situated in Germany's commercial backwater.

In desperation the board signed a 30-year lease with an entity known as Nurburgring Automotive GmbH, headed by German businessmen Jorg Lindner and Kai Richter, who in turn appointed former Hockenheim CEO Dr Karl-Josef Schmidt to head the operation. However, there was a slight problem according to court papers lodged by Nurburgring GmbH: NAG failed to pay its dues despite the agreed annual rental being around £4million, a relative pittance (all reported in depth in this column in February.

Worse, NAG threatened counter-suits for non-delivery of promises after Nurburgring GmbH cancelled the agreement, and thus the legendary circuit ended up in its present dilemma: a pile of debts that in the interim mushroomed to over £390million, but no tenant. Not only that, but one cannot even be appointed until the mess with NAG is sorted. Trust politicians...

It gets worse: the Rhineland Palatinate stepped in with £10million in back interest on loans it guaranteed, which the EU Commission now believes could run counter to its rules on state aid. Thus in March it announced an investigation (see sidebar), a decision on which is believed to have been made - the state acted in breach of rules - although the Commission is adamant that no decision has will be made until just before an announcement next week. Playing for time as it softens politicians?

Beck is, for his part, doing what politicians do best when flat-footed: blame every entity under the sun except the ultimate decision-maker (himself) while deflecting attention (in this case in the direction of Spanish banks currently begging billions in EU aid). Then on Wednesday, ironically on the eve of the German GP weekend at Hockenheim, he called a press conference to announce Nurburgring GmbH is likely go into administration.

So where to now for the hallowed Nordschleife upon which the classic 24-hour race attracting a quarter of a million fans annually is held? Where to for the 'Newburgring'? Above all, where to for the German GP in 2013 despite Ecclestone having cut the hosting fees by an estimated 25 per cent for 2011 (only) after it became apparent the circuit would be unable to pay the £12million fee demanded by F1's commercial rights holder?

Jackie Stewart dubbed the 'Ring 'Green Hell' © LAT

Back in July 2010, when it became clear the Nurburgring was shaky, Schmidt, then directing matters at Hockenheim, told this column that the latter would not step into the breach and take on the Nurburgring's odd years after the circuit ended up out of contract after failing to agree terms with Ecclestone. "Our contract with Mr Ecclestone is for even years only; what happens in between is no concern of ours," he said.

However, he left the central German circuit that also relies on both state and local council funding to survive as the Formula One Group racks up ever-increasing profits, and now finds himself effectively out of F1 after the collapse of NAG. That is unless he, Richter and Lindner pull 1000 white rabbits out of their collective hats in double-quick time. However, they may well have conjured up a single fluffy toy (see below).

Long-time Hockenheim employee Georg Seiler, a man whose heart is said to comprise a giant H pumping hi-octane, replaced Schmidt. The circuit has consistently made a loss since being emasculated in 2002 (more so since entering into the timeshare deal), and this weekend just over 50,000 fans are expected at the circuit owned by the tiny community of Hockenheim (population 20,000) and situated 13 miles south of Mannheim. This is a far cry from the 100,000 who packed the place during the halcyon Michael Schumacher/Ferrari years - despite there being five local drivers on the grid, including two multiple world champions.

Yet, Seiler told German media in the run-up to the grand prix that Hockenheim could take on the race in odd years, too - although it is doubtful he discussed this with the village fathers or the state of Baden-Wurttemberg, which annually bankrolls the race's losses. Complicating matters is that the state is currently ruled by a Greens-led alliance with the Social Democrats.

Should we receive a request from Mr Ecclestone, we will examine the terms," said Seiler this week. "If there are no associated commercial risks and we can generate positive financial results, then it is possible that we could step in for the Nurburgring." Remember here that for 10 years the circuit has not generated 'positive' financial results, despite the 'other' venue sitting out every second year.

The 'Newburgring' opened its doors to F1 in 1984 © LAT

The fact is that loss-making circuits and exorbitant hosting fees are not sustainable, and the sooner F1's commercial rights holder realises that, the better for all concerned, including, crucially, the sport itself.

However, Ecclestone, who aims to expand the calendar beyond its current record 20 races at virtually any cost, is believed to be hopeful of staging a race at the Nurburgring next year in conjunction with Lindner and Co, subject to being granted the circuit for 14 days free of charge by the state (administrators).

Whether Rhineland will play ball, whether the administrators will permit that, and whether the teams will race at what may be reduced income, is anybody's guess. It is too early to speculate the point here, but the fact remains that unless decisive action is taken, PDQ Nurburgring is unlikely to feature on the final 2013 calendar.

'Decisive action' means everything from untangling the political and commercial messes glory-seeking politicians and inept managers have got the circuit into, securing future tenants and sorting Brussels - all within five months, for the 2013 calendar needs to be agreed with the FIA before November.

Failing which, will Hockenheim step in? That depends upon any Ecclestone proposal and the Wurttemberg Greens, and not Seiler, although Mercedes - headquartered in the state - is sure to push the matter. That said, forget not that Ecclestone has yet to reach consensus with the Three Pointed Star over the 2013-2020 Concorde Agreement...

If that does not fly, what then? There is an endangered circuit situated in virtually the same mountains and forests less than 70 miles from the 'Newburgring', one even more crucial to F1's spectacle than the Eifel venue: Spa-Francorchamps, which believed a rotating deal with a French circuit was its salvation until Francois Hollande's socialists took over the running of the country, simultaneously nixing all overtly capitalist projects.

Administration could spell the end of the Nurburgring's annual 24-hour race © LAT

Spa is out of contract after this September's race, and could it be that Ecclestone will persuade the Belgians to accept a deal with Hockenheim, instead? That would at least keep the Ardennes venue on the calendar while permitting F1 to return to Germany every two years - certainly until the Nurburgring's woes are sorted.

In addition, the removal of one date per year would open the door to the races Ecclestone has long been eyeing, such as Mexico and Russia. So, from his perspective, problem solved. But not for lovers of the classic circuit in the Eifel, whose existence is now more clouded than anything the weather in the region managed in the Nurburgring's 85-year history.

EU Commission and state aid, an investigation that clearly does not bode well for any European circuit in future.

The below is a press release sent out by the European Commission regarding state aid in the case of the Nurburgring

European Commission - Press release
State aid: Commission opens in-depth investigation into aid granted to Nurburgring racetrack in Germany

Brussels, March 21, 2012 - The European Commission has opened an in-depth investigation to assess whether a €524 million set of aid measures supporting the racetrack and leisure park at the Nurburgring in Germany is in line with EU state aid rules. The Commission has doubts whether these measures promote services of general economic interest or alleviate a funding default caused by the financial and economic crisis. The opening of an in-depth investigation gives Germany and interested third parties an opportunity to comment on the measures under examination. It does not prejudge the outcome.

Kurt Beck initiated the building work that has cost over £312million © XPB

The various facilities of the Nurburgring complex, near the German town of Nurburg, mainly include a racing track and a leisure park. The complex benefited from several support measures, mainly in the form of loans, guarantees, capital increases and revenues from a gambling tax. These measures were granted by the German Land Rhineland Palatinate and by public undertakings controlled by the Land. The support related to expenses for the construction and operation of facilities directly linked to the race track (mainly a tribune), for the construction and operation of facilities for the promotion of tourism (leisure activities, accommodation, events, shopping, dining and gambling) and for the organisation of Formula 1 races. At this stage the Commission takes the preliminary view that all these measures, which have not been notified to the Commission, may have been granted under terms more favourable than the market conditions and may therefore confer an undue economic advantage to the owners and operators of the complex vis-a-vis their competitors. This would distort competition in the Internal Market, in breach of EU state aid rules.

Germany has argued that the Nurburgring is a 'general' infrastructure, built in the public interest and open for public use and that the measures for the promotion of tourism and for the organisation of Formula 1 races are compensations for public service obligations. At this stage the Commission has strong doubts that infrastructure for motor sport can be exempted from state aid rules and that a leisure parc and race circuit could be considered as services of general economic interest that would not be provided by market forces alone. The Commission cannot also exclude that the beneficiaries were in financial difficulty at the time when the measures were granted. If confirmed, this would mean that none of the measures could be found compatible under the then applicable temporary rules for supporting business during the crisis.

Background

The non-confidential version of the decision will be made available under the case number SA.31550 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.