Commentary

As merger talks continue, Champ Car bankruptcy maneuver could be in store

As talks to combine American open-wheel under the IRL umbrella continue, rumors of a Champ Car bankruptcy maneuver have surfaced, writes John Oreovicz.

Updated: February 12, 2008, 5:18 PM ET
By John Oreovicz | Special to ESPN.com

INDIANAPOLIS -- An icy winter storm delayed flights at Indianapolis International Airport on Tuesday morning, symbolic of the holding pattern that the American open-wheel racing consolidation talks are in.

[+] EnlargeTony George
Joe Robbins/US PresswireTony George traveled to Japan to speed a merger with or the acquisition of the Champ Car World Series along.

Indy Racing League founder Tony George and an entourage of executives were expected to arrive back in Indianapolis in the early afternoon following a three-day trip to Japan. The IRL contingent met leaders from Honda Motor Corporation with a proposal to reschedule the IndyCar Series race set for April 19 at the Honda-owned Twin Ring Motegi track in Motegi, Japan.

Officials from the IRL would reportedly like to stage an event that weekend at Long Beach, Calif., where the Champ Car World Series has a contract to sanction the 34th annual running of the successful street race. Long Beach is one of several race markets the IRL wants to absorb if it is successful in negotiating the acquisition of key Champ Car assets.

Derrick Walker, a Champ Car team owner who is considering fielding an entry in the IRL this year even if the two open-wheel series are not combined, said he is optimistic that Motegi and Honda officials will cooperate.

"It sounds like it's the closest we've ever been to coming together and I think there is definitely a willingness from both sides to make it happen," Walker said. "A lot of people are giving up a lot and I think [Motegi and Honda] would be crazy not to agree to the change."

Champ Car's majority owners Kevin Kalkhoven and Gerald Forsythe gained control of the Long Beach race on May 24, 2005, when they successfully bid $15 million for selected assets of the Grand Prix Association of Long Beach. Since January 2004, when they emerged from U.S. Bankruptcy Court as the custodians of the Champ Car series, Kalkhoven and Forsythe have also acquired the rights to the Toronto street race, as well as engine manufacturer Cosworth Racing and key supplier Pi Electronics.

Ironically, the four-year history of the limited liability corporation Kalkhoven and Forsythe set up to manage the Champ Car series may end in the same place it was started: federal bankruptcy court. Insiders said they believe Champ Car is considering an emergency liquidation in an effort to pave the way for the IRL to take over as the sole sanctioning body in American open-wheel racing.

That would end a 13-year fight for supremacy between Champ Car and the IRL in the IRL's favor. However, it would also likely create the likelihood of legal action from tracks, sponsors, vendors and drivers who were expecting to be a part of the 2008 Champ Car World Series.

Existing contracts between race venues and Championship Auto Racing Teams, and the potential for lawsuits if those contracts were broken, were the key reason Judge Frank J. Otte awarded CART's assets to Forsythe and Kalkhoven during the 2004 CART bankruptcy hearing. The IRL offered then to take over CART's contracts to stage races at Long Beach, Toronto, Mexico City, and two other unspecified markets.

"I must consider the race contracts, and it is almost impossible to determine that value," Judge Otte stated in his determination then. "We know for certain that they would bring damages and litigation. To litigate would take longer than any racing organization could survive -- at least two to three years."

Jim Knauer, who served as counsel for the Creditor's Committee during the bankruptcy proceedings, said at the time: "Tracks not picked up by the IRL bid would ask for claims because they invested big money in capital improvements that were reliant on having a CART race. $10 million to $30 million is an unsophisticated estimate of an unbelievably complicated process, an impossible task which would take months or years to figure out if contracts are not assumed."

Bob Singleton, the former vice president of Molstar Sports and Entertainment, estimated the damages from canceling the three Canadian races on the 2004 Champ Car schedule would have amounted to $83 million Canadian. "As a race promoter, I certainly wouldn't want to shut down my race for a year and retool," he said.

Yet a one-year sabbatical appears to be the best possible scenario for most of Champ Car's venues if the IRL takes over. The most surprising aspect to the rumors that have circulated about which Champ Car races the IRL would be willing or able to add to its 2008 schedule is that the Toronto event, owned by Kalkhoven and Forsythe, is not on the list. The Grand Prix of Edmonton, a three-year-old event with independent promoters, has been mentioned as the only Canadian event for 2008, though Toronto Grand Prix CEO Charlie Johnstone told Canadian media he believes his race would be included in a merged schedule.

The behind-the-scenes intrigue, combined with reluctance from leaders in both groups to publicly discuss the acquisition, has left employees in both series wondering what fate awaits them. If the transaction goes through, IRL staff members will need to quickly prepare for an expanded race season, while many Champ Car associates will be wondering whether they will emerge with any kind of employment.

The future of the Champ Car Atlantic Championship, which attracted 25 entries for an open test last week at Sebring International Raceway in Florida, is also in jeopardy.

"We've been told [bankruptcy] was not happening and to prepare for a 2008 season as Champ Car," revealed a Champ Car marketing department source. "Until we hear otherwise, our teams are moving forward to compete in Champ Car and are preparing for Spring Training [media and test days set for March 12-15 at Mazda Raceway Laguna Seca]."

John Oreovicz covers open-wheel racing for National Speed Sport News and ESPN.com.

ALSO SEE