Champ Car files for Chapter 11 bankruptcy after Kalkhoven denied it UPDATE #2 The official cost to Indy Racing League founder Tony George to unify open-wheel racing is $10 million, according to information contained in Champ Car's Chapter 11 bankruptcy filing this week.
George agreed to pay $2 million apiece to Kevin Kalkhoven and Gerald Forsythe, Champ Car's primary owners, and $6 million for Champ Car's assets, which include a mobile medical center.
Additionally, George committed cars and engines to Champ Car teams that will participate in the IndyCar Series, worth $1.8 million per entry. So far, six have signed on, pushing the commitment to $20.8 million.
Kalkhoven's team, known as KV Racing, announced its intention to field two cars this year. Forsythe's Indianapolis-based team, Forsythe Championship Racing, will cease operations.
George also vowed to continue the tradition of the Long Beach (Calif.) Grand Prix by giving it a spot on the IRL's schedule. This year, the IRL will pay television costs associated with the April 20 race. Kalkhoven and Forsythe also have obligations to the event.
In filings with U.S. Bankruptcy Court in Indianapolis, Champ Car listed among its creditors companies owned by the series' owners, a group that also includes Dan Pettit and Paul Gentilozzi.
The debts include:
$1.825 million to Cosworth, an engine-building company owned by Kalkhoven and Forsythe.
$645,883 to PKV Racing, a race team which Kalkhoven and Pettit owned.
$424,861 to RuSPORT, a race team Pettit bought from founder Carl Russo.
$327,961 to Forsythe Championship Racing, which Forsythe owns.
Champ Car filed Chapter 11, a reorganization, because it will continue to operate some aspects of the company, primarily by the junior class known as the Atlantics division. Under the agreement, Champ Car's owners are not allowed to compete with the IndyCar Series as owners of another series. The contract with Champ Car and the IRL will not be finalized until the court settles the bankruptcy case. Indy Star03/06/08 Champ Car yesterday filed Chapter 11 bankruptcy, igniting what could potentially be a bidding war for its assets. The Indy Racing League last month agreed to acquire certain assets of Champ Car, but the bankruptcy court could open things up. “To the extent that another buyer would come in and pay more, that would be better for the creditors,” said Jeffrey A. Hokanson, an attorney with the Indianapolis-based law firm Hostetler & Kowalik, which represents Champ Car. If another bidder offered a higher amount, Hokanson said IRL officials could counter offer. “It can amount to an auction,” he added.
But motorsports experts don’t expect another suitor to swoop in this time. “A judge certainly has the right to hand it over to another buyer if one shows up, but I don’t anticipate that,” said Tim Frost, a Chicago-based motorsports business consultant. “This is part of the procedural motions Champ Car had to go through to make the transaction with the Indy Racing League happen. I believe this is the final chapter of open-wheel unification.”
A likely scenario, Hokanson said, is for the bankruptcy to be used as a tool to complete the IRL-Champ Car unification, and to sell the remaining assets such as engines, chassis and office furniture and supplies to satisfy creditors.
The filing, submitted in U.S. Bankruptcy Court in Indianapolis, showed that the Indy Racing League essentially paid $10 million for all of Champ Car’s intellectual property rights, a mobile medical unit and a non-compete agreement and consulting fee for Champ Car co-owners Gerald Forsythe and Kevin Kalkhoven. The filing, however, states that Forsythe and Kalkhoven would use $4 million to promote the Long Beach Grand Prix in April.
The filing indicates Champ Car has between $10 million and $50 million in assets and owes between one and 49 creditors between $1 million and $10 million. Most of the assets likely have a very limited number of potential buyers, which could bring the value down. The creditor with the largest claim is Cosworth Inc., a California engine maker owned by Kalkhoven and Forsythe, which is owed $1.83 million. Several of Champ Car’s former teams are owed money, including PKV Racing, which is owed $645,883; RuSport Inc., which is owed $424,861 and Forsythe Championships Racing, which is owed $327,961.
Today, Champ Car lawyers moved in court to keep paycheck flowing to 20 Champ Car employees, who are responsible for preparing for the race in Long Beach.
Will open-wheel unification truly happen this time? Indy Business Journal03/06/08 Attorneys representing parent companies for the Champ Car World Series filed Chapter 11 paperwork in United States Bankruptcy Court on Wednesday.
The open-wheel racing series is set to stage its final event on April 20 in Long Beach, Calif. Champ Car intends to continue in the management and possession of its business and property as a debtor-in-possession until assets can be sold to pay off creditors.
Champ Car World Series LLC estimated it carries debts of less than $10 million, topped by $1.825 million owed to engine manufacturer Cosworth Inc. Company assets are estimated at $10 million to $50 million.
The filings contain additional business details about the unification of American open-wheel racing under the Indy Racing League banner.
An affidavit from Gene Cottingham, vice president and chief financial officer for Champ Car World Series LLC, stated that the company's four-man board of managers "determined that it is no longer economically feasible to sustain an open-wheel series and that [Champ Car] did not have the funds to operate the series in 2008."
The board of managers comprises Kevin Kalkhoven, Gerald Forsythe, Paul Gentilozzi and Dan Pettit. Champ Car's majority owners are Kalkhoven (through a company called 21st Century Racing Holdings LLC) and Forsythe (and his company Willis Capital LLC).
Cottingham further noted that Champ Car determined " ... it is in the best interests of the sport of open-wheel racing in general to sell certain assets to the IRL and to unify the sport of Indy-style open-wheel racing under the IRL, all before the start of the 2008 season."
The affidavit revealed that the Champ Car board of managers authorized the decision to file for bankruptcy on Feb. 14, exactly one week before Kalkhoven and Forsythe executed a "Memorandum of Understanding." The memorandum directs Champ Car to assign race sanctioning contracts and sell substantially all of its intellectual property and other intangible assets, as well as the Champ Car Mobile Medical Unit, to the IRL for $6 million.
Feb. 17: John Oreovicz interviews Kalkhoven.
Oreo: What about this talk of bankruptcy? Is that a possibility, or something in the cards?
Kalkhoven: "Utter and complete nonsense...malicious gossip."
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