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Bankruptcy judge approves sale of BK Racing to Front Row Motorsports

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CHARLOTTE, N.C. — A day after he put his team in Chapter 11 bankruptcy, BK Racing owner Ron Devine alternated between being combative and conciliatory as he spoke to reporters outside his hauler in the Daytona International Speedway garage.

Losses in the millions, a pile of debt and a bank eager to get more than $8 million back in loans and accrued interest led Devine to go to court to protect his team and its charter — the one item that gave his underfunded team its greatest value.

The paperwork was filed, according to court documents, about 30 minutes before a Feb. 15 hearing in Mecklenburg County Superior Court. That hearing was in regards to Union Bank & Trust’s request of a receiver to operate BK Racing and a preliminary injunction to prevent the team from selling or leasing its charter.

“We’ll get it resolved,” Devine said 48 hours before the Daytona 500. “I promise you, we will get it resolved. The bank wants it resolved, and I want it resolved. We will get it resolved. And I’ll see you in Homestead (for the season finale).

“We will be in Homestead.”

Devine was right six months ago. It got resolved.

But left him without a team.

Judge J. Craig Whitley approved the sale of BK Racing — a team Devine helped bring to Cup in 2012 — to Front Row Motorsports for $2.08 million on Thursday.

In announcing his decision, Whitley called the matter “just a bad situation and we’re doing the best we can with it. I don’t expect anybody to be delighted by it, but it is what it is.”

Devine and the team’s engine supplier objected to the sale Thursday. During an early recess, Devine spoke with the attorney for Union Bank & Trust. After the brief discussion, Devine shook his head, walked away and said: “Then that will do it. Jesus Christ.”

Devine and the team’s engine builder urged the judge to let the team continue through the rest of the season and be sold then. Devine stated that he would be an interested buyer then. Devine, it was noted in court, had made an unqualified bid to get the team back.

On the stand, Devine made a last-minute appeal to the judge not to sell the team: “This is wrong to occur during the season. There is the ability to run the team through the end of the season.”

Devine called it a “misconception that this team is on the brink of collapse.”

Trustee Matt Smith, appointed by the court to take over the team from Devine in late March, said Thursday morning on the stand that “cash continues to be very, very tight.”

Smith also said on the stand that “without sponsorship, I run about $30,000 to $50,000 in the hole” per race. Smith expressed concerns that he would be able to run the team through the end of the season.

The charter requires teams to compete each weekend. If the team missed races, it would allow NASCAR to take the charter back and leave BK Racing with little value. While Smith and many others expressed disappointment that the bidding didn’t generate any more money, Smith recommended the sale take place.

When Devine questioned Smith on cross examination about how long it took for him to provide info on the team’s financial status, Smith said: “The business records you had were atrocious.”

After the hearing, Devine said: “That trustee at the very least ought to be embarrassed. He should have stopped it with one bidder. I just think he was in over his head.”

The judge didn’t see it that way and awarded the charter and assets to Front Row Motorsports. The judge also approved the sale of equipment and 19 chassis (primarily in storage and in various stages of readiness) for $265,000 to Obaika Racing and a hauler to Rick Ware Racing for $35,000.

Front Row Motorsports gets BK Racing’s charter, which guarantees a starting spot in every race and a set amount of money per event, and some of its assets, including the cars it is running. Front Row Motorsports was expected to close on the sale as early as Thursday afternoon. All of BK Racing’s employees will be retained as part of the agreement.

Front Row Motorsports now owns both charters that went to BK Racing when the charter system was created before the 2016 season. BK Racing sold a charter to Front Row Motorsports in December 2016 for $2 million, a sale that did not include any other assets.

Front Row Motorsports, a Ford team will run the former BK Racing team, a Toyota team, as a separate entity through the end of the season.

Jerry Freeze, general manager of Front Row Motorsports who attended court Thursday, said the team will not change manufacturers after this season. He also said he did not know who the driver of the BK team will be for next weekend’s Southern 500 at Darlington Raceway. Or if the car number will change from No. 23 to No. 35, a number Front Row Motorsports has used for a third entry at times.

Freeze said the team wants to expand to three full-time cars but admits it will be challenging to find the sponsorship at this point to do so for next year. An option for the team would be to lease two of its charters to other teams — it already leases a charter to TriStar Motorsports and could continue that relationship. Charters can be leased once every five years.

“You’ve got to imagine we’ve been assessing the market for who would need to lease a charter next year and who might be interested in buying one of the other charters that we have,” Freeze said after the hearing. “So we think there’s a market out there for sure. It was worth taking the chance and opportunity to see if we could get this one.”

Front Row Motorsports’ bid topped a bid from Mike Beam, president of GMS Racing.

That a Cup team’s fate was settled in a U.S. Bankruptcy courtroom showed how far BK Racing had fallen. Six weeks after Devine filed Chapter 11 bankruptcy, he lost control of the team when Smith was assigned as trustee. Devine called the judge’s action then “a sad day for BK.’’

It wouldn’t have to come to that had the team been more fiscally responsible. Court documents show that team lost $29.5 million from 2014-16. Court documents show that the team “budgeted” for a loss of $1.358 million in 2017 in what was described as a “skeletal budget.”

Then, there was the millions owed Union Bank & Trust for the numerous loans (now up to more than $9 million). The IRS filed court documents on March 12 that stated it had a secured claim of $2.5 million and a priority claim of $328,792.47 owed. A former employee and current employee at the time testified in March about having paychecks bounce last year. A former employee said he had a paycheck bounce in September 2017, November 2017 and December 2017 before leaving the team.

In May, court documents listed secured claims against the team at $31.6 million. That included $15 million to the Virginia Racers Group, which included Devine and started the team. Court documents also listed unsecured claims at $773,569.17 and non-priority unsecured claims at more than $5 million.

Smith decided this summer that it was in the best interest to sell the team.

“One of the reasons, and I know that Mr. Devine is in the room and probably doesn’t want to hear this, but I think one of the reasons this team is in trouble is it had the wrong owner,” Smith said in court on July 26. “So I believe the right owner, transition of ownership, would be the best thing for this team.”

Smith stated that day that “the cash flow (for the team) is exceptionally tight” and questioned then about going beyond the end of the season.

With all the money spent, BK Racing rarely ran anywhere close to the front. The organization, which fielded up to four cars at times, had three top-10 finishes in its history.

Sunday, in its last race as BK Racing, Blake Jones finished 27th, 15 laps behind the leaders. Only three other cars that made it to the finish ran fewer laps than Jones.

“It’s a tough business,” Devine said in February at Daytona when asked why he didn’t align with another team to help defray costs. “I think it’s an expensive learning curve. I also think … you’ve got to decide where you are taking the company and I took it down a very independent route, which probably wasn’t the smartest (thing).”

But Devine was not deterred Thursday. As he stood outside the federal courthouse awaiting an Uber ride to the airport, he said he still wanted to be in NASCAR as an owner.

“I’ve got other options,” he said.

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BK Racing court filing reveals expenses, revenue for each race

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Court documents filed Thursday show that BK Racing made a net income of $359,619 through the Phoenix Cup race.

The documents are part of BK Racing’s Chapter 11 bankruptcy case. The team filed Chapter bankruptcy Feb. 15.

COURT DOCUMENTS: Click here to view the BK Racing filing

MORE: Peek into race purses under charter system

A hearing Thursday afternoon in U.S. Bankruptcy Court, Western District of North Carolina, on a motion by Union Bank & Trust to have a trustee take over the team’s operations was continued until Wednesday. BK Racing car owner Ron Devine was on the stand for more than two hours.

The bank claims it is owned more than $8 million in loan payments and seeks to have a trustee oversee BK Racing’s finances “to an end to the Debtor’s years of mismanagement,’’ according to court documents from the bank.

In its motion to appoint a trustee, Union Bank filed documents stating that the team lost nearly $30 million from 2014-16.

The updated budget filed Thursday on behalf of BK Racing breaks down income and expense for each of the first four points races and anticipated income and expenses the rest of the season.

The document shows that BK Racing had $50,000 sponsorship for the Daytona 500, $10,000 sponsorship each for the Atlanta and Las Vegas races and $30,000 sponsorship for the Phoenix race.

BK Racing listed prize money as:

$29,946 for its qualifying race at Daytona

$428,794 for finishing 20th in the Daytona 500

$91,528 for finishing 36th at Atlanta

$98,754 for finishing 33rd at Las Vegas

$82,000 for finishing 34th at Phoenix

The high payout for the Daytona 500 has given BK Racing more than $350,000 in net income. For other races, though, the team’s net income has been small.

At Phoenix, the team listed a net income of $790.

The team had $120,250 in revenue for the Phoenix weekend. It was broken down this way:

$82,000 in prize money

$30,000 in sponsorship

$8,250 in other revenue

The team listed $119,460 in expenses that weekend. Among the team’s expenses for Phoenix:

$35,000 for its engine lease

$21,000 for salary and wages

$10,525 for airfare for team personnel

$9,000 for tires

$9,000 for contract payroll

Those expenses alone totaled $84,525, exceeding what the team made in prize money and showing how important sponsorship is in the sport.

BK Racing provided a budget for the remaining races. The team’s budgeted expense was more than $103,000 for every race. That included everything from engine lease and tire bills to hotels, meals, salary and wages, entry fees, insurance, payroll taxes and more.

The most expensive race is the Daytona 500 at $135,502, which included an engine lease of $50,000. Next listed was Auto Club Speedway at $125,606, which included $9,500 in airfare and $10,000 in tires.

BK Racing’s prize money estimates on remaining races is based on a 30th-place finish in each event.

BK Racing lists its sponsorship budget for future races as $50,000 per race, progressing to $100,000 and to $150,000 for the final 13 races. That would give the team a sponsorship budget of $3.505 million.

Court documents filed by Union Bank & Trust show that BK Racing collected $1.5 million in sponsorship in 2016 and $1.05 million in sponsorship in 2015.

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BK Racing owner explains reason for filing Chapter 11 bankruptcy

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DAYTONA BEACH, Florida — BK Racing owner Ron Devine said his team filed Chapter 11 bankruptcy to keep Union Bank & Trust from taking control of the team’s charter and selling it.

BK Racing filed Chapter 11 bankruptcy Thursday afternoon in Western District Court of North Carolina. In its bankruptcy filing, BK Racing estimated the number of its creditors as 50-99. The team estimated its assets as more than 10 million and estimated liabilities of more than $10 million.

The filing came shortly before a hearing was scheduled Thursday in Mecklenburg County Superior Court on Union Bank and Trust’s request to have a receiver to oversee BK Racing’s collateral. Union Bank & Trust claims that BK Racing owes it more than $8 million in outstanding loans. Among the most valuable pieces of BK Racing’s collateral is the charter it has for the No. 23 car that Gray Gaulding will drive in the Daytona 500.

“I filed (Chapter 11 bankruptcy) because the bank wouldn’t stop trying to get a receiver (to oversee the team’s collateral),’’ Devine said. “The only reason they wanted to get a receiver was to push the charter off to their third-party offer. That’s where the problem was.’’

Devine said he felt that he and the bank came close to resolving their issues before time ran out. He plans to meet with the bank next week and continue discussions.

The Chapter 11 bankruptcy listed 20 creditors with the largest unsecured claims. The largest was to Race Engines Plus for $569,539.95. Devine said matters have been resolved for the team to use the company’s engine and race this weekend but more needs to be done.

“We’re either going to fix it or we’re going to have to change,’’ Devine said of the engine company. “I think the relationship is what has to be fixed between me and Joey (Arrington, founder of Race Engines Plus). Fixed or changed or something. I actually think (Chapter) 11 will help us be able to have a conversation.’’

So how does Devine, who has owned various businesses and been involved in commercial and residential real estate development for more than 30 years, find himself in a such a financial position with his race team?

“I think it’s a tough business,’’ he said. “I think it’s an expensive learning curve. You’ve got to decide where you are taking the company. I took it down a very independent route. Probably wasn’t the smartest. I think the right thing to do is get an alignment.

“If I had any inclination of getting out, I would have let them do the receiver and just gone quietly into the sunset. I still see in the last unpioneered sport in the country, that NASCAR is going to be one of the premier sports in this country and I want to be a part of that. I still believe that. I think it’s going to be spectacular. I think it’s going through a transition. It’s headed in the right direction.’’

How does he get his team to where he wants to be competitively?

“We got to stop the nonsense,’’ Devine said. “We’ve got to get this thing worked out with this bank. Then we’ve got to get ourself together and on a platform that we can run and race competitively.’’

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