A flawed deal to appoint a TT race promoter was "tantamount to outsourcing governance of the Isle of Man" for a month, a report has concluded.
In April 2016, Tynwald approved the appointment of Vision Nine which planned to double TT visitors numbers to 85,000 within 10 years.
But the move gave away "significant" control on matters such as race dates and risked "immeasurable" reputational damage, a report to Tynwald said.
The deal collapsed seven months later. The TT and Classic TT are two of the island's most popular events, attracting a combined 55,000 visitors and putting £28m into the island's coffers each year.
Isle of Man TT RacesImage copyrightMARK EDWARDS
Vision Nine hoped to double TT visitor numbers to the island within 10 years
The 10-year contract, approved by Tynwald, set out a raft of measures by Vision Nine aimed at expanding the event's commercial potential by boosting visitor spending and introducing live TV coverage by 2018.
But the tender process was discontinued in November last year after other government departments identified "highly significant concerns".
This was described as an "embarrassing climb-down" by the Economic Policy Review Committee (EPRC).
Its report made more than 30 conclusions, which heavily criticised the Department of Economic Development (DED) and the Council of Ministers (CoM).
'Lacked financial substance' The proposed contract would have given away control of the TT and Classic TT to a "very significant extent", the committee concluded.
One example given was that the DED would no longer have had the final say on the dates of the events and the racing calendars.
Vision Nine, the report said, was contemplating "fundamental alterations to the timing and structure of the events including a proposed move to a TT fortnight with "two peaks".
This could have had "profound implications" - not only for the TT itself but also for other government departments, the police, and the island as a whole, said the committee.
"Given the far-reaching impact of the TT and Festival of Motorcycling on so many aspects of Manx life, the concept of outsourcing responsibility for these events is arguably tantamount to outsourcing the governance of the Isle of Man for four weeks of the year," the report concluded.
The committee also said DED's plan to "transfer financial risk" for the TT and Classic TT to Vision Nine was "fundamentally flawed" and "would have increased financial and other risks to Government as a whole."
The report's authors said: "The event company "lacked financial substance and could simply have walked away if things had not worked out. "The damage to the TT brand and to the reputation of the Isle of Man could have been immeasurable." line break
Other points in the report: Vision Nine "lacked financial substance" and had "no experience of promoting a motorsport event"
The event promoter would have been under a "compelling commercial incentive" to generate increased visitor spending Under the proposed contract, the DED would "no longer have had the final say on the dates of the events"
The impact on other government departments would be "significant" The department's plans led to "confusion and disarray"
The DED's decision to rely on The Sports Consultancy for legal advice was "a mistake" As a forum for identifying and resolving cross-governmental issues, the CoM was a "complete failure"
Responding to the report, the DED said it "actively engaged" with the committee and remains "focused on the successful delivery of the TT and Festival of Motorcycling".
Economic development minister, Laurence Skelly said his department is going through the conclusions item by item and would comment further in the January sitting of Tynwald.
Julian Topham, the chief executive of Vision Nine - which would have been the TT's first independent promoter in 110 years - said the claim the company "lacked financial substance" was "farcical and totally absurd", as it had committed "a minimum of £3m" to the development of the deal.
He added that the company was "due to be the event promoters, not the race organisers", adding that "all decisions" were due to be taken by a "steering committee", made up of two DED members, two Vision Nine representatives and, "critically, one independent chairman".
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