Friday, May 06, 2005

CART By the Number$

There has been a lot written about CART and why it failed but I’ve not seen the supporting numbers. I hope to bring the reality of CART as a business to bare here with the financials that I have gathered from publicly available sources. During my search I was fortunate to find financials from 1993 to 1997, the last year CART was private. It isn’t often we get a glimpse of the financials of a private company and believe me CART was no shining star in the business world in the early nineties as I will show later.

The day to day operations of this company are not significantly different than any other privately held corporation. What must have been the most difficult hurdle to overcome was the fact that there was too many owners. Penske, Patrick, McCaw, Haas, Rahal, Horne et al were all successful businessmen in there own right but collectively were not able to synergize that relationship. I believe, as do many, their collective association had the opposite effect. As I study the financials I my feelings about that are reinforced. Unfortunately without data from the beginning it’s difficult to be certain.

CART’s Revenues came from three primary sources; Sanctioning fees, Sponsorships and TV. In 2000, Cart’s best year, sanctioning fees were 50 % of revenues, sponsorships were 28%, TV was 8% and the remaining 14 % categorized as other.

In 2000 CART reported sanctioning fee revenue of 38M for the 21 race schedule that’s a 1.8M average. To give you an idea of what these fees might be the highest reported fee I have found is 4.2M for the Rockingham event.

For years 94 through 02 TV revenues were essentially unchanged running at about 5M per year. In 93 they reported 9M in TV revenue and in 03 only 2M.

Sponsorship fees grew from 4M in 93 peaking at 21M in 2000 then falling to 8M in 03.

In 93 CART had revenues of 30M, expenses of 30M and showed an after tax profit of 272K. The next two years were similar in that revenues were nearly equal to expenses with profits nearly doubling to 800K in 95. In 96 a loss of 300K on revenue of 41M is claimed. 97 is a convoluted year with the end of the private company. Here’s my best interpretation. The company lost considerable money that year either 5M or 17M depending on which report you follow.

The following is a cut and paste from the report:

In December 1997, as part of our reorganization, each stockholder of CART, Inc. exchanged their shares for stock of Championship Auto Racing Teams, Inc. Prior to our reorganization, the franchise race teams received reimbursement of travel expenses, directors fees and franchise payments in an aggregate amount equal to $8.5 million and $19.4 million for the years ended December 31, 1996 and 1997, respectively. The franchise teams signed an agreement on December 19, 1997 to discontinue these payments after January 1, 1998.

Sounds like the owners were paying themselves at the expense of the profitability of the company.

The first year of CART as a public corporation was a successful one as they had a profit of 15M on 63M of revenue followed by a profit of 19M on 69M of revenue in 99. In 2000 expenses began to take on ugliness. Expenses increased 15M from 44M in 99 to 59M in 2000 while revenues increased only 6M. Although they posted a profit of 15M, the stage was set for the final fall.

The next three years were disastrous as the revenues fell and the expenses climbed as they began burning through the 115M in cash and short term investments they had to keep the series alive.

The end came in 03 with shameful numbers.
Revenue 50M
Expenses 143M
Income (92M) For those who don’t know the numbers in parenthesis are negative.

Draw your own conclusions!

All of the data herein was gathered from sources publicly available and transcribed to the best of my ability. The numbers were rounded for clarity and as a result may not total as expected. M=millions K=thousands

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