IRL CCWS Amalgamation Headed for Failure?

In my last post I suggested that TG now has half of what he needs to take open wheel racing to a new level and hopefully save it from oblivion. The half I referred to was my notion that OWR requires a single leader if it is to survive. The other half is strength, that leader must be strong and dictator like in order to grow the business.

After watching the Speed TV interview last Sunday TG's response to Robin Miller’s question, - would he now become a full time manager and get out of the team ownership business and conduct the business like Bernie E does in F1, - I began to realize that my prediction of failure might be accurate. TG answered Robin’s question after some thought by saying basically no, me and my wife are team owners and we like what we are doing.

This attitude shows me that he has hardly, if even at all, recognized that strong leadership is a must for any business to succeed. This just seems incredible to me that he cannot recognize that his own IRL is on the brink of failure and that it desperately needs strong leadership.

At today’s press conference both he and KK were claiming that the amalgamation of the two series would begin to solve their issues of sponsorship and other problems that have faced the two series since 96. Although both admitted that it would take a lot of work and time get where they envisioned, this joining together would be was the best way to proceed to that end. I don’t disagree but it will require a strong leader and I don’t see that in TG.

Another thing I saw nearly absent during the press conference was the idea of best practices. When two companies join together one of the greatest things that happen is recognizing each others best practices. The only mention of that was Barnhart’s bit about bringing some of the safety folks onboard because CC had a recognizably superior group that the IRL could take advantage of. It was incredible to me that when asked this specific question TG deferred it Barnhart. The CEO had better know everything that goes on in the company and my impression is that TG is giving up to much responsibility to his underlings.

OWR in this country is a niche market, that market was split between two series until last Friday. Neither series has shown any signs of growth since the split in 96. It is my opinion that both series were on a death course which might have possibly been nearing the end. Now with the amalgamation of the two what will happen? Well it’s still a niche market, can it be made into market big enough to support OWR. Maybe, but that is a tall order, one that I have seen better leaders than TG fail at.

I can’t predict the future but I suggest that Open Wheel Racing fans prepare themselves for life without open wheel racing. It may not happen soon but if someone doesn’t figure out this leadership thing it is very likely to happen eventually.

OWR Now One...... Will it Survive?

I’ve been waiting for the big announcement to post this. As I said in my last post I believed that open wheel racing in this country is dying. I offer as my first piece of physical evidence the collapse of Champ Car as announced today. Now we can all await the demise of what remains, time frame unknown but surely coming.

I believe that the ashes of Champ Car and the dwindling businesses formerly known as the IRL and the Indy 500 cannot be combined to make a series that will ever return to the “good old days”.

Furthermore the often referred to “good old days” may not have been quite what everyone seems to think they were. Many have said that if only there were some way to return to the 90’s when CART was at its peak then things would be good.

Let’s judge series on its financial merit only. I agree that it had a huge following in those days but if the company “CART” was to prosper it needed to grow and once you see how the company’s finances were managed I think you will see that things were not as you might have thought.

Let me offer as more evidence that things might never have been what they seemed to be, some information I gathered from the SEC EDGAR data base when I when looking for public information about CART.

I was pleasantly surprised to find a good amount of information about CART finances before they were public. I suppose they had to divulge that information as a part of going public. Seldom does one have a chance to see a balance sheet of a private company.

The numbers are rounded to the nearest major amount for presentation.

In 93, 94, 95 and 96 revenues are listed as 30, 25, 30 and 41 million dollars and expenses are listed as 30, 25, 30 and 42 million dollars. Two things stand out here, revenue for 96 was up 35% over 95, not a bad 1 year increase and 93, 94 and 95 were basically flat. But where is the profit, how does a company spend exactly what its top line is? The answer can be found in Dan Gurney’s white paper where talks about the teams sharing in the profit.

The founders of CART were some of the owners and the company was set up with certain favorable teams being franchise teams. Roger Penske, Pat Patrick, Jim Hall, Tyler Alexander, Bob Fletcher and Dan Gurney. I could be wrong about some of these names but it isn’t important who they were as much as what they did.

By now you’ve probably realized they distributed the profits among the franchise team owners. To the extent that net income for those same years was 272, 426, 800 and (300) thousand dollars. -Numbers in parentheses are negative.-

This doesn’t strike me a way to grow a business rather it seems more like communism.

Contrast this with the data for 98, 99 and 2000, 98 being the first year of the public company. Revenue for these three years was 63, 69, and 75 million dollars and expenses were 42, 44 and 59 million dollars. They actually had funds left over even though the blessed few still took from the pot the “let’s take what’s left over mentality’ seemed to be limited. The net income from those same years was 15, 19 and 15 million dollars. Not necessarily growth but not giving away the store to the blessed either.

There were still funds being shifted to the blessed but not the balance of earnings like in the early days when there was no public accounting. Gnassi, Penske, McCaw, Haas, Rahal and Horne all managed to own the company to the tune of about 800,000 shares each.

From 2001 on there are more parenthetical numbers on the balance sheet than not and of course it ended in bankruptcy after the 2003 season. Can you see now why the blessed left?

Sponsorship fees peaked in 2000 at 21 million and television receipts peaked in 2000 at 5.5 million, neither number excites me as being large for the time, especially TV.

These are just a few of the many examples of how a few ruined a good thing for the rest.

So how will the latest iteration of open wheel racing fair? Gurney had it right 30 years ago in his white paper when he said about the FOCA, they appointed Bernie Ecclestone as the chief of operations officer and negotiator and they made a solemn pledge to abide by his decisions 100 percent.

Perhaps it is presumptive to assume before the official announcement scheduled for later this week that TG will be the sole leader of the newest iteration but if he is he will have half of what he needs. The question to be answered is will he have the other half. And if turns out that the leadership is shared, well we all know how that works!

Time will tell.