Tuesday, February 19, 2008

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.

2 Comments:

Blogger Tim Wohlford said...

There are so many differences between today and 15 years ago that comparisons are almost worthless. Aside from the fact that it's still "open wheels" and they run at Indy, everything in this game has changed.

CART diehards (gotta love 'em) believe that the Split or TG or NASCAR is the source of their woes. However, even without a split, or the explosion of NASCAR, CART's early 1990's formula could not survive today.

1. There is no way that today's fans will stand for fatalities, either from drivers or in the stands. The Michigan race never recovered from the dead spectators, and the IRL hasn't return to Charlotte either.

A sanctioning body has to control the speeds to a much greater extent today - there is no way that Paul Tracy can pull 257 mph (Michigan) on any race track.

Therefore, competitions between motor companies must either be eliminated (CCWS, IRL) or strictly regulated (NASCAR). The CART guys all believe that faster was always better, which made the CCWS great and the IRL suck. Well, the IRL could've run much faster, but recognized that they didn't make any more money going faster, and had to satisfy the safety concerns. Those "Honda" motors were running at 2/3 of their potential, if that.

2. In previous years, a mere millionaire could run an Indy car team. You could own something like Jiffy Mix, or a foundry (Walthers), or Clabber Girl, or a plating company (Mitchner), and have ample funds to run the series. Now, even with the considerable cost containments, it takes the sponsorship of a Fortune 1000 company. Therefore, auto racing is as much about advertising as radio or TV.

The Panoz DP01 chassis is beautiful, but flawed in that it lacked enough ad space, was more expensive than the competitors could afford, and was was not suited to run Indy (where all of the ad guys want to go).

Had CCWS run on ovals, the Panoz was too fast for fans tosee the ads, as were CART cars. NASCAR, going much slower with much larger cars, provided much better billboards. Where do you think the new sponsors wanted to go?

3. CART was already in trouble at the time of the split. Their crowds at MIS were already rivaled by the NASCAR crowds (roughly 60,000). There was the constant whinning noises from drivers about the ovals, and by American drivers who never had a shot at Indy. The costs were already escalating, the speeds already uncontrollable, and the egos pushed the owners to believe that they could rival F1.

4. Finally, Indy had to change. The sponsors were horrified by the redneck Mardi Gras atmosphere. Camera crews had to avoid certain shots when people were having sex in the mud in the infield. Since the split, Indy paved over the Snakepit, and took radical steps to kill the orgy. Even if the split never occurred, you'd see a subdued Indy 500 compared to 1992.

5:07 PM  
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