Editorial

Analyzing the CART/ISC/OWRS tug-of-war
 by Jim Allen
December 31, 2003

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I'm just thinking about ISC sticking its nose into CART's business and on second glance - by no means the final one - it seems an awful lot of trouble for little gain and some potentially bad press. I've found this sort of thing requires several people sitting around and discussing it before a reasonably good estimation of what is involved develops. But this is my first thought.

If ISC were to win the bidding fwar or CART's assets, what would they get? If I remember correctly, the primary assets OWRS want are the race contracts, the Champ Car name and perhaps some meager sponsorships agreements. (Personally speaking I think they should buy old race footage, as well, and try to get Speed Channel or ESPN Classic to run them.) But with those race contracts come obligations - fielding at least 18 open-wheel Champ Cars, putting on and sanctioning the race and possibly some partnership in promotion.

With this in mind, ISC would have two options if they were to bid: perform on the contracts or breach them.

On the latter option, they are a big company and the cost of breaking those contracts would probably be financially negligible. But that assumes there is no legal or regulatory backlash. First of all, someone - a collection of angry fans, perhaps? - could turn around and sue them and the FTC to enforce antitrust laws against ISC and NASCAR. It is unlikely the FTC or the Justice Dept. would start anything on their own given that the President's brother is the governor of Florida, HQ of the France dynasty. Still, it could produce some messy and expensive legal and public relations entanglements, especially for potential sponsors. Moreover, how would it look to investors if ISC were seen using shareholder money to put a potential competitor out of business? Besides the fiduciary questions, such a situation would raise the question of why this seemingly lowly, niche racing series couldn't be defeated in the open marketplace?

Regarding the performance option, the Frances don't have any open-wheel cars, let alone teams or drivers who are ready to race for them on street and road courses the way they had GT racers ready to go in the Grand Am. So fulfilling that obligation would be difficult. They could buy off CART's existing teams to participate, or they could get the former CART teams now in the IRL to employ their three- and four-year-old cars as a favor for the Frances. But that is an expensive favor to ask of some wealthy partners. And even then, ISC would probably not produce a full field, leaving the company with the option of buying a field or breaching the contracts.

Either way, then, it seems such a maneuver would cost the Frances much more - in time, money, legal headaches and public relations battles - than it may be worth to them.

Then consider it from the sponsors' side. Would they really be keen to work with an organization that uses these kinds of underhanded and hardball tricks to defeat a niche competitor? And even if a sponsor decided that without CART, their only option was NASCAR, they would need to consider the following:

a) Do they believe they would get the same amount of exposure? In NASCAR, they would be competing against about 40 to 50 other sponsors for air time every week. That's a 1-in-40 chance of getting your car's decals shown on TV, assuming all else - like your car is among the front-runners from the very beginning - is equal. Of course, if they aren't already in NASCAR, it is unlikely they could get on a front-runner without a significant investment. So the 1-in-40 odds actually worsen, unless the sponsor is counting on their team's car routinely entering the picture as it is lapped by the leaders - that would certainly present a good corporate image, wouldn't it?

In Champ Cars, on the other hand, if a sponsor covers both cars in a two-car team, the odds of getting up-front exposure are reduced to something like 1-in-10. Because of the competitiveness of much smaller fields, it is highly likely the sponsor will be seen much more frequently. Of course, one has to throw in the race numbers to get a better picture of the overall exposure. There, of course, NASCAR will have something like a 5-to-1 edge, effectively nullifying the increased odds of winning in Champ Cars. Then there is the audience, where on a national scale, NASCAR wins again by about 4- or 5-to-1. Considered mathematically, though, and the differences aren't that big: NASCAR - 1/50 chance of being seen x 45 appearances on television x 4 million viewers each race = a total season viewing of 3.6 million lower-quality sights. For OWRS, the equation is - 1/10 x 20 races x 900,000 viewers = 1.8 million higher-quality sights. But...

b) Do they believe they would get a good or better return on their investment in NASCAR over CART? The entry fee for NASCAR is fast approaching that of F1 these days, and for just one portion of a global market. So for an $18 million to $20 million investment for a top team, and a $10 million investment for an also-ran, a sponsor will get 3.6 million possible sights for a second- or third-rate team. That amounts to about $2.78 per sight. By comparison, a $5 million investment in a two-car Champ Car team would yield 1.8 million sights, or that same $2.78 per sight cost. But the latter has additional benefits because it has a better chance of being a front-runner than a back-of-the-pack also-ran. Moreover...

c) Do they believe they can do what Toyota and Honda couldn't? Namely, these two free spending automakers couldn't retain the loyalty of the fans they already worked to develop in CART when they made the jump to IRL. The Champ Car market is a niche market that historical demographic was a higher level of education and income than other forms of racing.

Of course, much of this explains why NASCAR would want to get rid of Champ Cars, but it explains why sponsors have a vested interest in retaining some competition.

Also, does NASCAR think that without CART that those fans would automatically become NASCAR fans? Or do they care, thinking that if they have the only game in the US that former CART fans will eventually forget and forgive them for putting their preferred form of racing out of business? Or do they think they already have enough fans and really don't need the demographic represented by CART's fans? And if this latter line is what they are thinking, how would that sit with ISC's shareholders?

Again, this is just something to consider. And my numbers may be off regarding how much it costs to get primary sponsor roles in both a leading Champ Car team and a backmarker NASCAR team. But it seems that the risks associated with the Frances trying to stomp CART out of business are potentially greater than the rewards, and may indicate to someone as smart as Bernie Ecclestone that the Daytona crowd isn't as invincible as everyone has come to believe they are.

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Others by Jim

Open Wheel racing needs win by OWRS - Part 1

Analyzing the CART/OWRS/ISC situation

Honda and Toyota's Billion Dollar Hissy Fit

We need a good grudge match

Inundated with NASCAR

Now I'm confused

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