late, my e-mail inbox has been bombarded from CART fans and many in
the CART paddock concerned about the series very existence. Many
wonder what the
$0.50 per share offer made (and subsequently rejected by CART) by Open Wheel Racing
Series LLC, comprised of
Messrs. Kevin Kalkhoven, Paul Gentilozzi, Gerald Forsythe, Carl Russo,
and Motorock (run by Jamie Rose) really means. This is a
very delicate subject and a lot of people's jobs depend on the future
of the Champ Car Series. If it were to fold, it would likely
have a cascading effect on all the road racing support series under
the CART umbrella, as well as the other series that race with CART on any given
In the beginning, I, like many others, wholeheartedly supported Chris Pook.
He appeared to be the hero and savior of the series. He was
quoted on many occasions that "we have a solid business plan and we
are executing it." Quite
frankly, at the moment many paddock pundits have begun to question
whether there ever was a business plan, and what was really
accomplished other than to spend the investors' money.
Many will argue anyone could have paid teams ESP money
to participate, prop up money losing races, pay for lighting at Milwaukee
and Cleveland, and flown all over the world looking for new
venues and talking to engine manufacturers, only to land none
of them. Many will
disagree with my position, saying many forces were working against
CART, and it was only by the wherewithal of Chris Pook that there even
was a 2003 season. Many big teams, sponsors, manufacturers, and
drivers left CART for the IRL; surely CART could not survive, they
In fact, from every measurable sense, his regime has run CART into the ground,
leaving it worth almost nothing. $0.50 per share is practically
nothing in my books.
Originally Chris Pook went to the Board and requested $30
million to support the underfunded teams and produce a reasonable
grid. Based on a recent statement by Normand Legault to the Journal de Montreal,
$90 million was spent in one year to
keep the series going. A good businessman would have spent half
that amount and CART would be in as bad shape as it is today, i.e. near
Whether intentional or out of complete incompetence,
the fact of the matter is that spending all the investors' money that CART
had in the bank has resulted in its stock trading in penny stock
That combined with future liabilities led the bidders to the
conclusion that the real value of CART is only $0.50 per share.
Because the group already owns 22.9% of the 14.7
million shares outstanding, they only have to pony up just over $5.5
million to buy the entire company. This amounts to about 1/4 of
CART's current market cap, and less than 25% of CART's current
estimated CASH assets alone. Certainly not a vote of confidence from
men who are team owners and know CART well. That lack of
confidence is likely going to be noticed by others, resulting in them
bolting to the IRL.
You can't run a 2-car Champ Car team for a year
for that $5.5 million. This from men who have a combined net worth of well over
$1 billion. $5.5 million is chump change for these businessmen,
but as mother always said, never pay more for something than you have
There are three owners of Open Wheel Racing Series LLC 1) 1/3
owned by Gerald Forsythe who is putting up the 22.9% of shares
he already owns, but little
or no cash; 2) 1/3 by Kevin Kalkhoven who owns no shares but is
putting up cash; 3) 1/3 by the combined group of Paul Gentilozzi, Carl
Russo and Motorock who own no stock but are putting up cash.
Paul Newman saying he would buy in, and rumors of Bernie Ecclestone
buying in, have evaporated.
In talking to people I know, it is my
understanding that Messrs. Kalkhoven, Gentilozzi, Russo, Rose and
Forsythe have good intentions and are trying to save the series
because no one else has stepped forward to bid to take it over and
rescue it. Supposedly, this group would gladly step aside and
withdraw their bid (i.e. be just team owners, which is what they do
best) if another higher bid were to come along, or if bidders with
deeper pockets who could help ensure CART's long-term success stepped
up. And they would support the new bidders.
In a prepared statement issued Monday by
Open Wheel Racing Series LLC, members of Open Wheel Racing have committed initial
additional funding of $15,000,000 to Open Wheel Racing after the
proposed acquisition, which would enable Open Wheel Racing to provide
additional funding to CART. If a third party, which intends to
continue to operate the business of CART makes a superior offer, Open
Wheel Racing and its members at present intend to support such
If CART spent $90 million to stay in business in 2003,
one has to question whether $15 million is going to be enough to run
it in 2004. If they cut back on races, televise fewer races, and teams close their doors
because the subsidies are no longer there, teams and sponsors will
bail and CART will fold like a deck of cards. The low-bid and
the mere $15 million they are proposing to get the series back on its
feet gives the appearance to sponsors, team owners, etc. that this
group of bidders is worried about every last dollar and are not
willing to spend the kind of money necessary for CART to flourish.
Without confidence in CART's ownership, teams will
leave, along with their sponsors. The low-bid has already
resulted in a no-action by the CART Board and I predict the group will
come back with a counteroffer of $1.00 per share, making themselves
and the CART Board look good. Of course Jon Vannini and friends
control the majority of voting shares, so nothing is being finalized
until they say OK. Lowballing the bid delays the sale and will
result in teams and sponsors looking elsewhere to race in 2004
thinking CART is finished. Their sponsors finalize budgets now
for 2004. It's the 11th hour and the clock is ticking, and Tony George
is raising his hammer to drive that final nail.
In Monday's prepared statement, Open Wheel Racing
stated, "In order to improve the financial outlook for CART, Open Wheel
Racing would focus on CART's three constituencies: fans,
sponsors and teams. For the fans, Open Wheel Racing would seek
to broaden the fan base by maintaining the current series
format as well as entering into strategic agreements with
other parties (including Motorock) to organize and conduct
music festivals, concerts, events and contests in conjunction
with CART racing events. Open Wheel Racing plans to provide
enhanced value to sponsors by increasing the fan base both at
race venues and via other broadcast mediums. Open Wheel Racing
and its members believe that the financial interests of the
teams are best promoted by creating a stable business
environment to allow the successful operation of the teams
over the long term."
That all sounds good, but they missed the
most important constituency of all - the drivers. Until a focus
is placed on promoting the drivers, the series is doomed for failure.
Adding in concerts, events and contests is
nice, but in the end, sports fans worship the great athletes, in this
case great drivers. What are they going to do to put the drivers
front and center? Is CART a sport or is it becoming a circus?
In its heydays, CART's strengths were its great drivers, and the great
events were just icing on the cake. When the icing becomes the
cake, the foundation crumbles. Sure, going to great events like the
Toyota Grand Prix of Long Beach is a wonderful experience, but NASCAR
built its foundation on its drivers and then its events. NASCAR
fans drive around with car numbers in their back windows because that
represents "their driver," "their hero."
Mid-Ohio promoter Michelle Trueman Gajoch
had this to say (reference this SPEED TV
article) - while freely admitting the obvious—that she has a
vested interest in Champ Cars continuing to run on road
courses—believes an all-street circuit schedule is seriously, perhaps
fatally, flawed. “I told (David Clare) what my perspective was, ‘You
either need to be a sport or you need to be an entertainment vehicle.
I’m in the motor-sports business. If in fact you define yourself as an
entertainment vehicle going forward, I can surely understand that we
probably aren’t going to fit that equation.’ And he quickly said,
‘Don’t you think there needs to be a balance?’ “And I do believe there
needs to be a balance because, I think what’s been lost in all this
speculation is the fact that the fans come for the sport. And the fans
are enthusiasts of the sport. And it’s been proven time and time again
at permanent facilities, road courses and ovals, that you can bring in
all these bells and whistles and put on carnivals and put on concerts,
and at the end of the day, the racing fans are not here to see it."
"They’re here to watch cars go around the
racetrack and be involved in that. In my opinion, (at)
festival/entertainment based events…the racing becomes totally
secondary. I would argue that the race fans and the sport of it have
to be the foundation that drives the other. And I think that the
entertainment side of it certainly brings new people to it, but
they’re not the loyal people who are going to travel from racetrack to
racetrack and who the sponsors, more importantly, want to be
influenced by their products.” Nor, she notes, do they go home from a
festival event and watch the next race on television. “They’re casual
consumers, that’s the way I look at it,” she says.
There is also the problem of these team owners being
conflicted, i.e. wearing two hats, that of team owner and series
owner. Although their intentions may be good, there will always
be someone who will question why something was done in a way that
appears to benefit them as team owners, or whether team owners who
don't buy-in will get a fair shake.
An example of conflicted - Gerald Forsythe has called
for CART to join F1 and drop their Montreal race to protest Canada's
tobacco laws. As a team owner who is losing his Canadian tobacco
sponsor, one would expect Forsythe to say such a thing, but if he also
owns the series and decides to cancel the race, all the other teams
are negatively affected because Montreal is one of the most popular
races on the circuit. What's good for one team is not always
what's good for the rest.
What's Carl Russo and company doing scoping out the
scene in the IRL paddock with an eye at possibly fielding a team
there, yet he's part of the team that might own CART? If that
isn't the ultimate conflict of interest, I don't know what is. I
can list many other examples; you get the idea. Team owners
owning CART have been a problem from day one because of many conflicts
So what's the solution? While I have great
respect for all the owners of Open Wheel Racing Series LLC, I am of the
opinion that CART and the entire community would be far better served
if an independent contingent were to step forward and buy CART.
But who? And is it too late?
This is where I must tread lightly. In my
opinion, the group that would best serve CART would be that of Jon
Vannini and friends -- the Eatons, the Thomsons et al, who
have a combined net worth of
over $14 billion, making even Bernie Ecclestone look like a
pauper. They certainly have the wealth, and a history
of racing involvement as outlined in a recent rumor here on AR1, but do they have the stomach or the time to
pull together a deal in this the 11th hour?
As investors, they have already lost countless
millions. If they accept $0.50 per share, or even $1.00
they lose. If the company goes belly-up, they lose even
more. If they sue, they might collect something back, but
that's speculative because I am not privy to all the facts and
don't know whether they would prevail in a court of law.
Certainly they think so or they wouldn't be considering a
major lawsuit. And if they prevail, they might collect a substantial
amount of money, especially if they are successful in piercing
the corporate veil.
Buying the series is another alternative, and
with a measly $0.50 per share offer on the table, certainly
that would not be hard. But could they someday make it
profitable such that they recoup their money? That is
going to take further investment and the human resources to
make it happen, and it certainly will take time.
The Thomson family are big media moguls, and would be
able to promote and publicize the series through its vast array of
media outlets. Having numerous conversations with Jon Vannini
over the past two years, and anyone who knows him, will tell you
1) he loves CART and road racing, 2) he is a straight shooter, tell-it-like-it-is kind of guy, which will instill confidence in sponsors,
manufacturers, team owners, and drivers, 3) is a keen businessman and
investor who understands the financial and legal aspects of business,
4) has his fingers in many businesses, 5) and as a driver in various
By waiting until the 11th hour (i.e. when it's
almost too late to land sponsors for 2004) to announce the
company's financial resources were near depletion and would not have enough to
finish the 2004 season, this CART regime has severely limited the time
any number of groups might have to put together a reasonable and
acceptable offer for the series.
By waiting, and not putting out financial guidance for over
one year, before announcing they were in trouble (were they
asleep at the wheel, or just incompetent?) a limited number of
bidders will step forward in time, which means the
stockholders are gored even further because there is little
chance/time for a higher bid to come in.
Someone like Tony George or Roger Penske could choose
to come in with a bid of $0.10 more per share and delay the process
long enough that the entire series will implode, such is the danger
this regime has placed CART in by waiting so long to announce their
Will the current CART management team be held
accountable? Will Jon Vannini follow through on his threat to
sue? Anyone who took elementary business law in high school
knows that the standard of conduct by which corporate officers and
directors are judged is called the "reasonable business judgment
rule." What this means is would a reasonably prudent businessman
under the same or similar circumstances have made the same or similar
decisions that CART management made this year?
There appears to be an enormous amount of confusion as
to the reason for this astounding depletion of financial resources
over the past year. Some extreme cynics believe it's massive
fraud stock manipulation; other say it's gross incompetence; and still
others believe very strongly that Chris Pook was a victim of misplaced
confidence in Bernie Ecclestone.
And if history is any guide, road racing has been up
and down for 30 years; up when they had automotive factory support,
and down when they didn't. Back in the '70s Trans-Am had
all the big factory teams, Can-Am had factory support, as did CART, at
least until now. When each of those series lost factory backing,
they soon became a mere shell of their former selves.
conclusion, if CART collapses it will be the end of America's greatest
open wheel series ever. Tony George will have won the
war, but it will be a pyrrhic victory (in a pyrrhic victory, there are
no winners because everyone is dead). Open wheel racing
will essentially be dead in North America. So while Tony
George may be celebrating now if CART dies, it's the France family that
will reap the ultimate trophy - a complete monopolization of
American motorsports by stock car racing.
The clock is ticking......
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