Editorial

Making sense of CART's situation

 

 by Mark Cipolloni
July 30, 2003

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Many readers have written expressing concerns about CART's future, and asked for advice or insight as to what is happening.  While we don't have access to the inner sanctum at CART headquarters on a daily basis, we do hear things, and here are some things for you to ponder.  

1. If CART were fast approaching its demise, you would expect the likes of David Clare and many of the other people hired over the past year to jump ship ahead of time. That such big-name defections haven't occurred as yet seems to be a positive sign.

2. Mr. Ecclestone would have a much more difficult time picking up the Long Beach GP if he were to double cross Mr. Pook, given the latter's influence and reputation with the event. Nor would Long Beach automatically want to pay a fee multiples of what they are currently paying for CART's race given the current state of municipal finance in the U.S. today and, in particular, in the State of California.

3. If CART's management were really trying to tank the stock to make it cheaper for someone else to buy, it also would ruin the value of the holdings of some key people in a resurrected organization:

  • Gerry Forsythe, the company's biggest shareholder (23% as of 23 May) and part of a rumored buyout group

  • Carl Haas, a 2% owner and a director

  • Pat Patrick, a 1% owner and a director

While these individuals may be willing to eat their losses for the good of the sport, there are other investors who simply can't be expected to.  

4. Shareholders may have a difficult time claiming they were duped by CART management. More than a year ago Chris Pook laid his cards out on the table, proposing to buy television time, to support new teams, to promote a number of its own races and to buy engines from Cosworth. Everyone knew and discussed how that strategy would use the company's cash reserves at an unprecedented rate. That it has now come to pass should not surprise anyone.

Moreover, the fortunes, strategies, tactics, problems and risks of this company have been openly discussed in more venues than just about any public company in the world. You don't see this kind of coverage relating to IBM or Wal-Mart. AR1 is not the only forum that has reported on the rumors and suggestions of the company getting taken private, bought out or failing.

That a shareholder - particularly a significant one with resources to do firsthand research - could claim that they did not see this - whether it is a rescue or failure - coming unless they have other evidence that the rest of the public does not.  With that said, I expect a major shareholder lawsuit to be filed by Friday unless CART steps in at the 11th hour and negotiates a settlement of some sort.

5. Given the financial trend at CART, it is hard to imagine that the IRL and its chief supporters - the descendents of Tony Hulman - haven't endured an even worse financial drain. They have admitted in the past week that they still are not profitable after eight years in business and that the addition of the Brickyard 400 is what helped finance the series. Also consider that they started their operation from scratch and had a couple of formula changes thrown in for good measure, all suggesting that their losses might make CART's look meager. Talk about grounds for a lawsuit.

6. If I were a shareholder,  the people I would look to sue would be the former team owners, shareholders and directors who took advantage of their positions as insiders to disparage, belittle and defame the organization they were entrusted to oversee.

7. If a buyout does occur, will the media in Indianapolis focus any attention on the "sexed up" comments from CART's competitors about the company's fortunes in the same way the national media has regarding Weapons of Mass Destruction in Iraq?  Will the SEC look into the origins of negative rumors relating to the shares of a publicly listed company?

The author can be contacted at markc@autoracing1.com

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