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DATE News (chronologically)
12/02/11
irl
IndyCar economics not working for some teams  Rumor has it that Newman/Haas may not be the last IndyCar team to fold.  It is sad news about N/H for sure.  Having said that, word is there will be more teams reduced or not on the grid for the first race.  The budget needed to do a middle-pack job next year is around $7 million for the season.  This number is NOT sustainable in the marketplace, as N/H indicates.  They had to subsidize the team for the past few years (and that was with free cars and engines in 08, free cars in 09, $100k for chassis in '10). 

Given the fact that the new chassis is "cost reduced", compared to the old chassis, there are very few teams that actually paid much for their old cars, if anything.  Keep in mind that most of the IRL teams had engine deals with Honda, Toyota, etc.  These mfg. actually bought the chassis' for the teams, i.e. Honda paid for most of Andretti's cars, and Toyota bought Ganassi's.  Add in the fact that most Champ Car teams only paid $100k for their cars (after 2 years of free), so the new car is actually a big cost INCREASE for most teams.

Also, the engine leases are at about $675k for the season which is about $300k less than last year.  However, the turbos, and other plumbing are not included and will have to be purchased. While that is a cost reduction, the tire situation is a big increase for the teams.  Teams will now have to pay about $200k MORE in 2012 and 2013 for tires than in 2011.  And let's not forget that the new car is a design mess, and teams will have to spend millions on R&D to get the car competitive, so that car is not looking like a good investment from a team perspective.

We have done some analysis, and it seems that a team will have to spend about $3 million in new equipment, engines, and tires (per driver), before they ever hire an employee, pay rent, do R&D, or show up at an event.  This is not very cost effective in this economy, and I think that sponsors like Telemundo (Servia) figured that a $7 million sponsorship is not very cost effective.

Additionally, most teams have relied on "Pay drivers" to bring them the money the past few seasons.  Typical going rates for a full season pay deal is in the $2-3 million range.  Those dollars will only buy the equipment, and not pay the running costs for 2012 so drivers like Viso, Conway, Wilson, Saavedra, Mann, Tagliani, Scheckter, Tracy, Jakes, Beatrice, and Baguette will have to significantly increase their payment to the $4-5 million range if they want to keep the seat, and do so in a down economy.  Even the $5 million from Fuzzy's for Ed Carpenter is going to be very tight, and will not be enough to "buy" the best people and resources.

The economics are not making sense, and we wonder if teams like Fisher, Coyne, Conquest, Herta, Shank, will have the financial backing to make it to the first race.  All of the hope and promise of a reduced cost structure have been dashed, and 20-22 cars will be the magic number we think.
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