IndyCar Glory Days Part II

The respective business models of NASCAR (sans-culottes!) and IndyCar began to diverge significantly in the early 1980s. NASCAR continued to pursue the typical strategy of a low-cost industry competitor. Specifically, the cost of entry for new teams remained relatively low because the necessary raw materials were cheap, southern labor markets provided an abundance of skilled workers, and conversion costs were low enough to allow teams to replace parts, even entire cars, that had been crashed or outmoded.

Conversely, IndyCar teams evolved into net consumers, rather than producers, of chassis, engines and racing-related components and supplies. Looking back now, one can argue convincingly that the watershed occurred in 1984, when Robin Herd won the coveted Louis Schwitzer Award for engineering excellence at Indianapolis. His creation was the March 84C, a mass-produced, off-the-shelf chassis that was piloted by 29 of the 33 starting drivers in the 1984 Indianapolis 500. For the first time in the sport's history, all cars were essentially the same. This was not determined via fiat, as it was in NASCAR, but rather by team owners independently choosing to purchase equipment that would allow them to compete and win.

NASCAR teams tended to divide the labor of race preparation among themselves, manufacturing chassis, engines, and components that they would then sell to each other, creating a cottage industry that exists to this day. IndyCar team owners, Roger Penske excepted, became consumers, almost entirely dependent on purchased equipment. As the 1990s approached, NASCAR teams sold sponsorships when and where they could, but they augmented their cash inflows selling, bartering and trading their own manufactures.

IndyCar teams built nothing, bought more and forfeited their own bargaining power with regard to the prices they would pay to suppliers. The natural result of such a massive outflow of capital was that IndyCar teams needed underwriters to subsidize their racing operations. While NASCAR teams were molding, fabricating and tooling, IndyCar teams focused almost exclusively on selling - not to consumers, mind you, but rather to corporate agents. With the stroke of a pen, these individuals could commit their firms to contracts that were in essence underwriting agreements for IndyCar events and teams.

This was a non-market solution that worked well enough, at least for awhile. Nevertheless, as we have all been reminded in recent years, increased financial underwriting does not in itself create value. Increasing consumer demand, however, does. NASCAR is all the proof we need. Traditional IndyCar sponsors were beginning to notice.

• 1990 - No more Texaco Star at Indy. Texaco enters into a supply-chain agreement with Kmart and becomes co-primary sponsor of Newman Haas Racing. Texaco continues primary sponsorship of Robert Yates' #28 Ford in NASCAR.


• 1994 - Hardees' goes south. The quick-serve chain discontinues its IndyCar sponsorship and reallocates all of its racing investment to NASCAR.


• 1994 - Team Valvoline steps back. Two years after winning at Indy, Ashland's Valvoline enters into a supply-chain agreement with Cummins Diesel and becomes co-primary sponsor at Walker Racing. Valvoline continues primary sponsorship of Jack Roush's #6 Ford in NASCAR.


• 1995 - Budweiser pulls back. The number one sports advertising brand in the world determines that it doesn't need to be primary sponsor of an Indy car. It strikes a co-primary sponsorship deal with Kmart and Newman Haas Racing. Budweiser continues primary sponsorship of Rick Hendrick's #25 Chevrolet in NASCAR.

Notice that the migration of these traditional, consumer-oriented racing sponsors was well underway prior to the formation of the Indy Racing League. Therefore, we must conclude that the split did not cause this particular problem. No, this troublesome trend was the result of 1) the increased cost of IndyCar participation, and 2) increased consumer demand for NASCAR's racing product.

The issue was therefore not one of either politics or personalities. The IndyCar problem was then -and remains now - a function of economics.

Roggespierre