IndyCar Price and Market Value

Budget estimates for running a championship caliber, one-car IndyCar team for the 2009 season range from $7 million to $8 million. But the Republic wonders, what should it cost? The question draws opinions from team owners, sponsors, fans and IRL officials. But opinions don't really matter. The only valuation that counts is the one dictated by the free market. And, believe it or not, the market provides some surprisingly consistent estimates.

In finance, the relative value of assets - firms, securities, real estate - is derived from the market prices of similar assets. Because NASCAR (sans-culottes!) Cup and IndyCar operate in the same industry, have similar sources (not values) of revenues and costs, and rely on nearly identical supply chains, we shall use data from Cup to benchmark the market value of a top IndyCar team.

Previously, Roggespierre wrote wistfully of the day when corporations might choose to sponsor IndyCar racing for its own sake. Adjusting the cost of participation to its market value is something that must occur if that day is to come.

WARNING: This requires some very simple math.

According to Jayski.com, the first 21 races of the 2009 NASCAR Cup season attracted a total of 148.17 million U.S. television viewers. Comparatively, the Indianapolis Business Journal and others report that the first twelve races of the 2009 IndyCar Series attracted 10.37 million U.S. TV viewers. Note that our comparison does not include qualifying, special programs, and other events because the ratios would not change materially.

For both series, we divide total viewership by the number of races thus far in 2009 and get the numbers below.

• Average NASCAR Cup event = 7.055 million viewers



• Average IndyCar event = 0.864 million viewers

Next, we divide the viewership total for the average Cup race by the viewership total for the average IndyCar race. We learn that the value of the average NASCAR Cup event is 8.16 times greater than the value of the average IndyCar event. This is a key data point for advertisers that purchase on a strict cost-per-thousand basis. Another way of demonstrating the difference in market value is to say that the average IndyCar race is worth 12.25 percent of the average NASCAR Cup race.

As Danton often jokes when washing down stewed tortoise with a rancid Burgundy while lunching at the Jacobins, just you wait. It can get worse.

And indeed it does, as we have not yet accounted for the fact that NASCAR Cup runs twice as many races as the Indy cars. This factor must be included because we are seeking the market value of running a one-car IndyCar team for an entire season.

NASCAR Cup: 7.055 million viewers * 34 events = 225.760 million viewers
IndyCar: 0.864 million viewers * 17 events = 14.688 million viewers*

*IndyCar is positively skewed by a favorable deviation due to the Indy 500. If we were to calculate the averages at season's end, then the IndyCar numbers would likely be worse.

We are now ready to calculate our relative valuation rate. We divide projected IndyCar season viewership by projected NASCAR Cup season viewership.

14.688 million IndyCar viewers / 225.760 million NASCAR Cup viewers = .06506

The market, as a function of U.S. television viewership, values a championship caliber, full-season IndyCar team at approximately 6.51% of the total value of a similar NASCAR Cup team. We rounded up.

Budgets for top NASCAR Cup teams are estimated to be between $18 million and $20 million per season. Having determined relative market value at 6.51%, we know that the correctly priced operating budget for a top IndyCar team for the season is approximately $1,302,000.

That is how much a championship-caliber IndyCar team should cost given its market value. In the present cost structure, $1.302 million is enough to cover the season engine lease and three front wing assemblies. You still need a chassis, tires, gearbox, crew, driver, race shop, travel & lodging, hauler and someone to drive it, components and replacement parts.

Available data regarding title sponsorship for the series suggest that our relative valuation is very much in the ballpark. NASCAR Cup's deal with Sprint Nextel is estimated to be worth $700 million over ten years, or approximately $70 million per season. Using our 6.51% relative valuation rate, we estimate that the market price for title sponsorship of the IndyCar Series is $4.557 million per season. Using this figure, we can say with some confidence that John Menard's offer of less than $4 million per year for title sponsorship is a bit low. Conversely, Terry Angstadt's asking price of $8 million to $9 million per year is too high.

Perhaps this explains why title sponsorship is so elusive. The IRL has no doubt turned down its share of low-ball offers. But the market value of the IndyCar product is considerably less than the asking price.

We might also better understand why so many corporations prefer to sponsor NASCAR Cup teams for three or four races rather than back an IndyCar team for the entire season. Given the cost per thousand calculations, a standard metric in the advertising industry, part-time sponsorship of a Cup car remains a significantly better value.

Finally, we can deduce some hints about the "technology vs. cost" argument that is beginning to perk and boil again as anticipation builds the for new IndyCar technical specifications. The Penske and Ganassi teams have every incentive to prevent market value from entering the equation that determines new specs. Teams that have sponsorship to support annual budgets of $7 million to $8 million per car gain nothing if teams with $1 million budgets are able to compete with them for sponsors and race wins.

Citizens are advised to keep this in mind the next time Target Ganassi Racing Managing Director Mike Hull proclaims that the future of IndyCar racing is best secured with high-tech race cars. Although it is true that Hull and his employer are well served by expensive technology - which, by the way, is not the same thing as innovation - it does not necessarily follow that all IndyCar stakeholders stand to gain from a high-tech approach.

Indexing the cost of entry to market value will not solve all of IndyCar racing's challenges. But it will address many of the bigger ones. The Republic hopes that IRL management has the necessary courage and discipline to make it happen.

Roggespierre