IRL IndyCar: To Compete or Not Compete?

We have established that the U.S. market for auto racing products that feature American drivers, low-tech cars, and almost exclusively oval tracks is far more attractive than its alternative. Managers at firms the world over routinely conduct similar analysis upon which they base strategic decisions. We'll use the U.S. market for energy drinks as an example before returning to the matter at hand.

Energy Drinks: Textbook Competition

Red Bull demonstrated that abundant demand exists among U.S. consumers for sweet, uniquely packaged, carbonated beverages that contain multiple stimulants, the names of which all apparently end with the "-ine" suffix. As any economist would have anticipated, shelves at U.S. convenience stores were subsequently inundated with similar, cheaper products from firms that hoped to capture market share from Red Bull. Brands such as Monster and Rockstar were successful.

The Case of NASCAR

Like Red Bull, NASCAR (sans-culottes!) is the dominant market leader in its industry. As such, NASCAR commands premium prices not only for itself, but also for its drivers, teams and promoters. Unlike Red Bull, NASCAR operates in an industry that is not particularly attractive to potential new competitors because entry requires substantial capital investment, as well as development of an intricate supply chain. Prospective new entrants are therefore kept out. There will be no Monster and no Rockstar to swipe market share from NASCAR.

The only existing firm possessing the resources to do that is IndyCar, a much less popular U.S. motorsports enterprise that would be insolvent if not for direct and indirect subsidies provided by the Indianapolis Motor Speedway, racing drivers, and, increasingly, governments. IndyCar could be the Monster, the Rockstar, that rips market share from the NASCAR leviathan. Based on television viewership averages, IndyCar would double the size of its TV audience if it were to capture just 6.51% of NASCAR's present market share. Better still, because IndyCar and NASCAR do not always compete head-to-head, as Red Bull and Monster do, it is entirely possible that IndyCar might increase viewership without having to take share directly from NASCAR. This need not be a zero-sum game.

How would IndyCar achieve this? It would have to begin by slashing its cost of production to the point at which IndyCar and NASCAR are of equal value. This would require that operating a championship-caliber IndyCar team for a 17-race season cost no more than $1.3 million - challenging, but entirely possible. NASCAR team valuations were certainly in that very range at one time, and those teams still managed to show up for far more than 17 races each year.

This is market discipline, something that NASCAR teams have honored and Indy car teams have worked feverishly to outrun for at least 30 years. The core problem of IndyCar racing is that many of its teams have no interest in participating if they must serve an audience and operate within their means; they wouldn't be able to do the kind of racing they like. So the ever self-entitled are now searching for new enablers.

To Be Continued

Roggespierre