Angstadt & Roggespierre on Raising IndyCar Value

This quote from IRL Commercial Division President Terry Angstadt was originally published by Bruce Martin at Versus.com.

Raising the Value of the Series

"That is through big investments by key partners. Just like every other sports property raises their value it is a combination of efforts through team sponsors, our sponsors, and our direct investment." - Terry Angstadt

We shall now explain why Angstadt is wrong on every level. His statement includes the following four implicit assumptions. Each is unsound.

1. Sufficient demand exists for the current IndyCar product "like every other sports property." In fact there is no evidence of this.


2. Quantifiable (in dollars) demand is greater than the total cost of producing the IndyCar product. "Value" is created not with financing, but rather with positive cash flow from operations. If total demand does not exceed total cost, then there is neither positive cash flow nor value creation. Such is the present state of IndyCar racing.


3. The product would be successful if it were sufficiently financed by "big investments by key partners." Robust financing does not increase market demand. For example, Phillip Morris USA and the Target Stores Supply Chain overpay for IndyCar team sponsorship. This does not mean that the value of IndyCar team sponsorship is greater than other potential sponsors might have believed. It means only that Penske and Ganassi figured out how to sell sponsorships in different markets.


4. The product will be successful with increased 3rd party promotion. This silly notion is a traditional and cherished belief among IndyCar participants. 3rd party firms get involved in racing to sell and promote their own products, not the racing series.
   

Built to Last: Raising IndyCar Value

Here's how we'd do it.

First, identify the present value of the IndyCar product relative to the competition. We did that here and found that a championship caliber, one car IndyCar team is worth approximately 6.51% of a similar NASCAR (sans-culottes!) Cup Team. Therefore, our valuation is $1.3 million.


Second, slash that team's annual cost of operating until it corresponds with the team's value, $1.3 million for 17 races. We recognize that this will not be possible until new specs are introduced in 2012.


Third, having benchmarked operating cost to market value, the IRL and its teams may undertake the following activities in order to "raise the value of the series."

• Teams acquire sponsors at market price rather than via supply chain arbitrage


• IRL reduces subsidies via IndyCar TEAM program


• IRL reduces sanction fees, increasing the number of promoters wanting IndyCar events


• IndyCar adds ovals, attracting U.S. drivers that can be sold to a U.S. audience


• Team owners hire competitors to drive their cars rather than to finance their operations


• New teams enter and current teams expand, improving on-track competition


• Sponsors spend more on activation and promotion and less on team operating costs


• IRL reallocates portion of TEAM distributions to direct promotion of IndyCar Series


• Financial risk is reduced for all IndyCar stakeholders

Why the IRL Needs Managers

Such are the results of effective strategy, customer focus, product development, and supply chain management, activities that the present IRL structure does not permit. That is why Terry Angstadt has little choice but to hope for "big investments by key partners." He must rely on team and league sponsors that either 1) do not exist, or 2) participate only because they acquire something of greater value in another market altogether. Angstadt possesses little capital for direct investment because he must burn cash to subsidize teams that provide a product that the market has rejected.

Indeed, Terry Angstadt's comments are wrong on every level. His is a sales plan that would recapitalize the IRL. It will not raise the value of the IndyCar Series.

Roggespierre