We are now ready to revise our estimated sponsorship increase per team. Last time, we established that moving from Versus to a broadcast network would require that IndyCar find a cable partner for the four night races. This will reduce the $987,930 in additional sponsorship per team for the season.
Robin Miller reported that coverage on Versus in the 2009 season has achieved a .32 average rating. According to Miller, this equates to "less than" 240,000 viewers. We shall disregard the "less than" clause for simplicity's sake.
More Math!
Because we do not know the number of viewers that watched the races in Texas, Kentucky, Chicagoland and Motegi in 2008, we must estimate the number of viewers that is equal to a 1.0 cable rating. This shall establish a basis for our analysis and revision.
240,000 viewers / .32 rating = 750,000 viewers
Robin Miller reported that coverage on Versus in the 2009 season has achieved a .32 average rating. According to Miller, this equates to "less than" 240,000 viewers. We shall disregard the "less than" clause for simplicity's sake.
More Math!
Because we do not know the number of viewers that watched the races in Texas, Kentucky, Chicagoland and Motegi in 2008, we must estimate the number of viewers that is equal to a 1.0 cable rating. This shall establish a basis for our analysis and revision.
240,000 viewers / .32 rating = 750,000 viewers
Frankly, that doesn't seem right. I would think that it would be greater. Still, it's probably close enough.
Therefore, a 1.0 cable rating is the equivalent of 750,000 television viewers. The 2008 IndyCar race at Texas happened to get a 1.0 rating. Therefore:
750,000 * 1.0 = 750,000 viewers for Texas
The Kentucky event in 2008 earned a .43 cable rating. Therefore:
750,000 * .43 = 322,500 viewers for Kentucky
The Chicagoland race earned a .8 broadcast rating on ABC in 2008. This is not a helpful number because broadcast and cable tabulations are not the same and because the Chicagoland event was held during the day in 2008. However, because Chicagoland and Kentucky apparently underachieved at night on Versus in 2009, we'll assume that these two races shall attain similar audiences again in 2010. Therefore:
750,000 * .43 = 322,500 viewers for Chicagoland
Motegi was rained out, televised live and re-aired in 2008. Could this possibly be more difficult? The best rating, .33, was earned by the rebroadcast. That is the number we'll use.
750,000 * .33 = 247,500 viewers for Motegi
More Revision
Previously, we established that each race in 2010 would attract 914,750 more viewers on a broadcast network than on Versus. There are twelve such races. However, we then recalled that we would need a cable partner for the four races discussed above.
The question: how many of those additional viewers did we lose due to night races on cable?
914,750 * 4 races = 3,659,000 viewers if the events had been during the day on network
750,000 + 322,500 + 322,500 + 247,500 = 1,642,500 viewers for night races on cable
3,659,000 - 1,642,500 = 2,016,500 viewers lost from our original calculation
I enjoy the night races. Apparently, I am representative of nothing in particular. If I were an IRL manager, then I would want to identify the tangible benefits of racing at night that offset the loss of more than 2 million television viewers.
But I digress.
The Bottom Line
We know that each viewer is worth $0.09 in the market for racing team sponsorship. We can now calculate how much sponsorship value was lost due to night races on cable.
2,016,500 * 0.09 = $181,458
The bottom line is now in sight.
$987,930 - $181,458 = $806,472
Therefore, each team may anticipate selling $806,472 in additional sponsorship if the IRL elects to move twelve races from Versus to some combination of a broadcast network and a high-reach cable partner.
You don't think we're done yet, do you? Good.
Recall that all of these values assume a championship caliber entry. The Ganassi and Penske teams can anticipate $806,472 in additional sponsorship. Paul Tracy and KV Racing Technology are not likely to appear on screen nearly as often as the top two teams. We therefore must discount the value. Monster likely did this a couple years ago when it told Tracy that the IRL ratings were worth $1.2 million for the entire season on ABC and the ESPN family of networks.
We really have no choice but to guess what the correct discount rate might be. Let's say 5 percent.
$806,472 * .95 = $766,148 in additional sponsorship to Paul Tracy and KV Racing Technology
There is one more adjustment remaining. Because we benchmarked the value of a top NASCAR (sans-culottes!) Cup team, we must account for premium pricing that NASCAR teams can negotiate because they are the dominant market leader. IndyCar teams have little bargaining power and therefore must accept less. A 3-percent discount rate might not be enough, but that is what we'll use.
$766,148 * .97 = $743,164 additional sponsorship to Paul Tracy and KV Racing Technology
For What It's Worth
Should the IRL cancel its contract with Versus and purchase air time? Recall that the cost to the IRL will be $7.2 million. In exchange, Paul Tracy and KV Racing Technology can anticipate selling $743,164 in additional sponsorship to GEICO. The same opportunity would be available to all teams.
That's enough to cover 82.5% of Paul Tracy's Honda engine lease if the lease price is decreased, as expected, to $900,000 for the 2010 season.
The Bottom Line
We know that each viewer is worth $0.09 in the market for racing team sponsorship. We can now calculate how much sponsorship value was lost due to night races on cable.
2,016,500 * 0.09 = $181,458
The bottom line is now in sight.
$987,930 - $181,458 = $806,472
Therefore, each team may anticipate selling $806,472 in additional sponsorship if the IRL elects to move twelve races from Versus to some combination of a broadcast network and a high-reach cable partner.
You don't think we're done yet, do you? Good.
Recall that all of these values assume a championship caliber entry. The Ganassi and Penske teams can anticipate $806,472 in additional sponsorship. Paul Tracy and KV Racing Technology are not likely to appear on screen nearly as often as the top two teams. We therefore must discount the value. Monster likely did this a couple years ago when it told Tracy that the IRL ratings were worth $1.2 million for the entire season on ABC and the ESPN family of networks.
We really have no choice but to guess what the correct discount rate might be. Let's say 5 percent.
$806,472 * .95 = $766,148 in additional sponsorship to Paul Tracy and KV Racing Technology
There is one more adjustment remaining. Because we benchmarked the value of a top NASCAR (sans-culottes!) Cup team, we must account for premium pricing that NASCAR teams can negotiate because they are the dominant market leader. IndyCar teams have little bargaining power and therefore must accept less. A 3-percent discount rate might not be enough, but that is what we'll use.
$766,148 * .97 = $743,164 additional sponsorship to Paul Tracy and KV Racing Technology
For What It's Worth
Should the IRL cancel its contract with Versus and purchase air time? Recall that the cost to the IRL will be $7.2 million. In exchange, Paul Tracy and KV Racing Technology can anticipate selling $743,164 in additional sponsorship to GEICO. The same opportunity would be available to all teams.
That's enough to cover 82.5% of Paul Tracy's Honda engine lease if the lease price is decreased, as expected, to $900,000 for the 2010 season.
We still haven't figured out 1) how the IRL and the teams would share the $7.2 million cost of buying time for twelve races, and 2) how many teams will be able to sell the additional inventory. If the latter number is fewer than ten, then the IRL and its teams will lose money outright.
If it were my decision, then I would stick with Versus. Paul Tracy would probably disagree. We will not speculate about Robin's opinion.
We do welcome yours.
Roggespierre
Open the rules, let older equipment be allowed to modified and run, variable engine choices-not a spec engine, allow more chassis manufacturers, gearbox manufacturers, etc. Stop creating monopolies on all sides of the racing spectrum! And keep the manufacturers in a supply chain capacity, not as competitors!
ReplyDeleteOldwrench,
ReplyDeleteYou know that I agree with you. Part of the problem is the incremental decision-making orientation of IRL management. We can only hope that this will change.
Meanwhile, I believe that the teams want the IRL/IMS to ditch Versus and buy time in 2010. For what other reason would Robin write about it?
My point is that, given the present cost structure of operating an IndyCar team, marginal viewership increases are not going to make much of a difference.
Paul Tracy is not going to be able to participate in all IndyCar events next season. Buying time on a network won't even cover the cost of the engine lease. I think that it is important for fans to understand this. It makes no sense for the IRL/IMS to pay $7.2 million.
It does, however, make sense to take the steps that you suggest. The data support your message. I am here to provide the data as often as possible. Perhaps, having seen the numbers, fans will press the IRL to take substantive action.
Best Regards,
Roggespierre
What concerns me is that there a lot of VERSUS subscribers that never think of watching the IRL.
ReplyDeleteIsn't there a saying that goes something like this (paraphrased), IF YOU HAVE A GOOD PRODUCT THEY WILL COME?
The product needs to be redone--sooner not later.
Here is what I would propose:
Stock block engines turbo charged, limited to 800 HP by fuel flow.
Mandated driver capsule (I have been told these can be produced for about $50,000 each if bought in quanity) that is at least as safe as today's cockpit.
Wingless chassis with limited downforce.
Chassis to meet a standard: wheel base, weight, track, ground clearance, and it must use the driver capsule provided by approved manufacture.
Spend as much as you wish, test as much as you want---but the completed car (engine included) may be claimed by anyone for $1,500,000 at any time with possession passing immediately, except for claims made after qualifying, but before race--title passes immediately after that race.
Think of Foyt being able to get a Penske.
This should bring many more people (with a fan base) into the series, increase innovation, and control costs.
It does not affect the salaries of drivers, team members, or support personnel.
May I quote Smokey Yunick (paraphrased), "rule books should be no longer than 8 pages".
Then when more people have a reason to watch, more teams to watch, and surely more American drivers--the demand for an improved TV package will be to everyone's advantage.
Comcast wants to make money, but with the product the IRL has, isn't saleable as presently constructed.
Taking it off VERSUS and BUYING TIME is continuing the same error over and over again, (pouring more money into a failed scenario),and expecting a different result.
Ready, aim, fire!
The IRL thinks it is ready, fire, fire again and again! Aiming at the market (fans) never seems to enter their minds!
osca
Nice thoughts osca !! We are in the same ball park on car ideas. You can take older equipment and update with out the cost and get the same benefit as those wishing to build new!I do feel the wings need to stay as they help keeping the car in balance at speed, but limit the size and the effect on downforce they have. As for the TV effect, I agree!! Make the product better and the fans will come.
ReplyDeleteOsca,
ReplyDeleteSomehow, I missed your comments here. That is a truly revolutionary idea. I will review it in greater detail as time permits.
I had always thought that something akin to a "salary cap" for equipment might hold some promise. But I could not figure out how it might be efficiently enforced. Budget caps are not likely to work because everybody who has sufficient financing will cheat.
Because I am not an attorney, I wonder about the intellectual property ramifications. If Team Penske "owns" some technology, can it be made to give it up in exchange for non-market compensation? This is not the NFL, where teams collude legally in a not-for-profit, membership based organization. These teams are free market actors that have not forfeited any legal ownership rights of which I am aware.
I would need the opinion of a real expert on this issue.
Best Regards,
Roggespierre
I am not an attorney either, but if you, as a participant in a racing series, agree to the rules, haven't you accepted the right for those rules to be enforced.
ReplyDeleteYou produce a car, test it, tweak it, improve it---show it's potential and under the rules, it is claimed.
Tough!!
Build a new and better one!!!
Of course some nefarious lawyer could claim otherwise!!
But as Big Bill used to say when challenged on a rule changed after the fact, "If you don't like it go race somewhere else".
osca
Osca,
ReplyDeleteThe King of France had an intuitive understanding of bargaining power that far surpassed that of a typical Harvard MBA. He knew that, if you dictate policy with an eye toward long-term growth and profitability, then everyone at every point in the supply chain will benefit.
A sanctioning body and commercial rights holder must be willing to engage in tough love. That is the stuff of mutually beneficial partnerships. That is how King Bill I and King Bill II of France transformed some motley descendants of Mosby's Raiders into a dominant market force that is sought by the sophisticates of Madison Avenue.
I do not personally care for NASCAR racing. But I will never attempt to diminish the great American rags-to-riches narrative that was incubated in the House of France. I would prefer that the IRL use NASCAR as a how-to manual, not so much with regard to the details because the products must be differentiated, but rather with respect to the fundamentals - vision, mission, strategy, competitive advantage, value proposition, customer focus, product development, and supply chain management.
I am enraged by the present course. There is, in fact, a plan. Unfortunately, it sucks. What is that plan?
The Indy Racing League is now the U.S. sales agent for Brazilian products and services! That is how Terry Angstadt plans to finance and sustain a product that the market has rejected.
How did IndyCar racing become a perversion?
Best Regards,
Roggespierre