Saturday, August 22, 2009

Big IndyCar Danica Upset in the Making?

Curt Cavin of the Indianapolis Star just Tweeted that Danica Patrick will be staying in the IRL with Andretti (not Green) Racing. Cavin tends to be conservative when breaking stories, so we have every reason to believe that it's true.

This would be a huge accomplishment for IndyCar in terms of market competitiveness. We shall wait for the facts to come out before we provide additional commentary.


Franchitti on Pole; Power, Philippe Hospitalized

The run for the pole between Target Chip Ganassi Racing and Team Penske was upstaged Saturday at Infineon Raceway in Sonoma, California by an accident that put two IndyCar drivers in the hospital.

According to IndyCar Public Relations, Will Power suffered a concussion, as well as compression fractures to two vertebrae.

Rookie Nelson Philippe has had surgery to repair an open fracture of his left foot. He, too, has a concussion.

E.J. Viso was also involved in the crash but was not injured.

Dario Franchitti claimed the pole, followed by Team Penske's Ryan Briscoe.

Jonathan Byrd, RIP

It is with sadness that we learned of the passing of Jonathan Byrd. He will always have a special place in the hearts of the Republic.

It was Byrd who took-up former Indianapolis Speedrome promoter John Stiles on his offer to pay $10k to any car owner who could get a regular Speedrome driver qualified for the Indianapolis 500. Byrd's choice was the late, great short track star, Rich Vogler.

The Indianapolis 500 needs another Jonathan Byrd; the sooner, the better.

IndyCar Market Selection must Confound Versus

Leadership at The Mountain promised in an earlier post to assess exactly what it might be that IRL management has strategically determined it will not do. We know of two activities.

Strategic Initiatives that IRL Management Will Not Do

Non-Strategic Activities that IRL Management Will Do

  • Race at an Edmonton airport because a promoter will pay for it
  • Race at half-filled Twin Ring Motegi to guarantee supply of overpriced engines
  • Race at an undisclosed Brazilian location in exchange for series "sponsorship"
  • Consider racing in a New England parking lot for reasons known only to the divine
  • Race at Barber Motorsports Park, where on-track passing is less likely than Louis regaining his head, and where attendance must be capped at 30,000 paying customers
  • Dispatch Al Unser, Jr. to assist an uproven promoter in its effort to extract government subsidies for a "race" in Baltimore

Versus must regret wasting valuable air time promoting this undisciplined dog. The value of its broadcast asset is decreased by each IRL management action above. How so? The reasons vary by venue.

  • In some cases, the problem is predictably lousy on-track competition.
  • In others, the IRL markets to countries not served by Versus.
  • In each, the style of racing attracts a disproportionate number of international drivers that are unlikely to be accepted by a large American television audience.

If IRL management continues to follow its non-strategic course, then the Committee of Public Safetly suspects that Versus is probably looking forward to two distinctive landmark occasions.

  1. Opening Day of the 2009 College Football Season
  2. The execution date of the first out clause in its contract with the Indy Racing League

We are unable to identify a 2009 IRL management decision that can be synthesized with the interests of the league's initially enthusiastic U.S. television partner. No, lining up advertising purchases by Apex Brasil and IZOD does not count. We'll explain when we further examine this issue after ratings for Sonoma are released next week.

Recall that the exquisitely capitalized CART series effectively purchased and re-sold television time for the duration of its existence. That oganization inherited stars like Foyt, Andretti, and the Unsers and developed some of its own, such as Mears, Sullivan and Rahal.

The present iteration of IndyCar racing has no stars of their caliber. More troubling, IRL management activities suggest that establishing new stars that would better serve the interests of the U.S. television partner is not a priority.


Friday, August 21, 2009

IndyCar Rest, Revolution and the Republic

Roggespierre is vacationing this week with Mrs. Roggespierre and Little Roggespierre.

Citizens - fear not! The Incorruptible is using this time as any good republican would, drafting well-reasoned IndyCar Racing harangues that are grounded in factual data.

Roggespierre will continue to post from time to time, as Little Roggespierre's shedule allows.

Market Segmentation - IndyCar and NASCAR

Loyal citizens know that we admire NASCAR for its competitive business strategy. Assessing IndyCar's busines strategy is difficult because IndyCar has no apparent business strategy. Let's use an example and assess the difference. We begin with the dominant market leader.

NASCAR's various products all contain the following attributes:
  • Domestic Drivers
  • Low-Cost, Low-Tech Cars
  • Racing circuits that appeal to local tastes

Harvard Business School Professor Michael Porter says that strategy is about what you choose not to do. If NASCAR has a list of what not to do - and we bet that it does - it might look like this.

  • Do not attempt to sell racing drivers to consumers across international borders.
  • Do not use racing circuit types for which demand has not been demonstrated.
  • Do not allow total enterprise costs to exceed the value of consumer demand

Empirical evidence supports our hypothesis. The example of NASCAR Cup and NASCAR Grand National are well known. They race almost exclusively on oval tracks. Combined, they venture outside the United States only once per year. The drivers are almost all from the U.S. The series are the nation's clear #1 and #2 motorsports enterprises.

The NASCAR Canadian Tire Series follows the same model. Drivers are almost all Canadians. The series runs road courses, temporary circuits and short ovals, with circuit type largely owing to local tradition.

In Mexico, the NASCAR Corona Series is growing. Its 14 events in 2009 include 12 ovals and two road courses. Every driver is Mexican. The low-cost formula has enabled the 5-year old series to attract more than 30 entrants this season.

Stock Car Brazil is not a NASCAR enterprise, but it is gaining popularity and its competitive strategy is similar. Competitors are almost all Brazilian. The series sticks to road courses.

Fans of oval racing will not like Stock Car Brazil. Road racing enthusiasts in the United States tend to be dismissive of NASCAR. Those who enjoy international competition would be disappointed by NASCAR's racing products in Canada and Mexico. As we like to say here, serving one market - and serving it well - necessarily means not serving another at all.

Fans of the old CART series argue - persuasively, in our view - that it successfully combined circuit types in the United States. However, we would counter that that was then and this is now.
The U.S. oval and road racing market segments were redefined when the Indy Racing League entered the marketplace in 1996. Regardless of whether one agreed or disagreed with Tony George back then, we think it's clear that the IRL did, as the economists say, cause a significant market disruption.

With that, the Committee for Public Safety shall turn its attention to the present course of the IndyCar Series.


Thursday, August 20, 2009

IndyCar AGR Crack Up

Andretti Green Racing and Andretti Green Promotions are splitting. Michael Andretti will take the racing team. Kim Green and Kevin Savoree will get the company that promotes races in St. Petersburg and Toronto.

The Republic isn't sure what to make of this. It seemed as if Savoree was the chief deal maker at AGR. Maybe he and Kim Green believe the business of promoting events at temporary circuits is more promising than the business of running an IndyCar team. We would be inclined to agree, particularly if Danica Patrick is headed to either another IndyCar team or to NASCAR (sans-culottes!)

The irony is that Honda's "sponsorship" of St. Pete, Toronto and Mid-Ohio is effectively subsidized by the teams. How's that? Teams overpay HPD for engines. Honda then redirects that money to race promoters and Formula Dream, which is believed to be heading for the exit at AGR. If a rift really did break out among the AGR partners, then the prospect of owning races that are subsidized, in part, by Michael's team must cause Savoree and Green to break out in Cheshire cat grins.

If Honda does take the Formula Dream "sponsorship" elsewhere in 2010, then we would not be surprised to see Andretti partner with another existing team. This is rank speculation, we admit, but it is based on underlying economic facts. Because operating an IndyCar team is overpriced, team owners are going to have to do whatever they can to stay in the game.

And it's no secret that Michael Andretti has been telling people he needs new money for 2010.

IndyCar Maxim #3

Roggespierre's Maxim #3
Courtesy of Ken Homa, Georgetown University McDonough School of Business

"There are four keys to effective supply chain management."
  1. Smooth synchronization of activities
  2. Fact-based evaluation of performance
  3. Fair compensation for services
  4. Authentic commitment to partnership
Much more from Professor Homa, a brilliant marketing guy (and Prof of Roggespierre) can be found here.

IRL management, please pay particular attention to numbers 2 and 3 from Professor Homa.

2. It is a fact that your production costs exceed the price at which your product can be sold.
3. Fair compensation for services would include distributing appearance money based on product value (i.e. a driver that consumers actually want).

Who at the IRL has the analytical skills to make data-driven decisions? Who has the courage to stare down the bullies? Who can articulate what IndyCar is and what it is not? Who has the charisma to explain controversial choices to those who disagree?

We know who runs the racing and who does the selling. But who is managing the product? Who is managing the firm? Does anyone at IMS know the answers?


Wednesday, August 19, 2009

IndyCar Baltimore Attendance Increased to 150,000

Baltimore was one hot and humid city today. Hopefully, somebody will pour water on the crazy notion that the consumers in the former home of the Colts are nuts for IndyCar Racing. Apparently, the "feasibility study" found that 150,000 would converge on Charm City if only IndyCar racing, mass market phenomenon that it is, would come to town.

This area has much in common with the rest of the country. It is therefore probable that Greater Baltimore does not care about the present IndyCar product. The best hope for this event is that the locals think Al Unser, Jr. will actually drive in it. Little Al is recognized here. Danica, thanks to a strong activation effort by AirTran - big at BWI airport - is also well known.

Two stars - one retired and the other just as likely to be racing over in Dover in NASCAR next season. All other drivers combined? They're nobody here.

Maybe they think they'll get an "international audience" from DC. Think again, sirs. We live among them. They do not give a damn. The Brazilians at the embassy and the consulate know less than Americans about the Brazilian IndyCar drivers. The emigres here are diplomats and intellectuals. Do you really think they talk about IndyCar racing at the World Bank?

Indy Racing League - you have no market position. You have no fans. You must choose a market segment, serve it and serve it well, and let the others go. Try to get everybody and get nobody. Do you really want to see that at the Indy 500? That's where we're heading!

IndyCar Maxim #2

Roggespierre's Maxim #2
Courtesy of Michael Porter, Harvard Business School

"The essence of strategy is choosing what not to do."
  • Oval racing, road racing, street racing...
  • National, international, intercontinental...
  • Technology and cost containment...
  • An hour of USA patriotism prior to Indy 500 with fewest American starters ever...
What, exactly, have you chosen not to do, IRL management? The market is segmented, whether you want to believe it or not. Your firm owns the world's most famous oval, and it's located in the Midwestern United States.

What will it be, IRL management?

Tuesday, August 18, 2009

IndyCar Maxim #1

Roggespierre's Maxim #1
Courtesy of Peter Drucker, Harvard Business School

Serving one market necessarily means not serving another.

You can't be both Wal-Mart and Barneys New York. Wal-Mart has a lot more shoppers and makes a lot more money.

You can't play both football and soccer. Fans of both sports will hate you for it. When you own the world's largest sports facility, and it's located in Middle America, which game do you think you should play?

What's it going to be, IRL Management?

Danica Delivers the Goods in the Marketplace

This space competes for readers just as IndyCar (allegedly) competes for consumers. Page views here increase 5x when "Danica" is in the title. Readers searching for "Danica Patrick" are infinitely greater than those searching for all other drivers combined; none has delivered a single hit to this site.

The Republic can only imagine what might happen if IndyCar could attract drivers like Tony Stewart and Kasey Kahne to join Danica. We might be as successful as Jayski.

But IRL management doesn't try to influence driver selection. This is not only a huge mistake, but also a failure to manage its product. Teams wouldn't like it, but so what? As suppliers to the IndyCar Series, their job is to provide a product that IndyCar can sell. Right now they are failing miserably by any objective measure. This is, after all, a spectator sport. Right?

If Danica escapes to NASCAR - and she will if she's economically rational - then IndyCar might finally hit rock bottom. Then, perhaps, the cars that race at Indy can be managed by someone with enough guts to identify an audience and serve it.

IndyCar, NASCAR and the Top Sports Advertisers

2009 IndyCar Capture of Top 100 Sports Advertisers of 2008**
  1. McDonald's (9th)
  2. Coca-Cola (11th)
  3. Gillette (39th)
  4. American Honda (41st)
  5. Bridgestone/Firestone (74th)
  6. U.S. Marines (76th)
  7. Target Stores (92nd)
2009 NASCAR Capture of Top 10 Sports Advertisers of 2008**
  1. Anheuser-Busch (1st)
  2. Chevrolet Motor Division (3rd)
  3. Sprint NEXTEL (4th)
  4. Verizon Communications (5th)
  5. Toyota Motor Sales USA (6th)
  6. Ford (7th)
  7. DirecTV (8th)
  8. McDonald's (9th)
  9. Visa International (10th)
Q: What company from the Top 10 is missing? A: AT&T

If not for the Sprint NEXTEL industry exclusivity arrangement, NASCAR would have significant, full-season support from every one of the Top 10. IndyCar has one of the Top 10 and seven of the Top 100. We did not bother counting NASCAR's total capture of the Top 100 because it would have taken too much time.

NASCAR itself ranked 59th, racking up more than $39.5 million in sports advertising expenditures. The only sports-related businesses to spend more were NFL Properties (28th), the NFL (51st), and the PGA Tour (57th).

It's amazing what can happen when you serve consumers rather than suppliers of racing teams.

**Nielsen Sports Media and the Sports Business Journal

Monday, August 17, 2009

The Deal: IndyCar, Danica, Chip & Gillette

Is a deal brewing that involves Danica Patrick, Chip Ganassi, the IndyCar Series, and the Gillette division of Procter & Gamble? It's certainly plausible. Here's what we know.
  • Gillette is part of Ganassi's leveraged supply chain deal with Target
  • Chip Ganassi is rumored to have a sponsor interested in Danica
  • Ganassi said publicly that Danica should stay in IndyCar and that he will not take her to NASCAR
  • Jerry Gappens of New Hampshire International Speedway spilled the beans on a proposed IndyCar race at Gillette Stadium in Foxboro, Massachusetts
  • Gillette has rumored interest in title sponsorship of the IndyCar Series
  • Danica remains non-committal about her IndyCar/NASCAR "decision"

The Committee of Public Safety suspects that Ganassi is trying to strike a deal with IMG's George Pyne, Danica's representative, to put her in a Ganassi Indy car with primary sponsorship from Gillette.

The Problem

Danica starring in television commercials featuring Gillette products is worth much more than Danica driving an Indy car. Sponsoring her IndyCar program means Gillette must spend at least $7 million per season (probably more) of which $5.7 million is not justified by consumer demand for IndyCar racing. Pyne, a former NASCAR executive, therefore plans to take Danica and Gillette to NASCAR, where the price of sponsorship is justified by market demand.

Plausible Scenario #1

Ganassi tells the IRL's Terry Angstadt that IndyCar will lose Danica unless somebody underwrites Gillette's sponsorship of her ride at TCGR. Angstadt recalls that Gillette owns naming rights to the football stadium in Foxboro, Massachusetts. He proposes the "Indy 200 at Gillette Stadium" to sweeten the pot and keep Danica in IndyCar.

But that creates another problem. Who will pay the sanction fee for the Gillette Stadium event? Angstadt turns to the best tool in his toolkit, Apex Brasil. He lines up the International Events Unit to promote the Foxboro race and to assume the financial risk that goes with it.

Then Angstadt goes for the home run. He pitches Gillette a Brazilian-manufactured alternative to some product it has to buy anyway. It could be steel, plastic, payroll software, toilet paper - it doesn't matter so long as Gillette buys a lot of it. The Apex Brasil firm kicks some of its newfound Gillette revenue to the Indy Racing League and some to Chip Ganassi Racing.

If the deal is big enough, then IndyCar becomes the Gillette IndyCar Series. Danica Patrick joins Chip Ganassi Racing in a "Gillette" sponsored Indy car. Apex Brasil pays for both deals but fulfills its mission, landing a large new account in the United States for a Brazilian firm.

IndyCar takes to the parking lot at Gillette Stadium. Jerry Gappens' head promptly explodes. Bruton Smith looks even more like Don Rickles. The IRL invites Ganassi Racing's Mike Hull to design the new Indy car. The IMS breaks ground on the Terry Angstadt Luxury Suites & Day Spa.

The transaction did not increase ticket sales at IndyCar races. Television ratings did not improve. But the IRL is convinced that those things will happen just as soon as Gillette activates its IndyCar title sponsorship. Supply chain arbitrage saved the day!

Three years later, the IRL is still looking forward to Gillette's sponsorship activation. Gillette wanted and got Danica Patrick at fair market value. It did not care that in the process it had somehow acquired IndyCar Series naming rights, a race in a parking lot, and 15-million cubic feet of Brazilian gauze.

Plausible Scenario #2

Gillette declines the Deal of the Century and takes Danica to NASCAR, where fair market value includes the cost of operating a racing team. IRL management rationalizes that George Pyne, the former NASCAR executive, had intended to deliver Danica to his former employer all along. IndyCar returns to the business of planning a new generation of cars and engines it can't afford.


Sarah Smile - Fisher gets an Upgrade

A good story by Curt Cavin at the Indianapolis Star made its way to the Republic today. We don't know much about Hartman Oil, but we encourage citizens to learn more about the firm at the provided link.

Also note that 25 pounds is no small sum in IndyCar racing. This nugget of information makes Sarah's performance at Kentucky Speedway even more impressive.


IndyCar: Why no Miller Lite, Energizer?

Why do we not have a Miller Lite car or an Energizer car in the IndyCar series?

Loyal citizens already know the answer. It is because the value of full-season primary sponsorship of a one-car IndyCar team is $1.3 million. If the cost of sponsoring a team for the season were equal to $1.3 million, then there would be a Miller Lite car, an Energizer car, and many others.

Regrettably, putting an entry on the track at all 17 IndyCar races costs approximately $4 million. If you want to run near the front and get whatever television exposure is available, then the budget needs to be in the $7 million range. Miller Lite and Energizer are not going to pay $7 million, or even $4 million, for a $1.3 million product. That would be stupid.

The two dominant teams in IndyCar have figured out how to sell a $1.3 million product for $7 million or more. Team Penske is leveraging its long-term relationship with a tobacco company that is forbidden from advertising anywhere else. Target Ganassi Racing arbitrages the Target Stores supply chain. Andretti Green Racing is using Ganassi's arbitrage strategy to leverage the supply chain at 7-Eleven (and, we suspect, Meijer Stores). That's why Miller Lite has a decal the size of a postage stamp on Tony Kanaan's car. Wonderful.

Many of Ganassi's associate sponsors would be good candidates for primary sponsorship with other teams. These are large firms with money to spend if the advertising opportunity is priced at its actual market value. In fact, Energizer was primary sponsor of Robby McGehee's IndyCar efforts in 1999 and 2000. This ended when Chip Ganassi moved his team to the IRL full-time. Coincidence? Maybe, but maybe not.

Examine the list of consumer products among the associate sponsors at Target Chip Ganassi Racing. Some are paying more to Target for in-store concessions than most primary IndyCar sponsors distribute to their respective teams.

Is it any wonder that Target Ganassi Managing Director Mike Hull is a big fan of high-tech racing? His firm needs high-tech racing in order to keep team costs greater than team values. Otherwise, TCGR's associate sponsors might become interested in primary sponsorship elsewhere in the series, just as Energizer did with Robby McGehee in 1999 and 2000.

Why don't we hear the Penske guys lobbying publicly for technology? Perhaps it's because the only threat to take their sponsorship is the federal government.

IndyCar needs a Miller Lite car and an Energizer car. The only way to achieve this outcome is to slash the cost of "producing" an IndyCar entry until it is equal to $1.3 million annually per car. That's the proper valuation. To those who don't like it, we're sorry. We don't like it either, and we didn't make this mess.

Team owners with legitimate sponsors can hire drivers that fans might actually want to see. This, too, would be bad for Target Ganassi Racing because it would likely have to compete with those popular drivers in order to keep its sponsors.

Much is at stake. Few understand. The examples above are not the exception - they are the rule. Perhaps some day we'll share the story of Moen, John Menard and Paul Estridge. It's good fun. We apologize for teasing.

For now, we're much more concerned with Ganassi. He and his surrogates, in our opinion, are obstructing the only economically rational path to growth for IndyCar Racing and hastening the decline of the Indianapolis 500. We don't blame them - their incentives are misaligned with the rest of the series, and that's not necessarily their fault.

We seek only to reduce the influence wielded by TCGR with regard to the new specs.

We even root for them sometimes.

Chair of the Committee of Public Safety


Sunday, August 16, 2009

Michigan Warms to IndyCar

We can't imagine many citizens saw this coming. Bob Duff of the Windsor Star reports that Michigan International Speedway President Roger Curtis might be warming-up to IndyCar racing.

In recent years, Curtis has not pretended to have interest in bringing Indy cars back to MIS.

Will the IRL return to MIS some day soon? Well, we can hope. Curtis said he would consider a "proposal that makes sense." We doubt that the standard $1.2 million to $1.5 million IndyCar sanction fee would make much sense at Michigan International these days, given the IndyCar series' present value proposition. Roger Curtis is in the business of selling tickets and merchandise to consumers, few of whom have indicated interest in IndyCar's present roster of drivers.

Unless Terry Angstadt can dig up another corporate underwriter to cover the losses and guarantee that MIS covers its hurdle rate, then MIS and IndyCar will remain separated.

How many times must the Indy Racing League be thwarted by its overpriced racing product before it takes appropriate action? Isn't that what management is supposed to do? IRL Management, please quit talking about technology you can't afford. Hire engineers to design a safe and economically efficient driver compartment, distribute a schedule of design constraints, and tell the teams to begin building their new cars. Granted, most of the teams don't know how to manufacture cars, but they'll either figure it out or call their buddies in NASCAR for guidance.

Nevertheless, thank you, Roger Curtis. It's fun to recall our sport's proud history at Michigan International, and it's even more fun to imagine that it might return some day with a product that people want to see.


Danica Patrick : Go and Save Yourself!

Dear Danica,

Citizens here know a bit about the business of IndyCar racing. We therefore write to offer some unsolicited yet humble advice. Do with it what you will.

You have made public your interest in NASCAR. As a lifelong IndyCar fan, I implore you to turn south, get the best deal you can, even if it's in the Nationwide Series, and go. Run - do not walk and do not look back - because the present direction of IndyCar racing will be of little benefit to you.

You're the Special Surprise in a box of cereal that the kids don't want.

You do not need to race at airports, parking lots, harbors, parks, city streets or any other temporary circuit. These "events" are the unmistakable signs of market rejection. I imagine that you have already figured this out. If so, then we suggest that you trust your instincts because your instincts are good. Phony racing circuits aren't your forte, anyway.

That said, the type of oval racing you'll do in NASCAR will be unlike anything you've ever done before. I suggest that you get in a midget or sprint car this winter. Competing in front-engine, tube-frame cars with lots of horsepower and little downforce is good training for the rigors of NASCAR. You'll learn a lot and be better for it.

What about winning the Indy 500? Yes, you could do it some day. But, much as it pains me to write this, so what? The IRL now serves its team owners and their managers, engineers and drivers who want to accumulate as many laptops, electronic gizmos, and road and street races as possible. Make no mistake - they all hope you stay. They would love to use you as an asset to underwrite a product that consumer rejection has bankrupted twice and likely would have a third time if not for mergification. Don't do it. The Indy 500 will suffer for it, and so will you.

NASCAR and its teams are fundamentally sound, professionally managed enterprises. Did you notice during your Carolina tour that NASCAR teams look like real, operating companies? Did you see guys molding, fabricating, and tooling in those shops? Strange, isn't it?

You see, Danica, NASCAR teams began with nothing - they earned everything they have, and they're still working for it. IndyCar teams inherited market acceptance and consumer demand but chose to throw it away, financing their whims with underwriters including shareholders, tobacco companies, auto manufacturers, drivers and their rich parents, scam artists, dictators, narcotics traffickers, governments, the Indianapolis Motor Speedway, each other, and, most frequently, supply chain arbitrage. Who has time to build a multi-billion dollar business based on mass market acceptance when you're having a really swell time racing at an airport in front of a solid crowd for Texas high school football?

The remaining IndyCar teams intend to race the way they want to race, and they fully expect to convince a new enabler to pay for it. They'll probably pull it off, too, with help from Apex Brasil. Sure, names of other "sponsors" will adorn the cars and event titles, but most of the cash will have come from the behemoth. Danica, the Brazilian industrial supply chain has nothing to offer you. You're already in demand right here. If you go to NASCAR, then the demand will actually extend to the race track. You'll have to get used to it.

Danton, Marat and I wish you well. Selfishly, we hope you stay. We love Indy cars and believe that you could help revive the sport. But we see the emerging strategy, and we know how this story ends.

On behalf of the Committee of Public Safety