IndyCar's Griffin takes own head

The Indy Racing League has lost another experienced, talented professional. It appears as if Public Relations Chief John Griffin decided to take his talents elsewhere.

Who can blame him, given that his boss effectively called Griffin out for failing to promote the IRL's roster of unwanted "stars". Never mind that Angstadt, Barnhart and Cotman gave Griffin Goulash and expected him to compete with cheeseburgers for sales to U.S. racing fans.

Public Relations can not make people like the food. And John Griffin did not forget how to do his job when he left NASCAR to work for the IRL.

I like and respect John Griffin. He did his job well. It is regrettable that his bosses did not and do not understand exactly what that job entails (and what it does not).

The not-so-widely released press release is below in blue.

Roggespierre

For Immediate Release

GRIFFIN STEPS DOWN FROM INDY RACING LEAGUE

INDIANAPOLIS (Nov. 20, 2009) - Indy Racing League Vice President of Public Relations John Griffin has submitted his resignation, effective Dec. 18.

"John has been a valued part of our organization and he will be missed," said Terry Angstadt, president of the commercial division of the Indy Racing League. "His creativity and passion for the sport brought publicity for the IZOD IndyCar Series to a whole new level. We wish him the best of luck."

Griffin joined the Indy Racing League as vice president in 2002, overseeing all aspects of the IZOD IndyCar Series and Firestone Indy Lights public and media relations program as well as strategic communication. During his tenure, Griffin developed and implemented public relations strategies for several historic events including the unification of open-wheel racing, Danica Patrick's first win and the series IZOD entitlement announcement earlier this month.

"I appreciate my time here at the Indy Racing League where I have made many great friends and want to thank Terry (Angstadt) and Brian (Barnhart) for the opportunity," said Griffin. "I really think the time is right for me to entertain a new challenge, particularly something that would allow me more quality time with my kids."

Before joining the Indy Racing League, Griffin worked for NASCAR with his professional career also including stops with World Cup USA 1994 and the Major Indoor Soccer League.

A replacement for Griffin has not been selected.

Cryptic IMS Leaks are Cause for IndyCar Concern

The headline atop the latest motorsports entry by enigmatic Indianapolis Business Journal blogger Anthony Schoettle is ominous.

Speedway CEO about the get down and dirty

Apparently, laying off more than 13 percent of its staff was only the beginning of budget cuts at the Indianapolis Motor Speedway. It seems that CEO Jeff Belskus has hinted to Schoettle that additional and, perhaps, more substantial cuts are in the pipeline.


Schoettle indicates that both the Brickyard 400 and the MotoGP race are potential casualties. Not surprisingly, he also suggests that the Month of May could be primed for a haircut.



Not a TEAM Player?


Most important to IndyCar Series fans, Belskus is apparently considering either reducing IndyCar TEAM payments or scuttling the appearance money program altogether. Schoettle also mentioned that Belskus might alter the IndyCar Series schedule, focusing on more profitable (read: publicly subsidized) road and street races in lieu of oval tracks.


In my view, that these items are under consideration demonstrates the severity of the financial difficulties that imperil this unwanted product. Belskus is reputed to be a fine accountant. I do not doubt his qualifications with regards to reshaping the projected 2010 IMS Income Statement.


The question is whether or not he is capable of making strategically advantageous decisions. For example, if Belskus were to reconfigure the ridiculously wasteful IndyCar TEAM program, then I would be the first to applaud his efforts. Similarly, I would not shed a tear upon learning that the Brickyard 400 and the MotoGP race are not part of the long-term IMS operating strategy.


Shortening the Month of May would be a mistake, in my assessment. The 500 is a declining event by any objective measure. Whittling away at its edges would not create efficiency, but rather it would only hasten the event's plunge toward irrelevance and, ultimately, annihilation.


Conversely, ending the non-IndyCar escapades at Indianapolis might just make trips to the IMS seem special again. Re-establishing scarcity could be a first step toward restoring the mystique of the Greatest Race in the World.


I will likely have much more to say whenever Belskus chooses to take definitive action. For now, there is a specter that hangs over the hallowed ground of the World's Greatest Race Course. Is Belskus a workouts and turnarounds guy, or is he merely a manager of the downward spiral.


We shall soon know the answer.


Roggespierre

IndyCar Supply Chain Follies

IndyCar fans and journalists appear to be hopeful that Tony Cotman will solve many of the problems that imperil the IndyCar Series. Regrettably, the evidence suggests otherwise.

Like Brian Barnhart, Cotman is apparently determined to dictate the IndyCar supply chain from above. Supporting evidence is provided by Marshall Pruett at SpeedTV.com.

Supply Chain Economics

The practice of dictating the supply chain is one that has to go. Tony George did this initially to ensure that the IRL would have sufficient supply in 1997. It was a short-term solution that somehow became a long-term policy. Cotman then adopted it when he oversaw development of the DP01 for ChampCar. So it would seem that the decision-makers at the IRL now share a bias in favor of micromanaging the supply chain. This is a huge mistake, in my view.

An efficient supply chain must develop organically. Vendors must compete to maximize quality and minimize cost. Teams must be allowed to manage their own product life cycles and spend what they determine they can afford.

When a single vendor is chosen and a maximum price is dictated, that price becomes the effective minimum price because there is no market competition. Costs are artificially increased and an unnatural barrier to prospective new entrants is created. This practice also increases the amount of compensation that the league must provide to teams in order to ensure that enough of them show up to race.

Dictating the supply chain is costing the IRL millions each year, in my view. The decision that Barnhart and Cotman are about the make will certainly cost the IMS more than Ron Green ever did. It is interesting that a sole-source supply chain likely makes technical enforcement much easier than it would be if teams were to choose from multiple options offered by an unlimited number of vendors. Perhaps this is coincidence.

A Better Way

Barnhart and Cotman should be in the business of telling the teams what they may not do. Technical rules are best when they are composed of constraints that evolve in correlation with technologies and economies. Right now IRL management is picking economic winners and losers. This creates gross inefficiencies throughout the IndyCar economic universe.

Recall the USSR. It didn't work there, either.

For example, an economist would not be surprised to learn that the 2010 Honda engine lease is ridiculously overpriced. After all, without Honda, there would be no supply of IndyCar engines. The IRL has therefore surrendered all of its bargaining power to Honda.

In addition, the lease price that is incurred by the teams includes the St. Pete Tax, the Toronto Tax, and the Mid-Ohio Tax. Therefore, the teams and the IRL, via IndyCar TEAM, are sponsoring those three races. That the money is laundered (legally) through Honda does not change the ultimate direction of the cash flows.

Thus, we can conclude that much of the cost of IRL engines in 2010 will have absolutely zero to do with engines. Such is the cost of incompetent management.

Microeconomics 101

Establishing a middle ground between open competition and managed competition is undoubtedly difficult. But I would argue that IndyCar's core economic problems are far more elementary and not at all exclusive to the business of racing. Unfortunately, it seems that the IRL lacks managers who understand basic microeconomics well enough to devise a cost-effective solution.

The lack of sufficiently sophisticated strategic managers is costing good and loyal people their jobs at the World's Greatest Race Course.

The Indianapolis Motor Speedway Board of Directors can and must do better.

Roggespierre

IndyCar: IRL US F2000 Series Misses the Mark

It is no secret that Tony Cotman wants to revamp the IndyCar ladder system. To that end, Andersen Promotions, an offshoot of Andersen Racing, is planning to add a retooled U.S. F2000 National Championship to the 2010 schedule. The Indy Racing League will sanction the new entry-level series.

You can read the entire story at Racer.

My criticism has little to do with the US F2000 announcement. In that regard, I have only two relatively minor concerns.

The first is that drivers who are not yet 18 years old would seem to be natural targets for the new series but for the presence of Phillip Morris USA. Because the marketer of Marlboro participates in the IRL, drivers who are not yet legal adults are not permitted to drive in IRL sanctioned events. That one of the IRL's biggest sponsors works against the interests of the new entry level series strikes me as being a bit odd.

Second, I wish that F2000 would embrace ovals. Racer reports that two ovals are under consideration for 2010, but that most if not all of the schedule will be composed of road and street races. Is this supposed to be a proving ground for drivers who wish to participate in the Indianapolis 500? I guess not.

Another Bottleneck

One can sense that IRL management is trying to attract young American drivers who might some day revive the IndyCar Series. For this, I commend Angstadt, Barnhart and Cotman.

However, I would also suggest that the new Indy Lights feeder series will do little if anything to actually solve the problem. There are and have been plenty of talented young Americans who would have liked to have been IndyCar drivers. That they did not achieve their dreams is not due to a lack of viable feeder series.

Drivers such as Robbie Pecorari, Cole Morgan, and Kevin Swindell fell from the IndyCar ladder because the cost of operating a team at the top rung is five times greater than that team's market value. Put another way, if the IndyCar Series can not afford to keep 2004 Indianapolis 500 Champion Buddy Rice, then it can not afford to attract Pecorari, Morgan and Swindell.

The new U.S. F2000 National Championship might become a fine lower level formula championship. Regrettably, it is also likely to create yet another bottleneck of drivers whose accomplishments warrant an upgrade in competition that their personal resources and connections can not purchase.

Roggespierre

IndyCar: Angstadt Commences a Fool's Errand

The plan here was to be positive and constructive, beginning today. Unfortunately, the mouth of Terry Angstadt has discharged yet another fallacy, forcing me to lithely and temporarily change tack.

The IRL Commercial Division President met the media at Homestead-Miami with Versus President Jamie Davis alongside. Racer provides the details.

Angstadt again claimed that he has a title sponsor on the hook and that he is confident that he'll reel it in. This should be and would have been a positive development had Angstadt left it at that. But, as is his wont, TA kept talking.

First, he effectively explained that a title sponsor will cause Versus to be pleased to remain the cable television distributor for a racing series that demonstrates zero ability to attract an audience.

"We are very close to making that announcement, and that's not only important for our broadcast partners, because believe me, that comes with a big television buy, both on broadcast and cable.""

There it is. Who needs ratings when the league can arrange for direct advertising buys? It's not about serving consumers. It's about arbitraging corporate supply chains and financing your unwanted product with direct sales in other markets.

Unfortunately, Angstadt revealed still more harebrained thoughts about ways in which a series sponsor would allow him to raise the value of the IndyCar Series.

"But I think, more importantly, to allow us to promote outside of
motorsports is critical. That is where we will attract what we think is a
much broader base and raise the overall value of the series."

This is an incredibly stupid plan.

Helio Castroneves won Dancing with the Stars, one of the more popular programs on network television. He then won the 2009 Indianapolis 500, yet television ratings decreased.

Danica Patrick was featured in the Sports Illustrated Swimsuit Issue in both 2008 and 2009. She finished third at Indy this year, yet television ratings decreased.

If promoting racing "outside of motorsports" is a classic example of a fool's errand, then Terry Angstadt is exactly the right guy to do it. People who do not like racing will not watch racing.

Why doesn't Jamie Davis push Angstadt to fix his product? I already answered that question above. Versus will be satiated by cash money from APEX Brasil and the new title sponsor. Cash trumps ratings.

Don't expect Versus to demand an improved product that might actually draw a television audience. It has college football, the NHL and cage fighting for that. IndyCar is a glorified time buy, financed by arbitraged supply chains.

Meanwhile, the IRL will continue to chase event promoters that are subsidized by governments. "Festivals of Speed" will attract crowds that shall be deemed "phenomenal." Those new fans from "outside of motorsports" won't watch any races on TV, but Versus will be getting paid, so that's not a problem.

The racing and television ratings will continue to suck. The Indy 500 will continue its slow decline. Fortunately for the IRL and its teams, ESPN and ABC can still be blamed for the next two years.

Curses! These guys make it nearly impossible to be positive.

Roggespierre

IndyCar: IRL's Danica Nightmare just Beginning

The Indy Racing League refuses to manage its product so that it might appeal to motorsports consumers in the United States. A natural and unpleasant result of that particular management failure is now in its nascent stage. It is shaping up to be a long-term nightmare for the IndyCar Series and the IRL Public Relations staff.

I am referring, of course, to the Danica to NASCAR story. Ten days prior to a three-driver shootout for the a season championship that consumers have deemed irrelevant, Danica to NASCAR is the undisputed Top Story in IndyCar racing.

Columnist Bill Center provides a solid summary in the San Diego Union-Tribune.

Danica to NASCAR: a Management Problem

Unless IndyCar teams hire compelling U.S. drivers, Danica to NASCAR will dominate all coverage of the league until she finally joins the dominant market leader on a full-time basis. Of course, most IndyCar teams are unable to hire drivers from anywhere because they require Piloti-shod financiers to fund their operations.

This is the fault of IRL management.

Management has mucked up the supply chain so badly that teams must pay the Motegi Tax, the Mid-Ohio Tax, the St. Pete Tax, the Toronto Tax, and the Formula Dream Tax in order to acquire underpowered, spec Honda engines. There is no price competition among makers of chassis and replacement parts because Dallara has a monopoly.

The teams are uninvolved in manufacturing the racing equipment. They must purchase everything. They are not permitted to manufacture, cooperate, and sell in order to recoup cost - not that they would do it if they could.

What do these factors have to do with Danica to NASCAR dominating press coverage of the IndyCar Series?

Everything.


IndyCar is not a consumer product because its costs are approximately five times greater than its value. Everything - from drivers to racing venues - therefore must in some way subsidize market failure. The formula favors international road racers and driver-financiers that can't be sold to a large U.S. audience.


No Stopping this Train

IRL Public Relations can not stop Danica to NASCAR. Do not blame PR.

Reporters are instructed to write and present stories that might attract a large audience. Danica to NASCAR is the only such story in IndyCar racing. Do not blame the media.

Tim Cindric wants NASCAR drivers at Indianapolis next year. Cindric is one of two team owners that can afford to hire driving talent from the United States. Why does he not do so? Why does he want others (NASCAR drivers) to solve the problem? Perhaps it is because that is the IndyCar Way.

The IRL is managed by Terry Angstadt, Brian Barnhart and Tony Cotman. Collectively, they have paved the way for the behemoth that is and will continue to be Danica to NASCAR. Why should they not be held accountable? They are the managers, after all.

They have inflated the cost of participation.

They have invited monopoly.

They have granted concessions.

They have elected to seek government subsidies rather than consumer acceptance.

They have earned the long Danica to NASCAR nightmare that is only now just beginning.

Roggespierre

IndyCar Championship: Tight but no Tension

Three different drivers can win the 2009 IndyCar Series championship by winning and leading the most laps in the finale at Homestead-Miami Speedway. Needless to say that the battle between Scott Dixon, Dario Franchitti and Ryan Briscoe is tight. Unfortunately, it seems that the resulting tension among auto racing consumers in the United States is less than palpable.

Talented as they are, the championship contenders have failed to establish a fan base. Why?

Let's return to IndyCar Maxim #4. I quote renowned marketing and strategy professor Clayton Christensen.

"...the job, not the customer, is the fundamental unit of analysis for the marketer who hopes to develop a product that consumers will buy." - Prof. Clayton Christensen, Harvard Business School

Few consumers are buying the IndyCar racing product. I would suggest that the core problem is that the IRL has no clue about the "job" that prospective racing consumers want to get done.

Christensen continues:

"With few exceptions, every job people need or want to do has a social, functional, and emotional dimension."

This insight is extremely important. The IndyCar product is the brainchild of IRL Racing Operations Division President Brian Barnhart. The former racing mechanic possesses significant expertise with regard to the functional aspects of the product. One suspects that the social and emotional product dimensions might sound to Barnhart like so much gobbledygook.

If that is the case, then perhaps Barnhart should take a glance at the grandstands and the Nielsen numbers. This is why the IRL needs an IndyCar Series product manager. Sales and racing operations do not begin to cover the activities that are necessary if IndyCar is to ever succeed in the competitive marketplace.

Not just an Audience, a TV Audience

IndyCar's failure to attract an audience on television is attributable to multiple factors. Some are easily identified. For example, night races are consistently outperformed by daytime events. Viewership for at least three of the IRL's established oval events has declined as more road and street races - and therefore more international road racing drivers - have been added.

The IndyCar schedule is inconsistent, confused and arbitrary. Fans of NASCAR and Formula 1 know exactly what they can expect when they watch a race. IndyCar is hopelessly muddled - a predominantly road and street racing series that includes almost exclusively road racing drivers and that happens to include the world's most famous oval race. The schedule is a non-strategic amalgamation of events for which promoters will pay and teams will show up.

The cars and events are managed. The product is not.

NASCAR has mastered what sociologists call parasocial interaction: a relationship between two individuals in which only one is actively engaged. In the case of NASCAR, that individual is the fan. The object of the parasocial relationship is the driver. This is not the same as living vicariously through another. Parasocial interaction in NASCAR is about the fan perceiving that he or she and the driver share certain life experiences and values.

Interestingly, psychologists suggest that parasocial actors tend to be more solitary and detached than others. Watching racing on television is by definition a solitary activity. Yes, some watch in large gatherings, but most tend to view races either alone or in the company of immediate family. Therefore, those who tend to engage in parasocial relationships would seem to be outstanding candidates to watch racing - and they do watch NASCAR racing - week after week.

Conversely, fans who attend IndyCar street races are commonly believed to be seeking a vibrant and interactive social setting. They are therefore not interested in parasocial relations. Is it any wonder that few of them are willing to sit alone, watching an IndyCar race, when they are not actually attending the event?

NASCAR has a consistent culture that tends to attract natural television viewers. IndyCar has a variable and often contradictory culture that appeals to few who are likely to watch races on TV.

More Questions

Racing fans who like the kind of racing that produced Scott Dixon, Dario Franchitti and Ryan Briscoe are not likely to watch a lot of racing on television. In addition, fans who might want to have parasocial relationships with IndyCar drivers are not likely able to do so because the fans and the drivers lack the types of shared life experiences upon which parasocial involvement is established.

The IRL is fond of showing its drivers participating in other sporting activities that they enjoy. Unfortunately, this typically entails some type of soccer, rugby or Australian Rules event. This is a waste of time because it says to the parasocial prospect, "You're right. These guys really are nothing like you. They're interested only in things that you don't care about."

Parasocial relations are essential in sports for which the players do not wear jerseys that identify their home city or school. Fans who lack a home team are event-goers. In that, there is no inherent harm.

Just don't expect them to look for your product on television. And don't be surprised when a tight championship battle fails to induce tension.

Roggespierre

Appeal to the Indianapolis Motor Speedway Board

Citizens, we must expose the entrenched interests that threaten the future of IndyCar Racing!

We know that the correct price of sponsorship for a top IndyCar team is $1.3 million. However, recent comments by Terry Angstadt make clear that the IRL hopes only to reduce costs from their present level of $7 to $8 million per season.

Not Good Enough

The cost of operating a top IndyCar team must be no more than $1.3 million. Otherwise, there will be no new sponsors for IndyCar Teams. Advertising decisions are made by MBAs who are trained to do what their spreadsheets tell them to do. The secondary market for NASCAR Cup sponsorship (think: Subway) will continue to be of greater value.

Robin Miller has floated a $3-$4 million dollar target. We believe that Robin has very good intentions, but his figure is still at least double the market value of the product. Furthermore, we believe that his valuation was likely provided by Target Chip Ganassi Racing, an organization that distributes abnormal economic returns to Chip Ganassi and Mike Hull precisely because TCGR competes in an overpriced series.

Unlike Team Penske, Target Chip Ganassi Racing is financed with a sponsorship artifice that is divisible. TCGR does not have to compete with other IndyCar teams for consumer products sponsors. Why? Because TCGR can offer something of much greater value than team sponsorship - namely, concessions from a large national retailer. Therefore, Ganassi and Hull would act irrationally if they were to accept a cost structure for IndyCar teams that is equal to the promotional market value of those teams. They do not have to lose sponsors outright in order for their individual returns to decline.

We are confident that TCGR has contacts protecting its interests inside the IRL and the IMS; it would be foolish not to because so much is at stake. Ganassi and Hull have every incentive to see that the IRL manager who dares to bring operating costs in line with market value loses his head.

To the IMS Board of Directors

Please consider the individual economic interests of your suppliers of racing teams, which vary greatly. The interests of Target Chip Ganassi Racing are not at all aligned with your own. Do your managers defer to them out of fear for their jobs? If not, then you have marvelously courageous managers.

We would not blame you for disregarding the pseudonymous writer of an obscure website. We therefore encourage you to hire a consultant to provide analysis and protect the Board of Directors - not management, not partners, not suppliers, not customers, and not family members who are not Board members.

This consultant should not be someone who knows racing, but rather someone who knows business. He or she should be a complete outsider who does not travel in racing circles. Contacts of "friends" should not be trusted because "friends" have interests that are not aligned with yours. We can provide the names of several candidates that are highly respected in industry and academia. They have no interest in auto racing. Therefore, they are free to look out for yours.

Our email address is provided.

Roggespierre

IndyCar Economics: TCGR Deep Capture

IndyCar managers, competitors and fans have been sold a myth. Conventional wisdom posits that marketers of consumer products will not sponsor individual racing teams and events. Empirical evidence informs us that this is not true. We need only look at NASCAR's (sans-culottes!) various divisions to find consumer product logos prominently displayed on racing cars.

Deep Capture: Target Chip Ganassi Racing

In fact, IndyCar has many consumer product sponsors. The problem is that most of them contribute funding to only two cars. This is due to the supply chain arbitraging activities of Target Chip Ganassi Racing. Here is a partial list.

• TomTom
• Energizer
• Vaseline
• Polaroid
• Gillette
• Memorex
• GLAD
• Nicorette
  
• amp Energy
• SoBe
• Brita Filter
• GE Reveal
• Lysol
• Maxwell House
• Dove
• Oreo
• Air Wick
• Champion
• Sherwin-Williams
• Purina
• Life Water
• Lexar
• Bosch
  

These are not Mom & Pop operations. They are large firms that spend hundreds of millions each year on sports advertising. Unfortunately, almost none of it goes to IndyCar racing. Yes, these companies have logos on the Target cars, but that is only because they have received much more valuable consideration in a completely separate market.

Protectionism through Technology

The most vocal proponent of high-tech racing among team managers is Target Chip Ganassi Racing's Mike Hull. This would not surprise an economist. Hull and TCGR's interests are completely misaligned with those of the IRL and the balance of IndyCar teams.

Target Ganassi Racing has every reason to want the cost of IndyCar racing to exceed the product's market value. We know that this is counter-intuitive but ask that you stick with us.

Given the cost of operating an IndyCar team, Ganassi possesses an insurmountable advantage when it comes to acquiring sponsorship from marketers of consumer goods. He can arrange for concessions at Target Stores, a very large and powerful national retailer. That is why new consumer products sponsors such as Vaseline and TomTom seem to show up only on the TCGR cars.

Robin Miller and others have reported that Chip Ganassi's deal with Target does not permit him to add another primary sponsor for an additional car unless that sponsor's total contribution per car is greater than Target's. This clause is extremely important. It is likely the foundation of Mike Hull's fondness for expensive technology.

Breaking Up TCGR's TomTom Club

TomTom has been Dario Franchitti's primary sponsor at three events this season. We do not know how much TomTom contributed to TCGR via Target's arbitraged supply chain, so we will assume that the value is $3 million; that's $1 million per race of primary sponsorship. Remember, however, that the amount has little if anything to do with TomTom wanting its name on a race car. The payments to Ganassi are the cost of consideration in another market - shelf space, in-store promotion kiosks, or some such for TomTom products at Target.

Now, let's assume that IRL management decides to get the cost of operating an IndyCar team aligned with the market value of the product that IndyCar teams produce. That, of course, would mean that a 17-race season would cost approximately $1.3 million per car for a championship caliber team.

Adjusting cost to value would provide TomTom - indeed, all of Ganassi's associate sponsors - a broader range of appealing options in the IndyCar Series. Primary sponsorship of an Indy car - a competitive Indy car that could win the Indy 500 and the season championship - would be a rationally justifiable marketing expense because its price would match its actual value, $1.3 million. However, Chip Ganassi is unable to add a TomTom entry to his stable; $1.3 million doesn't come close to the amount per car that he arbitrages from Target's supply chain.

It is entirely plausible that TomTom would choose to decrease its contribution to TCGR from $3 million to $1.7 million. It could then reallocate the $1.3 million to another IndyCar team that has no restrictions on the amount it can accept for primary sponsorship.

Target would not suffer a cash loss. It would continue to grant $1.7 million in non-cash consideration to TomTom. Chip Ganassi and Mike Hull would suffer greatly. The entire $1.3 million cash decrease would come from their operating budget.

Extrapolate this result across multiple TCGR associate sponsors - Energizer, Gillette, Nicorette, Lifelock, Polaroid, Vaseline, etc. - and you will discover that the financial risk accumulates rather quickly for Target Chip Ganassi Racing.

Good for IndyCar; Bad for TCGR


A redistribution of consumer products sponsors across multiple IndyCar teams would be very good for the IndyCar Series. It would be very bad for Target Chip Ganassi Racing. Mike Hull therefore has every incentive to prevent the IRL from adopting a rational cost structure for IndyCar team operations.

That is why Hull loves expensive technology. He has said on many occasions that technological solutions are the future of the IndyCar Series. He had better hope so, because a reasonably priced series won't just cost him on the race track. It could remove a considerable sum from his pocket, as well.

The Committee of Public Safety finds it both sad and hilarious that Hull has so many allies at lesser teams, including some that are dormant, who follow his lead on the tech issue. Hull is pantsing these guys on the track and at the deposit window, and they apparently can't get enough. Perhaps it makes them feel good to agree with a winner.

We hope that IRL management does not take Hull's comments at face value. Someone must recognize the economic interests and resulting behavior of IndyCar stakeholders. However, our previous Deep Capture analysis of Honda and IndyCar TEAM does not encourage optimism.

The IRL appears to be the type of organization where a cliche such as, "You can't put technology back in the bottle," passes for wisdom and ends all debate. In fact, you most certainly can put technology back in the bottle. That's why sanctioning bodies write and enforce technical rules. When all but two teams can't afford technology, you really have no choice but to put it back in the bottle. Who at the IRL is going to tell that to Mike Hull?

Target Chip Ganassi Racing has the most to lose - by far - in the event that IndyCar reinvents itself as a competitive product in the consumer marketplace. We hope that IRL management understands and moves forward with plans for new specs that cost no more than $1.3 million to operate for a 17-race season.

Roggespierre

IndyCar Economics: Why they'll Race in an Alley

As the IndyCar Series evacuates to Japan, we invite citizens to consider the following numbers. They are the dreary residue of market rejection, the just sentence for failing to serve consumers. The Committee of Public Safety has every reason to trust the sources that provided this information.

• The standard sanction fee for an IndyCar event is in the range of $1.2 million to $1.5 million. The number is highly variable.
  
• The IRL incurs costs associated with racing operations in the amount of $500,000 per event.
• The IRL distributes approximately $1 million per event to teams via IndyCar TEAM.

Therefore, the best case scenario is one in which the IRL breaks even. An Indy Lights race requires additional prize money in the amount of $360,000. The IRL does not charge the promoter because, as little market value as the IndyCar Series possesses, the Lights series offers none whatsoever.

Thus, the IRL business plan calls for an operating loss at each IndyCar event unless a supply chain can be arbitraged or a government subsidy can be secured.

Cash Flow-a-Go-Go

Of course an event sponsor can alleviate the financial burden considerably. Unfortunately, the IRL and its teams frequently sponsor their own races.

• Honda is title "sponsor" at St. Petersburg, Toronto and Mid-Ohio
• Honda's IndyCar participation is subsidized by teams that overpay for spec engines
• Teams are subsidized by the Indianapolis Motor Speedway through IndyCar TEAM
  

Therefore, Honda receives title sponsorship for three events without incurring a net cash outflow. Why would any firm offer cash to sponsor an IndyCar race when, for all intents and purposes, Honda gets three of them for free?

Manufactured Partnership

Perhaps the teams and the IRL don't mind sponsoring their own races. Do they care that they are funding Honda's Formula Dream "sponsorship" that allows Hideki Mutoh to participate? Does Hideki Mutoh add any reciprocal economic value to the IndyCar product?

Honda might be writing the checks that pay for the series to travel to Motegi next week, but that does not mean that it is paying the freight. Does Motegi add reciprocal value to the League?

But wait! Didn't Terry Angstadt just say that Honda has agreed to reduce the price of its engine lease program next year? Was that not a significant and benevolent act of partnership?

No, it wasn't. Declining marginal cost per unit due to economies of scale is the natural result of mass producing homogeneous products, such as spec engines and parts. Honda's production costs next year will be less than they were this year. Remember, too, that the lease is really a user fee. Ilmor does much of the the rebuild work. How many new engines is Honda required to add to its existing stock in 2010? None? A few?

Honda's costs will decrease in each year that further development is not necessary. Might that be why Honda Performance Development has become enthusiastic about the IRL remaining a single manufacturer series? Of course it is.

More Deep Capture: Honda Edition

The Committee of Public Safety has been told that Honda now thinks of the IRL as a customer rather than a partner. Does that mean that Honda is cash flow-positive on its all-inclusive IndyCar project? It sure sounds that way.

If that is the case, then why is Honda still credited as a league sponsor? Why is its name on every Indy car if in fact it is extracting and not contributing revenue? Why do the team owners wear Honda shirts on race day? Did the IRL and its teams pay for those, too?

Did you notice all of those Honda commercials during race telecasts this year? Neither did we. Let's hope that nobody at the IRL earned a commission for this deal.

Is anyone asking these questions at the IRL? In the House of France, Lesa France Kennedy, proud owner of an economics degree from Duke University, is meticulously analyzing cash flows. Who is her counterpart at the IRL? Is it the salesman or the racing operations guys?

Happy Labor Day Weekend from the Committee of Public Safety

Roggespierre

IndyCar Translator: Can't Sell these Guys

The Republic shall now examine another gem from IRL Commercial Division President Terry Angstadt. Read Bruce Martin's complete story at Versus.com.

On Other Drivers Sharing in the Attention that Danica Gets

"We have our three points leaders going to Miami Tuesday because they have earned it. We have had stability in our name drivers and it is up to PR to shed the light on those that deserve it. Ryan Briscoe is a really fair guy and a phenomenal race car driver. He is really unbelievable." - Terry Angstadt

Translation: I Can't Sell these Guys

This speaks volumes. Angstadt effectively concedes that Ryan Briscoe, Dario Franchitti and Scott Dixon have had ample opportunity to establish market demand for their talents, but have failed. Apparently, being "a really fair guy and a phenomenal race car driver" does not suffice when the goal is mass market acceptance.

If anyone should be taken aback by Angstadt's comments, then it is IRL Public Relations chief John Griffin. The Big Cheese just threw down the gauntlet, deflecting blame to Griffin for past, present and future failures to promote drivers whose talent is not in demand. Thanks, buddy.

We do not judge markets here; we observe and analyze them. If the market demands U.S. oval racers, as Tim Cindric and Michael Andretti have in essence admitted, then the IRL should do everything in its power to furnish U.S. oval racers. Why should NASCAR (sans-culottes!) be permitted to have a monopoly on drivers that U.S. racing fans want to see?

Roggespierre

Danica Patrick: IMG not Buying IndyCar Pitch?

Jayski is reporting that Danica Patrick returned to the Stewart Haas NASCAR (sans-culottes!) shop Monday afternoon. Meanwhile, IRL Commercial Division President Terry Angstadt is in Brazil, where he hoped to finance the 2010 version of his overpriced product and land a season opening race in the process.

Keeping Danica Patrick in the IndyCar Series is "very important." So Angstadt told Versus.com's Bruce Martin.




Angstadt's further musings on this subject require translation and analysis. We are pleased to provide these services to interested citizens. Those who are new to the subject should know that Danica is represented by International Management Group (IMG).

"We have worked hard and closely with IMG to give them confidence in our
series and her role in the future of the series." - Terry
Angstadt

It is unlikely that NASCAR (sans-culottes!) was required to provide such assurances. It has demonstrated that abundant demand exists for its Cup Series and Grand National Series products. Conversely, nearly all empirical evidence suggests that the market for the present IndyCar product is already small and still shrinking. Pity Terry Angstadt, who must convince a sophisticated marketing and financial firm that down is in fact up.

"I really respect the magnitude of this decision for her... That is why we
are respecting that as best we can with IMG." - Terry Angstadt

With all due respect, we have no idea what this means. Perhaps we can infer that failing to manage one's product tends to reduce one to pandering.

"It is sales, marketing, PR, venue selection, where she feels most
competitive... IMG challenges us and we respond accordingly." - Terry
Angstadt

These comments are fascinating. Danton suggests that Angstadt's list of generic activities is intended to imply that IndyCar knows how to maximize returns to Danica and IMG. That is, after all, why IMG is involved.

The reference to "venue selection" lends specificity and intrigue. For example, the IMG Speakers Series markets Danica's public speaking engagements. This effort is unlikely to yield favorable results in Japan and Brazil. In addition, we doubt that IMG has much enthusiasm for Edmonton. Who could blame IMG for suspecting that Danica's participation at these venues would cause her to forfeit significant revenue opportunities?

Is Danica in over her Head?

It is clear that the IRL hopes that Danica will stay because she has a greater probability of winning races in the IndyCar Series. Danica seemed to be leaning that way less than two weeks ago. Now, suddenly, she is silent and the issue remains unresolved.

If Danica intended all along to use NASCAR to get a better deal in IndyCar, then she must realize by now that she hired the wrong firm to represent her. This is not the starstruck IMG that Mark McCormack founded. Today's permutation is an aggressive profit maximizer that exists for the purpose of distributing abnormal returns to Ted Forstmann and his investors. In this case, that would mean taking Danica to NASCAR.

Roggespierre

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

IndyCar: More Madness from IRL Management

We appreciate that Versus hired Bruce Martin to write about IndyCar racing on its website. His stories have not disappointed, although the same can not be said about their subjects.



Martin's latest edition features Terry Angstadt pontificating on a variety of subjects. The IRL Commercial Division President's words are frequently banal, sometimes evasive, occasionally nonsensical, and always maddening. We remind you that this is not always his fault.


We shall analyze Angstadt's musings thoroughly because they are important. First, however, we suggest that citizens read Martin's entire story. He gathered the information and distributed it to race fans, a service that the Republic appreciates very much. Martin and Versus deserve your patronage.

The Committee of Public Safety shall commence with its analysis soon enough.


Roggespierre

IndyCar Growth depends on IMS Board

Your faithful IndyCar Montagnards recently perused this Roundtable Report from the Minnesota Chapter of the National Association of Corporate Directors. We invite citizens to read the following conclusion, keeping in mind the present state of corporate governance at the Indianapolis Motor Speedway and its related entities.

"Too often, family businesses maintain an informal, 'family only' board
long after business needs have outgrown this structure. Growth of the
business and the shareholder group eventually require governance with a level of
objectivity, discipline, and strategic focus that family members alone can
rarely provide."

We are not here to tell the Hulman George family how to run its business. But we do care deeply about the future of IndyCar racing and the Indianapolis 500. Therefore, we shall briefly consider IMS corporate governance, the one issue that must be resolved satisfactorily if IndyCar is to have a viable future in the competitive marketplace.

The More, the Scarier

The business of the Indianapolis Motor Speedway has grown substantially since Tony Hulman re-opened the track for business in 1946. New events, product lines and strategic business units (SBUs) have been added. Like the business, the family has grown. In a sense, Tony and Mary Hulman had it easy; they handed the family business to one daughter. Predictably, Mari Hulman George has had a more difficult time, balancing the interests of her four children.

The job now becomes even more complicated as a new generation of the family comes of age. Who will be in charge? How will equity in the company be distributed? What rights will equity holders have? Will family members actively manage the company; if so, then which family members? These questions are the first of many that are extremely difficult to answer.

Deliberations among the five members of the Hulman George family who currently serve on the Board of Directors must achieve certain goals if the Indianapolis Motor Speedway and the Indy Racing League are to thrive. Professor John A. Davis of Harvard Business School identifies them here.

• Clarity on roles, rights and responsibilities for all (family) members...
• Encouraging family members, business employees, and owners to act responsibly
• Regulating appropriate family and owner inclusion in business decisions
  

Professor Otis Baskin of the Graziadio School of Business at Pepperdine University puts it this way.

If family relationships are divisive, those negative relationships carry over
into the business and often are more destructive than they would be between
co-workers or managers who have no other relationship.

Recent empirical evidence suggests that this is indeed the case at the IMS. A well defined system of corporate governance can alleviate such problems, allowing family members to trust each other and empowering professional managers to lead the firm toward market competitiveness. We hope that this is currently Job One, Two and Three at the Indianapolis Motor Speedway.

IndyCar racing will not thrive without an empowered, knowledgeable product manager. Sales and racing operations appear to be in good hands, but that is not nearly good enough. Salesmen will sell whatever and whenever they can, regardless of whether or not it is strategically advantageous. Racing operations is a cost center that at best aids business growth via operating efficiency. Direction, strategy, customer focus, product development and supply chain management are all severely lacking.

It does not have to be this way.

Roggespierre

IndyCar - Another IMS Executive Defection

The Indianapolis Business Journal (subscription required) reports that Charlie Morgan has vacated the top broadcast position at the Indianapolis Motor Speedway and the Indy Racing League. Morgan, a respected radio talent and manager in Indianapolis, will run radio operations at Emmis Communications.

We shall have more to say about this in the near future. IMS Corp CEO Jeff Belskus is said to be forming a new leadership team.

IndyCar: Versus by the Numbers

We like numbers at The Indy Idea. Numbers provide tangible data points from which we can derive a reasonably accurate assessment of IndyCar's positioning and performance in the competitive marketplace.

The size of the average IndyCar television audience is particularly instructive. Television ratings in many ways constitute a perfectly competitive market. After cable and satellite fees have been paid, the only remaining costs are opportunity costs. Watching one live program necessarily means not watching another. At any particular point in time, the only additional option is to not watch any live television program at all.

Connections, personal sales, and inflated capitalization ratios can not buy good television ratings. TV numbers can't be skewed by complimentary race tickets and compulsory participation in corporate sales outings. TV viewership therefore gives us a reasonable approximation of citizens' relative preferences based on their behavior in the marketplace. The egalitarian foundation of TV ratings strips away noise and lays bare the truths of market acceptance and rejection.


Publicly available data regarding IndyCar ratings on Versus are a mixed bag. Yes, the overall numbers are bad, but such an assessment hardly qualifies as serious analysis. More to the point, mere observation is not a useful management tool. It is clear that IRL management must devise a strategy to increase the competitiveness of IndyCar racing in the television viewership marketplace.

This is a fundamental metric in the sports entertainment sector. That IRL managers are not held accountable for achieving competitive TV ratings is beyond comprehension.

IRL management must identify sources of competitive advantage that enable some broadcast properties to thrive on Versus. What are the key variables that separate the winners and losers? If IRL managers were to seriously engage in product development - a leap, we admit, given their history of refusing to manage the product - then how might they manipulate and manage those key variables? Which metrics should be used to determine success and failure?

Roggespierre, with aid from Danton and Marat, shall examine the available numbers and explore the questions above in the coming days. We encourage those who work at 4565 West 16th Street to join us. If the knitters conclude that TV ratings do in fact fall under IRL management purview, then it could be the Montagnards here that save your heads!

Roggespierre

IndyCar IRL Management Quiz for the Citizens

Good Morning, citizens! We begin today with a question for IRL management. We encourage those who care about the future of IndyCar racing to forward this question to management and let us know whether or not you receive an answer. This could be fun!

Question: What has IRL management done this season to leverage hot zips to increase the value of the IndyCar racing product? What were the results?

The Indy Idea is curious to learn whether or not anyone at IRL management even knows about hot zips. Don't bother looking on Google - the answer isn't there. Only product managers and professionals in a few select industries would know. We ask that they keep the answer to themselves until tonight. We'll give the answer then... unless IRL management beats us to it.

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

• Compensate suppliers of racing teams in proportion with the market value they contribute.
• Manage the IRL supply chain to achieve measurable goals in the marketplace.
  

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.

Roggespierre

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.

Roggespierre