Benefits of Pricing IndyCar to its Market Value

The primary mission of The Indy Idea is to discuss how IndyCar might become a viable competitor in the motorsports entertainment marketplace. At present, it is not.

IndyCar is not economically competitive because it is grossly overpriced. I initially provided quantitative evidence in support of this argument here. I further revised my analysis here and here. I further explained the ramifications of IndyCar's non-competitive market position in the second half of this post.




The relevant microeconomic assumption is that demand exists for virtually any product at some price; however, demand does not necessarily exist at any price. For example, McDonald's sells millions of Big Macs each year at a price point of approximately $2.99 apiece. How many Big Macs do you think McDonald's would sell if the price were no less than $11.96 apiece?


That is effectively the value proposition that IndyCar and its teams offer to sponsors.

If you are interested to know why sponsors such as Target and 7-Eleven are willing to take that deal, you will find answers here. Unfortunately, firms of that particular type are too few in number to sufficiently finance the IndyCar Series.

Incidentally, this is a marketing exercise. Think of it as having to do with the 2nd "P" of marketing - Price.


IndyCar "As If"

Let us assume that IndyCar might somehow price its product to correspond to its market value. That would necessarily mean that operating a competitive IndyCar team for the entire season must cost no more than $1 million.

Setting aside exactly how we might accomplish this objective, let us examine the potential benefits so that we might accurately judge whether or not the resulting pain would be worth it.

The following list is by no means comprehensive. The benefits are merely top of mind effects that would be the logical economic results of pricing IndyCar racing to match its market value.

• Teams attract sponsors because sponsorship is correctly priced


• IndyCar attracts sponsors at the series level because sponsorship is correctly priced


• TEAM subsidy payments can be cut because teams have fewer costs and more sponsors


• Some savings from reduced TEAM subsidies can be used to promote IndyCar


• Team and series sponsors can increase activation and promotion budgets because the cost of entry is reduced


• IndyCar can reduce its required sanction fee because it no longer must subsidize teams


• Profits to race promoters increase because the sanction fee is reduced


• Race promoters can reinvest some of those profits to increase promotion of IndyCar events


• Demand for IndyCar races increases among race promoters and tracks because IndyCar events are profitable


• IndyCar selects new events according to strategy rather than necessity because it has a broad selection of available venues


• Team owners can hire drivers based on talent and marketability because correctly priced sponsorship is available


• The ladder system begins to work because the top rung is available to drivers who demonstrate that they are talented and marketable


• Ride buyers continue to exist; the only difference is that there are more of them because rides are cheaper to buy


• Field sizes therefore increase


• Drivers who fail to qualify are not excluded for the remainder of the season because their sponsorship packages are correctly priced for a full season; financial risk to sponsors is reduced


• On-track competition is enhanced because the entry list grows

Pie in the Sky or Something to Try?

Those effects seem pretty desirable to me.

That said, we must consider how IndyCar might devise a product that allows teams to sell primary sponsorship at its true market value. The cost of entry would need to be no more than 25% of the current price.

It can be done, albeit painfully.

Therefore, I ask for your help. I am looking for ideas both big and small that will drastically cut operating costs.

I am not looking for reasons why it can not or should not be done. Don't tell me why I should pay $11.96 for a Big Mac. I don't care how much you like Big Macs. You'll never convince me that I should pay more than $2.99 for it.

Roggespierre

IndyCar: We have seen the Enemy...

The product is the problem. That part is easy. The solutions are not.

Some have asked why I dedicate so much of The Indy Idea to analysis of television ratings. This is a good question that warrants a serious answer. I shall do my best to provide one here.

I believe it is important that IndyCar participants recognize how bad things have become. They do not want to believe it. That is why they prefer racing venues such as Toronto, where the urban backdrop allows for a "major league" feel and a crowd consisting of 30,000 to 40,000 spectators looks good enough. That is also why they will be very excited about "phenomenal" fan turnout at Barber Motorsports Park, never mind the fact that the place can only hold approximately 30,000 spectators.

The Barber race would not exist if not for government subsidies. Toronto might be similarly subsidized, although I freely admit that I do not have evidence of it. Nevertheless, these events allow IndyCar participants to fool themselves into thinking that they are part of something that is cool and popular.

The IndyCar Series will not make the changes that must be made until those in power have no choice but to admit that change is necessary. They tend to like the dream world that they currently occupy. They want to keep it intact for as long as it is possible.

Many in IndyCar do not want to lower themselves to the point of serving an audience. IndyCar racing has no history of purposely serving anybody except for a very small group of insiders. Those insiders still exist and exert significant influence over the Indy Racing League and its feckless managers.

That is why IndyCar always blames others - race promoters, television partners, NASCAR, International Speedway Corporation, and sponsors that do not execute grand activation strategies on IndyCar's behalf. Versus is only the latest in a long line of pariahs. IndyCar participants like what they do and believe that others should, too. Any evidence to the contrary must therefore be the fault of someone else.

One of my goals here is to turn a mirror to those who are destroying this once great sport. Serious economic analysis leaves no doubt that IndyCar has failed in the competitive marketplace. I want the participants to know that they are not only not cool, but also not relevant. They act more like spoiled brats, having inherited market acceptance and then thrown it away so that they could spend what they want to spend and do what they want to do.

No more!

IndyCar's failure is directly attributable to those who have exercised power over the sport for more than 30 years. They refuse to believe it. My goal is to leave them no other alternative. The time for truth and reckoning is now.

Beginning Monday, October 14, I intend to begin looking to the future. The off-season at The Indy Idea shall be all about what IndyCar racing could and should become. It will be subject to economic discipline. Otherwise, I invite your thoughts about how IndyCar might become competitive in the marketplace. We shall continue, "As If."

Currently, IndyCar racing ranks fifth in the competition among auto racing series in the United States. NASCAR Cup and NASCAR Grand National are the undisputed Number One and Number Two players. The National Hot Rod Association and the NASCAR Truck Series are third and fourth. IndyCar is fifth, followed by ALMS.

Together, we can work to improve IndyCar's competitive positioning. I hope that you will contribute your good ideas, dispassionate analysis, and constructive debate.

Roggespierre

IndyCar - "As If"

In his eulogy of the writer Alexander Solzhenitsyn, man of letters Christopher Hitchens wrote that the author of The Gulag Archipelago spent his career writing "as if."

...he carried on "as if" he were a free citizen, "as if" he had the right to study his own country's history, "as if" there were such a thing as human dignity.

We do not mean to compare ourselves with the heroic version of Solzhenitsyn (as opposed to the older, Putin-praising hyper-nationalist iteration.) But we do endeavor to follow his example in some very small way.

"As if" someone who is capable of taking meaningful action is reading The Indy Idea.

"As if" IRL leadership believes as we do that it can compete with NASCAR (sans-culottes!) and topple the House of France.

"As if" IndyCar management might courageously confront its core business problems, rather than chase temporary underwriters in increasingly remote and tertiary locations.

"As if" someone in power were committed to making the Indianapolis 500 and the Month of May in Indianapolis undeniably awesome again.

"As if" readers care about the long-term vitality of IndyCar racing.

Roggespierre