Texas IndyCar Price & Market Value

Thanks to multiple contributors who brought the latest IndyCar television ratings data to my attention.

You know who you are.

According to Sports Media Watch, the Firestone 550K on Versus attracted 518,000 viewers. The same race in 2009 drew 467,000 viewers. Any increase is good news for the series. Adding 11% year over year is solid.

These numbers give us an opportunity to value the returns to IndyCar team sponsors that are attributable to participation in the Texas race.

Math!

We begin with our quantifiable benchmark, namely the value of sponsoring a full-time championship caliber NASCAR Cup car in 2010. As we have said, published reports and our own revisions indicate that such a team could anticipate generating approximately $18.649 million per year in sponsorship revenue.

We assume that the primary driver of sponsorship value is television ratings. Supply chain derivatives and arbitraging activities that have nothing to do with the value of the racing product are excluded from our analysis. Subsidies that are paid to teams by drivers and the league are also excluded.

The 36 NASCAR Cup events in 2009 combined to attract approximately 236,720,000 TV viewers in the United States.

$18,649,062 / 236,720,000 viewers = $0.078781098838767

Therefore, the sponsors of a typical championship caliber NASCAR Cup team pay a bit less than $0.08 per U.S. television viewer. Therefore, that number (not rounded) is the market price that sponsors can be expected to pay.

Firestone 550K: the Valuation

I remind you that the IndyCar race at Texas attracted 518,000 U.S. television viewers.

Thus, the valuation equation:

518,000 viewers * $0.078781098838767 = $40,808.61

The Texas race was worth $40,809 in advertising value to sponsors such as Penske, GoDaddy.com and Target.

Return to the Benchmark

So, how did NASCAR Cup compare? Let's take a look.

Sports Media Watch notes that the Gillette Fusion ProGlide 500 at Pocono drew its worst rating since 2007. However, it still managed to draw 5.3 million U.S. television viewers on TNT.

5,300,000 viewers * $0.078781098838767 = $417,540

Therefore, the NASCAR Cup race at Pocono was worth $417,540 in promotional value to sponsors of the top teams.

The Meaning of Market Competition

Notice that the value that accrues to sponsors can be quantified. Econometrics are far more sophisticated than anything that I have noted here, but the point is the same.

This is why I am very concerned about returning to the CART model. Yes, CART event promoters did very well. Temporary circuits tend to be very good for promoters.

However, CART was fortunate that it did not have an established market competitor that was worth nearly 10x its value every time it put a product on the track.

In addition, tobacco companies that provided ample funding to CART and many of its teams and drivers are now gone. Those firms did not care about ratings - they advertised in CART because it was the only way that they could promote their products on television.

Those funding sources are gone forever.

Sponsorship of a top team in the Texas IndyCar race is now worth approximately 9.77% of sponsorship of a top team in the NASCAR Pocono race. Even if IndyCar were to quadruple its rating, its teams would still need to sell sponsorship at a price that is more than 60% cheaper than the price of NASCAR team sponsorship in order to be competitive in the marketplace.

Roggespierre

MLS likes IndyCar Cable TV Partner

IndyCar insiders have blamed Versus for the series' poor cable television ratings. However, another niche sport in the United States apparently believes that Versus might just provide the key that will unlock future growth.

According to Broadcasting & Cable, Major League Soccer has initiated preliminary discussions that might lead to a deal with Versus. MLS is apparently impressed with the way that Versus has promoted and increased ratings for the National Hockey League. The package that is the subject of current negotiations airs presently on Fox Soccer Channel.

Major League Soccer is one of few properties that draws fewer U.S. cable viewers than IndyCar. According to Sports Media Watch, the MLS on ESPN2 drew an average of 290,000 viewers per game in 2009. This year's season-opener on ESPN2 drew 285,000 viewers, down 14% from last season.

Some sports that are very popular globally simply do not attract a large audience in the United States.

For proof, we need look no farther than the ManU/Chelsea Premier League match that attracted a whopping 526,000 viewers on ESPN2, a new Premier League record in the United States. That number is in the same ballpark with IndyCar races on Versus.

Culture Matters

In the United States, soccer is a game that is played primarily by suburban school children. In many other nations, the game is both a deep-rooted passion and a very serious business.

Similarly, road and street racing in the United States tends to be great fun for a small niche that likes that sort of thing - the exception being NASCAR Cup at Watkins Glen and Sonoma, the two most popular road races in the United States. Globally, that particular brand of racing is widely considered to be the ultimate test of man and machine.

No racing series can change an entire national culture. Apparently, neither can a professional soccer league. The difference is that racing costs much, much more than soccer. That is why it requires a much larger audience.

MLS might be profitable with an audience of approximately 300,000 U.S. TV viewers. IndyCar enjoys no such luxury.

Roggespierre

IndyCar: Versus and National Identity

Those who have read this blog in the past know that I have no tolerance for those who blame Versus for IndyCar's cable television ratings woes.

The argument is simple. If you have a product that people want to see, then viewers will find you. Recall that it was not that long ago that a large portion of the NASCAR Cup schedule aired on The Nashville Network. The success that NASCAR enjoyed on second-tier cable demonstrated to national broadcast networks that Cup was a national sports entertainment product that was worth pursuing.

Conversely, IndyCar's poor ratings on Versus are well documented. Apologists have done what they have always done - blamed the telecaster.

A Product in Demand

Well, it seems that people indeed can find Versus if the product is something that they want to watch. I thank frequent commenter Andy Bernstein for bringing this article at Sports Media Watch to my attention.

Wednesday's Game 3 of the Stanley Cup Finals drew a 2.0 rating and 3.6 million viewers on Versus. The game between the Chicago Blackhawks and the Philadelphia Flyers was the highest rated Stanley Cup game on cable since 2002.

Some might argue that the ratings increase is due to the fact that two very popular teams happen to be playing in the Stanley Cup Finals. In my view, that argument is correct. It also supports my point concerning American drivers.

Versus is available only in the United States. Therefore, it benefits from having two popular American hockey teams playing on the sport's grandest stage. What do you think the Versus rating might have been if the Finals had included, say, the Montreal Canadiens and the Edmonton Oilers?

Facts are not always Fair

The market is telling IndyCar that the nationality of the participants matters. It provided a strong suggestion to that end in 2009, when the Indianapolis 500 had a record low eleven Americans in the field and earned its lowest rating in history on ABC. The market spoke very clearly again in 2010, when the Indianapolis 500 had nine Americans in the field, another new record low, and garnered its lowest rating in history for the second consecutive year.

The local market in Indianapolis spoke clearly on Memorial Day, when the rating for the 500 Victory Celebration dropped approximately 33% year over year. There is only one reason to watch the Victory Celebration - to listen to the drivers talk. One-third of the 2009 Victory Celebration audience determined that it was no longer interested in hearing IndyCar drivers talk.

Incidentally, a street spectacle in Baltimore will not solve this problem. In my view, each event that attracts international road racers only compounds the problem.

Argue with my opinions all you like; I welcome differing points of view. However, I do ask that you offer facts that support your conclusions.

In my view, the facts all tend to make the same statement - clearly, concisely, and loudly.

Roggespierre

Comcast to take control of NBC Universal

The worst kept secret in media M&A is finally confirmed. Comcast will purchase a majority stake in NBC Universal.

This is very good news for the IRL because it virtually ensures that Versus will be carried everywhere and by everyone (including DirecTV). Comcast will bundle Versus with more popular cable networks such as USA, CNBC and MSNBC. DirecTV can not seriously consider removing those channels from its lineup. Therefore, it will be forced not only to carry Versus, but also to assign the IRL's fledgling cable partner a decent channel number.

Translation: Comcast is prepared to spend $13.75 billion in order to acquire bargaining power with regards to negotiations with its customers and suppliers. Conversely, the IRL is preparing to select yet another single IndyCar chassis, thereby forfeiting its own bargaining power and that of its teams. The IRL will likely make the same mistake with regards to engine selection.

The IRL could learn something from its television partner. Regrettably, history suggests strongly that it will not.

Roggespierre

GEICO gets hip to Versus

Back in mid-season, Paul Tracy told Robin Miller that GEICO was not hip to Versus.

Apparently, the truth is that GEICO is not hip to the IRL on Versus. When the cable carrier has programming that its exclusively U.S.-based audience wants to watch, then GEICO is very hip to Versus.

Case in point: Versus is televising The Big Game - Cal at Stanford - tonight. Promos throughout the first half have encouraged college football viewers to stick around for the GEICO Halftime Show.

Roggespierre

TV Viewers tune out IndyCar Championship

Allow me to interrupt the New Day Rising project for just a moment.

The television ratings for the penultimate IndyCar race of the season are in. The number is consistent with the others from the second half of the 2009 season on Versus.

Sports Media Watch has the complete story.

Here is how IndyCar racing compared with other Versus offerings of the past week.

• Capital/Bruins NHL game = 405,000 viewers
• IndyCar at Homestead-Miami Speedway = 268,000 viewers
• UFL (new pro football league) 1st game = 205,000 viewers

The numbers provide still more reason to undertake the New Day Rising project. The IndyCar Championship race barely topped a start-up league.

We now turn our attention back to completing our New Vision for the sport.

Roggespierre

IndyCar TV: Another Excuse Bites the Dust

Thank you to Damon for relaying this information from Sports Media Watch.

Thursday's National Hockey League opening night prime time game on Versus drew 833,000 viewers. The late-night second game of the double-header earned a .37* rating, easily beating all IndyCar races this season except for Long Beach (.50).

(*I originally wrote that the second game got a .49 rating. That was inaccurate. I regret the error.)

Even without 18 million DirecTV subscribers, this was the best NHL opening night in history on Versus.

2009 IndyCar cable ratings are here. Additional analysis can be found here.

Recall that I have argued:

1. Versus is not to blame.
2. The DirecTV exodus is unlikely to have much impact on IndyCar ratings.

The second point is tricky, but the new data would seem to support it. The 833,000 opening night viewers is down only 5.3% from the 879,000 viewer average for last year's Stanley Cup Playoffs on Versus.

The good news is that we have identified some sports with which IndyCar is competitive.

1. Major League Soccer = 292,000 viewers average on ESPN2
2. WNBA = 269,000 viewers average, also on ESPN2
   

The problem is neither Versus nor DirecTV. The problem is that IndyCar racing is not a product that appeals to consumers in the United States.

The problem is the product.

Roggespierre

IndyCar TV Ratings: Oil and Water

We have devoted much of this week to observing television ratings data for the IRL IndyCar Series. As Citizen John and VirtualBalboa have noted, meaningful trends are rather difficult to detect.

IndyCar broadcast network ratings excluding the Indy 500 are here.

Indianapolis 500 ratings are here.

Cable network IRL IndyCar Series ratings are here.

Breakdown: Similar Segments

That IndyCar cable television ratings decreased significantly this season is not in dispute. I have argued that Versus is not necessarily to blame.

The following line graph would seem to support my conclusion. It includes cable television ratings for the sequence of IndyCar races that has occurred since Mergification with ChampCar in early 2008. I ask that you examine the graph and look for trends.

Notice that the decrease began at approximately mid-season in 2008. The 2009 Long Beach race, the second event that was telecast on Versus, outperformed four races in 2008 that were telecast on either ESPN or ESPN2. In addition, this year's race at Texas was competitive with the later 2008 events that were telecast on cable.

Cable ratings have been decreasing more or less consistently for a season and a half. That would seem to constitute a significant trend, one that had been established well before Versus entered the picture.

A prior two-year spread is similar in appearance. Cable ratings for the 2003 and 2004 IRL IndyCar season are plotted on the line graph below.

Notice the similarity to 2008 and 2009. With the lone exception of the 2004 opener at Homestead, the general trend is downward. I would argue that 2003 and 2004 were very similar to the past two years.

Both segments were subject to market shocks. Mergification with ChampCar occurred prior to the 2008 season. Blendification with much of what had been CART similarly occurred prior to the 2003 season. Recall that it was then that Honda, Toyota, Target Chip Ganassi Racing, and Rahal Letterman Racing migrated to the IRL.

My hypothesis, therefore, is that in both 2003 and 2008, a percentage of the established consumer market for the IRL product rejected some of the product elements that had been integrated from CART and ChampCar, respectively. Similarly, a percentage of the consumer market for both CART and ChampCar rejected the proposition of watching their previously favored drivers, teams and constructors participating in the IRL.

Granted, there is some variability. Nevertheless, I believe that my hypothesis is reasonably persuasive.

Moving Forward

So, how did IndyCar exit the depression of 2004? In a word, Danica. The cable ratings spiked immediately after she led late in the race at Indianapolis as a rookie in 2005.

Apparently, the drivers in the cars do in fact matter. Regrettably, there are no Danicas on the horizon. In fact, there are few prospective IndyCar drivers from the United States. That does not bode well for the future of the IndyCar Series.

Roggespierre

IRL IndyCar Cable Ratings History

We have examined the IRL IndyCar television ratings history for both the Indianapolis 500 and other races that aired on broadcast networks. Now, finally, we look at cable television ratings.

The histogram below contains comparative Nielsen cable ratings for IRL IndyCar events from 1996 through 2009. Specific races that were telecast on cable television in each year are identified below the graph.

Note that individual event ratings were not available for 1999, 2000, and 2002. The season average is presented for each race in those years.

• 1996 - no cable events


• 1997 - (1) Texas 0.6 ESPN2


• 1998 - (4) Texas 0.4 TNN, Charlotte 0.9 TNN, Atlanta 0.9 TNN, Vegas 0.3 TNN


• 1999 - (7) Phoenix 0.54 cable, Charlotte 0.54 cable, Texas 0.54 cable, Pikes Peak 0.54 cable, Atlanta 0.54 cable, Pikes Peak 0.54 cable, Vegas 0.54 cable


• 2000 - (4) Disney 0.61 cable, Texas 0.61 cable, Atlanta 0.61 cable, Kentucky 0.61 cable


• 2001 - (6) Atlanta 0.6 ESPN2, Texas 0.6 ESPN2, Richmond 0.5 ESPN2, Nashville 0.6 ESPN2, Gateway 0.4 ESPN2, Texas 0.4 ESPN2


• 2002 - (5) Fontana 0.47 cable, Texas 0.47 cable, Pikes Peak 0.47 cable, Nashville 0.47 cable, Gateway 0.47 cable


• 2003 - (6) Texas 0.44 ESPN, Richmond 0.48 ESPN, Nashville 0.32 ESPN2, Gateway 0.7 ESPN, Nazareth 0.55 ESPN, Texas 0.46 ESPN


• 2004 - (6) Homestead 0.9 ESPN, Motegi 0.1 ESPN2, Texas 0.4 ESPN, Richmond 0.24 ESPN2, Nashville 0.5 ESPN2, Fontana 0.1 ESPN


• 2005 - (10) Homestead 0.6 ESPN, St. Pete 0.4 ESPN, Motegi 0.5 ESPN, Texas 1.0 ESPN, Richmond 0.4 ESPN2, Kansas 1.1 ESPN, Nashville 0.3 ESPN, Milwaukee 0.5 ESPN, Sonoma 0.6 ESPN, Fontana 0.6 ESPN


• 2006 - (7) St. Pete 0.3 ESPN, Motegi 0.6 ESPN, Texas 0.6 ESPN, Richmond 0.4 ESPN2, Nashville 0.4 ESPN, Milwaukee 0.4 ESPN, Sonoma 0.6 ESPN


• 2007 - (9) Homestead 0.39 ESPN2, St. Pete 0.6 ESPN, Motegi 0.4 ESPN, Kansas 0.3 ESPN2, Texas 0.7 ESPN2, Richmond 0.6 ESPN, Nashville 0.4 ESPN2, Michigan 0.28 ESPN2, Sonoma 0.6 ESPN


• 2008 - (10) Homestead 0.8 ESPN, St. Pete 0.42 ESPN2, Motegi 0.33 ESPN2, Kansas 0.74 ESPN2, Texas 1.0 ESPN2, Richmond 0.9 ESPN, Nashville 0.5 ESPN, Edmonton 0.4 ESPN, Kentucky 0.43 ESPN2, Sonoma 0.41 ESPN2


• 2009 - (11 to date) St. Pete 0.3 VS, Long Beach 0.5 VS, Kansas 0.15 VS, Texas 0.36 VS, Richmond 0.22 VS, Edmonton 0.24 VS, Kentucky 0.14 VS, Mid-Ohio 0.2 VS, Sonoma 0.25 VS, Chicago 0.24 VS, Motegi 0.14 VS

Conclusions, anyone?

Roggespierre

Versus just short of 1 Million Viewers

No, not for Motegi.

Sports Media Watch is reporting that Versus pulled 972,000 viewers for Saturday's college football game between Florida State and Brigham Young. That's almost 1 million viewers... on Versus... without the benefit of 18 million DirecTV subscribers.

The game was no barnburner. The Seminoles crushed the Cougars, 54-28. And, much like last week's game between Texas and Wyoming, the FSU/BYU contest had ample competition from other college football match-ups throughout the United States.

Allow me to reiterate. Versus is perfectly capable of attracting an audience if it has a product that people want to watch. The present iteration of IndyCar racing does not qualify. At times it seems that IRL management is trying to make life difficult for its new cable television partner.

Quit blaming Versus and give U.S. customers what they want.

Roggespierre

More IndyCar Embarrassment in store on Versus

Blaming Versus for IndyCar's failure to attract a television audience has become a sport unto itself this season. But, just as all other excuses fall flat, this, too, will soon land with a thud.

Versus announced today that it will begin airing special programs that feature the twelve drivers that are competing for NASCAR's (sans-culottes!) Cup. The shows will air Tuesday nights at 11:00, beginning September 22.

Does anyone doubt that Tony Stewart brushing his teeth will attract more viewers than the IndyCar exhibition at Motegi?

Versus seeks destination programming. It clearly believed that IndyCar racing was exactly that. It is equally clear that Versus was wrong. The rump is all that's left of the IndyCar consumer market, and it is a tiny rump indeed.

The IRL and its teams refuse to serve an audience. Their sense of entitlement led some to trash what had been a very enthusiastic television partner. Enter NASCAR's sizable foot in Versus' door and up the IRL's...

Once again, IndyCar gets its just deserts.

Well done!

Roggespierre

IndyCar TV Partner Hooks 'em with the Horns

The epic college football battle between the Texas Longhorns and the Wyoming Cowboys pulled 73,073 viewers Saturday afternoon on Versus.

In Dallas-Fort Worth.

They'll have a typical IndyCar audience when the Houston numbers come in. Add Austin and San Antonio, and they might double IndyCar. The rest of the country is thick Texas gravy.

The Dallas-Fort Worth number was achieved without the estimated 458,000 DirecTV subscribers in the MetroPlex.

It seems to us that there might have been a few - like seven or eight - other college football offerings to choose from, including several from the state of Texas. In other words, there was competition.

Will Motegi attract 73,000 nationally? Did Sonoma? Chicagoland?

How soon can we anticipate hearing the same stale explanations?

People will tune in for college football, bull riding, cage fighting and cycling, but not for IndyCar. It needs to be on either a network or ESPN. IndyCar needs the casual fan, the channel surfer. -Apologists

These excuses are not justification. They are condemnation.

Failing to draw viewers on Versus does not make IndyCar an exception. It does make it a market loser.

How much longer must we wait before the IRL and its teams drop their collective sense of entitlement and do what it takes to earn an audience?

The market is rejecting this product.

Roggespierre

IndyCar TV Switch: You Make the Call

We are now ready to revise our estimated sponsorship increase per team. Last time, we established that moving from Versus to a broadcast network would require that IndyCar find a cable partner for the four night races. This will reduce the $987,930 in additional sponsorship per team for the season.

Robin Miller reported that coverage on Versus in the 2009 season has achieved a .32 average rating. According to Miller, this equates to "less than" 240,000 viewers. We shall disregard the "less than" clause for simplicity's sake.


More Math!

Because we do not know the number of viewers that watched the races in Texas, Kentucky, Chicagoland and Motegi in 2008, we must estimate the number of viewers that is equal to a 1.0 cable rating. This shall establish a basis for our analysis and revision.

240,000 viewers / .32 rating = 750,000 viewers

Frankly, that doesn't seem right. I would think that it would be greater. Still, it's probably close enough.

Therefore, a 1.0 cable rating is the equivalent of 750,000 television viewers. The 2008 IndyCar race at Texas happened to get a 1.0 rating. Therefore:

750,000 * 1.0 = 750,000 viewers for Texas

The Kentucky event in 2008 earned a .43 cable rating. Therefore:

750,000 * .43 = 322,500 viewers for Kentucky

The Chicagoland race earned a .8 broadcast rating on ABC in 2008. This is not a helpful number because broadcast and cable tabulations are not the same and because the Chicagoland event was held during the day in 2008. However, because Chicagoland and Kentucky apparently underachieved at night on Versus in 2009, we'll assume that these two races shall attain similar audiences again in 2010. Therefore:

750,000 * .43 = 322,500 viewers for Chicagoland

Motegi was rained out, televised live and re-aired in 2008. Could this possibly be more difficult? The best rating, .33, was earned by the rebroadcast. That is the number we'll use.

750,000 * .33 = 247,500 viewers for Motegi


More Revision

Previously, we established that each race in 2010 would attract 914,750 more viewers on a broadcast network than on Versus. There are twelve such races. However, we then recalled that we would need a cable partner for the four races discussed above.

The question: how many of those additional viewers did we lose due to night races on cable?

914,750 * 4 races = 3,659,000 viewers if the events had been during the day on network

750,000 + 322,500 + 322,500 + 247,500 = 1,642,500 viewers for night races on cable

3,659,000 - 1,642,500 = 2,016,500 viewers lost from our original calculation

I enjoy the night races. Apparently, I am representative of nothing in particular. If I were an IRL manager, then I would want to identify the tangible benefits of racing at night that offset the loss of more than 2 million television viewers.

But I digress.


The Bottom Line

We know that each viewer is worth $0.09 in the market for racing team sponsorship. We can now calculate how much sponsorship value was lost due to night races on cable.

2,016,500 * 0.09 = $181,458

The bottom line is now in sight.

$987,930 - $181,458 = $806,472

Therefore, each team may anticipate selling $806,472 in additional sponsorship if the IRL elects to move twelve races from Versus to some combination of a broadcast network and a high-reach cable partner.

You don't think we're done yet, do you? Good.

Recall that all of these values assume a championship caliber entry. The Ganassi and Penske teams can anticipate $806,472 in additional sponsorship. Paul Tracy and KV Racing Technology are not likely to appear on screen nearly as often as the top two teams. We therefore must discount the value. Monster likely did this a couple years ago when it told Tracy that the IRL ratings were worth $1.2 million for the entire season on ABC and the ESPN family of networks.

We really have no choice but to guess what the correct discount rate might be. Let's say 5 percent.

$806,472 * .95 = $766,148 in additional sponsorship to Paul Tracy and KV Racing Technology

There is one more adjustment remaining. Because we benchmarked the value of a top NASCAR (sans-culottes!) Cup team, we must account for premium pricing that NASCAR teams can negotiate because they are the dominant market leader. IndyCar teams have little bargaining power and therefore must accept less. A 3-percent discount rate might not be enough, but that is what we'll use.

$766,148 * .97 = $743,164 additional sponsorship to Paul Tracy and KV Racing Technology


For What It's Worth

Should the IRL cancel its contract with Versus and purchase air time? Recall that the cost to the IRL will be $7.2 million. In exchange, Paul Tracy and KV Racing Technology can anticipate selling $743,164 in additional sponsorship to GEICO. The same opportunity would be available to all teams.

That's enough to cover 82.5% of Paul Tracy's Honda engine lease if the lease price is decreased, as expected, to $900,000 for the 2010 season.

We still haven't figured out 1) how the IRL and the teams would share the $7.2 million cost of buying time for twelve races, and 2) how many teams will be able to sell the additional inventory. If the latter number is fewer than ten, then the IRL and its teams will lose money outright.

If it were my decision, then I would stick with Versus. Paul Tracy would probably disagree. We will not speculate about Robin's opinion.

We do welcome yours.

Roggespierre

IndyCar: Network TV worth It?

We have determined that moving from Versus to network television in 2010 would provide each IndyCar team an opportunity to acquire additional sponsorship in the amount of $987,930. Unfortunately, we also know that this valuation must be wrong.

The 2010 schedule includes night races at Texas, Chicagoland, Kentucky and, for all intents and purposes, Motegi. No network is going to air an IndyCar race in prime time at any price. Therefore, four of the twelve races in question must be carried on cable.

In addition, Texas is the lone night race that has consistently attracted a substantial audience. That event beat the Tour De France and Lance Armstrong on Versus in 2009.

Regrettably, other night races have not produced similar results. We would therefore argue that at least some of the ratings decline in recent years is likely due to the events at Kentucky and Chicagoland having been moved from Sunday afternoon to Saturday night. This is an interesting and important issue for later discussion.

The question that must be answered is this: how many additional viewers can the IRL reasonably expect to get if the four night races are aired on a cable channel that offers greater reach than Versus? Regardless of what that number might be, we should expect that the IRL will not get the 914,750 additional viewers that it can anticipate getting on network telecasts.

Thus, the expected value of additional sponsorship to each team must be something less than $987,930. We should also keep in mind that IndyCar races will be more difficult to find. It will have deals with ABC, perhaps another broadcast network, and at least one cable network.

There will be no on-air promotion for the events that do not air on ABC. This is a time-buy, after all. Networks are in the business of promoting properties in which they have invested.

And we still have not addressed the issue of probability. How many teams can we expect to actually sell additional sponsorship in an amount that is less than $987,930?

The IRL knows that it will get Paul Tracy and GEICO, so that's one. Six more must be certain before the league can even consider switching. Why? Because Versus is contractually obligated to pay the IRL $6 million for 12 races in 2010. If no more than six teams are able to acquire something less than $987,930 in additional sponsorship, then the IRL would do better by handing over checks in that amount to those six teams. And we haven't even begun to consider how the league and the teams might share the cost of switching.

It is likely that the teams want this to happen; Robin Miller probably would not have written about it if that were not true. Thus, Terry Angstadt, Tony Cotman, Brian Barnhardt and staff have a new and unforeseen issue that requires immediate resolution. As we are all aware, IRL management is dealing with more than a few ongoing difficulties. It now has another one.

We invite citizens to tell us what management should do.

Perhaps the guys in the IZOD shirts don't have it so easy.

Roggespierre

IndyCar: Seeking a TV Solution

**Note: edited to include John's data in Comments below**

The Committee of Public Safety seeks help from the citizens.

Many are worried about the IndyCar television contract with Versus. Most, in our estimation, would prefer that the IRL purchase and re-sell time on a major network.

For the sake of argument, we shall assume that there is a network that is willing to enter into such an arrangement.

Robin Miller has reported that ChampCar purchased air time on NBC and CBS for $800,000 per race. He added that IndyCar would not need to spend as much because it has an in-house production company. Therefore, let's assume that each race would cost an additional $600,000.

Total cost also includes opportunity cost. In this case, that means adding $6,000,000 of unrealized revenue from Versus. Citizen John was kind enough to provide advertising revenue projections for this project. His number is $6,000,000. This is convenient because it offsets the opportunity cost.

Let's do the Math!

Total Cost (Revised): (600,000 * 12) + 6,000,000 - 6,000,00 ads = $7,200,000

How many additional viewers can the IndyCar Series expect to attract?

IRL Average on ABC 2009 (no Indy) = 1,154,750 viewers
IRL Average on Versus 2009 = 240,000 viewers

Additional Viewers per Race: 1,154,750 - 240,000 = 914,750

Total Additional Viewers: 914,750 * 12 races = 10,977,000 additional viewers

Therefore, the network arrangement would cost the league $7,200,000 and allow for 10,977,000 additional viewers.

Cost per Viewer: $7,200,000 / 10,977,000 = $0.66 per additional viewer

That's fairly expensive. Still, it might be worth it.

The Benchmark

Previously, we calculated that NASCAR (sans-culottes!) Cup earns an audience of 7.055 million viewers per event. That number has likely changed because NASCAR has completed additional races. Still, we'll use the number.

7.055 million viewers * 34 Cup Races = 225.760 million viewers for the season

We also cited published reports that a top NASCAR entry is valued in the marketplace at $20 million. Therefore, we divide that number by total viewers to get the cost per viewer that is paid by NASCAR team sponsors.

20,000,000 / 225,760,000 = $0.09 per viewer

Therefore, each viewer is worth $0.09 in the market for racing team sponsorship. Did we not say that $0.66 per additional viewer was fairly expensive?

Anyway, the IndyCar teams should therefore anticipate acquiring additional sponsorship in the amount of:

$0.09 per viewer * 10,977,000 additional viewers = $987, 930

The Results

The IRL spends an additional $7,200,000
The IRL loses $6,000,000 in revenue
The IRL recoups $6,000,000 in advertising
Total Cost to IRL = $7,200,000

Each team acquires sponsorship value of $987,930

Shall we say 22 teams will run each race next year?

22 teams * $987,930 = $21,734,460 total projected revenue to teams

Conclusion

This remains a very tough call.

21,734,460 team revenue - 7,200,000 IRL cost = 14,534,460 value to enterprise

The decision hinges on the probability that all 22 teams will in fact acquire $987,930 in additional sponsorship due to the move from Versus to a network broadcaster. Each team that fails to do so will cause the "team revenue" and "value to enterprise" to decrease. This is where an assumption must be made.

Also, there is no firm anywhere that would agree to incur $7.2 million in additional costs so that its suppliers might earn an additional $21,734,460 in revenue. However, it is also true that the IRL will benefit if it has teams that are better financed.

We ask the citizens: what would you do?

1. How should the IRL and its teams share the $7.2 million switching cost?
2. What is the probability that all 22 teams will reach the $987,930 threshold due to the switch?
3. How should the IRL and the teams spread the financial risk associated with teams that fail to acquire the additional sponsorship?
4. How much advertising do you think the IRL can sell? This number is important because it will offset a portion of the cost. Citizen John has answered this question for us. Thank you, Citizen John. All resulting changes are in green.
5. Is the switch worth it to the IRL and its teams, provided that they can agree to specific terms?

Obviously, we have had to make some assumptions. Otherwise, this is the way the decision would be made - a real, or at least plausible, IRL management decision. The answer might not be so obvious as it seemed in Robin's original column.

We invite you to help us fill in the blanks and tell us what should be done.

Roggespierre

More Reasons Robin is Wrong about Versus

We appreciate the data cited by Robin Miller in his recent column on SpeedTV.com. Some numbers were new to us. Others confirmed our own.

In fairness to Versus, a television partner that has followed through on its commitments to the IndyCar Series, we believe that some additional numbers should be cited. Citizens will recognize a few, but new data are included.

• 2008 Oregon vs. Oregon State football game on Versus drew 1.6 million viewers
• 2008 Stanley Cup Game #2 on Versus drew 2.3 million viewers
  

So it would seem that Versus can draw an audience. However, it does require programming that U.S. television viewers actually want to see.

Incidentally, this information is the product of a cursory Google search. It is not difficult to find.

• 2009 Tour De France increased 98% year-over-year to 527,000 viewers on Versus (daily 8:30-9:00AM)

The reason was the return of Lance Armstrong, riding near the front of the running order. United States television viewers have spoken clearly. The guy on the bike makes a difference.

So, too, we would think, do the drivers in the cars.

How many viewers do you think an IndyCar race would attract on a weekday at 8:30 in the morning?

We suspect that when the ratings are released for this weekend's Texas-Wyoming football game on Versus (sans DirecTV), IndyCar will have even more reason for embarrassment. But that is belaboring the point.

Although insiders might not want to admit it, IndyCar's problems, though difficult to resolve, are easy to identify. The television partner is not one of them.

There is a reason that Tim Cindric is practically begging NASCAR drivers to participate in the Indianapolis 500 next year. Could it be that ESPN and ABC might want to opt-out of their yearly 5-race schedule early? Might Phillip Morris USA be teetering? Will there be 33 starters next year without NASCAR money?

Quit blaming the television partner and give consumers what they want. This is the way business works; the IRL and its teams are not entitled to exemptions.

Some products simply can not be sold at a cost that is cheap enough and to a market that is large enough to justify their existence. The IndyCar Series in its present composition is one of them.

Roggespierre

IndyCar: Why Robin is Wrong about Versus

We hate to say we told you so, but...

It was only a matter of time before IndyCar insiders began to blame Versus for their inability to draw a U.S. television audience. We are somewhat surprised that it happened so quickly. Otherwise, it was predictable enough to be certain.

Robin Miller devoted his column on SpeedTV.com to IndyCar's U.S. television partner. He added some data to make the case that he first wrote about in this week's mailbag.

"...IndyCar needs to get out of the Versus deal. It doesn't matter if the show is good, nobody's watching." - Robin Miller

We like Miller because he loves the Indianapolis 500 and IndyCar racing. We do, however, disagree with him at times. His views tend to mirror those of insiders, which is understandable. But insiders don't get to determine what the market will accept.

The ongoing DirecTV saga notwithstanding, Versus has demonstrated that it is perfectly capable of drawing a legitimate audience if it has a product that U.S. television viewers want to see. The problem is not Versus; it is that the present permutation of IndyCar racing is not designed to attract a U.S. audience.

This series has no legacy stars to lean on - no A.J. Foyt, Mario Andretti, Al and Bobby Unser, Gordon Johncock, and so on. It therefore should race at venues that will attract drivers that can be sold to American fans of motorsports. Instead, the IndyCar Series is moving in the opposite direction.

There is nothing wrong with road and street racing, per se. The problem is that, combined with formula cars and international events, road and street races have unintended consequences. They tend to attract international road racers for whom there is very limited demand in the U.S. market.

How, exectly, are events in Toronto, Edmonton, Japan and Brazil supposed to increase U.S. television ratings? A good portion of street racing's appeal is that it can draw attendees for reasons that are unrelated to the core racing product. Why, then, should the IRL be surprised when it fails to convert those event-goers into television viewers? There are other parties to attend, after all.

Versus has a right to be more frustrated with IndyCar than IndyCar is with Versus. Remembering who is the customer and who is the supplier is a frequent challenge for IndyCar insiders, so we shall remind them here that in this case the customer is Versus. It paid money for this - not much, but some.

Versus has promoted the IndyCar product during popular programming, only to discover that there is very little demand. Production quality has generally exceeded expectations. On-air talent, another frequent object of blame, has improved.

IndyCar is a market failure because the product is designed to please participants and insiders rather than auto racing consumers in the United States. The latter group has demonstrated that it will tune in consistently to watch a product that is designed for its benefit.

It's not 1995 Anymore

Television ratings are less important when market inefficiencies can be exploited and supply chains can be arbitraged. However, unlike CART, the IRL will not succeed in these pursuits because tobacco advertising inefficiencies have been corrected and nearly all U.S. industrial supply chains lead to NASCAR (sans-culottes!). That is why IndyCar is now attempting to arbitrage the Brazilian supply chain.

As we have written before, we like television ratings because they provide a reliable measurement of market acceptance. They can not be bought. They are not influenced by comp tickets and compulsory attendance at corporate outings. They can not be camouflaged by signage and majestic terrain. They are not perverted by four-day attendance figures. They tell the truth even when the truth hurts badly.

The IRL must manage its product. Doing so will require that it take actions that will not be liked by some of its suppliers of racing teams. Costs must be slashed. Many drivers must be replaced.

Unless and until customers are served to their satisfaction, the IndyCar Series will remain a market failure. To think that ABC and ESPN would accept a time buy is ridiculous. ESPN could not wait to get rid of this product. That is why it allowed the IRL to leave a year early.

The marketplace is competitive. ESPN has many, many more options than it did back when CART bought air time. IndyCar racing in its present form does not deserve a major U.S. television partner.

Versus is stuck with IndyCar.

Roggespierre

IndyCar Versus Ratings Analysis

We have written that IndyCar Series ratings on Versus are a mixed bag. Now, let's attempt to put that statement in its proper context.

• The first eight (8) IndyCar events on Versus averaged 273,108 viewers

That isn't much of a national audience. However, it's no secret that Versus is a fledgling sports network. Perhaps we should compare the IndyCar numbers to those of other sports properties on Versus.

• Versus 2008 Prime Time average audience was 278,000


• IndyCar Prime Time events (3) averaged 293,333

IndyCar is competitive with other prime time programming on Versus. Unfortunately, this is due to the audience that tuned in for the race at Texas Motor Speedway. Both Richmond and Kentucky failed to match the network average in prime time. Texas more than made up the difference. IndyCar races at TMS have been very good since the track opened. It is apparent that the series has earned some brand equity at TMS.

• NHL games in 2008-09 averaged 326,000 viewers

Texas easily beat the NHL average, which was also topped by Long Beach. Again, TMS and the Toyota Grand Prix are established events that have achieved some brand recognition. Indy 500 Pole Day (385,000 viewers) and Bump Day (349,000) also beat the average NHL game. This is impressive; the NHL should have an advantage because most of its games are in prime time. Less impressive is the fact that Kansas and Kentucky combined to draw fewer viewers than Indy Pole Day.

• Tour de France 2008 live coverage (8:30-9am) averaged 267,722 viewers
• Tour de France 2009 live coverage averaged 529,926 viewers

These numbers lend significant insight. Let's hope that IRL management is paying attention. As a function of television viewership, the Tour de France with Lance Armstrong among the leaders is worth almost 98% more than the same event without Lance Armstrong

The bicycles and the race stages were largely unchanged. Most competitors and teams were similar year-to-year. It was Armstrong's comeback that increased the Tour de France product's competitiveness in the U.S. television market by 98%.

This is why the IRL must actively manage its product. In most firms, this is considered a core management activity. Unfortunately, it seems that the IRL is more interested in serving its suppliers of racing teams than serving its U.S. TV distribution customer.

Now that it knows what one American star can do for ratings, Versus should press IRL management to provide competitors that might do the same for IndyCar racing. Currently, management is moving in the opposite direction. New cars that are too costly will necessitate more drivers who are also financiers. Additional road and street races will attract more competitors that can't be sold to a U.S. television audience.

We're guessing that Versus will soon become the latest excuse for IndyCar racing's failure to perform in the marketplace. The league and its teams will talk about limited reach and explain that they need time to make the partnership work. The latter might be true, but there is little hope for the long term or any term if the product is not changed in any substantive way.

Do not believe for a moment that Versus is not capable of drawing a credible audience right now if it has a product that U.S. television viewers actually want to see.

The 2008 Oregon v. Oregon State football game on Versus averaged 1.6 million viewers

DirecTV contract negotiations notwithstanding, Versus has increased its reach since the 2008 Civil War football game. The IRL would have to increase its average audience 586% in order to match a rating that Versus has already achieved.

Therefore, we shall restate the obvious. If IndyCar fails to increase ratings on Versus, then it will be the fault of IRL management and its suppliers of IndyCar racing teams.

Roggespierre

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 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