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

Scott Dixon: IndyCar is a Spectator Sport

The Committee of Public Safety was informed today that Scott Dixon is less than pleased with the style of racing we witnessed Saturday night at Chicagoland Speedway. We can only assume that the defending IndyCar champion became frustrated the moment he realized that he could not win the event by making fuel. Dixon went public with his complaints on Speed Report.

A supposed star of IndyCar racing, Scott Dixon has failed to achieve nominal acceptance in the consumer marketplace. His complaints about the most scintillating race of the season allow all citizens to better understand why.

When will IndyCar drivers and teams recognize that in order to succeed, the IRL must attract lots of U.S. racing fans? Dixon is to IndyCar racing what Ivan Lendl was to men's tennis - a skilled participant whose immediate retirement would, at worst, have no effect on the sport's ability to compete in the marketplace.

Functionaries in every business must do things that they don't enjoy. It's called earning a living, and Scott Dixon earns a good one. If he dislikes high speed, wheel-to-wheel racing, then there are many other options - sports car racing, for example - where spectator support and mass market acceptance are not necessary.

Dixon, like most IndyCar drivers, wants to make NFL money for playing soccer in the MLS. Sorry, guys, but that's not the way it works. You and your teams do not get to determine what is valued in the marketplace and what is not.

We sympathize with Scott Dixon. As difficult as it might be to believe, he is not the first to discover that there is a very limited market for his talents and wants. Try getting a job as a political philosopher, and you'll know what we mean.

Roggespierre

IndyCar Maxim #5

Roggespierre's Maxim #5
Courtesy of Philip Kotler, Northwestern University Kellogg School of Business

"Who should ultimately design the product? The customer of course."

This begs the question: who is "the customer" with regard to IndyCar racing? We have argued that race fans in Middle America would be a good place to start because the Indianapolis Motor Speedway needs to attract hundreds of thousands of them over the course of a month.

The Target Audience has Spoken

These consumers have proven to be a robust market for NASCAR (sans-culottes!) Cup and Grand National. There is no reason to believe that they would not also enjoy an IndyCar product that is designed for them.

Begin with cars that are low-tech in terms of aerodynamics and electronics. These technologies have proven to add more cost than market value. The schedule should consist primarily of oval tracks, although road courses and street circuits should not be taken off the table so long as they enhance market competitiveness.

Of course, the IndyCar product requires easily detectable elements of differentiation - it should not be an open wheel imitation of NASCAR. Engines that are either turbocharged or supercharged would be helpful in that regard because they would lend a distinctive sound to IndyCar racing. Open cockpits must be kept. Conversely, wings and chassis tunnels are costly and unnecessary.

We would like to see the fuel tanks reduced to 10 gallons eventually and 15 gallons immediately. Fuel conservation leadership in U.S. motorsports would give IndyCar a relevant advantage over NASCAR. That is not to say that Indy cars should be slowed to NASCAR speeds; they absolutely must remain faster.

If the teams want an engineering challenge, then they would certainly have one, trying to simultaneously increase mileage and speed. More important, the challenge would be correlated with something that has become important to many fans. The same can not be said for the "overtake button" and wicker adjustments.

Tire supply should be severely restricted - one or two sets per race is reasonable. This would save money and put a premium on the drivers' ability to maintain pace without wearing out the tires. Danton notes that he is unimpressed with Firestone's ability to build a racing tire that is great for all of 80 miles. He would prefer that the teams run the same set of tires in all 17 races, just as the rest of us expect a set of tires to last at least a year.

But that would be too much, too soon. Limiting each team to one or two sets of tires (plus spares) per race is change enough, for now.

This is a brief and incomplete outline, we admit. But it would give the league a differentiated, relevant product that is designed to attract drivers that could draw the core fans that IndyCar racing desperately needs. Some teams would hate it. So what? The days of creating racing series for teams rather than customers are long gone.

Roggespierre