I present the following whopper of a quote from the Indianapolis Business Journal's Anthony Schoettle.






For many years, the series has operated under the false notion that the
teams are the most important component of the series. Don't get me
wrong. The teams are important, but they're not the singular element that
will make this series go.



Schoettle is correct, in my opinion. Teams supply a very important portion of the IndyCar product. They are not, however, the whole product. They aren't even close.




For example, no one in his or her right mind would claim that the Penske, Ganassi and Andretti teams are not far superior to those that participated full-time in the Indy Racing League prior to 2002.




Nevertheless, the facts indicate that interest in IndyCar racing has actually decreased since the Big 3 showed up. We know this because we have seen the crowds dwindle at multiple venues. We also have television ratings- the Indy 500, other network races, and cable events - that tell the same story.




Teams that show up with largely unknown financiers posing as drivers are not doing IndyCar any favors. Furthermore, the few IndyCar drivers who were actually hired by their teams aren't exactly easy for Randy Bernard & Company to sell.




The time has come to quit treating those teams with deference.




Roggespierre
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IndyCar Future: the macro view

The gentleman pictured above is Herbert Hoover, the 31st President of the United States. Fairly or not, his is the face of Great Depression.

You might be asking yourself what President Hoover has to do with IndyCar racing?

If a growing number of economists and hedge fund managers is correct, then we might just be headed toward the type of deflationary recession that prompted your grandparents to hide cash under the mattress and to wear the same overcoat for 50 years.


Keynesians and Austrians are beginning to agree that the risk of a global economic depression has never been greater. For those who are not familiar with economic schools, I shall say only that these two typically agree on exactly nothing.

If the economists are correct - and I note that they frequently are not - then what should IndyCar do in order to prepare? I have indicated my preference for low cost leadership positioning in the U.S. motorsports marketplace. Others have thoughtfully disagreed.

If the bottom really is falling out of the global economy, then what is IndyCar's best course of action?

I look forward to reading your thoughts.

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Another reason to cut IndyCar Costs

In the past, I have worked hard to explain here why increasing television ratings should be jobs one, two and three for IndyCar management.

Simply stated, there is no other metric that can be leveraged in so many different ways to increase revenue to the league, its promoter-customers, and its suppliers of racing teams.

Reaching this conclusion is easy. However, accomplishing the objective is extremely difficult.

I invite you to read this fascinating Ad Age story about the value of prime time television ratings.

What might we be able to extrapolate from the article with regards to IndyCar racing sponsorship value? Is this good news or bad news?

I invite you to answer the question before I provide quantitative analysis.

RoggespierreSource URL: https://free-wallpapers-2.blogspot.com/search/label/IndyCar%20Business
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Can IndyCar Sell at New Hampshire?

It is no secret that the IZOD IndyCar Series will announce this weekend that it will return to New Hampshire Motor Speedway in 2011.

There are elements of this move that I like very much. NHMS promoter Jerry Gappens hails from the Rust Belt town where I completed my undergraduate studies, the same town that produced John Paul, Jr. Gappens is passionate about IndyCar racing. He has wanted a race date for more than a year.

I also respect Gappens for having been openly critical of the notion of IndyCar staging a race in the parking lot at Gillette Stadium in Foxborough, Massachusetts.

But Can It Work?

I will admit that I attended the IRL race at what was then New Hampshire International Speedway in 1997. I was joined in the grandstands by approximately a dozen of my closest friends.

The race was fantastic. It was won by the handsome young man to the left, Robbie Buhl, who edged former F1 driver Vincenzo Sospiri at the finish line. The win was undoubtedly sweet for Buhl, a former CART Indy Lights champion whose reward had been a part-time ride in Dale Coyne's s#*$box. He then stood on the sidelines while guys like Andre Ribeiro and Carlos Guerrero landed quality rides in CART. Sound familiar, J.R. Hildebrand?

So, yes, Buhl's win was warmly received. Unfortunately, there were virtually no fans there to receive it.

Incidentally, if you do go to the NHMS race next year, allow me to recommend that you include a quick jaunt to Portsmouth, New Hampshire while you're there. It has a great, authentic New England atmosphere without the great, authentic East Coast prices.

A NASCAR Track

Fans who supported CART during the split will no doubt recall that their favorite series drew fine crowds at New Hampshire. Unfortunately, The Split was not all that happened in the 1990s. There was also the unprecedented mainstream rise of a series called NASCAR Cup. NHMS was expanded to make room for all of those NASCAR fans.

One could argue that today's IndyCar Series is effectively a poor imitation of CART, one that features slower, less interesting spec cars and a whole lot less money from tobacco companies and arbitraged supply chains. Can this product draw a respectable crowd at a facility that has added capacity to accommodate NASCAR Cup?

And let's not forget that racing is a tough sell in New England.

Having seen the market breakdown for the 2009 Indianapolis 500 television ratings, I can tell you that the three local markets that had the lowest ratings were Boston, Providence and New York. Yes, there are racing fans in New England, but they tend to like NASCAR, Mods, and Supers. Will they want to watch an international road racing product at New Hampshire Motor Speedway?

As much as I want to see IndyCar succeed at oval tracks, I have serious reservations about this.

If Jerry Gappens can sell this bunch in New England, then he's one helluva race promoter. I wish him good luck and fear that he'll need it.

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IndyCar notes from the back of a hotel Napkin

Vacation is a wonderful thing. If you ever have an opportunity to visit Coronado, California, then I strongly suggest that you do it. What a great place!

Scribbles

I am pleased to let you know that the Mario Andretti Honda commercial ran on the local ABC affiliate in San Diego immediately following the Los Angeles Lakers' Game 7 win over the Boston Celtics in the NBA Finals.

Pressdog reports that attendance at Iowa fell this year. Losing 5,000 paying customers is never good news, but is particularly troubling when that amount is equal to more than a 14% year-over-year decrease. The erosion of IndyCar's oval fan base continues unabated, it seems. IndyCar can't blame ISC and its unbundled NASCAR Cup tickets for this one.

That said, a crowd of 35,000 - that's 105,000 in 3-day attendance parlance - at Toronto would likely be hailed as a huge success.

Cranking the Mill

From the rumor mill, I am hearing that Randy Bernard is now consistently turning to Robin Miller for advice. If this is true, then I think it is a troubling turn of events. Bernard is supposed to be a marketing genius, after all.


Full Disclosure - I like Robin Miller very much. He is candid, smart and very entertaining. He has always treated me well personally. Nevertheless, I have vehemently disagreed with Robin regarding certain subjects at various points in time. Regardless, I have never doubted that he genuinely believes in everything that he writes. He also happens to care about the Indianapolis 500 and IndyCar racing more than many of the sport's participants.

That said, Robin is representative of no one but himself. He is not a marketer. He is a nostalgic fan and quasi-insider who, like many of us, yearns for the good old days. The problem is that those who long for a return to glory tend to disagree about the causes and effects of the growth and the subsequent decline of IndyCar racing. Therefore, Robin is no more an authority than any other fan.

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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
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Who wants to Promote Edmonton IndyCar?

Having absorbed $9.2 million in financial losses in exchange for the privilege of hosting two IndyCar races at an airport, promoter Northlands apparently wants out and the City of Edmonton is seeking to cap its future losses.

Such is the glory of temporary circuits! Congratulations, Baltimore!

Props to Honest Edmonton

That said, I do want to give credit to the City of Edmonton for its candor and transparency. I doubt that any government takes great pleasure in disclosing that it will have incurred losses of more than $10 million in public funds over three years so that it could host an IndyCar race.

If Long Beach, St. Pete, Sao Paolo, Birmingham, Toronto and Baltimore were more like Edmonton, then we would have a much better grasp of the gap that exists between the cost of IndyCar racing and demand for the product in the marketplace. Yes, city streets and Barber's permanent road course are likely more cost-effective than airports. However, in each case virtually all of the costs are variable, meaning that they must be incurred every time an event is staged.

What in fact is the difference? We'll probably never know.

Credit also goes out to Pressdog for being the first to point IndyCar fans toward this article from the Edmonton Sun.

The article strongly suggests that Northlands, the public-private partnership that promotes special events in Edmonton, wants out. Given the losses, who can blame it?

The author further suggests that the City of Edmonton is willing to continue to subsidize the event at a price point of $1 million per year. The City would like to see an "independent" promoter take over the event.

What does this mean?

It means that the Edmonton Indy will survive beyond 2010 only if a promoter agrees to accept all associated financial risk beyond $1 million per year. It also means that Northlands, the existing promoter, does not believe that it can break even despite the offer of a $1 million annual government subsidy.

That Northlands does not want to continue to promote the event speaks volumes. This is particularly disturbing when one considers that Honda will transfer to the Edmonton promoter some of the economic rent that it collects by over-charging IndyCar teams for old, spec engines. The article refers to this transfer as event "sponsorship".

This does not seem to bode well for the future of the Edmonton Indy unless a greater fool can be found.

I ask that you please keep the Edmonton equation in mind when you are tempted to blame International Speedway Corporation - a for-profit, publicly traded firm that receives no direct government subsidies, when it inevitably drops additional IndyCar races.

Roggespierre
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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
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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
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Mainstream Media: Where are Indy's Americans?

These pages were supposed to serve as a warning to IndyCar Management.

American drivers are a necessity if IndyCar racing is to experience legitimate growth in its home market.

American competitors are essential if the crowd at the 2014 Indy 500 is to include more people than attended the United States Grand Prix.

American racers are also necessary - if not sufficient - to increase national television ratings, which are now worse than they were at any time during the split.

This story is now beginning to dominate IndyCar coverage in the mainstream media. Randy Bernard and his charges will not be able to control it. It's an easy and convenient story to write because it requires zero knowledge that can't be attained with a brief perusal of the entry list. It also happens to be true.

Fox News has enjoyed taking pot shots at IndyCar over the past few years. This makes sense because Fox has a lot of money invested in NASCAR.

Here's the latest from the "We Report, You Decide" network.

Impressions Outside IndyCar (where they matter most)

Alas, Rupert Murdoch's minions are not alone.

The USA Today version of the same story can be found here. Among other things, the writer suggests that the Indianapolis 500 has become the French Open. That's a good line.

These stories mirror the one that was penned for Sports Illustrated last week by Tim Tuttle, an established motorsports writer who has tended to be kind to IndyCar and the IMS.

The same point is echoed in this story from the Quad City Times.

Something called The Daily Caller weighs in with this offering.

I become physically ill when I read stories like these not because they are wrong, but rather because they have it mostly right.

Once again, good luck to you, Randy Bernard. Tony George never was able to move the mainstream media needle away from the Story of The Split. The story that you must either solve or change is that of The Dwindling American Relevance of the Indianapolis 500.

You are not envied here, Mr. Bernard.

That said, I will suggest that having IndyCar drivers spend considerable time extolling the virtues of Brazilian Sugar Cane Ethanol is probably not going to help very much.

Further development of the "ladder system" is also a waste of time so long as the cost of fielding an IndyCar entry exceeds the value that a team can offer to potential sponsors. Want proof?

• J.R. Hildebrand
• Jonathan Summerton
• Robbie Pecorari
  

Another Solution that Solves Nothing

Chip Ganassi Racing's Mike Hull is a bright guy who often suggests possible solutions. This is ultimately a good thing for which he should be commended. However, Hull is not a marketing guy. Perhaps that is why he believes that additional manufacturer participation is a big part of the solution.

This is simply wrong. Manufacturer competition will not bring fans back. The stars of the show are the drivers. They must be changed. The Piloti-shod financiers must be expelled. They must be replaced by drivers that auto racing fans in the United States want to watch. That will require drastic cost reductions.

Manufacturers will finance teams; that's why team owners and managers like them. But manufacturers will do nothing to attract U.S. fans and television viewers. Want proof?

• Hideki Mutoh
• Kosuke Matsuura
• Twin Ring Motegi
  
These are strings that were attached to manufacturer money.

Want more proof that manufacturers are not The Answer? Notice the trend in IRL network television ratings when Honda and Toyota joined the series in 2003. Manufacturers offer financing. They do not attract fans.

That said, I believe that Hull is right about many things. Among them is his claim that fans want more diversity in the cars and engines. However, manufacturers are not necessary in order to accomplish the task. IndyCar's salad days were dominated by privateers. Innovation was a grassroots phenomenon. It can be again.

Who knows? Today's IndyCar teams and their suppliers might even develop technology that they can sell to manufacturers. Perhaps the league could develop an Intellectual Property Co-Op for that purpose.

There are many possibilities. Let us hope that Randy Bernard, Brian Barnhart, Mike Hull, Eddie Gossage, and the other smart people in power examine them all and choose wisely.

RoggespierreSource URL: https://free-wallpapers-2.blogspot.com/search/label/IndyCar%20Business
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