CCWS Owner Motivation to Running Series & The Way They Run It

[Snrub]

We went off topic in this thread http://tentenths.com/forum/showthrea...35#post1874335, so I figued we could start a new one and continue the discussion. While there is some overlap on older topics, I think this one brought up some new ideas regarding the owner's motivation with the CCWS right now. I think it's important because it ends up impacting how drivers get to race and teams exist. Ultimately that impacts the on track action.

Originally Posted by JohnSSC

CART goes belly-up. The Amigos sense an opportunity to snap up the assets on the cheap and then run things "their" way. They do things according to business norms and even have a "business plan." This plan includes utilization of a model that is essentially vertical integration. Own or control the promotion of races, the series, the teams (awarded as franchises), the engines and eventually the cars (generous lease terms now available). Problem: things are not going according to the plan.

Every time the owners have bought things it is because no one else really wanted them and they were required to keep things going and/or neutralize threats. Races, Cosworth, the series itself. They did most of those things because they didn't have a choice if they wanted the series to continue.

The lease thing isn't as generous as they've tried to make it sound. From what I've read it sounds like it's a lease to own with a three year term through a bank. In other words if you want to spread out the costs, that's between you and a bank. For instance, if after one season you don't want to race anymore, the series will take your 1/3 car cost and your car.

Originally Posted by JohnSSC

You are looking at it from the standpoint of "this far into it, how will they get their $$ back out?" I think that they are so deep into it, they are not sure when to cut their losses - they miscalculated the amount of time it would take to get the series solvent and into a revenue neutral position and then into a profit-making position.

I'd argue the opposite, they've broken basic tenants of business. If at any point a plan is not going to generate a the profit planned at the specified time, it needs to be reevaluated. If it drops below a certain threshold you bail out. That's cutting your losses. They were never going to make back the money they sunk into it.

Cutting the loses would be to sell TO, LB, Surfers and Mexico to the IRL, find a buyer from Cosworth and walk away. If there was no positive cash from that, they'd declare bankruptcy for CC and sell Cosworth. They don't because they want the series to work.

Originally Posted by JohnSSC

Now you mention Penske. He does indeed show up at the races. He has a passion for racing no doubt. He did indeed make most of his fortune elsewhere. I think he (along with Ganassi and a few others) understand that they won't necessarily make a lot of money in the racing effort, but that the racing effort opens revenue opportunities up for them.

I didn't mention Penske first. I'm sure some revenue opportunties exist, but I haven't seen anything that would suggest amounts that would make him devote his undivided attention. He's stepped back a bit since the late 90s, but when he called all of the race strategy, etc. it was clearly something he wanted to do.

Originally Posted by JohnSSC

The Amigos, imho, thought they could turn a fortune into a bigger fortune by taking CART out of bankruptcy.

I don't think so. I think they thought they could make it viable. The business was never going to make a significant profit. The value of some business seems often to be simplified to assets - liabilities + (annual profit * 5 years). In others its just annual profit *5. With little in terms of owners equity and little in the way of potential profits, there was no way that they could pay off the money required to run the series, even in their best case of profits in 2007.

If that doesn't make sense, think of Chrysler. They sell $60B/year and analysts believe their value is somewhere between $5B and negative (ie. Mercedes would pay someone to take it off their hands).

Originally Posted by Mystery

I'll give credit where its due and say they did put their money where their mouths were when the series needed someone with deep pockets, and they did something that many would not have.

I think you can take that a step further, no one. Who else was at the 2004bankruptcy hearing? Only TG and he only wanted a couple of races.

[mountainstar]

The 3 amigos threw down when no one else would in 2004. Like the judge said I choose life over death.

In hindsight I believe the pookfare checks where a mistake in 2003. Socialism has failed everywhere were tried and it failed here. The old CART may still be around if there had been a $50 million prize fund for 2003. That would have generated huge interest among drivers, teams, fans, promoters and sponsors. Instead we got pookfare, which in fairness did keep the series going after an attempt from within to kill cart, but we only got what we paid for. The current ownership of champcar has done the right thing by telling the teams the handouts are over, instead splashing out the dollars on a better tv package to help teams get sponsors in the future and on a new car which over 3 years costs significantly less to operate.

From their actions, I think it's clear the owners of champcar are trying to make it a viable player in the motor racing landscape. People often focus on the failures like the ansan race we've heard endlessly about. But one thing is clear. They do listen to fans and are making an effort to have a good series. Some things work and some don't. Remember Road America is back because of the fans.

I'm ready for Vegas.

[Kieran20]

Originally Posted by mountainstar

The 3 amigos threw down when no one else would in 2004. Like the judge said I choose life over death.

In hindsight I believe the pookfare checks where a mistake in 2003. Socialism has failed everywhere were tried and it failed here. The old CART may still be around if there had been a $50 million prize fund for 2003. That would have generated huge interest among drivers, teams, fans, promoters and sponsors. Instead we got pookfare, which in fairness did keep the series going after an attempt from within to kill cart, but we only got what we paid for. The current ownership of champcar has done the right thing by telling the teams the handouts are over, instead splashing out the dollars on a better tv package to help teams get sponsors in the future and on a new car which over 3 years costs significantly less to operate.

From their actions, I think it's clear the owners of champcar are trying to make it a viable player in the motor racing landscape. People often focus on the failures like the ansan race we've heard endlessly about. But one thing is clear. They do listen to fans and are making an effort to have a good series. Some things work and some don't. Remember Road America is back because of the fans.

I'm ready for Vegas.

great post, couldnt agree with you more.

[boom boom]

On the way they run the series or why they do things-My Question is why would the Seires Owner take pay drivers?
I know they are spending a lot on the series, so are they try not to lose anything from their own teams? What postitves are coming from pay drivers driving for the series owners? I know Jani should be an okay(maybe great driver plus all that redbull money) but then Gomedy for the other car while Servia, Junky, Phillipe, & countless others walk. Doesnt pay drivers for an Owner send a bad message to the other owners, not to mention the fans? That was one of the reasons Adrian Fernandez left because Kevin and Gery both took mexican drivers and sponsorship that other lesser teams were looking to get and could have used(not to mentions that after that fiasco Bobby Rahal left right behind him). At least on the outside the onwers taking pay drivers and not running two cars does not seam to tick off any of the owners too much to leave. But then again some of those have put to much in to leave, and I dont see the IRL as a much better place to go to.

Are they saving money on thier teams so they can save the seires else where? Is there any reason the Series owners talk about 1 car teams and take pay drivers that are good? Are they hoping for a little help with thier teams now so they can better their teams later. I guess I am just looking for logical explanations on these actions, but can not see any myself.
I just hope they don't take pay drivers next year, that they run two cars and have deserving drivers, otherwise it sends too bad a message.

[D.R.T.]

Originally Posted by boom boom

Adrian Fernandez left because Kevin and Gery both took mexican drivers and sponsorship that other lesser teams were looking to get and could have used(not to mentions that after that fiasco Bobby Rahal left right behind him).

Here I was thinking it was the large Honda cheques.

[Tim Northcutt]

Keep your chins up, everyone....

There is a "plan" and the "proof is in the pudding," as KK himself said before the Earth-shattering announcements from Laguna...

Be patient...we'll have an 18-car field at Vegas...

Smile...

All is well in the world

Viva Las Vegas

[mountainstar]

Originally Posted by D.R.T.

Here I was thinking it was the large Honda cheques.

It was the honda checks and confirmed as I recall.

Remember adrian's problems with tecate, quaker state and others had to do with his own actions. No one was poaching his sponsors from him!

Honestly, I don't see much point though talking about what happened 3 years ago.

Roll on Las Vegas.

[indycool]

Snrub, have read your post twice now and it's thought-provoking.

Basically, it would seem that this year, CC is in a different mode. The past three years, the projection or image has been to build the series. This year, the projection seems to be not losing as much money. The change in mode has been rapid.

The "no subsidies" edict doesn't seem to have borne fruit. Some of those teams only existed because of Pookfare in the last year of CART. Pettit, Gentilozzi and Forsythe running one car each (at present). KK taking $2.5 million of Gommendy's money, then the guy falling out of the race car halfway through the first test day.

Bear, Stearns was hired to find potential buyers for CART when it was a public company and found no interest other than The Amigos. At the bankruptcy hearing, as someone pointed out, TG showed up with interest in three events and other than that, no one but The Amigos showed up for even a lesser price to take the thing on.

Time will tell where it goes.......but it's certainly "whoa-ed up" from three years ago.

[JohnSSC]

Thank you for starting this thread, Snrub. It gives those of us who wish to an opportunity to discuss this without derailing another thread and those who do not wish to discuss don't have to worry about being forced to read through after a thread gets "borrowed." (Hijacking is such a negative term!)

Now, to your post Snrub. You make valid points and to be honest, I am not sure which came first: the "chicken" of defensive buying to preserve the series or the "egg" of the purchases (Cosworth, promotion etc) to fit into the long term goals of their plan. I think it likely to be the latter but I am just speculating, as we all are here.

As far as your comment about "violating a business tenet." Hmm, well they could cut their losses by selling, couldn't they. But to who? Right, TG. And just like in '03/'04 when they picked up CART in the bankruptcy, they got it cheap as they were the only bidders for the whole enchilada. I would put forward that they want to sell the whole thing - including all those DP-01s - and so TG, who really only wants certain events is not compelled to make an offer.

As IC points out, Bear Stearns (admittedly a few years ago now) could not find any interested parties and I see nothing that has changed. The Amigos have, imho, painted themselves into a corner. They are in to far to sell piecemeal and the George family didn't get to be mega-wealthy by being foolish. They can wait it out - or at least they perceive they can wait it out for now.

boom boom - nice post! How quickly we forget that the Amigos began poaching pay drivers for themselves! Yes, Honda $$ were a factor, but the Amigos made it more of a factor by plucking pay drivers with $$.

[Snrub]

While the series itself likely doesn't have any potential suiters (other than TG paying a say a couple milion to stop anyone from running a competitor series), there are some assets that other series would be interested in.

Surfers, LB, TO, Edmonton (I forgot about that one!) and Mexico city would be viable races for other series. Look at St. Petes, CC dumped a bunch of money into a race to get it going, the IRL ran there and now ALMS! In other words, some of the less successful races might have value too. I suspect that the Frances would be interested in a number of those for Grand Am or Busch, particularly Edmonton and TO for the later. ALMS could certainly race at any of those too. I suspect that for Surfers only the IRL would be interested, but the race itself would probably continue with just the V8s. While people might be interested, how much would they be willing to pay for an existing contract? Probably not a lot, so evidently I agree with what JohnSSC has said about there being little value in those "assets."

It also appeared that Cosworth was bought for a song, in part because the generous employee pensions were maintained. Ford publically admitted as much (ie. that the purchase price was not the largest offer). I suspect that with the loss of the F1 business the value has dropped significantly.

As for the defensive vs. vertical integration purchases. Name one that was the later. TG was interested in TO and LB. IRL-related interests wanted Cosworth and CC needed engines. Some of the other self promoted races were unsuccessful and it made perfect sense that no one was going to pay CC for the priviliage of promoting.

At the time it seemed that Fernandez was concerned with the lack of stability (no promise of subsidies, etc) and the lack of trust in the new ownership (significantly due to the Mexican thing). Of course Honda money made it safe for the team to move to the IRL. I know at the time I didn't hold anything against Fernandez.

[mountainstar]

I don't know why we are talking about selling champcar when the current owners have no desire to do so.

Actually cosworth never made money or much money on Formula 1 in recent years. The benefit from F1 was development of technology for use in other areas and from having the name out there associated with F1.

[DaPix]

Originally Posted by indycool

Basically, it would seem that this year, CC is in a different mode. The past three years, the projection or image has been to build the series. This year, the projection seems to be not losing as much money. The change in mode has been rapid.

I think the appearance of a different mode this year is mostly because the three amigos are making their further investment in Champ Car differently this year. This year they are increasing their investment in TV by something more than $10M, probably $12M to $14M, so that all Champ Car races will be on ABC/ESPN (except for the final running of two races in NBC and one on CBS). That contract calls for all races on ABC/ESPN next year. (Yes, some will be on ESPN2, and 1 or 2 may end up on ESPNC this year, but I bet more will be on ABC/ESPN, fewer on ESPN2, and none on ESPNC in 2008).

The intent of the TV contract is to build a larger audience and attract more fans to attract more sponsors. Sponsors for the telecasts. Sponsors for races. Sponsors for race teams. Maybe, even, a sponsor for the whole series.

So it is not so much a decision to not lose as much money at this point as using the money they are losing for a different purpose. That is all part of the 5 year business plan.

Originally Posted by indycool

The "no subsidies" edict doesn't seem to have borne fruit. Some of those teams only existed because of Pookfare in the last year of CART. Pettit, Gentilozzi and Forsythe running one car each (at present). KK taking $2.5 million of Gommendy's money, then the guy falling out of the race car halfway through the first test day.

Yes. Removing the subisidies shows more clearly where the teams and series really stand. I'm still not sure what to think of only 10 drivers formally announced, and three more (Rahal, Doornbos and Legge) semi-announced. Some team owners may be able to fund their deficit out of their own pocket but be unwilling to do so until they see whether management holds out against subsidies right up to the first race. And I think that letting the uncertainty play out the way it has is a PR faux pas for the series. But I don't think that the three amigos will let the series fall on its face with only 10, or maybe 13 cars on track at the opening race at Las Vegas. Management will do what it has to to protect its investment in the series.

Maybe it is just too soon to remove all of the subsidies. Maybe they will have to wait another year, until there has been more and better TV exposure to help attract more sponsors. I could see management restoring some, but not all, of the subsidies for one more year. That isn't part of the business plan, but it may be what they need to do.

Originally Posted by indycool

Bear, Stearns was hired to find potential buyers for CART when it was a public company and found no interest other than The Amigos. At the bankruptcy hearing, as someone pointed out, TG showed up with interest in three events and other than that, no one but The Amigos showed up for even a lesser price to take the thing on.

The three amigos had the idea that they could make the series work. And they have done that, to this point. The investment they have made so far has been part of their plan. This year it may be more expensive for them than they planned. But if they were still providing the same subisidies there would probably be 20 cars on the grid and we wouldn't be having this discussion. So the real question is still how soon will the series and its teams be able to attract more sponsorship to pay for their own existence without subisidies from management.

Originally Posted by indycool

Time will tell where it goes.......but it's certainly "whoa-ed up" from three years ago.

I'm with you on the first part of that, but I totally disagree with the last part. As I said above, if the subsidies were still available we'd be looking at the 18 cars we had last year plus the two additions coming from PCM. A 20 car field. And we'd think were were growing. The strategic decision to divert the money from subsidies for teams into TV coverage may prove to be too early, but on the same subsidized basis the series would likely be two cars larger than it was last year.

This year the series has a new chassis, a new TV contract, and six new racing venues. Four venues that lost money for the series last year are gone. Not every new venue is an instant success, so we'll have to see where that goes. Usually it takes 2 or 3 years for a new venue to grow to success, with Edmonton being a notable exception. All of that says the series is investing in its future. I don't consider that to be anything like "whoa-ed up" from three years ago.

Even through they have made a large commitment of resources to TV the Amigos may have to extend at least a portion of the subsidies. I'm betting they will do that, if they have to, to get at least 16, and likely 17 or 18 cars on the grid in Las Vegas. And that won't look significantly different than last year or the two years before that. It all depends on how much the three amigos want to invest and how they think it is best invested, as it has for the past three years.

After the question of the size of the field is determined, the real question for 2007 will be whether or not Champ Car can gradually attract a larger TV audience throughout 2007. And it will take most of the year to really know that.

[indycool]

DaPix, I can understand your points about accounting for spending in different areas, and I can certainly see last-minute spending to shore up the grid, but you talk a lot about it being "part of the plan."

I really doubt that The Amigos planned to blow this much money to start with as part of the plan. Case in point: It's taken three years for them to realize that the Spikes and the Speeds aren't going to get it, TV-wise, and extra money must be spent on that this time.

As far as "no subsidies" go, there's more of a stalemate now than in past years, probably because of the new cars. The last few team owners are waiting for sponsors and/or drivers with money. Sponsors haven't been drawn, competent drivers without money have been turned away and drivers WITH money haven't come forth in enough numbers to matter and the ones who have some are looking to cut their best deals. That leaves the series to fix it, or run a smaller grid with lesser talent.

As for venues, don't get me started on not having a finite schedule by March 24. In order for a team to approach a sponsor and answer the question, "what markets will you race in?", a team needed to know that last fall.

It's a Catch-22 and it's all about money.

[Snrub]

Originally Posted by mountainstar

I don't know why we are talking about selling champcar when the current owners have no desire to do so.

It's perfectly logical. If the series has no business case for running it and little value in selling it, then it's not being run in a cynical drive for profit. I would have thought that you'd be in favor of that point.

Originally Posted by dapix

So it is not so much a decision to not lose as much money at this point as using the money they are losing for a different purpose. That is all part of the 5 year business plan.

I'd agree to the first sentence, but not the second one. The 5-year plan is/was maluble and has involved significant deviations. Perhaps rotating the use of the losing money is part of it, but I really don't think they planned on such a bleak situation. In 2006 they had VERY few advertisers on their time buys. Theoretically they should be able to buy time, but sell enough advertising to cover the costs or at least most of the costs.

Originally Posted by indycool

I really doubt that The Amigos planned to blow this much money to start with as part of the plan.

I'd absolutely agree. It's clear from the TV example that they hoped that they wouldn't have to.

Originally Posted by indycool

As for venues, don't get me started on not having a finite schedule by March 24. In order for a team to approach a sponsor and answer the question, "what markets will you race in?", a team needed to know that last fall.

You've made that point in past years. I've argued that sponsors just need to know the vast majority, but I think you're right to the degree that when races are promised then dropped or moved around, it paints a bad picture of the series. Combine that with an the non-firm schedule and it isn't good. I think they could get away with having a "maybe" race in some far off land if everything else in the series was in good shape.

Going back to the Fernandez topic. Notice how years later there are two really good pay drivers (in that they have big $$$) in the series and they're both on a series owner's team? The other teams have to be a little frustrated by that. What makes even less sense to me is why Jani is on PKV when Forsythe or RuSport would obviously been preferable, or Minardi for that matter. One wonders why Petit isn't annoyed by that?

[JohnSSC]

[QUOTE=mountainstar]: "I don't know why we are talking about selling champcar when the current owners have no desire to do so."

We aren't. We are speculating on how long they will continue putting money into the business and what forms the support by the Amigos is taking currently. After all, these guys have been touted as veritable lead-pipe cinches to make this work because they are Captains of Industry. Why? Well, let's see: the Amigos have been touted as successful business men. They have a 5 year-plan. They have the acumen to have become multi-million if not billionaires (KK/GF, not PG).

Now, let's suppose for a moment they want to put their enjoyment of racing on a "business footing." They would have a business model that is integrated into the plan. They would, as part of that, have financial projections for: capital costs, advertising, wage costs, revenue, taxes, legal fees, travel, property leases and anticipated profit/loss, etc.

Now, presuming these guys are as savvy as we have been led to believe, part of the "plan" would also be to determine at what point you need to sell. In other words, just as you want to determine the point at which you anticipate the business being viable you also have a stop-loss point where continuing to pour money in will result in no commensurate return. Part of the formula to business success is not only knowing when to latch on to a good idea and growing it but also knowing when it is time to get out.

Now, the point to the thread here (I think) is to discuss where the remaining Amigos are in this continuum. It has been an interesting one so far!

[indycool]

I believe Pettit is an Amigo now, too, correct?

.....and this sounds pretty definitive about merger for now.....

http://www.sportsline.com/autoracing/story/10085713

[JohnSSC]

I would have to agree, IC that Pettit is one of the Amigos at this point with PG being an "Amigo-Lite" or no longer one.

TG stated as much during his time on "Windtunnel" which is hosted by Dave Despain.

The Beta Fish all want to continue to want to fight to the finish, do they not?

[indycool]

Best semi-educated, heavily qualified guess I've heard is that PG still owns 2.5 percent for his initial investment.

[D.R.T.]

Some where in this thread it was suggested that CC owners didnt have the desire to have strong drivers and were only interested in making the series profitable.

Was talking about such an assertion with a few buddies today and one made a point about the CC Atlantic program. I think this is a fine example that the owners do care about developing quality drivers and dont have long term plans of accepting pay drivers from the world over.

[indycool]

I don't think anyone has said the owners didn't have the desire to have strong drivers. I think people have said some owners don't want to or can't pay for them right now.

[boom boom]

Originally Posted by indycool

I don't think anyone has said the owners didn't have the desire to have strong drivers. I think people have said some owners don't want to or can't pay for them right now.

Exactly! Then the question is: Is all the money they are saving from not subsidizing teams as much as they did last year (and I know not everyone is in agreement on how much or if they are subidizing teams this year,at least I think we can all agree it is less than last year) going to to the TV deals and other areas in the series they are trying to shore up?

Is that money they save from pay drivers helping in other areas? I think it hurts more than helps, unless they are getting more money then we imagine which I dont think is the case. I think in shoring up the TV and other areas of the series, they really dropped the ball on Drivers and in the image that portrays.
So do we think next year the Series owners will have 2 teams each and no Pay drivers next year, or do they need that money elsewhere next year as well?

[mountainstar]

[QUOTE=JohnSSC]

Originally Posted by mountainstar

:
, the point to the thread here (I think) is to discuss where the remaining Amigos are in this continuum. It has been an interesting one so far!

And it's all pure speculation as no one here has access to champcars financials. People are assuming champcar loses money and have no evidence to back that up.

As I've been told, champcar doesn't even lose money on it's time buys on tv.

[JohnSSC]

Well, I was not asserting that anything I or anyone else writes here is Gospel. Nor, as I recall, am I making anyone else read it, respond to it or otherwise pay any attention to it.

When I am with friends and the conversation turns to a subject that does not interest me, I simply move along to one I like better - at worst I see if there is anything new on the snack table!

boom boom, everything I have seen indicates that the time buy will initially cost them money, perhaps an amount that is close to what the subsidies have been in the past. There is an opportunity for that to be offset by advertising, but what that will represent when all is said and done is an unknown.

[norman-normal]

Solid logic DaPix and well delivered.

[norman-normal]

Originally Posted by mountainstar

And it's all pure speculation as no one here has access to champcars financials. People are assuming champcar loses money and have no evidence

They use to call that B.S. but that was in the old days before 'W' started running things.