Friday, July 3, 2009

Obi-Wan wisdom

(crapwagon.com 7-3-09)
(regarding the removal/resignation of Tony George)


Obi-Wan

You know, in hindsight, I think Tony’s motivation for splitting the sport was simpler than a desire to control the sport: I think it was pure greed.

Although harder to explain, I think this motive is easier to understand.

Tony came from a family of wholesale grocers whose considerable fortune was made a fraction of a cent at a time by cornering the market for its many products through cost and price competition. If Herman Hulman and his brothers noted that a competitor was making a good profit by selling some product like a flyswatter, they looked to buy up a manufacturer of flyswatters for a good price, copy the competitor’s product, and then monopolize the market by using economies of scale and their distribution network to sell nearly identical flyswatters at a lower price.

When Tony took over the reins at IMS in 1990, he did so with a sense of entitlement and without a clue as to how to go about using his assets and advantages to make himself rich. Elsewhere in motorsports, non-inheritors like (arguably) the France brothers, Bernie Ecclestone, and Roger Penske were using their brains and talent to transform themselves into billionaires. Tony was envious of them but didn’t have a clue about how to go about doing what they did on a daily basis.

The one thing that Tony DID know was that his inherited property (IMS and the Indy 500) was the cornerstone of American open-wheel racing. With them in his possession, he had the ability to cripple or destroy open-wheel racing in this country by withholding them from CART entrepreneurs like Roger Penske.

As Tony has now admitted, he never had any interest (or ability) in running our motorsport. He was perfectly willing to let the likes of Roger Penske, Pat Patrick, Jim Hall, and the other entrepreneurs in the CART paddock run the sport; Tony was only interested in OWNING the sport and reaping the lion’s share of its profits.

He didn’t think this would be difficult to arrange. The iconic Indy 500 and the CART series were both doing well; seemingly all on their own. Tony’s only proposed changes to the sport he believed he had inherited from his grandfather was to make it cheaper to produce so that his profits would be greater; so he championed such “common sense” (but wrong) ideas as replacing “expensive” race engines with cheap stock-block substitutes and putting price caps in place. This sort of thinking was entirely in line with that of his wholesale grocer ancestors.

In any event, Tony made his move in November 1991 when he demanded that the CART team owners sell him their business, cheap; with a threat to withhold the 500 and ruin them and the sport otherwise. In his view, it was a perfect hostile takeover: he was sitting in the catbird seat and the owners would be crazy to oppose him and once he had bought up both USAC and CART for a dime on the dollar and merged them, all the profits from any premier open-wheel race in America would be his alone.

When the independent-minded team owners resisted, George was furious and moved to make good on his threat to punish them. That’s when he really started to make mistakes by losing sight of his goal. Like his ancestors and their flyswatters, he initially moved to copy the competitor’s product but produce it cheaper. His first problem was that he was legally precluded from copying CART exactly – for instance the law would not allow him to steal its brand name or even mimic it closely. Also, he was convinced that his ace in the hole marketing wise was to make his new series much cheaper to produce than CART. Problem was, fans noticed the less sophisticated ‘spec’ cars, lackluster competition, and no name drivers. Moreover, he couldn’t attract corporate sponsors and automakers to his banner exclusively on the basis of the Indy 500 itself. This eventually meant that he had to establish an expensive series of races and he had to change the outline of his new motorsport to please his automakers (Oldsmobile and Nissan). In the beginning I don’t think Tony thought it would ever go so far as it did; he just kept waiting for the strength and attraction of the Indy 500 to kick in and force the CART team owners to sell out to him. However, here he underestimated the strength of Champ Car and its patented brand of racing.

So, practically from the beginning Tony started to commit the cardinal sin of failing to copy his competitor’s product and offering up a completely different, inferior product instead. In time, his IRL became the “anti-CART” in order to force the sports’ stakeholders to choose one form over the other. This was the functional equivalent of his Hulman ancestors trying to monopolize the flyswatter market with fly paper instead. The immediate result was that he was in unknown territory trying to pitch an unfamiliar product to a different group of customers (than those patronizing his competitor).

Right from the start Tony had a problem getting financing for his attempted CART takeover. He offered approximately $3 million total for CART in 1991, way too low; which may have been all the money he could lay his hands on. His grandmother was a savvier investor than her grandson and Mari stood in line of inheritance between Maw-Maw and him; so it’s probable that his open-wheel takeover plan was a hard sell. In order to get his elders’ support, he had to prove himself first. The only way he could see to do that was to accept John Cooper and Bill France Jr.’s suggestion to throw open the gates of IMS to NASCAR Cup racing. So, focusing too hard on one rival he neglected to keep an eye on an even greater one. His grandmother allowed him to use the NASCAR money to finance his attempted takeover of CART but it proved to be a double-edged sword that drove deep into the heart of The Greatest Spectacle In Racing’s popularity. From the moment the stock cars took to the track at IMS, the Indy 500 would never be the same (or as great). To use a medieval analogy, it was like a castle’s defenders dismantling the castle walls in order to use the stones as catapult ammunition; perhaps effective in the short term but eventually ruinous.

Candidly, I don’t think Tony planned any move in his twelve-year war of attrition beyond the immediate one; his war simply grew like Topsy; each move on his part caused an equal and opposite reaction by his rivals, which in turn brought about the same. George not only constantly transformed his motorsport (for the worse) but he caused CART to do the same. In 1991 he wanted nothing more than to reap the ill-gotten gains from a hostile CART takeover. By 2003, neither CART nor the IRL bore any resemblance to their original forms (in 1991 or 1996 respectively).

The rapid decline in the popularity of both open-wheel series has most often been put down to the ill-feelings generated by a bitter internecine open-wheel war. A simpler, more logical explanation is that the forced evolution of both series left them with an on-track product that nobody wanted to support. The Cartisans were hanging on through boring ‘spec’ racing hoping for a return to the Golden Age of CART and the IRListas were sacrificing everything in hopes that war’s end would get them back to the Indy 500 in its glory years. In the end, neither group’s hopes came true and today’s open-wheel product is pure crap.

From a strictly business standpoint I think if the parties involved in the AOWR war were given the opportunity to do it over, I think Tony George would (or should) do things differently and the CART team owners would hope that he did (but otherwise change nothing). That’s because in the final analysis Tony’s folly cost his family approximately $1 billion in actual costs and another sizeable amount of money in foregone income and opportunities. By comparison, Roger Penske made something on the order of $1 billion from selling the ashes of his motorsports investments. Other less-talented CART team owners made commensurately smaller but sizeable profits and practically none of them lost money on their investment in CART. So, who were the real losers in the Great American Open-Wheel War? In order of loss, it was probably the Idiot Grandson and the Hulman-George family (financially), followed by the CART shareholders (financially), the sport’s rank-and-file and support industries and, of course, the fans.

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