Like most American kids that grew up in the 80's I watched the Indy 500 every year and became interested in motorsports thanks to that race, but I didn't really get hooked until I started watching Formula 1 racing in the late 90's. My favorite era were those years with the great Mika Hakkinen/Michael Schumacher battles. (I was a Mika Hakkinen fan) So my fondness for Formula 1 waned once Mika retired and Schumacher started winning everything, even at the expense of his teammate Rubens Barrichello. My interest in F1 has only been lukewarm since.

Then I turned to Champ Car racing here in the US for my motorsports fix. However that was quickly extinguished once Champ Car and Indy Car merged and we were stuck with Tony George and his many foibles. (It was entertaining to watch the Hulman/George drama I'll admit.) My interest has been less than lukewarm with Indy Car lately, even without Tony George at the helm.

Over time however, the excitement I once had for motorsports has slowly gone. Maybe it has to do with my age, I don't know. But I think I will pour my efforts into my Trooper and my interests in the outdoors to add excitement to my life.

Thanks for checking out my blog, I hope you enjoy it. I will still post racing news when I find something interesting or noteworthy.

Monday, May 16, 2011

We still have plenty of nails

(by Obi wan 4-8-11)

"If NASCAB really wants to kill the EARL, move the Hickyard to Kentucky, that cuts off half of their cash flow. However, NASCAB probably doesn't consider the EARL enough of a threat to even bother on those'd have to be because they can get more fans and better ratings elsewhere." - Brake L8

In his most recent interview, Roger Penske was asked about the possibility of NASCAR expanding into Canada with a Cup race in Montreal. Penske responded that the oval cartel had overbuilt (in terms of seating) the tracks already on its Cup schedule and that NASCAR should look after its current track owners/promoters before it thinks of adding another race anywhere else. With respect to public perception, which is very important for the publicly traded oval cartel companies, he said: “[When] you’ve got a 160,000-seat stadium and you have 120,000 (in the stands), it looks like you’re in trouble.” He is alluding to tracks like Speedway Motorsports Inc.’s ½-mile Bristol Motor Speedway, which is the 4th largest sports venue in America, and the 8th largest in the world, housing up to 165,000 people.

Penske is not alone in thinking that overexpansion in both track seating and the number of races on the Cup schedule are partly responsible for NASCAR’s “oversaturation” of its marketplace. Analysts have been advising NASCAR for more than a decade that it needs to pare down the number of annual Cup races (currently at 36) on its calendar. The problem with this is that the two titans of the oval cartel – International Speedway Corporation (ISC) and Speedway Motorsports Inc. (SMI) – own the rights to the vast majority of Cup races and neither one is in a financial position to give up even one of its races. Which likely means that any contraction of the schedule has to come at the expense of the “independent” track owners. Until very recently there were a handful of independent tracks which NASCAR could give the axe to, but then SMI went on a track buying spree and bought up all but three of the indies (Dover Downs, Pocono, and Indianapolis).

Meanwhile, ISC – the France family’s holding company – has been consolidating its monopolistic hold over stock car racing. NASCAR won a very important case against Kentucky Speedway which reaffirmed that it has the right to deny a Cup race to anyone outside the cartel no matter how qualified their track might be to host one. Kentucky had tried the ploy of declaring that it was building a speedway specifically for the purpose of hosting a Cup race and then hoped that the federal anti-trust laws would force the Frances to give them a race. Just to make sure, ISC began a process of shutting down and/or bulldozing its smaller tracks (Rockingham, Nazareth, Pikes Peak) to both reduce the number of potential NASCAR tracks in the U.S. and reduce its visibility with the trust busters. Basically, this has resulted in NASCAR being able to monopolize its industry like the auto makers control theirs: through economies of scale. Simply, no outsider can afford to build a modern speedway capable of hosting a Cup race without first getting a guarantee for a race (which the Frances obviously won’t give them).

With two companies having total control of stock car racing, the best way of reducing the number of races – which also has the benefit of reducing expenses for the teams without downgrading the quality of the racing – without affecting their bottom lines is to simply drop the independently-owned races from the schedule. Of the three track owners in the crosshairs, the most vulnerable is the Indianapolis Motor Speedway. It got its Cup race last and hence it has the least claim of seniority AND the family that owns it also owns a rival motor sport (INDYCAR) to stock car racing. To add icing to the cake, the clueless former leader of the family threatened to knock NASCAR “off its pedestal” as the nation’s most popular motorsport. So, the Hulman-Georges and IMS are competitors to the oval cartel, not members of it. Additionally, the Hoosier family sold its stake in another NASCAR Cup track (Chicagoland) to the Frances, so they are no bigger or more invested in the sport than the other two independents.

Another reason that the Brickyard 400 is probably not long for this world has to do with ISC increasing its profitability at a time when the popularity of NASCAR is waning. If the company were disinclined to reduce the number of Cup races – for instance, if the number was integral to getting the maximum amount from multiple TV broadcasters for the rights to air the races – another way of increasing ISC’s stake would be take some or all of the independent Cup races in-house; by either reassigning them to ISC tracks or buying out the tracks themselves. Here, Dover Downs had been purposely structured to sell to ISC; they would like nothing better than to have ISC buy them out. Similarly, the owners of Pocono (the Mattioli’s) have several times offered to sell Pocono to the Frances. Thus, the only independent track owners NOT willing to sell to ISC/Frances is IMS/Hulman-Georges; which should make them the prime target.

For one or all of the various reasons for which the Frances/ISC might wish to destroy IMS/Hulman-Georges, the Daytona Mafia is perfectly positioned to do it. The contract for the Brickyard 400 is annually renewable, so they can strike (by withdrawing the race) on such short notice that the Hoosiers will have little time to react. Arguably, the perfect time to hit the Hulman-Georges would be 2012. Their motor sport will be in the process of re-making itself, so in a sense it won’t exist yet. If it fails, this could be determined to be as much the Hoosiers’ fault as the stock car cartel. Moreover, the Frances would have millions of witnesses and a solid historical record to show that the Terre Haute dimwits did it to themselves.

Back in 2001 Penske rightly determined that his defection to the IRL would be perceived by the auto companies and big name sponsors to be a vote of no confidence in the future of Champ Car racing. Overnight, our motor sports’ biggest sponsors deserted it in favor of the IRL or just to leave. There is little doubt that Penske’s defection tipped the domino that would lead eventually to the collapse of CART. Now, the shoe is on the other foot. Penske and Ganassi have the only well-funded teams in the ICS; the only ones with national name brand sponsors. How long will those sponsors stay in place if NASCAR’s ruling family withdraws its support of IMS and the Hulman-Georges? I’d wager not long. The Hoosier family has made 2012 the point of new beginning for their motor sport; conveniently it could just as easily end there.

Recently this forum had a kamikaze Gomer who asked, “How many nails do you guys have?” s/he then went on to point out that despite our predictions of the imminent demise of the ICS, it is still here. I answer that by saying that no rational person could have expected that the Hulman-Georges would have expended nearly all their inherited wealth (on the order of $600 million) and destroyed what was once one of the world’s premier motor sport events for…what? It still makes no sense. Not one of the rationales offered up by the Hoosier family or its representatives for their past behavior makes any sense. What it all comes down to is that the ICS will last only so long as the Hulman-Georges are willing to pay for it. They are basically free to do this until they are admitted to the poor house.

However, the other stakeholders in the sport – from the car companies to IZOD to the team owners – don’t approach the sport from an irrational point of view. One way of looking at the recent Firestone debacle is that the Hoosier family and their minions were irrationally willing to let the tire company go and the team owners rationally recognized that its leaving could destroy the sport; so, for once, the rational people in the sport won the day. It won’t take very many more of those irrational decisions before the stakeholders with their heads on straight head for the exit. Again, 2012 will be the perfect time. Everyone in the paddock except Penske will have invested nothing in the new-look motor sport; what better time to leave than before one has to mortgage the house to buy new equipment?

If the Frances pull the plug on the Brickyard 400, the Hulman-Georges will have ONE race with which to balance their books. By their own account in fourteen years they haven’t managed to break even once; and that’s with a one-time vastly profitable NASCAR race to supplement I500 revenues. The moment the Brickyard 400 expires, we can post a deathwatch on the Hoosier’s family’s bank account. There’s no point in watching for the demise of the IRL/ICS, it has been among the walking dead since its founding. Its heart, the only thing keeping it going, is the Hulman-Georges’ wealth; and we are VERY close to seeing the last of that.


(by Obi wan 4-9-11)

"one minor point: the Family has never said they didnt make money from the speedway, etc, only that the iRl is a money loser" - Bommerblaste

I don’t believe I said that IMS was a money loser; but without the Brickyard 400 it very well could be.

Also, the Family – actually Fred “Bagdad Bob” Nation – has said more than the IRL is a money loser. In 2002 Nation told Sports Illustrated reporter Ed Hinton that not only did the IRL never make a dime of profit but that Brickyard 400 funds had been needed to keep it afloat. Nation and other IMS bigwigs were apparently opening up because they thought the defection of Toyota and Honda from CART to the IRL was finally going to help the League “turn the corner” toward profitability. It’s easy to see why they thought that; at the moment that Nation spoke the IMS/IRL had the support of GM, Nissan, Toyota, Honda and they thought Ford would soon follow. The auto manufacturers in CART had most recently been subsidizing the sport to the tune of approximately $200 million annually. Unlike CART, however, where the car manufacturers’ support went primarily to their teams, IMS demanded that they pay a tariff directly to the Speedway and additionally commit to do a certain amount of promotion for the IMS/IRL.

The Gomerati at CrackForum and other motorsport discussion forums were aghast that Nation had let the cat out of the bag with respect to lack of profitability of the IRL. They immediately tried to assert that every property within Hulman & Co. was a separate entity and against all logic claimed that Brickyard 400 money had been tapped at random to support the IRL, but that the Indy 500 was still vastly profitable. The Idiot Grandson tried to cover his ass and give the Gomerati something to hang their fantasies on by mumbling a vague comment to a reporter that within Hulman & Co’s motorsports division funding of its various parts (i.e. IMS, Indy 500, Brickyard 400, USGP) was simply a matter of “transferring money from one [Hulman & Co.] pocket to another.”

Of course, as with most of the Gomers’ arguments, that made no sense. The Indy 500 and the IRL are integrally tied together; they can’t operate the one without the other. Hence, if any separate funds within the motorsports division were going to be tapped to support the money-losing IRL, they would obviously (per accounting practice) come from the profits of the Indy 500; not those from the Brickyard 400. So, the import of Nation’s admission was clear: the IRL black hole annually consumed ALL the profits of the Indy 500 and then Brickyard 400 money had been required to cover the remaining short fall. Thus, Nation had not only admitted that the IRL was a money pit but he gave a means to approximate the size of the financial drain. In its heyday the Indy 500 had been estimated to return between $20-30 million to the Family. By 2002 the cracks were just beginning to show at Indy, so a generous estimate would be that it was generating a $25 million revenue stream. Hence, the IRL was probably losing MORE than $25 million annually if it gobbled up the Indy 500 profits and then ate into those of the Brickyard 400.

Validation for these estimates came most recently from a column about the IRL’s profitability by Anthony Schoettle in the IBJ. In response to an attack by Uber Gomer “Defender” the reporter said:

"Defender, my sources are consultants that have worked directly with and for the series. These sources are solid, or I wouldn't use them. I've been a reporter for 22 years, and there's way too much at stake with something like this to use unreliable sources. I was told the series lost $22 million in 2009 and $15 million in 2010. I've never had one series official call me to the carpet on those numbers. Which tells me, either they are conservative or spot on. Actually, given the increased investments in the series that are planned for 2011, I'd say closing the gap by $3 million (from the 2010 loss) is pretty good." - Anthony Schoettle

With declining attendance and television ratings, the Indy 500 is nowhere near as profitable as it has been in the past; so while the IRL/ICS may be reducing its losses, the amount of money from the Indy 500 to cover those losses is declining right along with it. The same is true of the Brickyard 400 NASCAR race. There was a time in the late 1990’s when it was rumored that IMS did not sell general admission tickets to its infield during the Cup race because it was fearful that its attendance might eclipse that of the Indy 500. At the same time it was estimated that the profits from the BY400 were approaching those of the I500 (i.e. around $20 million). Those days are long gone. According to NASCAR estimates, attendance at the BY400 has steadily declined from 270,000 in 2007 to an estimated 140,000 in 2010. Television ratings for the race have also declined. Last year the IBJ estimated that profits from the BY400 were about $10 million.

In his most recent interview (see above post), Roger Penske commented on the perception of declining attendance at NASCAR Cup races: “[When] you’ve got a 160,000-seat stadium and you have 120,000 (in the stands), it looks like you’re in trouble.”

If Pimpski thinks that looks bad, how about 140,000 (in the stands at 2010 BY400) in a stadium with 257,325 permanent seats and room for 100,000 or more in the infield?

With an estimated loss of $15 million in 2010, the deficit from the IRL/ICS is getting very close (one way or the other) to the probable take from the 2010 Indy 500. The Hulman-Georges have been kidding themselves that cutting the cost of the base 2012 Dallara in half from its cost in 2011 and putting a cap on the cost of engine leases, tires and body kits will have such an impact on the estimated $5-10 million per car budgets of the teams that they will be able to buy all-new equipment in 2012 without need of a sizeable subsidy from the Family. I think that comes under the heading: “Dream On!”

If or when NASCAR pulls the plug on the Brickyard 400, the only thing that will be keeping the ICS on life-support will be the Hoosier family’s ever-dwindling bank account. A few days ago on this forum a “hater” wrote that s/he wanted to see the demise of the IRL/ICS drag out until it had cost the Hulman-Georges their very last dime as punishment for what they’ve done to the sport (and also, I assume, to assure that they are incapable of ever trying it again). Well, s/he may well get their wish in the not too distant future.


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