Indianapolis 500 and IndyCar Series and Marketing and Indianapolis Motor Speedway and Auto Racing and Sports Business

Open-wheel reunion creating more business opportunities

March 3, 2008

In the end, the catastrophic sponsorship shift from open-wheel racing to NASCAR became too much to ignore, driving the long-divided sides of Champ Car and the Indy Racing League back into a unified series.

This year, a projected $3.5 billion will be spent on motorsports sponsorships in North America, according to Chicago-based IEG Sponsorship Report. According to auto racing marketers, almost $2.5 billion of that is going to NASCAR, while less than $300 million combined is headed to IRL and Champ Car interests. The balance is split between drag racing and a variety of other motorsports series. It wasn't always that way. As recently as 2000, open-wheel racing was holding its own in the race for sponsorships. The two series combined brought in $635 million that year compared with NASCAR's $558 million, according to IEG. The open-wheel lead was even wider--much wider--before the 1996 split, said Mel Poole, who worked in the front office of CART, Champ Car's predecessor, in the late 1980s and now runs a Charlotte, N.C.-based firm that matches sponsors with racing properties.

"What we've seen the last 13 years is the systematic dismantling and destruction of one of the best sports properties in America," Poole said. "There was a time when [open-wheel racing] had far better TV ratings, live attendance and sponsorship revenue than NASCAR.

"After all this time, the combatants in this battle realize they are in the same foxhole. While they were fighting each other, outside the foxhole a lot of fans, sponsors, TV viewers and star drivers left them."

Now, IRL boss Tony George is placing a large bet that combining his series with Champ Car will correct open-wheel racing's tailspin.

Though George and Champ Car principal Kevin Kalkhoven declined to divulge specifics of the unification announced Feb. 22, this much is clear: George will have to cough up $30 million to meet promises of free chassis and engines--plus $1.2 million in revenue sharing for each car a Champ Car team fields for the entire season.

To the surprise of IRL officials, every single Champ Car team showed up for a quickly arranged orientation at the Indianapolis Motor Speedway Feb. 25 and at testing in Homestead Feb. 27. That means 12 cars could be added to the IRL stable of 16 to 18 cars. There will also be additional travel and operational expenses of adding races in Australia, Ontario and Long Beach, Calif., to this year's schedule. While promoters often subsidize this, there will still be added expense to the series. And there will likely be more races added in 2009.

The IRL probably paid a relatively small sum for Champ Car itself, since financially that series had hit rock bottom, motorsports business experts said. The IRL bought the intellectual property rights--essentially all CART and Champ Car's statistics and record books and a medical trailer valued at $3 million to $4 million. The IRL, sources said, might also have assumed some of Champ Car's debt. The total cash outlay, industry experts said, will cost George $40 million to $50 million in the first year of the unification.

Sponsor talks ignite

The early returns on the deal are good. There's been a horde of media attention, sponsorship sales are up, and hospitality opportunities for this May's Indianapolis 500 are selling at record pace, IRL officials said.

And the biggest coup: Talks with several potential series title sponsors are becoming serious in the wake of the unification announcement. That deal alone, said sources with knowledge of title sponsor negotiations, could pay for the unification.

The fortunes of the series seem to be turning.

"The phone is ringing a lot more than it is being dialed," said John Lewis, IRL vice president of marketing and league development.

Deals were recently signed, Lewis said, for exclusive category sponsorships for an energy drink and soft drink. Those announcements will be made this spring.

Sources said Frank's Energy Drink will be one of the category sponsors. The Austrian-made drink is huge in parts of Europe and throughout Canada, with a healthy marketing budget and ambitious U.S. expansion plans.

While a title sponsor won't be signed for the 2008 season, series insiders said an announcement could come as soon as May.

"Unification will make it easier to sign a title sponsor, but not easy," said Zak Brown, president of Indianapolis-based Just Marketing, which was hired by the league last year to find and sign series sponsorships. "We realize we have an opportunity right now, and we have to seize that opportunity. We have some very serious leads, and we'd like to have this nailed down and announced by the end of the season [Sept. 7]."

Brown said the ideal time to make the announcement for a 2009 title sponsor would be during this year's Indianapolis 500, when the most media attention is focused on the series. But he said he won't come to the table until he finds the right "blue chip" company. Brown said he wants at least a six-year deal worth $50 million to $100 million.

Just Marketing has hired additional staff in the last month to handle the increased IRL work, Brown said. The leading candidates for a title sponsor, Brown said, are in the financial services and consumer electronics sectors.

"The guys at Just Marketing are running around like Braveheart," Lewis said. "We're very optimistic."

With or without a title sponsorship announcement, the Indianapolis 500 will be a hotbed of activity this year, sports marketers said.

The IRL has long been touted for its business-to-business networking among sponsors and other corporate partners. Lewis said the hospitality inventory for the Indianapolis 500--which is normally not sold out until April--is almost gone.

Despite the uptick in sales and marketing activity, Lewis said the IRL had no plans to add any Champ Car staffers. Shortly after the unification was announced, 50 employees at Champ Car's Indianapolis headquarters were notified they had been terminated. The IRL might use some of Champ Car's race-day medical and safety staff.

More work to do

There's still tons of work to do to maximize the long-term payoff.

The production of most of the series' marketing materials--including schedules, magnets, posters, calendars, media guides and more--was halted to make changes regarding new races, teams and drivers, Lewis said. The schedule should be finalized by March 7 and production will resume in high gear to be ready before the March 29 opener in Homestead, Fla.

IRL marketing officials were scrambling to meet with representatives of series race venues--new and existing--to brief them on marketing and operational plans, while sponsorship sales staffers were handling a glut of incoming phone calls while reaching out to all possible corporate partners.

Despite challenges, Poole is bullish on the unified series.

"If the Indy Racing League [were] a stock, I would issue a long-term buy. If you can stick it out for three to five years, I think there could be a surprisingly healthy return," he said.

Lewis thinks the series' future is even brighter than that.

"This is like an IPO, and we think people should get in while the stock is cheap," Lewis said of sponsors and other potential corporate partners. "Because this is on the precipice of exploding."

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