Indy Racing League still trying to turn a profit

March 13, 2010
Angstadt Angstadt

Terry Angstadt, who oversees the Indy Racing League’s commercial division, thinks the series could break even in 2011 and be profitable by 2012.

Despite myriad challenges facing the open-wheel racing series, Angstadt thinks better days are ahead.

That better be more than wishful thinking. Sources close to the series said the board controlling the series has mandated profitability by 2013.

The series kicks off its season March 14 in Sao Paulo, Brazil, a new market for the IRL and one Angstadt said is already proving to be among its most profitable.

Fueled by a handful of one-time entries and last-minute additions, 24 cars are expected to start in Brazil, beating early-season projections by four to six. That’s two more cars than last year’s opener, but one fewer than the 2008 opener, which was the first after IRL’s unification with Champ Car.

“The reception from race fans, government officials, even that nation’s president, has been phenomenal,” Angstadt said. “The business model we have for this race is one of the strongest in the series.”

Angstadt thinks the Brazil race could net a seven-figure payday for the IRL, but auto racing business experts said the series still has a long way to go to become profitable.

Sources close to the IRL said the series lost $22 million last year, and many motorsports experts think it will be difficult in the current economic climate to close that gap in the next two years.

IRL officials have cut $2 million in overhead in the last year, have raised $3 million in cash annually with a new title sponsorship deal, and can expect $2 million in profits from the Brazil race, said motorsports business experts. That still leaves a $15 million hole to close.

Aside from races in Indianapolis; Long Beach, Calif.; Edmonton, Canada; and Motegi, Japan, the IRL’s other 13 races break even or lose money, sources close to the series said.

And profits from the Indianapolis 500 are largely funneled to the Indianapolis Motor Speedway, which, with a change in leadership last year, has a more tenuous relationship with the IRL these days.

Angstadt wouldn’t detail the series’ financial situation, but said new sponsorship deals with Kentucky-based bourbon maker Maker’s Mark and Netherlands-based medical-device manufacturer Philips this year, along with the possibility of new races in Baltimore and China, as soon as 2011, could bring the series much closer to profitability.

“They have some momentum, and new management,” said Tim Frost, president of Frost Motorsports, a Chicago-based motorsports business consultancy. “So there are some positives. But still, they have some real challenges—things they’ve been struggling with for a number of years. That’s why a lot of people think this series still has a very big hill to climb.”

New boss, new ideas

Bernard Bernard

The new management comes in the form of Randy Bernard, who resigned as Pro Bull Riders CEO and became president of the IRL March 1.

Bernard came in with little racing experience. He’s never been to an IRL race, but he has a slew of ideas. He’s already floated the notion of trying to get NASCAR drivers to participate in the Indianapolis 500 and IRL racers in the Brickyard 400, the NASCAR race held at the Indianapolis Motor Speedway each summer.

“Randy has come in with some real out-of-the-box ideas,” Angstadt said. “I think his creativity and energy are going to be a big benefit to this series.”

Dennis McAlpine, a motorsports financial analyst from New York, said the series will need more than energy to survive.

“They have problems with car count, lack of series and team sponsors, television ratings and live attendance,” McAlpine said.

There’s another pressing problem, he said: the perception that the series is on the brink of financial ruin.

That perception has been fueled by the feud among Hulman-George family members that own the IRL and IMS, he said. That battle last summer led to the departure of Tony George as chairman of the series and the Speedway.

Earlier this year, George shuttered his IRL team, Vision Racing, which sources said he funded with cash from the Hulman-George empire. Now, Tony George’s three sisters, along with their mother, have taken a higher profile in operating the Speedway and IRL.

Angstadt insisted the series is a long way from folding.

“That just could not be further from the truth,” he said.

He points out that the board controlling the Hulman-George companies recently used some of its assets to pay down the IRL debt “to an insignificant level.”

“I don’t think there could be a better indicator to say [the board] wants this company to operate and flourish,” Angstadt said. “This shows the Hulman-George family is in this to stay. That’s not something you do if you’re going to fold or sell the series or are on the brink of financial ruin.”

Reason for hope

In addition to the expected payday from the Brazil race, Angstadt said there are several other reasons to believe the series in 2012 can become profitable—something it’s never done since its 1996 launch.

First, Angstadt said Apex-Brasil, a Brazil-based conglomerate that is one of the series’ primary sponsors, will announce an extension of its sponsorship deal through 2012. The original two-year pact was slated to end after this season.

The Apex-Brasil deal is valued at more than $10 million annually to the series, Angstadt said, but much of that is in promotions, not cash.

Another significant development is the money Izod—which signed a six-year deal in November to become the series’ title sponsor—is spending to run TV and print ads this year.

Izod has run ads on Versus and ABC—the series’ broadcast partners, but also on other major networks during broadcasts of National Football League games, the Olympics and other prime-time shows.

“Izod spent millions and millions of dollars in advertising in January and February alone,” Angstadt said. “We’ve had previous seasons where there wasn’t millions spent for the entire season in advertising. It takes a committed title sponsor to get that done.”

Last month, Izod officials spent a week filming commercials in Panama featuring IRL drivers Ryan Hunter-Reay, Tony Kanaan, Dan Wheldon, Marco Andretti and Mario Moraes.

The clothing company plans to launch a line of 15-, 30- and 60-second TV commercials featuring those drivers later this month.

“These are as high a quality of any ads you’ll see anywhere,” Angstadt said.

Angstadt said the ads and other series promotions will help the series increase TV ratings and attendance, both sore spots for the IRL. Angstadt is hopeful some race telecasts this year will earn a 1.0 national TV rating as tracked by New York-based Nielsen Media Co., indicating 1.1 million households nationwide tuned in.

“Earning a 1.0 TV rating would be something that sponsors would take notice of,” Frost said. “But other than the Indianapolis 500, it’s something they haven’t been able to achieve.”

The series is further hurt by the fight between DirecTV and Versus cable channel—which began carrying most of the series’ races last year. Despite the rift, which caused DirecTV to pull Versus from its lineup last year, Angstadt said there’s no move to try to renegotiate the IRL’s 10-year TV deal.

“It’s hurt us, no doubt,” Angstadt said. “It’s cost us viewers. But we think [Versus officials] are headed in the right direction with this and we believe they’ll get this worked out sooner rather than later.”•

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