The Indy Racing League is going where only stick-and-ball sports have gone before: revenue sharing.
In a concept unique to motorsports, IRL officials have floated a plan that will guarantee teams about $1.3 million from series coffers for each car entered full time in the 16-race series.
The change means the IRL could pay out $36 million to teams in 2008, $10 million more than it did through prize purses this year.
Industry experts think revenue generated by the newly scheduled MotoGP motorcycle race at the Indianapolis Motor Speedway could be key to subsidizing the increased payout.
IRL officials, however, said increased sponsorship and ticket revenue from the Indianapolis 500 will help fund the changes.
“This is a new benchmark for motorsports,” said Tim Frost, president of Frost Motorsports, a Chicago-based motorsports business consultancy. “The revenue-sharing aspect of this will be looked at by other series and could be a new financial model.”
Sports leagues like the National Football League and National Basketball Association have used revenue sharing with great success, allowing teams in smaller markets like Indianapolis the resources to compete with teams in cities such as New York and Los Angeles.
“The NFL is the most successful sports league right now, and I don’t think it’s coincidental they do the best job with revenue sharing,” Frost said. “They’re successful in part because they have economic stability and a competitive on-field product. In motorsports circles, this is a proactive move by the IRL.”
While the IRL has had close on-track racing the past two seasons, the league has struggled with parity issues.
In 2007, six drivers from Andretti Green Racing, Target Chip Ganassi Racing and Penske Racing won all 17 races and led 90 percent of the laps and sucked up nearly half the prize purse. The results led league officials to the conclusion that smaller teams need a boost.
But managing a revenue-sharing system can be tricky. NFL and NBA owners feud regularly about the way revenue is distributed. IRL officials, industry experts said, are being careful to create a plan that keeps all team owners happy while strengthening the league’s weaker teams.
Series officials said the exact numbers for the new formula-designed by Brian Barnhart, president of the league’s competition division-have only recently been finalized. The plan should be unveiled publicly by month’s end.
Prize money red-flagged
The new structure abolishes purses for all races except the Indianapolis 500, which will see a sizable purse increase in 2008.
“The Indianapolis 500 is on a different economic strata altogether,” Frost said.
While some sports marketers feel removing prize money from races will lessen the intrigue, motorsports marketing guru Zak Brown said, “The fans tune in to watch racing, and aren’t all that tuned in to who’s getting what check.”
Dennis McAlpine, an entertainment and motorsports analyst based in New York, countered that sports like auto and horse racing have been marketed for years based on purses.
“People love a dash for the cash,” McAlpine said. “So you have to wonder what the impact will be.”
While the current purse structure is history, there will be significant bonus money for the top five of each race and top five in the overall series.
“We want to make sure the sponsors, fans, teams and drivers know we’re not just out here riding around in a participatory manner,” Barnhart said. “Competition is an important element of this series.”
Teams have largely embraced the move to revenue sharing, although it means the series’ biggest teams could receive less than they did under the prize money structure.
IRL officials hope the plan will, besides giving small teams a leg up, also draw new teams. Eighteen full-time cars representing eight teams were in the series this year.
Industry sources said several former IRL teams and some that have never been part of the series have expressed interest in joining the league since hearing about Barnhart’s plan. The prospect of guaranteed money even has drivers such as Sarah Fisher talking about forming their own teams.
“I think this is going to be very well received by everybody,” said Dennis Reinbold, co-owner of Dreyer & Reinbold Racing. “This is a further investment by the series into its teams.”
A 20-percent purse increase for the Indianapolis 500 is designed to bring more teams back to the Brickyard in May. More entries could reinvigorate the quali- fications process by increasing the number of cars bumped from the 33-car field. The plan calls for the winner of the Indianapolis 500 to take home $2 million and the last-place finisher to get about $300,000.
With the cost to run an IRL team full time at $4 million to $10 million per season, the revenue-sharing formula won’t be enough by itself to fund teams, but industry experts said it will be an important financial foundation for smaller teams.
“This builds a commitment to the teams, tracks, promoters and drivers,” Frost said. “It shows the Indy Racing League does have a guaranteed future.”
Sponsors like stability
A guaranteed future is especially important to sponsors, said Brown, president of locally based Just Marketing, a firm representing some of the world’s largest motorsports sponsors.
“Stability all the way through the grid is something sponsors will react very positively to,” Brown said.
On average, teams will get $100,000 to $500,000 more under the revenue-sharing formula than they did under the purse structure. But because the biggest teams, which typically have more sponsors, bigger budgets and the best equipment and drivers, win most of the prize money, they could actually see their payout decrease.
Andretti Green Racing’s four-car team won $7 million this year, but under the revenue-sharing plan it might take home less than $6 million, depending on the team’s showing in the Indianapolis 500.
But IRL officials said performance bonuses offered throughout the series mean most teams won’t likely see a decline.
Getting the IRL’s biggest teams to buy into the system was key for Barnhart and IRL chief Tony George, who spent much of late August and early September on that task.
“In basic principle, we’d be for it and I think it’s a good move to try and shore up the teams from top to bottom,” Rahal Letterman Racing boss Scott Roembke told SpeedTV. “As a team, we don’t budget the prize money, because obviously it fluctuates year-to-year and we end up spending it on crash damage or whatever. So, whether you had a bad or good year, you would know what’s coming in, so that’s a good thing.”
Funding the plan
Since TV ratings and attendance for IRL races have seen only modest increases in recent years, funding the increased payout is a concern.
IMS’ plans to ditch the U.S. Grand Prix Formula One race and pick up a MotoGP motorcycle race could help.
“I think it’s safe to say with the sanctioning fee and attendance last year, the USGP lost money,” Brown said. “And with a sanctioning fee much less than the USGP, and projected attendance, I think the MotoGP race will make a significant profit.”
The USGP had a sanctioning fee of $10 million to $15 million; the MotoGP will charge the Speedway just $1 million to $2 million. The inaugural event Sept. 14, 2008, is expected to draw 150,000 fans.
If IMS officials can draw 150,000 fans willing to pay a ticket price similar to that of the sold-out MotoGP race at Laguna Seca, Calif.-about $60-ticket revenue alone would be $9 million.
“The MotoGP race certainly gives them some financial flexibility,” Frost said.
There’s also speculation that George might downsize his Vision Racing team-which fielded three cars in the series this year-to a single car in 2008, and that would save him considerable cash.
The IRL also has money coming in from its television deal with ABC and ESPN, and from additional motorsports work done by IMS Productions for the networks.
There is no cap on how many teams can qualify for the revenue-sharing plan, Barnhart said. That means the cost to the series could escalate.
“I think Tony George is a savvy businessman,” Frost said, “and I don’t think he would have forwarded this plan without a strategy to pay for it.