SBJ/19980629/This Weeks Issue

IPO lets league steer its own course

Andrew Craig admits that when he joined the CART board of directors in 1994, the racing series knew little about what made its sport valuable, let alone where it was going.

“The sport was very much dependent upon the Indy 500 as the driving force behind getting sponsors, behind licensing and basically behind everything,” said Craig, CEO of Championship Auto Racing Teams Inc.

All that has changed.

Thanks largely to a $75 million initial public offering in March, the series is finally taking steps to market its combination of short-oval, speedway, street and road-course venues through a variety of means, including hosting its own television program on Fox.

CART

League: Championship Auto Racing Teams Inc.

IPO Date: March 9, 1998.

IPO Price: $16 a share.

Current Price*: $17.94 a share.

Underwriters: Jefferies & Company; A.G. Edwards & Sons.

Exchange: NYSE.

Symbol: OPW.

*Price at closing June 22

The moves come two years after CART teams stopped participating in the Indy 500, the world’s most famous race, thanks to a split with the Indianapolis Motor Speedway and its owner, Tony George.

CART also is working to capitalize on its popularity outside the United States, which rivals that of Formula One despite meager domestic television ratings. CART sanctioned a race in Japan for the first time earlier this year. It also is talking about a race in Germany, and possibly one in Mexico by the turn of the century. The schedule already has races in Australia, Brazil and Canada, in addition to its mix in the United States.

A study by Sponsorship Research International, a sports event marketing agency, reported that 982 million viewers in 195 countries watched CART’s 17 races in 1997. In Europe alone, viewership was up 11 percent, or 4.2 million households, in 1997, according to Eurosport.

“Its global audience is fairly impressive, and the company embarked last year on a major marketing initiative, having invested $4 million in it,” said David Rose, an analyst who covers the stock with Jefferies & Company in Los Angeles.

Rose said the series’ stable cash flow coming from long-term contracts with race promoters appealed to institutional investors, who bought an estimated 80 percent of the 4.7 million shares sold in the IPO.

While CART was the first “major” sports league to go public, it was not the first to try. Bernie Ecclestone’s Formula One, another open-wheel racing series with an even larger global audience and sponsorship draw, attempted a global public offering around the same time that CART was completing its stock sale. But reported internal battles between Eccelstone and some of Formula One’s top teams, as well as competitive concerns raised by the European Community, forced underwriters to postpone that offering.

So far, CART’s stock has met investors’ expectations. After selling for $16 a share at the time of the offering, the shares reached a high of $21.50 in mid-April before settling in the mid-$17-a-share range. The shares closed June 22 at $17.94.

Now the question is turning that $64 million in cash – after accounting for underwriters’ commissions and other expenses of the offering – into results. One of CART’s first steps was buying the Indy Lights and Toyota Atlantic racing series. Both offer a steppingstone for younger drivers to CART’s premier racing series.

Ultimately, though, the company is looking beyond actual races to racing schools to support all three series. These schools are important not only because they introduce future drivers to the series but also because an estimated 70 percent of those who attend are affiliated with corporations.

Craig said he hopes to involve the companies taking part in the schools with sponsorship packages for CART’s racing products and with sponsorship programs of CART’s race teams. The schools also give CART the names and addresses of potential fans.

A large part of the IPO cash will build CART’s ability to create interest at the fan level. The company knew who its customers and fans were, thanks to a marketing research arm created several years ago. Now, for the first time, Craig said, the company has a marketing department, complete with budgets, objectives and executive know-how.

“It’s a huge advantage for us because we are able to rationalize and justify sponsorship commitments far more effectively than others are, who frankly quite often rely on anecdotal information or flimsy research,” Craig said.

Nonetheless, the series has seen its domestic television ratings stagnate and even plummet. Most of the blame goes to the split with George’s Indy Racing League and the confusion and anger that caused among fans. Still, a portion goes to CART, where team owners have historically put their interests ahead of those of the fans.

Once again, though, the public offering has gone a long way to alleviate those problems. The company’s board will now include outside directors to help direct corporate policy, leaving the teams to determine racing policy.

And with management in place to direct day-to-day operations, investors weren’t too worried about the split and the ratings problems.

“[The ratings problem] was recognized as something that was subpar at the time, and was likely to turn,” Jefferies’ Rose said. “[Investors] were pretty confident with management’s strategic initiatives.”

So far, those initiatives have shown the results investors want.

In the first quarter, CART reported an 87 percent increase in revenue, to $10 million, and a 197.3 percent increase in net income, to $2.9 million. Craig said the acquisitions of Indy Lights and Toyota Atlantic would help those initiatives continue to produce results as well as develop future drivers for CART’s elite series and introduce them to fans.

In the end, the split with the IRL has forced CART’s racing teams to consider the long-term success of their sport more than they ever have. And, ultimately, the IPO will only sharpen that focus, because investors will accept nothing less.

“It has really forced us to focus our attention on building our sport properly,” Craig said. “We’re committed to building presence for the sport and bringing the opportunity of watching our sport and coming to our races to a larger public. We just never did that.”

Jim Allen is a writer living in Virginia.
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