SBJ/November 19 - 25, 2001/Opinion

Sponsorship wheels coming off the CART

Brand icons Valvoline, McDonald's, Castrol and Budweiser are long gone as major CART car sponsors. Marlboro and Kmart are reportedly leaving. Miller Brewing Co. is rumored to have one foot out the door.

"All of today's CART teams are going to be out of business when their current sponsorship contracts are up," said my acquaintance, an experienced marketer who works in the Championship Auto Racing Teams environment and prefers to remain anonymous. He said CART sponsors believe that the 2002-2004 CART CBS/Speed Channel domestic TV package has inflicted mortal damage on sponsors that rely on domestic event TV exposure.

There are many ways to measure the worth of sponsorships, and domestic TV ratings is one. The problem is that NASCAR's TV ratings have set the bar too high for U.S. sponsors interested in marketing through motorsports in any series except NASCAR.

Each NASCAR event telecast on Fox, NBC and Turner next season should easily average a national rating of 4 points. Multiplied by 36 events, the Winston Cup Series is expected to generate at least 144 accumulated national TV rating points.

A NASCAR team needs about $10 million from a major sponsor to compete successfully week-to-week in the Winston Cup Series. Plenty of teams are funded at, or near, that level by sponsors. Therefore, the market has determined that motorsports sponsors are willing to spend about $70,000 in rights fees for each domestic TV rating point.

Motorsports sponsors believe that TV viewers of NASCAR, CART and its rival (since 1996) Indy Racing League are roughly the same demographic group. The rub is that CART and IRL do not attract anywhere near the sheer numbers of viewers as NASCAR.

Let's use that formula to examine the Indy Racing League. There will be 15 races next year. Optimistically assuming that each race on ABC and ESPN draws a 1.0 rating and the Indianapolis 500 pulls a 5.0, IRL may produce a cumulative national TV rating of 19 points.

CART is buying airtime for a maximum of seven CBS races. The balance will be fed to Fox's relaunched Speed Channel (formerly Speedvision), which has a small national footprint. Optimistically speaking, let's say that of a possible 20 CART races next year, the seven on CBS generate 1 point each and the other 13 on Speed Channel generate 0.4 national rating points each. This means that CART's cumulative national TV rating next year is anticipated to be 12 points.

Applying sponsors' valuation of motorsports at the rate of $70,000 per rating point, the news isn't good for IRL or CART.

Under that formula, the market apparently believes major sponsorship of an IRL car is worth $1.3 million in rights fees. Major sponsorship of a CART team is worth rights fees of $840,000. Unfortunately, it takes about $5 million to run a competitive IRL team — and $9 million in CART, with a bare-bones effort capable of winning races.

Major team sponsorship should cover about 60 percent of IRL and CART team sponsorship revenue potential. So adding another 40 percent for associate sponsors and sponsors willing to pay a premium price, the market probably believes that an IRL sponsorship is worth a total of $2.2 million (a $2.8 million shortfall) and a CART team is worth $1.4 million (a $7.6 million shortfall).

The IRL is privately owned and its administrative structure can dictate reduced costs. Corners can be cut to close much of the $2.8 million gap. Plus, IRL has the Indianapolis 500 and a domestic event schedule, which are attractive to sponsors.

But CART cannot overcome its teams' $7.6 million gap. The cars are too expensive to build and operate (it currently costs $3 million a year for a supply of engines for one car). Overhead costs such as driver salaries are out of whack.

Publicly held CART's leadership is reducing its U.S. event markets, ostensibly to benefit stockholders but against the wishes of many of its major team sponsors who pay for their CART sponsorships out of budgets intended to promote their products domestically. CART's 2002 schedule includes events in England, Germany, Japan, Mexico and Canada (although Canada is considered a virtual U.S. market). Meanwhile, CART is walking away from races that U.S.-based sponsors want to keep in Florida, Michigan and Pennsylvania.

All of these brands have spent fortunes promoting CART in the past — but no more.

Honda, Ford and Toyota, which have heavily promoted CART, will continue to provide engines next year. But Honda recently announced that it was leaving the series due to its distaste for CART's new 2003 engine-design rules. Ford is also banging the war drums. Toyota says it won't stay unless it has a chance to compete against Ford and Honda.

The good news for CART is that series name sponsor FedEx recently renewed at a reported $1 million per year, and the Newman-Haas team is said to be negotiating a $12 million rights fee sponsorship with drug maker Eli Lilly.

CART's senior vice president of sales and marketing, Rich Henley, said the new TV package will result in 61 percent more airtime for CART, primarily through additional non-event programming such as qualifying telecasts. He said Fox (owner of Speed Channel) and CBS had committed to promoting CART telecasts, which should increase ratings.

CART's stock performance, though, reflects market skepticism. Since August 2000, when CART stock was selling at $28 a share, its value has been on a downward slope, trading at $14.50 a share at press time.

My acquaintance said: "People ask 'what can be done to save CART?' But it's too late. CART, as we have known it over the last two decades, is finished. The only CART teams that will survive are those that can successfully transition into the IRL."

CART's 22 years of organizing the most exciting open-wheel racing in American history is apparently worth little to the sponsorship market. That's why leading CART teams Penske, Ganassi, Mo Nunn, Walker and Patrick are moving, in whole or in part, to the IRL next year. And that's why it looks like Newman-Haas, Team Kool Green (minus Kool) and the remaining teams will be there in 2003.

As CART's communications director a decade ago, I find the current state of affairs hard to watch. Back then, the Andrettis and Unsers, Rick Mears, A.J. Foyt, Bobby Rahal, Emerson Fittipaldi, Ari Luyendyk and Danny Sullivan lined up to do battle every week. Sponsors and fans thought it was great.

Ironically, the racing is still great, and CART cars are still the fastest and most beautiful race cars in the sport. The CART technical, competition, media and administrative staffs are among the brightest and hardest-working in the sports industry. The volunteers that help pull off each event are the most dedicated in the sport.

But fans don't know the drivers. They're not watching CART telecasts. They don't care how exotic and expensive the cars have become. Sponsors are losing interest. This quandary is probably insurmountable for CART, and it lies at the feet of CART's senior leadership and its board of directors.

Mel Poole ( is president of SponsorLogic, a consulting management and events agency.

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