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Milestone moment for open wheel racing

As IndyCar celebrates a milestone for the 500, can it find a way back to the glory days?

Running through the numbers in his head as he prepared for this year’s 100th running of the Indianapolis 500, Sam Schmidt realized he had a problem.

For years, teams in the Verizon IndyCar Series like the one he co-owns, Schmidt Peterson Motorsports, had been talking about the 100th running of the race as an opportunity to both grow the sport in the long term and make money in the short term. With the extra pomp and circumstance that the 100th running no doubt would bring — and all the fan and sponsor interest that likely would follow — surely this would mark a nice payday.

Cars get into position for the first running of the Indianapolis 500 in 1911.
Photo by: Indianapolis Motor Speedway
But when Schmidt started realizing that his expenses around the race — hotels, premium seating and catering — were up around 30 percent year over year, a starker uptick than his revenue, it dawned on him that this race likely was not going to be as lucrative for his team as originally envisioned.

“It is by far the most difficult thing I have done in my life — to connect the dots and try to make the [IndyCar team] business model work,” said Schmidt, a former open-wheel driver and now diversified businessman. “A lot of times I feel like it’s three steps forwards, two steps backwards.”

As American open-wheel racing’s most prestigious event prepares to take the green flag for the 100th time, the sport could be seen as facing a similar sort of issue that Schmidt encountered when accounting for this year’s race.

IndyCar has earned legitimate forms of momentum in recent years, most observers believe, but it’s been tough going.

TV ratings are up, but they’re starting from a paltry base. The action on the track is

compelling, but one manufacturer has been dominating the other, and the sport’s signature aero kits have been riddled with issues.

IndyCar continues to find exciting race locations but also has incurred high-profile race cancellations. And while many teams were able to secure funding for the 500 relatively swiftly this year, finding sponsorship for the rest of the season has not been nearly as easy.

“[The 100th running] hasn’t made anything a slam dunk. … It’s definitely helped get deals, meetings for sure,” said IndyCar team owner Ed Carpenter. “But it hasn’t made anything automatic.”

According to interviews with more than a dozen leaders across the sport, the challenges facing IndyCar mean there almost certainly won’t be one silver-bullet fix to get open-wheel racing back to the status it once held in the American sporting landscape, when it used to draw six-figure crowds and mid-single-digit TV ratings.

But even beyond this week’s 100th running — which is expected to draw around 350,000 attendees, including 100,000 who weren’t in attendance last year, plus millions of TV viewers — there are opportunities to chip away.

Taking on the challenges

One major chance for a step forward will present itself in the coming years, as IndyCar’s media rights deals with ABC and NBC Sports Network both expire following 2018. IndyCar, which is consulting with Bevilacqua Helfant Ventures on media rights, has indicated that informal renewal talks with the networks could start as soon as this year.

Still, since any potential new revenue from that wouldn’t start flowing in until 2019, the general consensus around the sport is that, on top of preparing for the next media rights deal, IndyCar needs to focus on helping teams slash costs.

“We need to work with the series and the TV partners to continue to do everything we can to grow that audience, because that’s really what it’s going to take to be successful long term,” Carpenter said. “But the only one we can all directly control and work on together as partners in this business [now] is controlling the costs to make it easier per team to survive and to entice new teams to want to get involved. So I think that’s what we need to start.”

Running a full IndyCar season typically costs anywhere from $3 million for a backmarker car to $9 million for a top-notch car, and teams make that back mostly through primary and associate sponsorships. While that can sound inexpensive compared with NASCAR’s Sprint Cup Series, where seasonlong team sponsorships can run around $20 million annually for top teams, IndyCar runs fewer than half as many races and has markedly lower TV ratings.

Mark Miles, chief executive officer of Hulman & Co., which owns IndyCar and Indianapolis Motor Speedway, said the series has identified about $500,000 in potential annual savings per car, and is working with teams to implement those solutions.

Individual cars also can earn up to $1.25 million annually from IndyCar’s Leaders’ Circle program, which was established in 2002 as a financial incentive to race full time. Miles said the series hopes to incrementally add to those figures in the future.

“Our team owners said, ‘Another way to create value is you can write us a check, or you can reduce our costs, and it has the same effect,’” Miles said. “So we’re working on a kind of menu of things that we’ll consider with the teams that could have to do with testing, supply chain and so on.”

One glaring issue to address is the sport’s aero kits, which were introduced in 2010 as a way to encourage differentiation between the manufacturers of the sport. The kits — which cost teams around $500,000 per car, per year, according to Schmidt — have proved costly in part because they easily break when contact is made with other cars. Industry observers interviewed for this story also said the series should adjust policies around single-source suppliers and instead opt for more competition, which could lower the cost of parts.

“Nobody has been a better partner than Honda, [IndyCar tire supplier] Firestone, [IndyCar chassis manufacturer] Dallara, General Motors — so there’s no argument there that they’ve all been great partners,” said Robin Miller, an open-wheel racing reporter who has covered the sport for nearly 50 years. “But could you imagine Goodyear, Ford or Chevy dictating policy in NASCAR? No.”

Brainstorming for solutions

Ideas for how the sport can at least get close to regaining its former swagger range from boosting marketing around the series’ drivers and working harder to being more consistent in scheduling races, to working to reverse the trend in grassroots racing that sees many up-and-coming drivers now choose stock car racing over open-wheel racing.

“When [IndyCar] was most successful was when you had American sprint car drivers coming up through the ranks; America grew up with these guys and they were the ones who continued to break speed record after speed record until the mid ’90s, when the sport was just on fire,” said Randy Bernard, CEO of IndyCar from early 2010 to late 2012. “Back in the days you had Johnny Rutherford, Mario and Michael [Andretti], all the Unsers, Rick Mears — there was a connection with those American drivers, and as hard as anyone wants to work at IndyCar now to promote the sport, there has to be a connection with the fan.”

The mission for IndyCar is to hold on to casual fans who will watch the Indy 500.
Photo by: Getty Images

From a track promoter’s perspective, the series should focus on a more consistent race schedule, according to Eddie Gossage, president of Texas Motor Speedway, which hosts an annual IndyCar race. From races at ovals like Auto Club Speedway to ones at street courses in cities including Baltimore and Boston, the series has had a host of events in recent years that have either changed their date dramatically or disappeared from the schedule entirely.

“The most important thing to success is date certainty, and with these tracks that pop up overnight and go away overnight, that’s just bad business,” said Gossage, who thinks the series should focus more on aligning with permanent racetracks than temporary street circuits. “It makes the sport look like it’s just scratching and scrambling, and it shouldn’t be.”

One other idea that would mark more of a revolution than evolution came from SPM’s Schmidt, who in noting the international appeal of IndyCar — which features a host of non-American drivers — pointed out that the sport should evaluate going over the top with media rights.

“Right now, you have to go country by country to try to make a deal to rebroadcast the races, which is completely ridiculous; IndyCar is as popular outside the United States as inside the United States, so we’re missing a huge opportunity,” Schmidt said. “I would have rather either seen us spend this [aero kits] money on buying out our existing contracts or, at a minimum, we’ve got to be thinking three years out here and building the infrastructure and technology to be able to cater to the next contract.”

Leveraging the 500

While those longer-term issues are due to be addressed over the coming months, everyone’s attention for now is on leveraging the 100th running of the 500. From working with sales consultants who specialize in capitalizing on big events, to planning Indy 500 front porch parties and other ancillary events across Indiana, IMS and IndyCar executives have undertaken extensive measures to capitalize fully on Sunday.

Around 80 percent of Indy 500 attendees are typically Indiana residents, with 60 percent being from central Indiana. So to plant seeds throughout the state and further ingrain IndyCar with its mostly ready-made fan base, a 100th running committee was set up to design statewide outreach programs and events ranging from poetry shows to bartender mixology contests, all with Indy 500 tie-ins.

To try to grow sponsorship revenue, IndyCar and IMS Chief Revenue Officer Rod Davis and his team invited C-suite executives from prospective sponsors and will entertain them at the race.

And to jump-start ticket sales efforts on the 101st running, IMS President Doug Boles’ staff has prepared a customer relationship management campaign and renewal campaign — what it’s calling Renewals 101 — to ensure the track stays in touch with as many fans as possible.

“We understand that at some level, the lift from 2015 sales to 2016 has to do with the fact that it’s the 100th,” Boles said. “I’d love to have the same number in 2017; what I don’t want to do is have a number less than 2015 — so between those two is, at minimum, where we want to end up.”

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