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Volume 21 No. 1

Leagues and Governing Bodies

Izod IndyCar Series President Randy Bernard is intent on expanding the number of races from 16 to 20 by 2013, and he wants to add as many as two races in emerging markets such as China or Brazil.

But the idea of more international races has become a divisive issue among team owners. Roger Penske, Chip Ganassi and other owners of large teams oppose the idea of more international races because it cuts into the domestic exposure they guarantee their seasonlong primary sponsors. But small-team managers and owners such as Dennis Reinbold and Panther Racing’s Chris Mower favor it because the series covers travel costs for those races and the markets offer opportunities for new, one-off sponsorships.

Adding a second race in Brazil is among the plans the IndyCar Series is considering.
Bernard is aware of the divide and is trying to balance those competing viewpoints as the series finalizes its schedule for 2012, which is due out this weekend during the season finale in Las Vegas. In 2011, there were two international races on the schedule, Sao Paulo, Brazil, on May 2, and Motegi, Japan, on Sept. 18, and Bernard has talked about adding a second race in Brazil and a race in China in the future.

“I know some owners don’t care for it, but our sponsors overwhelmingly want to go to major markets like China and Brazil where they can do business,” Bernard said. “We’re not going to do events internationally [just] to do events. They have to be strategic for our partners and us.”

Part of the reason the series is looking to add races overseas is that it can secure larger sanctioning fees for those events and increase the value of its international TV rights. Cities in emerging markets often are willing to underwrite the cost of sanctioning fees in order to bring races that can showcase their city to a worldwide audience. IndyCar already has seen the benefit of holding races in Brazil, which the series says delivers a TV audience seven times as large as the one it gets in the U.S. That market’s been critical to the series’ ability to generate revenue in the low seven figures for international TV rights.

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“The majority of races have to be in the U.S.,” Bernard said. But he added that a complement of domestic and international races is what it will take to make the series “financially successful.”

Chris Lencheski, president of Phoenicia Sport, which represents Newman/Haas Racing for sponsorship sales, said Bernard needs to be careful in balancing the financial opportunity with the needs of the series and its teams.
“Going international gives them an opportunity to get significant sanctioning fees, so you can respect that,” Lencheski said. “It stabilizes the financials, potentially, but the trick will be using the new funds to raise the awareness of the series on television.”

Michael Andretti, owner of Andretti Autosport, said: “With some sponsors it affects them positively. With some, it doesn’t do any good. Randy’s going to have to be careful with the balance. One or two is OK, but the focus has to stay in North America.”

The biggest opponents to international expansion remain the sport’s most accomplished owners, Penske and Ganassi. Both criticized the idea during last month’s IndyCar race in Baltimore. Penske, whose primary sponsors are Izod, Verizon and Shell, said overseas events hurt sponsors, and Ganassi said they hurt television.

“As long as we stay in U.S. time zones, racing works,” said Ganassi, whose primary sponsor is Target, a U.S. retailer that only recently expanded to Canada. “We get 12 hours off the time zone, by the time that race airs on television, people are going to know the outcome already. You’re not going to watch a two- or three-hour race on tape delay.”

IndyCar’s international race this year in Brazil, which was postponed due to rain, drew 17,000 viewers on May 2. Japan, which was aired live and on tape-delay, drew 112,000 viewers and 109,000 viewers, respectively, for its two telecasts. By comparison, North American races are averaging 1.374 million viewers, or an average of 3.16 million viewers for four races on ABC and 430,000 viewers during 10 races on Versus.

Not only do North American sponsors get less exposure on domestic TV for an international race, they also lose an opportunity to host clients at the track.

“Our sponsors enjoy bringing a lot of people to the U.S. races, and when races are overseas, they can’t do that,” said Larry Foyt, team director for A.J. Foyt Racing, which is sponsored by ABC Supply Co., a roofing, siding and window distributor.

Some teams have looked abroad to find international sponsorship. Penske Racing President Tim Cindric said the team cut a sponsorship for last spring’s race in Brazil with Brazilian Petropolis Group and beer brand Itaipava for the team’s No. 3 car driven by Helio Castroneves. But he added that those deals aren’t easy to secure. The Itaipava deal was the result of a special, one-off partnership between Itaipava, Team Penske and Castroneves.

“We’re always able to make it work, given enough time,” Cindric said. “It just becomes a challenge in the case of full-season sponsorships.”

Teams that favor the idea, though, see race markets like China as fertile territory for cultivating new sponsors. KV Racing succeeded with that in the past by turning the series’ race in Japan, which the IRL, IndyCar’s predecessor, started in 2003, into a long-term partnership with Panasonic.

“From our standpoint, [international races] have paid dividends,” said KV Racing general manager Mark Johnson.
While international races do little for Ganassi’s primary sponsor, Target, that’s not true for every team that has a U.S.-based sponsor. Dreyer & Reinbold Racing saw HP increase its spending with the team so that it could sponsor Justin Wilson’s No. 22 car in Brazil.

“Those opportunities are out there depending on where we race,” said Reinbold, co-owner of the team. “We feel like China offers a lot of similar opportunities.”

Though a half-dozen IndyCar teams remain divided over whether the series should add more international events, all were unanimous that the vast majority of races still needs to be in North America.

“Canada and the U.S. are where our primary fan bases are, but it’s good to nurture other countries as well,” Reinbold said. “As long as we don’t get carried away and most of our races are in North America, then we’re OK.”

The NBA’s emerging local revenue-sharing system won’t tie its teams to specific sources of local revenue such as gate receipts in funding the drastically increased plan.

Instead, teams would fund revenue sharing from any combined amount drawn from local revenue such as local television, gate receipts and sponsorship. Those funds would then be put into a still-to-be-determined revenue-sharing pool based on overall team revenue.

The league for months has been working on a plan to greatly enhance revenue sharing among its teams, an effort that league officials have said is on a dual but separate track with a new collective-bargaining agreement. Negotiations over that new CBA continued into last weekend.

While the specific percent of local revenue to be shared hasn’t been finalized, NBA Commissioner David Stern said after a recent bargaining session that the league likely will quadruple local revenue sharing among its 30 teams within three years. While Stern did not disclose a specific local revenue-sharing figure, the league this year was expected to share $60 million in local revenue, putting the targeted new revenue sharing at $240 million after three years. In addition, the NBA is discussing a provision that will require teams to meet market performance benchmarks as part of the plan.

NBA teams also share in national television revenue, which last year amounted to about $30 million per club.

While the league hasn’t yet completed its new revenue-sharing plan, it has shared some of the details with the union. League officials would not comment on any specifics of the plan.

“What the union has heard is they are working on a plan that would phase up to $150 million by year three,” said a source close to the National Basketball Players Association who was not authorized to speak publicly on the subject.

This source added that the NBA has advised the players union that the high-revenue teams would provide money to lower-revenue teams and the low-revenue teams would have to meet performance criteria to receive it “so they can’t simply pocket the money.”

NBPA officials did not return calls for comment on this story.

The NBA has long pledged to overhaul its current limited revenue-sharing system and align it with a new collective-bargaining agreement as the league tries to make more teams profitable. The league says it lost $300 million last year, with 22 of its 30 teams unprofitable.

The formula for change has been influenced by the rise in some big-market teams’ revenue. The Los Angeles Lakers, for example, have signed a new 25-year local television deal with Time Warner Cable for about $200 million annually.

Also, the Boston Celtics recently signed a new local television deal with Comcast SportsNet New England that gives the team equity in the network as well as a boost in rights fees that average between $15 million and $20 million a year.

Those teams, along with the New York Knicks and Chicago Bulls, rank among the top revenue-generating teams in the league and would stand to contribute the most under a new revenue-sharing system.

The dependence on high-revenue teams for the lion’s share of local revenue sharing is similar to Major League Baseball’s system that has some teams sharing about 45 percent of their local revenue before the deduction of expenses, according to Marc Ganis, president of SportsCorp Ltd.

“In baseball you have high-revenue teams like the Yankees and Red Sox sharing the bulk of the revenue,” Ganis said.

Part of the NFL’s revenue-sharing plan calls for teams to share 40 percent of their gate with the league, with about 80 percent of total revenue shared among the league’s 32 teams.

NFL owners meet in Houston today and Tuesday where they are expected to name a site for the 2015 Super Bowl and perhaps add to the number of international games.

The meeting is the first since the owners approved a new collective-bargaining agreement in July. The meeting starts with committee gatherings today, and the full ownership is only expected to meet for the day on Tuesday.

The owners may vote to expand the number of international games in London from one to two next year, or even more. Commissioner Roger Goodell is championing the idea and last month voiced support to have more annual games in London. The NFL has been playing one game annually in London since 2007, but the owner authorization to do so expires after the Oct. 23 game between Chicago and Tampa Bay.

The competition to host the 2015 Super Bowl is between Glendale, Ariz., and Tampa, Fla. Glendale last hosted the game in 2008, and Tampa the following year. February’s Super Bowl is hosted by Indianapolis, followed by New Orleans and then New York.

Traditionally the NFL awards Super Bowls at its May meeting, but the 2015 game process was delayed because of the lockout.

The owners could set a date for the 2014 game in New York. The game would culminate the first season that the NFL could potentially expand the number of regular-season games. The players are opposed to schedule expansion, and the CBA requires their consent. However, for contingency planning purposes, the league needs to set a date, and have a plan to squeeze more weeks into the season in the event the schedule does grow. That’s expected to occur by starting the season one week earlier and eliminating the second week between championship games and the Super Bowl.

The organizers of the Global RallyCross Championship, which is televised on ESPN, have hired Wasserman Media Group to manage business development.

The nascent motorsports series, which features action sports stars like Travis Pastrana and Brian Deegan, is set to launch its second season in 2012 and has a commitment from ESPN to televise five races in prime time following NASCAR Nationwide Series telecasts.

Brian Gale, president of RallyCross Management, said that after the first season, organizers sat down and decided that to expand the series it needed to hire agencies with expertise in marketing and event organization. It spent the last two months searching for a marketing and business development agency before selecting Wasserman Media Group from four candidates.

“The difference to us was [Wasserman Media Group principal] Steve [Astephen] understood and spoke the same language we did and had the same vision we did about where we want to go,” Gale said. “We have so much going on with running the races and expanding this thing, which is all new in the U.S. … and we wanted someone who could help us grow.”

Astephen, who oversees Wasserman’s action sports division, said the agency will look to sign non-exclusive sponsorships in the automotive, tire and energy drink categories. The agency will seek exclusive deals in other categories such as cell phones, electronics and retail.

“I think [RallyCross] could be as big as NASCAR,” Astephen said. “We’re putting all our eggs in their basket and it’s an easy sell for us. Even in this market, the 18- to 30-year-old male is still a powerful consumer and these are cars you can actually buy off the lot. This is a perfect sport and demographic.”

In addition to getting Wasserman Media Group’s assistance with sponsorship sales, Global RallyCross received a commitment from the agency’s top rally drivers and action sports stars to participate. Wasserman-represented drivers Pastrana, Ken Block and Dave Mirra are all committed to join top returning drivers such as Deegan and defending champion Tanner Foust for the second season.