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The Business Case for Why Fernando Alonso at Indy Mattered

Fernando-Alonso-prepares-to-race-in-the-Indy-500Within the racing world, another article written about two-time Formula One World Champion Fernando Alonso racing at the Indianapolis 500 is a little overdone.

At present, it is easily biggest story of the year within the sport. A decision by the McLaren-Honda F1 team to withdraw its star driver from the series’ crown-jewel Monaco Grand Prix in favor of another open wheel series is something definitely to take note of.

Within IndyCar racing, not a day of practice went by without continuous updates from the media on the Spaniard’s progress. During the race itself, his driving merited the headlines, leading much of the race until his engine expired just 20 laps from the end.

The human element of why this story has been told 100 times, however the business impact is well worth noting.

Fernando-Alonso-Photo-by-Chris-Owens-1Sponsors Didn’t Pay A Dime. The car was littered with sponsors of McLaren’s current F1 program… yet according to several interviews, McLaren CEO Zak Brown stated that none of the sponsors paid for it. This was a pure value-add for their investment in to the team’s F1 program. The operational cost of an Indy 500 bid, if you exclude the amortization of R&D and infrastructure costs leading up to it, is in the range of $1mil.

But How? Part One Prize Money. For finishing 24th, Alonso collected $300,000 for his efforts. Excluding factors such as Alonso’s contractual percentage of the earnings, the team’s offset narrows the budget down to well under a million. That’s well under a million for the most famous motorsport event in the world.

But How? Subsidization. While of course nothing will ever be completely disclosed, the willingness for Honda, potentially IndyCar, and a number of suppliers to subsidize the effort cannot be underestimated. For something this popular, real value was generated, and therefore it became an affordable venture.

 R3I8132But How? Simply… cheaper. With Formula One budgets in the hundreds of millions of dollars, the idea of a loss in the range of a couple hundred grand is a proverbial “drop in the bucket.” An easy loss to accept in the name of value add and grand exposure, the investment from McLaren is easy to see.

While the case of Alonso and McLaren at Indy is a definite anomaly, the exposure of the program to showing the stark contrasts in budgeting and value between Formula One and the Indy 500 is apparent.

The challenge for IndyCar, unfortunately, is that the Indy 500 is a one-time event in a championship that fails to maintain those sort of numbers.