With 2016 coming to an end and a new year approaching, the last 12 months of racing have provided an intense series of storylines. Watching everything from a NASCAR legend seal his status among the greatest ever, to the perennial bridesmaid finally take a sought after Formula One World Championship… and then wasting no time announcing his retirement. For the business of motorsports, however, there have been a tremendous series of storylines dominating the framework. Below are the five most intriguing business stories of the motorsport scene in 2016.
The Departure of Target in IndyCar Racing. Target has been a long-time member of the IndyCar community, dating back to 1990 when joining forces with new team Chip Ganassi Racing. From that moment on, the partnership would flourish, with Ganassi and Target being synonymous, developing a new business model for motorsport in the process, and creating a trackside product that would win the Indianapolis 500 four times, and an impressive 11 championships between IndyCar and ChampCar over a 20-year run. Despite the Ganassi organization being as strong as ever on the track, the in 2016 the announcement was made that Target would be ending its IndyCar affiliation, but still maintain their efforts with Ganassi in NASCAR. Behind the scenes, the move coincides with a management change at Target, with CEO Brian Cornell taking over in late 2014. The red flag in all of this is the inherent thin-line that IndyCar teams hold with sponsorship, unable to rely on the strength of ROI alone, and instead relying on relationships with key executives (which Ganassi had held prior), which inevitably will always change.
Prior to NASCAR’s season finale at Homestead-Miami Speedway just over one week ago, series chairman and CEO Brian France stated that the sport was healthy despite continued declines in TV ratings and attendance. "... We are still very pleased with our position in sports. The audience isn't going away at all. It's sliding to different places, consuming in different ways."
When the ratings came in from the series’ nail-biting finale, the race actually saw a 25% dip from the previous year in overnight ratings, down to 3.32 from the previous year’s 4.41.
To put this in perspective, the NFL’s season-ending Super Bowl did a 46.6 in 2016, and this year’s World Series Game Seven achieved a 25.2.
At a reported $4.4 billion, the American-based Liberty Media has bought an 18.7% stake in to the holdings of Formula One, with an additional deal to close by Q1, 2017.
As a media-based group with ownership in Charter Communications, Sirius XM Radio, Live Nation Entertainment, and beyond, the message is very clear that Formula One remains a worldwide property with a lot of potential, and equally important many new opportunities to explore.
The fundamental question is, of course, why?
The month of May, most synonymous with the Indianapolis 500, has brought to light more than ever the question of open competition vs. cost containment.
The concept is simple. The more “open” a rule book is, the more “cost” is associated with developing and exploiting those rules. The more “closed” a rule book is, in theory, the less room for innovation and therefore less money spent in development and testing. It’s a basic concept that has existed ever since man started racing, but one that in recent years has gravitated more towards a closed rulebook and spec racing, moreso than an open set of diverse rules.
While this is prevalent throughout motorsport as a whole, perhaps the most evident is in the IndyCar series, and most notably the Indianapolis 500. Once considered the hub of innovative racing technologies: the birthplace of the turbine race engine, the development of modern aerodynamics, even the original home of the rear-view mirror, “Indy” has in recent years become much more of a “spec” series. With only two engine manufacturers filling the whole field, every car is fitted with an engine that has matching specification, a 2.2-liter turbocharged V-6, nearly identical chassis, with the only visible differences being minor bodywork differences between the two manufacturers.
The theory toward a very rigorous specification is two-fold: 1. Provide close competition across the field, and 2. Contain costs due to lack of innovation.
The internet and television are merging. Right? It’s something we’ve all heard for years, and of course there is absolutely a lot of truth in it.
Five years ago, Netflix was a service that mailed you DVD’s, Amazon was a place you purchased goods from, and Hulu was, at best, a place to catch old reruns.
In 2016, all three companies are legitimate web content providers. The success of a number of their respective programs has placed them as direct competitors to the premium cable companies of old, such as HBO, Showtime, and beyond. With companies like HBO and Showtime having to literally change their service and business model to accommodate “Smart” TV’s and streaming devices such as AppleTV and Amazon Fire, the argument that internet and television have merged has a clear legitimacy.
However, there remains one key area of television entertainment that still seems remains strong for the cable-loyal, live sports. While the ability to “binge watch” Netflix’s House of Cards or Amazon’s Transparent provides an unparalleled convenience and accessibility to its audience, live sports presents a unique animal.
For the sporting loyal, very rarely is the convenience of watching whenever-you-want a factor, if anything it’s the opposite. Loyal sports fans plan their schedule around their beloved team, rarely the other way around. In such, the ability to see live sports, on television, remains a true holdout in the evolving world of internet streaming, with the health of the NFL’s abundance of cable packages, the proof of that.
When long-time NASCAR Sprint Cup Series team Michael Waltrip Racing elected to shut their doors at the close of the 2015 season, long-time team investor and partial owner Rob Kauffman was one of the most vocal in the lack of “re-sale” value for any team looking to sell off assets.
It’s pretty simple math. Teams invest millions in to their race teams every year, but between the bulk of that money going in to labor, and with the team’s hard assets (cars, equipment, R&D tools) having a fast depreciation due to the non-stop evolution of technology, it’s easy for a team to have very little value even after multiple successful seasons.
Enter the recently announced “Charter” system.
A principal long established in Formula One, the idea is very simple, give a team a re-sellable, limited-access license to both participate in races and participate in key discussions with the series.