The TEAM Program with Numbers

Story posted - Oct 02 2007 6:03 PM

Ok, we've made a couple calls to gauge reaction to the new "TEAM" plan, and picked up a little more information and will also offer a little bit more of our own analysis.

First, this program is being well received. And as you would expect, the level of excitement for the plan is inversely proportional to how much sponsorship a team already has. Teams struggling to get by really like the new deal. Teams in the middle are happy to take the money and like getting something consistent and "budgetable" and of course teams at the front are kind of indifferent, though they'll make more money under this plan also - particularly at Indy.

One of the most important parts of this deal is the removal of the 20% holdback that used to apply to all purse money. This 20% would then be used to pay the point fund at the end of the year.

Now, the top five in points will still get paid, but that money isn't coming from everyone else.

Particularly happy from what we've learned are the smaller Indy only teams. They don't get the $300,000 guarantee that goes to full time teams, but the $270,000 minimum purse to them is pretty significant.

That is a $120,000 increase in a single season for Indy one-offs. Last year's minimum was $192,000 minus the 20% holdback which made for a roughly $150,000 pay day. This wasn't considered too bad, but jumping it to $270,000 is a really big incentive. The Honda engine leases were $225,000 for the full month and $95,000 for a "bump day" special (second weekend qualifier - limited mileage). Leasing a chassis runs somewhere around $100,000, but varies widely depending on who the owner is, and there were some Dallara's for sale last year for only a bit more than that. Figure $30,000 for tires for the month, and a team could cover expenses and start paying crew members without zero sponsorship income.

Now, of course, that's not realistic. A "good" program will run $400,000 - $500,000 for a second weekend deal (not including the car), and upwards of $1million for a full out month of May deal that is trying to win. And there are a couple team owners out there capable of shoe stringing a deal together and putting a car in to the field for far less than $400,000 barring crash damage.

For the "trying to win" teams, the extra prize money isn't the deal breaker. For the "make the show" teams, the extra prize money could be a decision maker for a team with "some" but not all of their needed sponsorship. In previous days, a sportsman business owner might take a shot with an underfunded team, hoping to turn a profit by being in the show.

Now, this new plan could also be a double edged sword to a little team. If it attracts more teams, it'll be harder to make the show for the little guys, and in turn, it'll take spending a little more to actually get in. That of course raises the quality of field, something the fans and management are always in favor of.

At the same time, making the show will become all that much more lucrative. That said, the "minimum spend" versus the "minimum purse" is starting to line up, and that'll encourage people to come out and give it a shot.

By the way, we happened to talk to IPS team owner Michael Crawford today. While he is still working to finalize his IPS plans for 2008, he said things were going well in that area. And he also has a Panoz ICS chassis in his shop that they are in the process of getting updated. The $120,000 raise in "make the show" money has his small team pretty excited about attempting the Indy 500 in 2008 in addition to running a pair of cars in the IPS again.

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Ok, let's look at the numbers. We are going to presume 22 full-time cars in these calculations (based on general rumors and sunny day optimism). Anything above that would be a bonus for the series, but jumping from 18 to 24 doesn't seem likely in just one off season. If it does happen though - GREAT! The more the merrier.

First, the Indy 500 payout. It was announced at $13.4million before contingency money, and the ole spreadsheet spits out the following purse and bonus structure to match that number:

Position Bonus Purse TEAM Payment Total Per Car
1 $2,200,000.00 $300,000.00 $2,500,000.00
2 $950,000.00 $300,000.00 $1,250,000.00
3 $450,000.00 $300,000.00 $750,000.00
4 $175,000.00 $300,000.00 $475,000.00
5 $75,000.00 $300,000.00 $375,000.00
6 - 22 $0.00 $300,000.00 $300,000.00
23 - 33 $0.00 $270,000.00 $270,000.00

Totals $3,850,000.00 $9,570,000.00 $13,420,000.00

NOTE: Positions 23-33 are credited with $270k as that is the announced minimum for an Indy 500 one-off. It's highly likely the actual box score will have someone in 10th making less than someone in 20th. And the final numbers will have lots of little contingency checks really mixing things up. If the winner is a one-off and doesn't notch any contingency awards (hard to fathom, but possible), they could in theory get less than $2.5mil - though that's highly unlikley.

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For individual races here is what a 22 car pay-out structure will look like:

Position Bonus Purse TEAM Total
1 $35,000.00 $60,000.00 $95,000.00
2 $25,000.00 $60,000.00 $85,000.00
3 $20,000.00 $60,000.00 $80,000.00
4 $15,000.00 $60,000.00 $75,000.00
5 $10,000.00 $60,000.00 $70,000.00
6th - 22nd $0.00 $60,000.00 $60,000.00

Totals $105,000.00 $1,320,000.00 Per Race Total $1,425,000.00

Total for 15 races = $21,375,000.00

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And here is the year end points fund:

1st - $1million
2nd - $250,000
3rd - $175,000
4th - $125,000
5th - $75,000

Total = $1,625,000

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Again, using our made up 22 full-time cars, the IRL will pay out a grand total of $36,420,000 in 2008. That is TEAM payments, race bonuses, and point fund bonuses.

For comparison purposes, it is believed the IRL paid out $25,750,000.00 in 2007. That is a $10,670,000.00 increase for 2008.

Where does the money come from? Well, we believe it comes from a variety of sources, including some not yet announced sponsors. Additionally, the switch from a Formula 1 event at IMS to the MotoGP event likely freed up some cash flow to be invested in the IRL program.

It has long been our belief that the Hulman-George family treats "racing" as one big line item in a much larger business empire. Picking up cash flow from something like the MotoGP switch, or better ticket sales for the Indy 500, or even running fewer "house" cars at Vision Racing merely adds to the bottom line of "racing".

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The future:

According to the IRL, this TEAM plan is designed to be the basis for an ongoing system. As sponsorship and revenues increase for the IRL, the goal is to increase either the funding of the "TEAM" system, or the actual race purses (the $105k in per race "bonus" money). We wouldn't be surprised to get an announcement each fall, laying out the next year's TEAM plan.

It is also our understanding that individual tracks will now be able to add to the purse if they so chose, though we don't expect that to happen in the near future. They could basically just pay track specific contingency money.

And if a track does go this route - the first guy to do it will likely be Eddie Gossage at Texas Motor Speedway. We're sure he'd like to have the highest paying race outside of Indy, and (exempting Motegi for the moment), he may be able to do that with some "TMS Bonus" money applied to the purse.

And with that, we'll leave you with Mr. Gossage's comments on the new TEAM program. He's a great promoter, and even before anyone got a chance to ask him the question - he had an answer and for that his race track is assured being mentioned alongside this new TEAM announcement (smart guy):

Said Gossage, "If this program assures full Indy car fields for promoters and stability for the team owners, I think this move is a great concept for the health of the sport. I think all IndyCar fans want to see 30-car fields from a competition standpoint as do the promoters. The key to the success of this program, however, will be whether or not this reduces the incentive to battle for positions from race to race with most of the money already up front and the top five only being paid per race and year end in bonuses. I'm optimistic that the teams and drivers will continue to have the incentive to race hard every lap regardless of payout."


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