The CART IndyCar championship once rivalled Formula 1 with spectacular racing between legendary names such as Nigel Mansell, Mario Andretti and Emerson Fittipaldi.

But 15 years ago the championship filed for bankruptcy. Already undermined by the formation of the rival Indy Racing League in the nineties, CART’s failure to keep engine manufacturer Toyota in the sport rapidly precipitated its decline.

@DieterRencken spoke to an expert in business and motor racing who explained why the case of CART and Toyota has special resonance for F1 and owners Liberty Media today.

One of the great pleasures of visiting the United States of America lies in meeting like-minded folk who understand the business of motor racing. Not only is the country known as the ‘Land of the Automobile’ – despite not inventing the car, and building its first horseless buggy almost a decade after Gottlieb Daimler frightened dogs in Mannheim – but the USA is the world’s largest economy, with a gross domestic product of $20 trillion (£15.4tn).

F1 first embraced commercial sponsorship in 1968; almost 30 years earlier the Indianapolis 500 had been won by a bestickered Maserati called the ‘Boyle Special’, named after a proprietary valve-conditioning product. For proof of how far ahead of the economic curve US racing has always been, count the number of logos on NASCAR-mobiles. Sure the logos may be a bit haphazard, but teams know how to pull brands in.

To add to F1’s ‘cowboy’ flavour, not only are F1’s commercial rights now listed on NASDAQ under the ticker ‘FWONK’, but the company’s group headquarters are located in Englewood, Colorado. Two of its three honchos are as American as AJ Foyt. Indeed, F1 has identified the USA has a major growth area, in particular targeting the east and west coasts.

Against this background, it is little wonder that a number of USA folk ‘get’ F1 from a commercial perspective and gauge the sport not so much by lap times as on share prices. Engineers converse in terms such as DRS and MGU-H; to these financial wizards BS is not a driver’s latest excuse for crashing but a balance sheet, while EPS relates to earnings per share, not Electronically Programmed Stability.

RaceFans spoke at length to one such financial boffin, who for professional reasons shall remain anonymous. A lifelong motorsport fan who covered races as a sideline whilst studying stocks and shares, his passion and profession collided in the late nineties when the CART IndyCar series listed on the stock exchange.

He studied the rise and rise of CART as it happened 20 years ago, and recalls in fine detail CART’s almost immediate demise. The series went bankrupt in 2003; its former CART.com is now listed as “may be for sale”.

Now working as a business and investment advisor, specialising in motor sport aligned business, he sees worrying signs for F1, not least that it is being run by career corporates some of whom are near or approaching corporate retirement age. True, many executives continue very successfully beyond 65 – F1 CEO and chairman Chase Carey’s age come 22nd of next month – but fact is, sooner or later he’ll look at winding down. It is not, after all, a family business he’s running.

Our source was extremely complimentary about Carey. “[He] led a very large company, while also leading initiatives to maximise individual business units and creating brand-new companies out of thin air. His skill set is very unique.” Indeed, he was equally positive about John Malone, group chairman and majority owner of Liberty Media and its sister Liberty Global, praising both the billionaire’s intellect and his moral fibre.

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But, our source wonders, “Is a succession plan in place?” If so, have stakeholders been (publicly) informed? Ditto the very capable Ross Brawn: with a personal fortune estimated at £100m, F1’s managing director of motorsport has no need to don corporate shirts, and clearly does so for the love (and personal challenge) of F1, but when will grandfatherly instincts kick-in for the 63-year-old, who celebrates his birthday a day after Carey?

The third member of F1’s executive team, commercial head Sean Bratches, is heading for 60, so, again, some form of roadmap for life after Sean – whenever that may be – is called for. It’s simply good corporate governance, and while plans may exist, surely these should be shared.

Or has F1 not learned from 50 years under Bernie Ecclestone, who dismissed such suggestions with glib “I’ve got no plans of dying soon” remarks?

The difference is that Bernie built (and virtually owned) the company, whereas F1’s triumvirate is a group of hired hands, only one of which has been in the business beyond two years. For the rest, they have migratory career paths, and could be parachuted into any number of Liberty Media companies at short notice should circumstances dictate. Liberty’s primary responsibility is, after all, towards itself, not sport.

Asked whether he does or would purchase the stock, our anonymous investment expert gives an emphatic “no” on the basis that it is too complex a listing, what with different classes of stock, plus debentures. Plus, he asks, “What is the overall size of the ‘balloon’ of Formula One, and what percentage does FOM (or whatever it is called) represent?”

A good question, given that FWONK consists of a variety of interests lumped in with F1, including appreciable slices of Live Nation, a ticketing/concert company, and investment company Associated Partners LP; the Drone Racing League, and lesser-known entities. Does Carey run these, he asks, or is his focus purely on F1? Liberty does not make such distinctions.

These aspects automatically lead to the next set of questions: If the former, what is Carey’s time split, particularly given the level of restructuring F1 demands; if the latter, how much do these associate companies add to (or detract from) the bottom line? In other words, is F1’s share price representative of the sport’s commercial performance? Or not?

Once, paddock folk lamented F1’s lack of transparency – save for (mis?) information strewn about by Ecclestone whenever it suited his agendas – and hoped the flow of data would improve under a public company. Instead, the current situation is very much one of “We’re a public company; we can’t disclose the requested information for fear of breaching insider trading rules, except via notes to investors.”

To what degree are non-disclosures required by Securities Exchange Commission regulations and at which point do they become a convenient veil? SEC rules require full disclosure only where public comments potentially have an effect of five per cent (or more) on gross revenues. If, for example, F1 refuses to divulge F1 TV Pro subscriber numbers, the impact is either that dramatic or they are simply highly embarrassing…

One of the biggest challenges facing Liberty, our analyst believes, lies in building the relationships with teams, broadcasters, sponsors, race promoters and trade partners such as Pirelli.

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To Ecclestone it was instinctive: he had been one of them, a blood brother; then grown into an uncle figure to incoming generations of team bosses. Carey and Co have no such relationships with team bosses/owners, and from the outside it is doubtful whether they ever will be on such terms with the likes of Christian Horner or Toto Wolff.

When I suggest that maybe Liberty’s executives are more foster parent than uncle or grandfather to the team bosses, another US-based student of F1 suggests the relationship to more akin to that with the latest boyfriend of a grandmother: no blood ties, and only a loose relationship that could end abruptly. A bit harsh, maybe, but not too wide of the mark.

This lack of rapport means that negotiations are extended as both parties in whatever discussion – whether governance, regulations, commercial, sporting, promoter, broadcaster, sponsor/advertiser, etc – feel each other out as they attempt to find common ground. Consider: in two years Liberty have failed to add a single race, while no new engine suppliers or teams are pending. Corporate sponsors? More losses than gains.

This is a crucial aspect, says our source, who points to Toyota’s withdrawal from CART as the start of its implosion.

By the early 2000s, Toyota and rival Honda were estimated to be providing around 60% of the financial support to the CART grid. But with each there to beat the other, once Toyota succumbed to the overtures of the rival IRL series, CART’s days were numbered.

CART underestimated the impact of losing even a single manufacturer. Toyota’s exit took with it an entire portfolio of sponsors, many of whom based whole marketing programmes around their CART and team engagement.

Dieter Zetsche, chairman of the board of management of Daimler AG and head of Mercedes-Benz cars is often seen in the team’s garage studying monitors, bedecked in team gear. But will his anointed successor, Ola Källenius, display the same commitment towards F1?

Naturally the team says he does and will, having run both AMG and the F1 engine company. The Swede could, though, be out-voted by the board, as happened at BMW, which overnight switched to road car-based sport, including electrified motor racing.

Consider the impact the exits of Porsche and Audi had on WEC, or the state of WRX after the recent withdrawals of Audi and Peugeot – due to a disagreement over the decision to delay e-RX – then reflect on the crucial need for Carey to lock in Mercedes (and Renault, and Honda) for the long-term.

CART’s lesson for F1 is not to underestimate the importance of keeping the manufacturers on-side. The potential ramifications of Mercedes leaving F1 make this clear. What would happen to that FWONK share price if Mercedes pulled, took its engines with it and – worst of all for F1 – star driver Lewis Hamilton? If you need a reminder of the soon-to-be five-times champion’s value to F1, take a look at his millions-strong Instagram and Twitter audiences.

Ferrari, too, needs wooing, particularly after its recent tragedy-induced restructure: Just when Carey had gotten to sit down with Sergio Marchionne to discuss the future, the Italo-Canadian’s life was cut short. Now Carey needs to do it all over again, with the commercial current deals, of which Ferrari is a disproportionate benefactor, expiring in a little over two years time.

Should any current teams leave, what would be the impact on F1’s share price? In Bernie’s day he simply cut deals here or there to pad the numbers with bargain budget outfits, but investors won’t be fooled by substituting Jim’s F1 Team for Mercedes as when, almost 10 years ago, three stragglers fronted for BMW, Renault and Toyota.

This raises several important questions for our anonymous investment expert. “How much are Mercedes, Renault, Honda, and Ferrari spending in addition to their annual subsidy to the teams and their separate engine building enterprises?” In other words, how far does their below-the-line spend on F1 by their subsidiaries, dealers, sponsors and trade partners reach?

Similarly, “how much is Pirelli spending overall; how much is being spent geographically, and where?” In other words, what is the true cost of a mass walk-out?

If the lesson from CART is to be truly heeded, the question which needs answering most urgently is whether there is a way to increase investment by other stakeholders so that there is less dependence upon manufacturers or – counter-intuitively – whether there needs to be an even greater emphasis upon manufacturers, because that will bring in more younger viewers and spectators?

If investors and analysts pose such questions, so surely should Liberty – and provide the answers on demand. Or will there simply be non-disclosure?

For all Liberty has managed to achieve in the two-odd years it has managed F1’s commercial rights, a long and (rocky) road lies ahead, not least in terms of understanding the business of the sport, in terms of building extended relationships, and, crucially, retaining its current bases.

Two key dates loom: On 8 November Liberty will host a 2018 Q3 earnings conference call – and already we know revenues are down – while the big one, the Liberty Media Corporation Investor Meeting during which the entire group is dissected, is scheduled for 14 November, midway between the final two grands prix of the year.

We and our source await with interest to see whether any of those questions are answered.

Follow Dieter on Twitter: @RacingLines

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