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Chasing the money in IndyCar

In a famous scene from The Godfather, Don Vito Corleone turns down a deal from rival Virgil Sollozzo by saying, ” I wish to congratulate you on your new business and I’m sure you’ll do very well and good luck with that. Especially since your interests don’t conflict with mine.”  As far as most people should be concerned, that is the correct attitude towards the Indianapolis Motor Speedway inking a presenting sponsor deal with PennGrade Motor Oil for $5 million over three years.  Turning down millions of dollars because of a perceived nobility does not make sense.  Take the money.

The parent company of PennGrade Motor Oil certainly sees value in this sponsorship.  They are attached to the 100th running of the Greatest Spectacle in Racing and will be able to provide tremendous business-to-business opportunities throughout the month of May.  I can just imagine the leadership of  D-A Lubricant, owners of PennGrade, sitting in an office saying, “We just bought the Indy 500 for $5 million.”  The amount, when compared to a marketing budget for the roll-out of a new product, is a sweet deal.

And it is a deal.  PennGrade Motor Oil just made a huge splash that will ripple for three years.  Who knew the Indianapolis 500 could be bought so cheaply?  Look, I’m no marketing expert who can tell you what the ROI (return on investment) will be for this purchase.  I will just assume for the sake of argument that D-A Lubricant plans to host a multitude of vendors and retailers connected to this product for the 100th running of the Indianapolis 500 and two subsequent years.  Quite the soiree to help sell a product, wouldn’t you say?

Just like in The Godfather though, there is a real sense of interests conflicting.  D-A Lubricant cannot be faulted for buying the exposure that made the most sense to them.  Their $5 million bought them a huge platform to sell their product.  But what about the racing teams searching for sponsorship?  I am not saying that D-A Lubricant, based in nearby Lebanon, Indiana, was in play as a sponsor for any IndyCar teams.  I am saying that they should have been.  A 2014 Bloomberg article suggests that a sponsorship buy for the sidepods for an IndyCar season is between $5-9 million.  If remotely true, this means that sponsoring the Indy 500 for three years is cheaper than sponsoring a car in the Verizon IndyCar Series for one.  ROI, indeed.

Sponsoring a car means setting up activities and hosting guests for the full season.  It’s travel and corporate chalets and all the minutiae of a season-long sponsorship.  Why do that when you can set up in your own backyard for two weeks?  Sponsorship, the acquisition of working capital, is the number one concern for teams.  It’s water in the desert, the oasis the teams need to survive their season-long trek.  Without it, the teams will simply dry up and blow away, as did the teams of Sarah Fisher and John Barnes.  Suddenly, it looks like IMS and the teams in the Verizon IndyCar Series are chasing the same money.

What does all this mean?  A positive spin might be that the Indy 500 is an undervalued asset, worth more than the price paid.  Or the truth may be that the pool of sponsorship dollars for American open wheel racing is so small and the value of both the Indy 500 and team sponsorships so low that the teams and IMS are chasing the same money.  If that is true, then someone should be worrying.

 

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