Forget all the other stories of the 2019 Indycar season and the tumultuous off-season. The only one that matters going forward is Roger Penske buying Indianapolis Motor Speedway, Indycar, and IMS productions from the Hulman-George family. The deal is supposed to close January 6, which is when Penske takes over. But there have been plenty of changes already.
In our usual style, we’ll cover this by posing some common questions and answering them.
Did Penske Entertainment really pay $2 Billion for the properties?
While the price was not announced, Penske Entertainment (the Penske entity that was formed to actually buy IMS and Indycar) didn’t pay anywhere near $1 billion, let alone $2 billion. That number came from racer.com’s Robin Miller. Much as I like the guy, he has no head for business, and admits it.
There are a couple of clues to the price. First, it’s more than $100 million because it is contingent on Federal Regulatory review (which is supposed to be completed January 3). The only reason for that would be that the purchase price is more than $100 million. So that is the floor.
The Indycar Series is either barely profitable or a losing proposition. For our purposes, consider it worthless. IMS productions does a lot of non- IMS things (especially in the area of remote production for networks), and is likely worth $10 million or so.
Most of the value is in the track. Most of that is the value of the real estate it sits on. Indianapolis is not Silicon Valley, but the property is huge. The estimates I have heard are between $150 and $200 million for the facility (including the Brickyard Crossing golf course).
From all that the number I come up with is $250 million for the track, IMS Productions, and Indycar.
What can Roger Penske do that the Hulman-George family could not?
Take risks. IMS supported all the members of the Hulman-George family. The family and management could not afford to spend any money that did not have a sure-thing, immediate payback.
Penske Corp. can afford to play the long game. Let’s look at something like new suites at IMS for say $200 million. The family would have to take out a loan and make the payments on the loan from cash flow. If the loan payments were more than the additional revenue from the suites, the loan payments would come out of their pockets. Penske can pay cash, and the payback period can be dictated by corporate accountants. This gives Penske the ability to do it right. And they usually do.
What is Penske likely to do?
In the short term, job #1 will literally be to clean things up. There has been a lot of maintenance deferred at IMS (because old facilities eat money, and the family could not afford to keep up with it—which forced the sale).
In Penske’s world, no one in the organization is above picking scraps of paper up off the floor. I have seen Penske mechanics polishing their haulers. I expect that the bathrooms at IMS will be in much better shape for the 500 next May. And the whole facility might be painted, weather permitting.
In a recent MotorSportsTalk article ( https://motorsports.nbcsports.com/2019/12/27/penske-purchase-of-indycar-ims-should-be-complete-on-january-6/ ) IMS CEO Mark Miles talks about the culture shock that set in after the purchase was announced.
“The day of the announcement, Roger walked around and looked in great detail at everything. I began to see the place differently within an hour. I saw it through Roger’s eyes.
“In a way, it was embarrassing. Under the excuse of budgets and tight money, we had not really been as attentive as we should be taking pride in the place.”
“At a place like this, nobody ever threw anything out. Under the new leadership, we said, ‘If in doubt; throw it out.’ We have made some room to clean up the place and that is just good housekeeping.”
Dumpsters rolled in soon after the purchase announcement
Beyond cleaning and catching up with deferred maintenance, I expect that over time there will be many more events at IMS . Including things like concerts and perhaps a new race or two.
Longer term, I expect a renovation of the track facilities, including suites. Perhaps even lights for some or all of the track.
Will Team Penske get the benefit of the doubt from race officials?
The answer to this is easy: “No”. For those of you worried about conflict of interest, keep these items in mind:
- The professional stock-in-trade of Roger Penske and the Penske Organization is integrity. There is no way anyone working for Roger jeopardizes that. Ever.
- History. Remember when Honda entered the IRL in the early 2000s? Honda partnered with Ilmor (partly owned by Roger Penske), while Team Penske ran with Toyotas. After a year finding their footing the Honda-Ilmor proved to be the dominant engine, to the detriment of Team Penske.
- Open Wheel Racing has a history of participants owning the series. Tony George has always owned a team (Vision Racing-turned-Ed Carpenter Racing). Champ car was owned by Gerry Forsyth and Kevin Kalkhoven, and CART was owned by a consortium of team owners before it went public.
Where there is a legit worry about conflict of interest is in future planning, especially where cost control is concerned.
I’ll be keeping a close eye on one item: dampers and suspension components. At present this is one of the only areas of the car open for development by the teams, and the teams spend anywhere from many hundreds of thousands of dollars to more than $1 million per car, per season on suspension development. The smaller team owners (especially Mike Shank, Dale Coyne, and the Carlin team) are pushing a move to spec dampers or production dampers in the name of competitiveness and cost control.
Moving to either spec or unmodified production suspension components is said to be the easiest way to cut $1 million per car from everyone’s budget. But as you can imagine, the “big” teams like Andretti, Ganassi and Penske have been fighting this, with good reason. One of the chief reasons that the “big” teams dominate is their damper know-how. They have significant intellectual property to protect.
But from the point of view of the series, you want to make it easier for new teams to join and be competitive right off the bat. Moving to spec dampers or something like sealed production dampers from multiple manufacturers kills two birds with one stone.
It will be really interesting to see where Penske comes down on this. The owner of Team Penske would not want to give an advantage away. The owner of the series would want to attract more teams and lower costs.
What changes do you expect with the Indycar series?
Don’t expect any on-track changes that were not already in the works. Two that were recently announced are a new push-to-pass procedure that is explained here: https://racer.com/2019/12/27/indycar-tweaks-push-to-pass/ and pit lane speed changes on ovals, explained here: https://racer.com/2019/12/26/two-stage-pit-speed-limiter-expanded-for-indycar-ovals/What you will see are business changes. I’ll be watching these areas:
- Better relationships with promoters of races. I would expect more flexible contracts and longer-term contracts with existing promoters. Indycar was already moving this way, and it should accelerate with possible introduction of multi-event tickets like a Detroit/Road America/Mid-Ohio/ package, or an Iowa/Gateway package, to encourage existing fans to see more races.
- More aggressive business development to get back to 20-21 races. This could include an in-house race promotion operation that would take over the promotion of the Grand Prix of Indy and actively build a team to promote races at other venues. What kind of races? The obvious answer is to bring Milwaukee back. There is nothing wrong with Milwaukee that could not be fixed by better financial backing/promotion. You could race there this summer. What if that backing was Penske Entertainment?
- Hand-in-hand with that is addressing “holes” in Indycar’s race geography. The biggest one is the Northeast. So maybe this Business Development group looks into something like putting an Indycar/ IMSA event into New Jersey where the F1 race was planned on a combination Park/Street venue? Or VIR?
- How about a rotating series of races addressing major markets Indycar does not get to. Like Houston, Philadelphia, Boston or Chicago? I am not thinking street races, which are expensive and a pain to pull off. I am thinking AIRPORTS . Specifically, executive airports, which all of those areas have in abundance. Most can be closed for a weekend. They all have plenty of high-quality high-speed pavement (runways), parking, and have neighbors that don’t mind noise (jets).
Under the Hulman-George family, Indycar’s business development consisted of waiting for promoters to call them with ideas and a check. I expect that to end. Penske’s opportunity is to grow the series, not to preserve it in a time capsule.
What about the new car? And a new engine formula? And will Penske be able to bring in a third manufacturer?
These are inter-related, but let’s look at them one-at-a-time:
- If anybody has connections and deal making ability to pull this off, Roger Penske can. Penske brought Chevy back into Indycar for 2012. He brought Honda into both the IRL and IMSA in the 2000s. As Mark Miles related in the article about Indycar since the Penske take over, “There is a major Fortune 500 company we thought we should have a conversation with because we could see them being a sponsor. We had not gotten through to a high level at that company. We mentioned that to Roger. The next day, there was a conference call with the COO , the CMO and the Director of Operations.”
- To sign a third manufacturer, there has to be a formula to sign up to support. Last summer, Indycar announced it was going to a 2.4-liter Turbo V6 with a spec KERS system and a new car for 2022. But I am sure this is all being reviewed. One idea that has been discussed is a 2.4-liter V6 with a 48-volt turbo-hybrid system. This would NOT require a new car, at least not right away. It would also be much less expensive than a KERS system.
The good news is Honda, GM, and Indycar are all interested in getting a third manufacturer. And no one wants costs to rise. So Penske taking the lead on this might move toward a quick resolution.