If I were starting a new OW srries w/multiple Manufactors, how do you keep the costs down?

[TIS31]

hi everyone, my name is Otto and I'm a long time reader and fan of these forums. And now first time poster to.
I'm working on a business paper for my MBA and one of the subjects i'm addressing is cost containment vs. maximum exposure/performance in a variety of business ventures (this current economy in mind). One of those is motorsports, and since i'm a huge OW fan i can't help but try to tackle Indycar (or any race series really, doesnt matter).
So here is the question that I need help with (and this is totally hypathetical so hopefully no one goes off the deep end):
I'm a obnoxiously rich dude who wants to start a "new" Indy car type series. Multiple chassis and engine manufactors. I also want to keep the costs down to around $2-3 mill a year to run a front running, championship caliber team.

Chasis: Does having a template that all manufactors have to build to (but some small areas that they can each customize) work?

Engines: does having "production" based engines that are based off of already made road versions (like if Ford wanted to make a racing version of their Mustang, for example) keep costs down? how much additional $$$ is added to engine fees by taking regular engines that are already in production for road cars and supping them up to be in race cars? (what is the cheapest and most effective means?)

Does leasing engines really driving up costs? does buying a engine and doing you own rebuilds that much cheaper? i seem to recall in the early days of th IRL engines were only $80k or something ridicously cheap liek that.
Grand-Am has many of the same cost containments that equal really close and competetive racing, but no tech. advancments.
I'm trying to find if it's possible to have a series that is ultra-competetive w/close racing AND technalogical freedom (like ALMS) but that also is very affordable and extremely cheap (like i said, $2-3 mil, tops).
There has to be someway to have you cake and eat it to.

[TIS31]

grrr...spelling has never been my strongest skill . "Series" not "Srries"

[Dr. Krogshöj]

I personally believe that IndyCar should go down the Grand-Am route at the moment. There is little technological advancement in Grand-Am, if any, but you still have multiple chassis constructors and engine manufacturers with different designs - but close competition and contained costs at the same time. It would be a viable and feasible compromise right now.

[Jag_Warrior]

Welcome aboard, Otto.

The first question I have: is your corporation/series focused more on cost containment or the enhancement of shareholder value, or even value to the spectator?

If it's cost containment that you're focused on, then the spec racing path is probably the one that you would choose. Why? Think about a project you're working on. The more variables, the more complex the project becomes. The more complex, usually the higher the cost. To keep costs down, you would allow producers to submit bids and then simply choose the lowest cost submissions. You could certainly mandate maximum prices to be charged and then let the teams choose, but as soon as it was seen that Company A's product outperforms Company B's product, then the teams with B have to buy A in order to remain competitive. That adds cost. Either that or Company B has to spend an additional amount on R&D in order to catch up. That adds cost on the supplier side. If I'm held to a maximum price, why would I continue to supply these parts if I can't recover my R&D costs and make a profit?

My frustration with AOWR is not from a cost standpoint. Although that's ALL that has been talked about for the past 10-15 years, the side of the equation that I feel AOWR has completely ignored is value enhancement. Does Ferrari work to contain costs on new models? Yes. Do they do that at the expense of the (perceived) value of the car? Absolutely not. Ferrari's main focus has always been on enhancing the value of their cars to the market place.

Carl Haas mentioned in an interview that when Mario and Mansell were at Newman-Haas, he had an annual budget exceeding $25 million (I assumed he meant that was for both cars and included driver salaries). Remember, that's in '92-'93 dollars. Why? Because the market value was high enough that that amount could be asked for and gotten.

OK, those days are long gone. So I agree that costs have to be controlled. But if I was an investor in your venture, the first thing I would ask (as you try to put together this business plan where the teams can be run for $2-$3 million per season... including driver salaries???), what will be the value of those teams? I mean, will the product be one that will encourage actual sponsors or other investors to spend that amount per season to support the team?

I like where you're going with this. And I'm not trying to be a devil's advocate. I'm just questioning whether or not you're designing a car for $10,000 that is only going to sell for $8,000. See what I mean?

[TIS31]

wpw Jag_Warrior thank you for taking the time to really dive into this. You gave me a lot to think about, so let me go point by point and address the questions:
1. I think ultimatley it woud have to provide enhanced value to the spectator+shareholders. One of the thoughts I was kicking around, based on the low-cost/containment factor, was increased ROI to the manufactors/participants. Under the $1.3 mil engine cost for Honda in the IRL, suppossedly they make very little profit of the leasing. I'm not sure if there is any accurate report of what total sponsor/exposure returns the IRL provides.
I was thinking of a way that turbo engines that produce 700+hp could be maunfactored and held to a very tight spec (i guess similar to NASCAR or Grand Am) with minimal costs to the manufactor involved. (basically Company A has their engine template approved and rattle off 75 or so on the line. Company B and C do the same). the "formula" stays the same so the manufactor is not constatly re-building, developing, pouring money into the engine, so their costs are relativley low. However with the Tv package and print/advertising exposure (lets assume it's the same level at the current IRl+VS deal) can increased profit be made, while having brought down the manufactots cost, thus increasing ROI?

2. I would want the product to encourage sponsors, Not individuals funding the teams privatley. I'd want the teams to have real value and turn profits. However, if a really rich dude wanted to go racing badly enough, having the cost of the series low (and the increased ROI) they could realisticly foot the bill for the season them,selves. And that $2-3mil I floated out there does not include driver salaries.

3. i was also thinking, back to the engines, even if the formula was one slightly advanced step away from "spec" at least each maufactor could apply their own trademark supplement to their engines. This would have to be almost juts cosetic/artificial so that they wasnt a massive competition gap, but if we had Push To Pass, maybe Mercedes has a slightly different Nitrous injection, great on big courses, over BMW's higher tourque, which evens out on tight street circuits. These are just examples and i'm sure peopel much smarter than me can come up with better examples, but just trying to get an idea across.

[MDS]

The Fins have a simple solution in some of their lower tier series. After the race anyone who wants to can trade cars with the winner for $1. Keeps any one team from sinking too much cash into a car.

[beachbum]

Claiming rules have never really ever worked in racing as someone with sufficient funding will just consider the loss of an expensive part in a claim as the cost of racing. If you have a claiming rule on engines at $1000, someone will build a $10,000 engine and dare you to claim it. You can't ever race it, as they will get someone to claim it back and everyone is right where they started. It sometimes works in amateur racing, but there is a financial incentive to win in pro racing and claiming rules are much less effective. I was once involved in a pro series with claiming rules that were quickly dropped as unworkable.

Spec racing is about the only cost containment method that works. A number of series have tried sealed engines, from ASA to the IRL. That does put a fixed cap on engine costs.

The Grand-Am model is actually a form of spec racing as all major parts must be approved. The result is that all chassis are very much alike with similar (if not identical) components, and all engines make close to the same power (500hp). The engines are are set to make the engines lightly stressed, so they are relatively cheap to build and maintain and are usually very reliable. Roger Edmonson (the founder of Grand-Am) has always been a very big fan of relatively low tech, highly controlled, spec type racing. The cars look exotic, but are old technology compared to most sports car racing. The fan doesn't see the low tech, they just see close racing.

[TIS31]

No Claiming rule...no no no

BeachBum, what is the average cost to run a championship caliber team in Grand-Am (just rough estimate, if you happen to know)? also, what are "sealed" engines? If Grand-Am cars make 500hp, what would be the most cost effective (i.e. CHEAPEST) means to increase the HP to 700+? can it just be tuned with no additonal cost? That's one of the main points i'm trying to wrap my head around, increase engine performance with minimal cost increase.

[MDS]

I threw out the claiming rules as a somewhat sarcastic remark.

I'm of the mind that there really isn't an effective way to contain costs in a major series. If you limit how much teams can spend on equipment you'll always have someone who spends on personal and drivers. If your series is successful top teams will always be able to advance the market for sponsorship dollars, be it in F-1, NASCAR or the IRL.

I drive in the Honda Challenge series. It is a sport for gear heads by gear heads. Costs aren't really an issue because most of us don't have $100k to sink into a car and its largely just yourself and a couple of friends working on the car. This year though two jackholes have turned up and they're spending well over $50,000. One is a rich kid whose family has hired two mechanics and a "Driving Coach," and the other is this retired guy who has a crew. I have one of my brothers and a few guys I know. I pay them in beer and a campsite at Le Petite Le Mans.

Spec cars save some cash, but put an Penske chassis next to a D&R car and a trained eye can see where the cash has gone. Spec cars also, I believe, damage competition.

Engine leases are more expensive, and make it harder for second and their tier teams to operate. A lot of low-budget teams used to make do with rebuilt engines, and they can't do that now. The upside is it equals competition and reduces the possibility of cheating.

The one rule I've seen save money, not hurt competition and be entirely enforceable is engine use rules. Teams used to make Bonzai engines that would only run once or twice for qualifications. Getting rid of those caused the teams to spend some money making the engines more reliable, but overall saved cash.

[nigelred5]

The Fins have a simple solution in some of their lower tier series. After the race anyone who wants to can trade cars with the winner for $1. Keeps any one team from sinking too much cash into a car.

LOL, you watched the episode of Top Gear with Mika too?