PRUETT: How Penske plans to make IndyCar's numbers add up

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PRUETT: How Penske plans to make IndyCar's numbers add up

Insights & Analysis

PRUETT: How Penske plans to make IndyCar's numbers add up


The NTT IndyCar Series is developing a plan to raise the annual Leaders Circle prize money subsidies to its full-time teams.

Following February’s announcement of an increase in the Indianapolis 500’s purse to a record $15 million, efforts are under way to improve the payout of approximately $1 million to full-time entries as part of a strategy to lessen the annual financial burden in finding $6-8 million to field a competitive effort.

According to Penske Corporation president Bud Denker, finding Leader Circle financial upgrades fits into an overall plan to help event promoters generate more revenue, reduce costs, and in turn, pass on the new prosperity and savings to the paddock.

“I think there’s great opportunity for this next season,” Denker told RACER. “Roger Penske and I already have some ideas with Jay Frye around what those ideas may be for 2021. We’ve got to have strong owners; you’ve got to have strong promoters. At one of our first meetings we had last in January, we asked [promoters] Kevin Savoree and Kim Green to come to Indy and to meet with us for several hours and asked, ‘What do you need? Where are your challenges? What can we do for you? What are the leverages can we provide that, perhaps, we’re not providing as a league or as other promoters?’

“They’ve got to be strong, but the teams have also got to be strong. Without places to go race, what’s the team going to be worth, right? Not much. Without having race cars in the race track, what’s the promoter going to be worth? It’s all hand-in-hand and connected. So I would expect in 2021 for us to have some actionable opportunities that will allow teams to leverage costs better than they are today, which hopefully will decrease those costs.”

Team owner Michael Andretti recently implored the series to find ways to carve at least $1 million from the annual costs for each entry. The odds of achieving that goal – or something close to it – next year stands in stark contrast to what might be coming in 2022 with expenses related to new hybrid powertrains.

The coming years present Penske’s leadership team with the daunting task of raising income for the series while also trimming costs, and to add another layer of complexity, they will also need to manage new expenses associated with hybridization, along with any associated updates to the drive system and suspension required to handle an extra 200-plus horsepower. Combined, they are three competing tasks that could easily conspire against the underlying goal.

“I think the 2021 piece you’ll see [initiatives] in terms of cost opportunities around things that we can leverage for them, but in 2022, then it becomes a whole different game because then you’ve got the engine piece coming into play,” Denker said.

“We’re talking to Honda; we’re talking to Chevy about what those costs would be to the teams in 2022 based upon the engine program. I can’t tell you what they are, but we know we have to leverage the revenue. We have to leverage the costs, and Michael said a number of $1 million; is it a million? Is it half a million? I’m not here to tell you what it is, but my goal is to help him with his costs but also help with his revenue.”

Efforts to reduce costs and increase revenue for teams are complicated by factors such as the imminent arrival of hybrid technology. Image by Levitt/LAT

The details of Penske’s leverage plan await future clarification, but we know IndyCar, the Indianapolis Motor Speedway, and the other assets purchased from the Hulman George family are meant to bring positive cash flow to the Penske Corporation.

The underlying message is also clear on how the series’ new owner intends to address its revenue issues. Penske, the 83-year-old tycoon, a billionaire many times over, has no intention of bankrolling the series.

Prior to the sale, IndyCar survived largely on the annual budget supplied by the Hulman George family from the income generated by the Indy 500. This practice will be coming to an end.

Whether it’s finding new sponsors to seed the Leader Circle program, driving down costs to compete, or finding new partners to alleviate IndyCar’s drain on the Indy 500’s profits, a sound business plan is what Denker and his colleagues are developing to replace the old formula. If they’re successful, IndyCar teams and Penske’s parent company will reap the rewards.

“We’re not a nonprofit in this acquisition we bought,” he said. “It’s a for-profit opportunity, for sure. At the same time, we’re not here at Penske Corporation to have this garnish our bottom line. With the Indy 500, whatever we do there that’s additive, we’re re-investing back into it. The IndyCar series needs to begin to stand on its own. It needs to make a profit, and it doesn’t need to be supplemented for the next X number of years by what the Indy 500 provides.

“As a result of that, it’s how do you generate the bottom line? Well, you do it through revenue or you do it through cost-cutting. We have not spent one minute focusing on cost-cutting. We have been focusing on, as Roger mentioned, number one.

“The second piece of that is revenue. You saw that we announced six partners. It’s no coincidence many of those partners – Snap-On, DEX Imaging, Shell, Verizon – are current Team Penske partners. Why wouldn’t they want to be involved in this amazing series, an amazing iconic location – IMS – so we are so pleased that our partners raised their hands. They want to get involved in that. We expect more to come, though.”

In concert with Penske Corporation marketing EVP Jonathan Gibson, Denker has been formulating a strategy to court more business partners to build out areas within IMS and IndyCar that are ripe for development.

“The revenue piece has been great from those partners, but we’ve got to find more,” Denker added. “The categories are certainly wide open. We have no banking partner, right? No financial services partner. We have a great retail partner in Speedway, but there’s no big box retailer. There’s so many opportunities for us to bring people on board in other categories that we haven’t touched on yet that we’re going to be going after.

While Penske has no intention of bankrolling the series himself, his connections give rise to an array of B2B opportunities. Image by Levitt/LAT

“That’s where Jonathan really comes into play, Jonathan and myself. We’ve got a pretty good Rolodex of our current partners and new partners. We’re helping [IndyCar chief revenue officer] Casey Lane and his team knock on doors. We built our business on business-to-business, B2B. I would say of the partners on our race team, 80 percent have a tie into our business somewhere along the way, trucks, automotive, whatever. Our number one focus right now is customer experience, which we announced with the changes and updates coming to IMS, and after that, it’s revenue.”

A unique dynamic must be acknowledged in the quest to bring more money into the new Penske Corporation properties. As one of IndyCar’s strongest teams, the need to broker monetary or B2B deals to pay for Team Penske’s three-car outfit, which will expand to four at select races this season, is now met with a dueling need to find similar funding to help their rivals through the Leader Circle program, and to launch the new business plan.

It begs the question of how Denker and Penske’s oversight team will handle and separate sponsorships for the team versus the series and speedway.

“I would use the word ‘additive’,” Denker said. “We have a bunch of great partners on an on Team Penske. The objective is not to take away from the sponsorships that we have in those partners to latch on to IMS, but instead, have it be additive. It can’t just be additive because they’re good friends of ours or they’re great brands and companies. There’s got to be a value that those partners are getting because they’re tying into IMS or tying into the IndyCar series.

“Shell Pennzoil is a great example, right? They’re an amazing business-to-business partner with us. We have 330,000 Penske trucks on the road. We’ve got 350 car dealerships around the world. Their Pennzoil premium products are in all of them, so it’s a great B2B tie-in, but now, they want to be part of IMS. They want to be part of that 320,000-person fan experience and then the Brickyard opportunity as well, and they want to be part of the IndyCar series.

“And it’s just not because we’ve given them a call and asked. There’s got to be a sound reason for them be part of it, too. You’re going to see some interesting activation from Shell, interesting activation from DEX. DEX is going to take on the media center. They’re all about document imaging. They’re a great partner of ours. They saved our company over $1 million the first year being with us in just document management; that’s real money for us. They’re adding value to us, and we’re adding value to them by having the branding association they have with us. That’s B2B, and I would say it’s got to be all additive and make sense for the partners.”