INSIGHT: The hidden strain a pandemic places on smaller teams

Image by LAT

INSIGHT: The hidden strain a pandemic places on smaller teams

IndyCar

INSIGHT: The hidden strain a pandemic places on smaller teams

By

Team owners Elton Julian and Michael Shank have one thing too many in common.

Both men own multi-series programs covering IndyCar and IMSA. The two are small-business owners as well, who rely on a mix of sponsors and paying drivers to keep their NTT IndyCar Series and IMSA WeatherTech SportsCar Championship programs afloat.

And both are beyond worried about their futures if more COVID-19-related race cancellations, postponements, or events held in front of empty grandstands continue into the summer months.

Shortly after the European travel ban was announced Wednesday night, Julian offered a blunt assessment of how the coronavirus could place his business – and most of those owned by rivals in both paddocks – in serious jeopardy.

“Resource-wise, I don’t know if a smaller team like ours survives this if it lasts six months,” he said. “We earn money by being on track. This can become a massive killer if it wipes out our season.”

The first step for Shank has been to assess the changing financial landscape ahead, along with the contractual obligations held with drivers, sponsors, and suppliers at events that are changing in fundamental ways.

The St. Petersburg IndyCar season opener will be run without fans and special guests. For teams with sponsors who signed on to interact with fans, or spend time with other sponsors to explore business-to-business deals in hospitality suites, delivering value will be a challenge. IMSA’s call to push the 12 Hours of Sebring from March back to November isn’t as big of an issue, but for teams who were counting on income from sponsors and drivers for the big endurance race, those funds could be on hold for at least six months.

And with the IndyCar/IMSA doubleheader at Long Beach being cancelled – one of the most valuable events on the calendar, where big crowds and entertaining sponsors is part of the attraction – teams like DragonSpeed and MSR could be compromised.

“We’re treading in new water here, right?” Shank said. “For all of us. Certainly, in my 26, 27 years doing this, I’ve never had to go up against something like this. So, one of the key things is, I’m lucky with my partners all across the board on both sides of the aisle, IMSA and IndyCar – they’re pretty understanding at this point. So I’m not getting a gun held to my head, or threats, to deliver on things that the virus is taking away. We’re all trying to work it out.

“Now contractually, most of us all have ‘Act of God’ things in our contracts to cover big unforeseen things, but typically, it doesn’t get to that. You can work yourself into a position where everybody gets what they need out of it. The best thing you can do for yourself right now is communicate, and talk, and talk to some to your partners and sponsors to come up with things that satisfy them in light of these changes, and keeps the lights on at the shop.”

DragonSpeed (above) and MSR both run IndyCar and IMSA programs, and are weathering the full spectrum of cancellations, postponements and fan-free events brought about by the coronavirus. Image by JEP/LAT

Shank contemplated IndyCar’s plan to go forward with the opening race, minus fans, and asked if another solution, which buys time for the paddock while efforts to contain the virus take place, might hold greater value.

“I think there’s a couple of ways to look at it,” he said. “What IndyCar’s done here, which is, we’re going to race without fans, or you look at how IMSA did it for Sebring, where we’re going to race and we’re going to have full fans but later in the year, I’m torn a little bit on what’s best. Because we’re all here and we’re ready to go. We have a multi-million dollar investment in all of us that are here right now. It just seems a pity to drive away from it. Right?

“On the other hand, if there was a concerted effort to say, ‘Okay folks, we’ve got a global problem and we certainly know it’s going to be a problem through March, maybe April.’ Everybody agrees with that, if you look at kind of most of the delays. Would it be better to say, ‘Hey, let’s make the Indy Grand Prix, early May, as the opening round to the IndyCar series and let’s reschedule some of these events when there’s time toward the end of the schedule.’ Because we stop now in September, and make full concentrated efforts at keeping it going later into the year with the makeup races. And you have the fans for those races like we won’t on Sunday. You know, there’s two schools of thought on that.”

Owing to the aforementioned contracts that contain obligations to represent sponsors, or pay for services, across a specific number of races, Shank’s motivation to rotate the start of the season to May – provided the coronavirus is wreaking less havoc by then – and tack the no-fan or cancelled events onto the end is rooted in business.

“We are under contract to produce so many races for whether it’s sponsors, clients, or manufacturers, right?” he said. “And when we come up short of that, then questions arise on the contractual side. And I don’t like those questions. So we need to race, whether it’s here or whether it’s at the end of the year. The sticky wicket is, OK, we’re not in front of the group that we all thought we’d be in front of in this case. We don’t have 100,000 people here on the weekend that we promised to our sponsors and everyone supporting us.

“That was an arrow in our quill when we were selling deals. It was tough for me, and I bet all the other owners, to call our sponsors and talk about things going sideways. But again, I’m a little lucky because they’re understanding that this is of no fault of anybody. And on top of that, remember, they have their own issues today.

“So my problem, my issue, in not being able to deliver an audience necessarily like we promised, is a B- or C-level problem for these big, big companies. That being said, we always want to do what we say we’re going to do.”

Count Shank among the team owners who hope the relative lack of racing this weekend helps IndyCar and NBC to deliver a bigger bump in TV ratings to, in part, compensate for the lack of fans in the grandstands.

Shank expects that a combination of planning, communication and goodwill will enable his team to navigate the coronavirus-related disruptions – for a while. Image by Levitt/LAT

“Now, to me, the upside is I think we’ll have a very large TV audience,” he said. “So the streaming of practice and qualifying, the production, the actual video of on-track stuff, I think this is going to be a big hitter. None of this is great, but here’s one thing I think we might be able to experience that isn’t down, and that’s the TV broadcast.”

Where Julian’s predicted threshold for survival in the wake of future coronavirus-related scheduling problems is six months, Shank’s number is smaller.

“You know, in simple terms, if we get beyond a three-month period in my world, my deals – whether it’s clients or sponsors or manufacturers in IndyCar or IMSA, because those are my funnels of revenue – if we get much beyond three months, I think we’re in trouble and probably have to renegotiate,” he said.

“Job number one for me is to try to manage situations, but the number one most important thing to me is my people assets. My people. I protect them first, always. So in our case, when the virus stuff started happening, we immediately freeze any outside spending that’s beyond just surviving. So in the lead up to all this at St. Pete, we’ve been building equipment and doing testing and doing rig tests. All this stops. So we prepare ourselves for the worst case, and I’ve already done that. I started it yesterday.”

As one of the sport’s unabashed blue-collar team owners, Shank nearly lost the team he co-owns today with Jim Meyer back when the economy tanked in 2008. Having sold and mortgaged and borrowed to keep MSR from closing its doors, the financial collapse prepared the proud Ohioan for something like the global pandemic affecting his business in 2020.

“The second thing is, fortunately, we’ve been able to put a rainy day fund away, to protect my guys,” he continued. “So depending on how bad the virus hits us in auto racing, we have a bit that we can run off of before we have to really worry. And I built that fund based around the ’08, ’09 financial disaster. I’ve prepared everything we can. We knew someday that this would happen. If it gets beyond two, probably three months, then it’s going to be challenging for everybody.

“And by the way, we’re not going to let ourselves go out of business. It’s just that we’ve got to really tighten down and potentially renegotiate our deals. And because I want to treat my folks that are with me really well and I want them around for the next many years, I’m determined to make sure we don’t let something like this take us out. The thing that we can do is try not to lose too much money in the near-term, and fight another day when everything levels out and gets back to normal. That’s how I’m approaching this, at least.”

More RACER
Home