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Monday, May 30, 2016

ENTREPRENEURS OF DOOM

I have always thought auto racing was analogous to economics. To the spectators a race is a chaotic
rush for victory, and for the racers first place is the only prize that matters. But hidden in the details is the regularity with which racers willingly risk destroying themselves and the race itself. Consider events that began 120 miles southwest of Paris, on Saturday, 11 June, 1955. The 24 hours of Le Mans had been running for just two hours when Pierre Levegh, driving the number 20 Mercedes-Benz 300, “The greatest sports racing car ever built”, was clipped from behind by an Austin Healey, and catapulted into the air at 150 miles an hour by a 3 foot earthen embankment meant to keep the cars on the track.
The 1,900 pound aluminum and magnesium car then went flipping nose over tail down the embankment, and the dynamic physics ripped the engine from its mounts, shredded the fuel tank, spewing the crowd in gasoline and benzine. The wheels and axles, radiator and doors were ripped off the frame. Every loose piece of metal, every screw and bolt, fender and nut was instantly converted into a spinning scythe, killing outright and decapitating 120 spectators and maiming another 300. 
And leaving Pierre Levegh laying half naked, dead on the race course (above). Rescue crews than made matters worse by pouring water on the burning magnesium, intensifying the flames. The horrific death toll caused France, Spain, Switzerland and Germany to ban all racing for a time. And in the United States, the American Auto Club, which had regulated professional auto racing, decided to break all contact with the blood sport.
The only man who could save auto racing in America was Anton “Tony” Hulman (above), a Yale Business School graduate, and heir to a Terre Haute dry goods fortune. 
In November 1945 Huleman had paid $750,000 for the dilapidated almost abandoned 320 acre Indianapolis Motor Speedway (IMS)(above).  Recalled Clarence Cagle, long time Hulman Company employee, “We unlocked the gate, and it fell down. Everything was rotten, there were weeds everywhere. It was a terrible mess.” Hulman rebuilt the grandstands and staged the first post war race on Memorial Day, 1946. The next year Hulman broke a driver's strike and made the Indianapolis 500, the only auto race most Americans ever saw or heard of.
A decade later Huleman dealt with the loss of the Automobile Club sponsorship just as decisively. He formed a new regulating body, hiring technicians and inspectors, copy writers to coordinate advertising and raising purses for dozens of small private tracks and hundreds of midget and sprint car races across the country. Huleman called his new sanctioning body “The United States Auto Club”. At dozens of summer weekend quarter and half mile oval dirt tracks across the Midwest and West, originally built for harness racing, USAC supported a “minor league” for the Indy 500, where younger fans could first encounter the sport, and test their talents as mechanics, drivers and team owners. The vast majority of these USAC events “were not well attended”, but because the 500 was a national event, these tracks survived during the Huleman era. This was the business model for American open wheel, or Indy car,  racing for almost forty years.
Indy cars remained tied to front engine roadsters through the 1950's, but beginning in the 1960's smaller rear engine designs and drivers from Europe came to dominate the Indy 500. 
 American auto racing became a business model divided against itself. The European teams were not interested in supporting the USAC feeder system. And as Tony Huleman aged, so did USAC. Like any bureaucracy, inertia came to dominate. This was understandable as racing was expensive, and innovation only made it more so. What held Indy car racing together through the 1970's was the experience and inertia of Tony Huleman and USAC.  Then in 1977, Tony Huleman died at the age of 76, and the following year, eight key managers and technicians for USAC were killed when their plane went down in an Indiana spring thunderstorm.
It was now that a new generation of entrepreneurs sought to remake American racing, led by the son of an Ohio corporate executive, Roger Penske (above). As a team owner he first competed at Indianapolis in 1968,  winning his first 500 in 1972, with driver Mark Donahue. 
And in 1978 Penske read the “White Letter” written by Formula 1 and USAC driver and All American Racing team owner Dan Gurney (above). Gurney wrote,“We as businessmen should be ashamed of ourselves for being involved in a prestigious sport...as weak and disorganized as it presently is”.  Gurney called for the owners to organize, as then, “USAC will work for us and support our cause and our policies.... Let's call it...Championship Auto Racing Teams.” Gurney closed by identifying CART's primary obstacle. “It appears that a 'show down' with the Indianapolis Motor Speedway is or should be the first target. They are the ones who can afford it...”.
Penske liked what he read, and in 1978, he was bankrolled by an accountant turned oil wildcatter turned USAC team owner and entrepreneur, Ueal Eugene “Pat” Patrick (above)...
Together these three - Gurney, Penske and Patrick -  formed Championship Auto Racing Teams, governed by a CEO and a board of 8 owners, one driver and one mechanic, dividing between them 24 voting shares, with president Patrick and Penske and a few others receiving additional controlling votes. In March of 1979, CART launched their own league with an oval race at Phoenix, Arizona.

USAC and Joe Cloutier, Tony Huleman's right hand man and replacement, struck back one month later, informing Penske, Partick, Gurney and three other CART teams that because their actions were “harmful to racing",  they would not be allowed to compete in the 1979 Indy 500.  On the track's opening day - 5 May, 1979 -  the federal court granted CART an injunction, forcing USAC to admit their entries.
CART, now led by Penske lawyer John Frasco, had won. USAC continued to support dirt tracks, but under the new CART points system, winning the Indy 500 was worth no more than the Ontario, California 500. The vaunted Indianapolis Motor Speedway, and it's USAC creation, had been brought to its knees.
But during the 1980's cracks appeared in CART's veneer. The governing board consistently favored top teams of Penske and Patrick, who could afford innovations like new engines and “ground effects” body designs, while blocking carbon-fiber bodies until Penske designers could develop their own. The board was reconfigured, and almost immediately reconfigured again. Most of the teams, lured by the promise of a more responsive management and bigger purses, instead saw Penske drivers win most of the races and almost every seasonal championship. Also , despite CART's promise to cut costs,  fielding a CART racer was now topping $10 million year, leaving most owners condemned to poverty row and losing seasons
Then in 1989 Joe Clouter died, and was succeeded by 31 year old Tony George, grandson of Tony Huleman. That same year, the CART board voted to fire John Frasco, and replace him with John Caponigro, who promised the old dream of bigger purses and smaller costs. He tried squeezing more money out of of league sponsor PPG.  When PPG complained, the CART board fire Caponigro, and over the next six years CART had three bosses. None could keep the owners satisfied for long, as attendance and television ratings declined for both CART and Tony George's new Indy Racing League, which was fielding cheaper and slower/safer cars.
In March of 1998 CART went public, offering 4,500,000 shares on the New York Stock Exchange. Originally offered at $16 per share the price quickly rose to $35.63 per share. The offering also allowed the entrepreneurs (Penske, Patrick , et al) to convert their 22 voting shares into 400,000 common shares, worth about $100 million. A year later these same men sold most of their stock for less than $25.00 a share, before abandoning CART for the IRL. It smelled of a classic “pump and dump” Wall Street fraud. Except in the new era of "unregulated capitalism", it was just business as usual.
As Gordon Kirby, editor of “Motor Sport” magazine, put it, “Sadly, the influx of money served only to exacerbate the self-interest, egos and greed which had always been at the heart of CART's problems, and in the end most of the team owners wound up selling their shares at a handsome profit and jumping ship. It was an abysmal display of everything the organization theoretically had been founded to prevent. “
In 2004, Roger Penske admitted only, “We've probably lost some of the media, we've lost some of the fans, and we've lost some of the sponsors. Obviously, there's been some damage...” John Menard, another of the original CART entrepreneurs, was a little more honest. “CART has zero market share” he admitted in 2004, “and the IRL has a bit more, but when you combine the two...it kind of doesn't matter.”  As usual, Robin Miller, the opinionated gadfly who covered most of the racing civil war for the Indianapolis Star, was more direct. “The people who used to watch Indy-car racing either got pissed off and quit watching (or) quit going”
Most of the economic damage was out side of the Indianapolis Speedway. Writer Bob Zeller could tell “Car and Driver” magazine, “...more spectators attended the 29th running of the Long Beach Grand Prix than watched it on television” The paid attendance in 2004 was 95,000, while only 60,000 homes tuned in to watch the race on TV.  But even the Indianapolis 500, the goose that each year laid a golden egg for open wheel racing, dropped from a 13 Nielson share in 1979, to a 3.8 share in 2014. There were still half a million people at the Speedway on race day, but the television audience was under 6 million  CART had decimated open wheel racing in America, from top to bottom, exactly as the entrepreneurs on Wall Street decimated the general economy in 2007. And CART had proved to be a preview.
By 2007, with the stock price below $0.25 a share, CART declared bankruptcy, and disappeared, leaving behind a few wealthy entrepreneurs who had grown even more wealthy, thousands of stock holders who had lost from a few hundred to a few thousands of dollars, millions of fans with a foul taste in their mouths, and open wheel racing all but dead on the track. Mike Tanier, racing author, has compared American open wheel racing after CART to “ a once-divorced couple (that) survives amidst the wreckage of a pair of shattered lives...It lurches from race to race and season to season, donning its Sunday best for Memorial Day weekend but grimly battling through most of the year.” Just another example of the dubious benefits of amoral capitalism, and the cost of supporting the lifestyles of the rich and greedy..
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